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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 2004
or
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
000-50330
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Commission File Number
EAST PENN FINANCIAL CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 65-1172823
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
731 Chestnut Street, Emmaus, Pennsylvania 18049
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(Address of Principal Executive Offices)
Registrant's Telephone Number: 610-965-5959
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Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock ($0.625 par value)
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(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES |_| NO |X|
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the Registrant's most
recently completed second fiscal quarter.
$39,970,000 as of June 30, 2004.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
6,302,560 shares of common stock, $0.625 par value per share, were
outstanding as of March 11, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Part II incorporates certain information by reference from the
Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 2004 (the "Annual Report"). Part III incorporates certain
information by reference from the Registrant's Proxy Statement for the
2005 Annual Meeting of Shareholders.
Page 2
EAST PENN FINANCIAL CORPORATION
INDEX
ANNUAL REPORT ON FORM 10-K
Page
Part I.
Item 1 - Business ...................................................... 4
Item 2 - Properties .................................................... 13
Item 3 - Legal Proceedings ............................................. 15
Item 4 - Submission of Matters to a Vote of Security Holders ........... 15
PART II
Item 5 - Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities ............................................. 15
Item 6 - Selected Financial Data ....................................... 16
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 18
Item 7A - Quantitative and Qualitative Disclosures About Market Risk .... 18
Item 8 - Financial Statements and Supplementary Data ................... 18
Item 9 - Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure ........................... 18
Item 9A Controls and Procedures ....................................... 18
Item 9B Other Information ............................................. 18
PART III
Item 10 - Directors and Executive Officers of the Registrant ............ 18
Item 11 - Executive Compensation ........................................ 18
Item 12 - Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters ................ 18
Item 13 - Certain Relationships and Related Transactions ................ 19
Item 14 - Principal Accountant Fees and Services ........................ 19
PART IV
Item 15 - Exhibits and Financial Statement Schedules .................... 19
Signatures......................................................................... 21
Exhibit Index...................................................................... 23
Page 3
PART I
ITEM 1. BUSINESS
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Forward-Looking Statements
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East Penn Financial Corporation (the "Company") may from time to time make
written or oral "forward-looking statements", including statements contained in
the Company's filings with the Securities and Exchange Commission ("SEC")
(including the Annual Report and this Form 10-K and the exhibits hereto and
thereto), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Because of the possibility of change in the underlying assumptions, actual
results could differ materially from these forward-looking statements. In
addition to these factors, the following could cause actual results to differ
materially from those expressed in the forward-looking statements:
- operating, legal, and regulatory risks,
- economic, political, and competitive forces affecting the Company's
services, and
- the risk that management's analyses of these risks could be
incorrect and/or that the strategies developed to address them could
be unsuccessful.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company's forward-looking statements are relevant only as of the
date on which such statements are made. By making any forward-looking
statements, the Company assumes no duty to update them to reflect new, changing
or unanticipated events or circumstances.
History
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The Company is a Pennsylvania business corporation, which is registered as
a bank holding company under the Bank Holding Company Act of 1956,as amended
(the "Holding Company Act"). The Company was incorporated on January 27, 2003
for the purpose of forming a one-bank holding company. On July 1, 2003, the
Company completed the reorganization and merger of East Penn Bank (the "Bank")
into the holding company form of ownership. In the reorganization, the Bank
became a wholly owned banking subsidiary of the Company. The Company's
profitability will be dependent on the financial results of its primary
operating subsidiary, which is the Bank. In the future, the Company may decide
to acquire or establish additional subsidiaries, including other banks. The
Company's headquarters and principal place of business is located at 731
Chestnut Street, Emmaus, Lehigh County, Pennsylvania 18049.
On July 31, 2003, the Company formed East Penn Statutory Trust I (the
"Trust"), a Connecticut statutory business trust, for the purpose of issuing $8
million in capital pass-through securities to investors.
The Bank, which was incorporated in the Commonwealth of Pennsylvania on
November 9, 1990 and commenced operations on November 1, 1991, is a state
chartered banking institution and a member bank of the Federal Reserve System.
Deposits held by the Bank are insured by the Federal Deposit Insurance
Corporation ("FDIC") to the maximum extent provided by law. The Bank's principal
place of business is the same location as the Company's location.
The Bank formed East Penn Mortgage Company (the "Mortgage Company"), a
wholly owned subsidiary, which was incorporated in the Commonwealth of
Pennsylvania on June 2, 1995. This subsidiary engages in the originating,
processing and brokering of first and second mortgage loans, where such loans
are either maintained within the Bank's loan portfolio or sold in the secondary
market. In 2004, the Bank commenced selling mortgages service retained through
the Federal Home Loan Bank's Mortgage Partnership Finance Program ("MPF").
East Penn Home Settlements, LLC is a Pennsylvania limited liability
company. The Bank and Mortgage Company each have a 20% interest in the limited
liability company, which represents an aggregate investment of $3,000. This
investment is a joint venture title insurance agency with Home Settlement
Services located in Macungie and Allentown, Pennsylvania. The Bank and the
Mortgage Company entered into this arrangement on
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November 15, 1999. Income generated from this investment was $14,500 for 2004
and $47,600 for 2003, and is included in other income.
Description of Business
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The Company has one reportable segment, Community Banking, which consists
of commercial and retail banking, and other non-reportable operating segments,
as described in Note 1 of the Notes to Consolidated Financial Statements
included at the end of this Report. The Segment Reporting information in Note 1
is incorporated by reference into this Item 1.
The Bank engages in a full service retail and commercial banking business,
which includes providing the following services:
o accepting time and demand deposits,
o providing personal and business checking accounts at competitive
rates, and
o making secured and unsecured commercial, real estate, mortgage and
retail loans and credit cards.
The Bank's primary service area is known as the Lehigh Valley, and is
located in the counties of Lehigh, Northampton and Northeastern Berks in eastern
Pennsylvania. The Lehigh Valley is a vibrant, growing region strategically
located near the center of the northeastern corridor of New York, Philadelphia
and Washington, D.C. The local economy mirrors the national economy to the
extent that the Lehigh Valley, like many other communities in the nation, has
been impacted, to a certain degree, by the overall economic slowdown and
increases in unemployment. Over the past 10 years, the Lehigh Valley has
experienced a change in the types of businesses that have traditionally resided
in the region. Historically, the area was dominated by large manufacturers,
whereas now, there are more service-based companies, and this trend is expected
to continue. According to statistics, population trends are positive in both
size and age demographics, with municipal population in the Bank's service area
expected to grow 22.6% from 2000 to 2030, with most of the growth centered in
suburban areas where there are substantial tracts of available land for future
development.
Within the Bank's defined service area, the banking business is highly
competitive. The Bank is the only financial institution headquartered in Emmaus,
Pennsylvania, where five other financial institutions have branches.
Additionally, the Bank competes with regionally based commercial banks, which
generally have greater assets, capital and lending limits, as well as other
types of financial institutions, including credit unions, finance companies,
insurance companies and brokerage firms that have expanded their product
offerings to include traditional bank products and services. Deposit
deregulation has intensified the competition for deposits among banks in recent
years. Further, eastern Pennsylvania has experienced increased bank merger and
acquisition activity in recent years. The Bank endeavors to be competitive with
all competing financial institutions in its primary service area with respect to
interest paid on deposits and interest rates charged on loans.
The Bank believes that as a result of the shift in business entities,
population growth and the recent trend in bank mergers and acquisitions within
its geographic area, the need for a strong community banking presence continues
to exist in its primary service area. The Bank's business development strategy
has been focused on competing with larger banks, other community banks, thrift
institutions and credit unions, by providing comparable retail and commercial
banking products and services, coupled with exceptional customer service, with
an orientation towards relationship banking and the development of customer
loyalty. Rather than expanding into new areas of financial services, the Bank
has focused on further developing its personnel, resources and capabilities in
providing traditional banking products and services.
This strategy has proven to be a successful tactic in that it has provided
the Bank with consistent core deposit growth, which has allowed the Bank to more
efficiently fund asset growth, while preserving credit quality. The Bank's
business model has and will continue to focus on the consumer and the small and
medium-sized business markets, where referrals received from existing customers
have proven to be a major source for developing business.
The Bank's focus for the future is to continue to focus on its community
activities and to further penetrate the market within its geographic footprint.
The Bank has signed an agreement to purchase land for a new branch to be located
at Harrison Street and State Road, Emmaus, Pennsylvania, with the expectation
that the purchase will be
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finalized in 2005. The Bank's commitment to remain an independent community bank
with local management and decision-making is a beneficial attribute that has
proven to attract new business, while satisfying existing customers.
Supervision and Regulation
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The following discussion sets forth certain of the material elements of
the regulatory framework applicable to bank holding companies and their
subsidiaries, and provides certain specific information relevant to the Company.
The regulatory framework is intended primarily for the protection of depositors,
other customers and the Federal Deposit Insurance Funds and not for the
protection of security holders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. A change in
applicable statutes, regulations or regulatory policy may have a material effect
on the business of the Company.
The Company
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The Company is subject to the jurisdiction of the SEC and state securities
commissions for matters relating to the offering and sales of its securities,
and is subject to the SEC's rules and regulations relating to periodic
reporting, reporting to shareholders, proxy solicitations and insider trading.
The Company is also subject to the provisions of the Holding Company Act
and to supervision and examination by the Federal Reserve Board ("FRB"). Under
the Holding Company Act, the Company must secure the prior approval of the FRB
before it may own or control, directly of indirectly, more than 5% of the voting
shares or substantially all of the assets of any institution, including another
bank (unless it already owns a majority of the voting stock of the bank).
Satisfactory financial condition, particularly with regard to capital
adequacy, and satisfactory Community Reinvestment Act ("CRA") ratings are
generally prerequisites in obtaining federal regulatory approval to make
acquisitions.
The Company is required to file an annual report with the FRB and any
additional information that the FRB may require pursuant to the Holding Company
Act. The FRB may also make inspections of the Company and examinations of any or
all of its subsidiaries. Further, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
the extension of credit or provision for any property or service. Thus, an
affiliate of the Company may not impose conditions as to the extension of
credit, the lease or sale of property or furnishing of any services in (i) the
customer's obtaining or providing some additional credit, property or services
from or to the Company or other subsidiaries of the Company, or (ii) the
customer's refraining from doing business with a competitor of the Company or
its subsidiaries. The Company may impose conditions to the extent necessary to
reasonably assure the soundness of credit extended.
Subsidiary banks of the bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on (i) any extension of credit
to the bank holding company or any of its subsidiaries, (ii) investments in the
stock or other securities of the bank holding company, and (iii) taking the
stock or securities of the bank holding company as collateral for loans to any
borrower.
The Bank
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As a Pennsylvania chartered, Federal Reserve Bank member, the Bank is
subject to supervision, regulation and examination by the Pennsylvania
Department of Banking, the FRB and the FDIC. The Bank is also subject to
requirements and restrictions under federal and state law, including:
o requirements to maintain reserves against loans and lease losses,
o restrictions on the types and amounts of loans that may be granted
and the interest that may be charged on the loans,
o limitations on the types of investments the Bank may make and the
types of services the Bank may offer, and
Page 6
o restrictions on loans to insiders of the Company and other insider
transactions.
The following discussion concerns provisions of State and Federal laws and
certain regulations, and the potential impact if these provisions and
regulations on the Company and its subsidiaries.
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory or regulatory provisions themselves. A change in applicable
statutes, regulations or regulatory policy may have a material effect on the
business of the Company and its subsidiaries.
State Banking Law
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The laws of Pennsylvania applicable to the Bank include, among other
things, provisions that:
- require the maintenance of certain reserves against deposits,
- limit the type and amount of loans that may be made and the interest
that may be charged thereon,
- restrict investments and other activities, and
- limit the payment of dividends.
The amount of funds that the Bank may lend to a single borrower is limited
generally, in accordance with Pennsylvania law, to 15% of the aggregate of its
capital, surplus, undivided profits and loan loss reserves and capital
securities of the Bank (as defined by statute and regulation).
The Bank may establish or acquire branch offices, subject to certain
limitations in any county of the state. Branches may be established only after
approval by the Pennsylvania Department of Banking and the FRB. Applicable
Pennsylvania law also requires that a bank obtain the approval of the Department
of Banking prior to effecting any merger where the surviving bank would be a
Pennsylvania-chartered bank.
Federal law also prohibits acquisitions or control of a bank or bank
holding company without prior notice to certain federal bank regulators. Control
is defined for this purpose as the power, directly or indirectly, to direct the
management of policies of the bank or bank holding company or to vote
twenty-five percent (25%) or more of any class of voting securities of the bank
holding company.
Federal Banking Law
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The federal laws applicable to the Bank include the following among
others:
A. The Federal Reserve System
The Federal Reserve System is managed through a tripartite hierarchy
headed by the FRB, which oversees the entire system. The second level of
hierarchy is the twelve Federal Reserve banks and their branches, which
are spread throughout the nation's twelve Federal Reserve districts. The
third element in the Federal Reserve System's structure is the member
banks of each district which act in concert with the Federal Reserve banks
to perform the actual operations of the Federal Reserve System, including
such functions as furnishing an elastic currency and affording a means of
rediscounting commercial paper. The Federal Reserve System is at the
center of the nation's financial and economic systems, and the Federal
Reserve banks are the means through which the Federal Reserve System
effectuates its goals of maintaining financial and economic stability.
B. Monetary Policy
The earnings of the Bank are affected by domestic economic conditions and
the monetary and fiscal policies of the United States Government and its
agencies. An important function of the Federal Reserve System is to
regulate the money supply and interest rates. Among the instruments used
to implement these objectives are open market operations in United States
government securities and changes in reserve requirements against member
bank deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits. Their use may also affect rates charged on loans or paid on
deposits. The policies and regulations of the FRB have a significant
effect on the Bank's deposits, loans and investments growth, as well as
the rate of interest earned and paid, and are expected to affect the
Bank's operations in the future. The effect of such policies and
regulations upon the future business and earnings of the Bank cannot be
predicted.
Page 7
C. Deposit Insurance
The Bank's deposits are insured by the FDIC to the maximum extent provided
by the law, pursuant to the system of federal deposit insurance initially
established by the Banking Act of 1933. The Bank pays insurance premiums
into the Bank Insurance Fund ("BIF") in accordance with rates established
by the FDIC.
D. FDIA
Under the Federal Deposit Insurance Act (the "FDIA"), the FDIC possesses
the power to prohibit institutions that it regulates (such as the Bank)
from engaging in any activity that would be an unsafe and unsound banking
practice or would otherwise be in violation of the law.
E. CRA
The CRA rules emphasize performance over process and documentation. Under
the rules, a five-point rating scale is used. A bank's compliance is
determined by utilizing a three-part test whereby examiners assign a
numerical score for a bank's performance in each of three areas: lending,
service and investment. The greatest weight is placed on the lending
aspect of this test. When rating a bank in the area of lending, regulators
examine the number and amount of loan originations, the locations where
the loans were made, and the income characteristics of the borrowers.
Although banks are not required to make loans in every area, if there are
apparent census tracts in which there is little lending, regulators will
focus their investigations in that area. The service part of the test
evaluates how a bank delivers its products to the community through
branching and the extent and innovativeness of its community development
services. As with lending, banks are not required to branch in every area,
although conspicuous gaps will be investigated. The third part of the
test, investment in the community, examines how a bank meets the
investment needs of the community in which it operates. Investment
performance is evaluated pursuant to the following criteria: the dollar
amount of qualified investments; the innovativeness and complexity of
qualified investments; the responsiveness of qualified investments to
credit and community development needs; and the degree to which qualified
investments are not routinely provided by private investors.
F. BSA
Under the Bank Secrecy Act ("BSA"), banks and other financial institutions
are required to report to the Internal Revenue Service currency
transactions of more than $10,000 or multiple transactions that occur and
which the bank becomes aware in any one day that aggregate in excess of
$10,000. Civil and criminal penalties are provided under the BSA for
failure to file a required report, for failure to supply information
required by the BSA or for filing a false or fraudulent report.
G. Regulatory Capital
The FDIC and other federal bank regulatory agencies have issued risk-based
capital guidelines, which supplement leverage capital requirements. The
guidelines require all United States banks and bank holding companies to
maintain a minimum risk-based capital ratio of 8% (of which at least 4%
must be in the form of common stockholders' equity). Assets are assigned
to four risk categories, with higher levels of capital required for the
categories perceived as representing greater risk. The required capital
ratios represent equity and (to the extent permitted) non-equity capital
as a percentage of total risk-weighted assets. The risk-based capital
rules are designed to make regulatory capital requirements more sensitive
to differences in risk profiles among banks and bank holding companies,
and to minimize disincentives for holding liquid assets. The risk-based
capital rules have not had a material effect on the Company's business and
capital plans.
FDICIA
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Capital Categories
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The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provides that financial institutions must be classified in one of
five defined categories, namely, well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
Page 8
Total Tier I Under a
Risk Risk- Tier I Capital
Based Based Leverage Order or
Ratio Ratio Ratio Directive
------ ------ -------- ---------
CAPITAL CATEGORY
Well capitalized >=10.0 >=6.0 >=5.0 No
Adequately capitalized >= 8.0 >=4.0 >=4.0*
Undercapitalized < 8.0 < 4.0 < 4.0*
Significantly undercapitalized < 6.0 < 3.0 < 3.0
Critically undercapitalized <= 2.0
* 3.0 for those banks having the highest available regulatory rating.
Prompt Corrective Action
- ------------------------
In the event a company's capital deteriorates to the undercapitalized
category or below, the FDICIA prescribes an increasing amount of regulatory
intervention. If capital has reached the significantly or critically
undercapitalized levels, further material restrictions can be imposed, including
restrictions on interest payable on accounts, dismissal of management and (in
critically undercapitalized situations) appointment of a receiver. For well
capitalized companies, FDICIA provides authority for regulatory intervention
where the institution is deemed to be engaging in unsafe or unsound practices or
receive a less than satisfactory examination report rating for asset quality,
management, earnings or liquidity. All but well capitalized institutions are
prohibited from accepting brokered deposits without prior regulatory approval.
As of December 31, 2004, the Company is considered to be well capitalized as
defined by these capital rules.
Operational Controls
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Under FDICIA, financial institutions are subject to increased regulatory
scrutiny and must comply with certain operational, managerial and compensation
standards to be developed by FRB regulations.
Legislation and Regulatory Changes
- ----------------------------------
From time to time, legislation is enacted that could result in additional
regulation of and restrictions on the Company. No prediction can be made as to
the likelihood of the adoption of any legislative changes or, if adopted, the
impact such changes might have on the business of the Company. Certain changes
of potential significance to the Company, any of which have been enacted
recently and others, which are currently under consideration by Congress or
various regulatory or professional agencies, are discussed below. Management
does not believe that these provisions of law and regulation have had a material
impact on liquidity, capital resources or reported results of operation.
USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 was
enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington, D.C., which occurred on September 11, 2001. The Patriot Act is
intended to strengthen U.S. law enforcements' and the intelligence communities'
abilities to work cohesively to combat terrorism on a variety of fronts. The
potential impact of the Patriot Act on all financial institutions is significant
and wide ranging. The Patriot Act contains sweeping anti-money laundering and
financial transparency laws, and imposes various regulations, including
standards for verifying client identification at account opening, and rules to
promote cooperation among financial institutions, regulators and law enforcement
entities in identifying parties that may be involved in terrorism or money
laundering.
Financial Services Modernization Legislation. In November 1999, the
Gramm-Leach-Bliley Act of 1999 ("GLB Act") was enacted. The GLB Act repeals
provisions of the Glass-Steagall Act which restricted the affiliation of Federal
Reserve member banks with firms "engaged principally" in specified securities
activities, and which restricted officer, director or employee interlocks
between a member bank and any company or person "primarily engaged" in specified
securities activities.
In addition, the GLB Act also contains provisions that expressly preempt
any state law restricting the establishment of financial affiliations, primarily
related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and
Page 9
other financial service providers by revising and expanding the Holding Company
Act framework to permit a holding company to engage in a full range of financial
activities through a new entity known as a "financial holding company".
"Financial activities" is broadly defined to include not only banking activities
that the Federal Reserve Board, in consultation with the Secretary of the
Treasury, determines to be financial in nature, but also those activities
incidental to such financial activities or complementary activities that do not
pose a substantial risk to the safety and soundness of depository institutions
or their financial system.
The GLB Act also permits state-chartered banks to engage in expanded
activities through the formation of financial subsidiaries. A state-chartered
bank may have a subsidiary engaged in any activity authorized for national banks
directly or any financial activity, except for insurance underwriting, insurance
investments, real estate investment or develop- ment, or merchant banking, which
may only be conducted through a subsidiary of a financial holding company.
Financial activities include all activities permitted under new sections of the
Holding Company Act or permitted by regulation.
To the extent that the GLB Act permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The GLB Act is intended to grant to community banks
certain powers as a matter of right that larger institutions have accumulated on
an ad hoc basis and which unitary savings and loan holding companies already
possess. Nevertheless, the GLB Act may have the result of increasing the amount
of competition that the Registrant faces from larger institutions and other
types of companies offering financial products, many of which may have
substantially more financial resources than the Company.
Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into
law the Sarbanes-Oxley Act of 2002 (the "SOA"). The stated goals of the SOA are
to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosure pursuant to the securities laws.
The SOA is the most far-reaching U.S. securities legislation enacted in
some time. The SOA generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). Given the extensive SEC
role in implementing rules relating to many of the SOA's new requirements, the
final scope of these requirements remains to be determined.
The SOA includes very specific additional disclosure requirements and new
corporate governance rules, requires the SEC and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules,
and mandates further studies of certain issues by the SEC. The SOA represents
significant involvement in matters traditionally left to state regulatory
systems, such as the regulation of the accounting profession, and to state
corporate law, such as the relationship between a board of directors and
management and between a board of directors and its committee.
The SOA addresses, among other matters:
o audit committees for all reporting companies;
o certification of financial statements by the chief executive officer
and the chief financial officer;
o the forfeiture of bonuses or other incentive-based compensation and
profits from the sale of an issuer's securities by directors and
senior officers in the twelve month period following initial
publication of any financial statements that later require
restatement;
o a prohibition on insider trading during pension plan black out
periods;
o disclosure of off-balance sheet transactions;
o a prohibition on personal loans to directors and officers;
o expedited filing requirements for Form 4's;
o disclosure of a code of ethics and filing a Form 8-K for a change or
waiver of such code;
Page 10
o "real time" filing of periodic reports;
o the formation of a public accounting oversight board;
o auditor independence; and
o various increased criminal penalties for violations of securities
laws.
The SOA contains provisions, which were effective upon enactment on July
30, 2002, and provisions which will be phased in from 30 days to one year after
enactment. The SEC was delegated the task of enacting rules to implement various
provisions with respect to, among other matters, disclosure in periodic filings
pursuant to the Exchange Act.
Environmental Regulation
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The Company does not anticipate that compliance with environmental laws
and regulations will have any material effect on capital, expenditures,
earnings, or on its competitive position. However, environmentally related
hazards have become a source of high risk and potentially unlimited liability
for financial institutions. Environmentally contaminated properties owned by an
institution's borrowers may result in a drastic reduction in the value of the
collateral securing the institution's loans to such borrowers, and liability to
the institution for clean-up costs if it forecloses on the contaminated
property. To minimize the risk, the Company may require an environmental
examination of and report with respect to the property of any borrower or
prospective borrower if circumstances affecting the property indicate a
potential for contamination, taking into consideration a potential loss to the
institution in relation to the borrower. The Company is not aware of any
borrower who is currently subject to any environmental investigation or clean-up
proceeding that is likely to have a materially adverse effect on the financial
condition or results of operations of the Company.
There are several federal and state statutes that regulate obligations and
liabilities of financial institutions pertaining to environmental issues. In
addition to the potential for attachment of liability resulting from its own
actions, the Company may be held liable under certain circumstances for the
actions of its borrowers, or third parties, when such actions result in
environmental problems on properties that collateralize loans held by the
Company. Further, the liability has the potential to far exceed the original
amount of the loan issued by the Company. Currently, the Company is not party to
any pending legal proceeding pursuant to any environmental statute, nor is the
Company aware of any circumstances that may give rise to liability under such
statute.
Effects of Inflation
- --------------------
Inflation has some impact on the Company's operating costs. Unlike many
industrial companies, however, substantially all of the Company's assets and
liabilities are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the general levels of
inflation. Over short periods of time, interest rates may not necessarily move
in the same direction or in the same magnitude as prices of goods and services.
Interest Rate Sensitivity and Market Risk
- -----------------------------------------
For further discussion, see page 18 of "Quantitative and Qualitative
Disclosures about Market Risk", included herein.
Federal Taxation
- ----------------
The Company is subject to those rules of federal income taxation generally
applicable to corporations, and reports its respective income and expenses on
the accrual method of accounting. The Company and its subsidiary file a
consolidated federal income tax return on a calendar year basis. Inter-company
distributions and certain other items of income and loss derived from
inter-company transactions are eliminated upon the consolidation of all group
members' respective taxable income and losses.
The Internal Revenue Code ("IRC") imposes a corporate alternative minimum
tax ("AMT"). The corporate AMT only applies if such tax exceeds a corporation's
regular tax liability. In general, AMT is calculated by
Page 11
multiplying the corporate AMT rate of 20% by an amount equal to the excess of
(1) the sum of (a) regular taxable income plus (b) certain adjustments and tax
preference items ("alternative minimum taxable income" or "AMTI") over (ii) an
exemption amount ($40,000 for a corporation, that such amount is reduced by 25%
of the excess of AMTI over $150,000 and is completely eliminated when AMTI
exceeds $310,000). The excess of the AMT over the regular tax for the taxable
year is the taxpayer's net minimum tax liability.
State Tax
- ---------
The Bank is subject to the Commonwealth of Pennsylvania's shares and loan
tax for financial institutions. The tax is assessed on the Bank's average
shareholders' equity over the prior six years, as adjusted for certain types of
investments. Presently the tax rate is 1.25%.
Competition
- -----------
The financial services industry in the Company's service area is extremely
competitive. The Company's competitors within its service area include banks and
bank holding companies with substantially greater resources. Many competitors
have substantially higher legal lending limits.
The Company's business is not seasonal nor does it rely on a select group
of customers to support its business activities. In addition, savings banks,
savings and loan associations, credit unions, money market and other mutual
funds, mortgage companies, leasing companies, finance companies and other
financial services companies offer products and services similar to those
offered by the Company, on competitive terms.
Many bank holding companies have elected to become financial holding
companies under the GLB Act, which gives them a broader range of products with
which the Company must compete. Although the long-range effects of this
development cannot be predicted, most probably it will further narrow the
differences and intensify competition among commercial banks, investment banks,
insurance firms and other financial services companies.
Disclosure of Significant Policies
- ----------------------------------
Disclosure of the Company's significant accounting policies is included in
Note 1 of the Notes to Consolidated Financial Statements included in this
Report. Some of these policies are particularly sensitive requiring significant
judgments, estimates and assumptions to be made by management. Additional
information is contained in Management's Discussion and Analysis for the most
sensitive of these issues, including the provision and allowance for loan
losses.
Significant estimates are made by management in determining the allowance
for loan losses. Consideration is given to a variety of factors in establishing
this estimate. In estimating the allowance for loan losses, management considers
current economic conditions, diversification of the loan portfolio, delinquency
statistics, results of internal loan review, financial and managerial strengths
of borrowers, adequacy of collateral, if collateral dependent, or present value
of future cash flows and other relevant factors.
Statistical Data
- ----------------
The following disclosures are included in Management's Discussion and
Analysis, Item 7, hereof, and are incorporated by reference in this Item 1:
o Interest Rate Sensitivity Analysis.
o Interest Income and Expense, Volume and Rate Analysis.
o Investment Portfolio.
o Loan Maturity and Interest Rate Sensitivity.
o Loan Portfolio.
o Allocation of Allowance for Loan Losses.
Page 12
o Deposits.
o Short-Term Borrowings.
Employees
- ---------
As of March 4, 2005, the Company employed 106 full-time employees and 15
part-time employees. The Company enjoys a good relationship with its employees,
who are not represented by a collective bargaining agreement.
AVAILABLE INFORMATION
- ---------------------
Upon a shareholder's written request, a copy of the Company's Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as required to be filed with the SEC pursuant to Exchange Act Rule 13a-1,
may be obtained, without charge, on the Company's website: www.eastpennbank.com,
or by contacting Theresa M. Wasko, Treasurer and Chief Financial Officer, East
Penn Financial Corporation, 731 Chestnut Street, Emmaus, PA 18049 or via e-mail:
twasko@eastpennbank.com.
ITEM 2. PROPERTIES
- ------------------
The Company's headquarters and principal place of business is located at
731 Chestnut Street, Emmaus, Lehigh County, Pennsylvania, 18049. The Company
does not directly own or lease any properties in its own name, but rather, in
the name of the Bank. The Bank owns the main office building clear of any lien.
The main office, which is in good condition, was constructed in 1993, and is a
brick construction consisting of approximately 9,100 square feet of retail
operation and executive office space.
In addition to the main office, the Bank owns or leases six branches, one
operations building, two administrative offices and four parking lots as
follows:
Location Address Description & Square Footage Purpose
- -------------------------- -------------------------------------- ----------------------------
6890 Hamilton Boulevard Bank owned-brick construction; Utilized as a branch
Trexlertown, Pennsylvania Comprised of 4,500 square feet; and occupied by East
Lehigh County Opened November 1996 Penn Mortgage Co.
Property mortgage: none
201 West Main Street Bank owned-brick construction; Utilized as a branch
Macungie, Pennsylvania Land leased; Comprised of 2,500
Lehigh County square feet; Opened October 1997
2004 land lease expense: $51,346
Property mortgage: none
951 State Street Premises leased by Bank; Utilized as a branch
Mertztown, Pennsylvania Comprised of 1,700 square feet;
Berks County Opened November, 1998
2004 rent expense: $19,980
1251 S. Cedar Crest Blvd. Premises leased by Bank; Utilized as a branch
Allentown, Pennsylvania Comprised of 2,300 square feet;
Lehigh County Opened January 1999
2004 rent expense: $46,467
861 North Route 100 Bank owned-brick construction; Utilized as a branch
Fogelsville, Pennsylvania Comprised of 2,149 square feet;
Lehigh County Opened November 1999
Property mortgage: none
Page 13
Location Address Description & Square Footage Purpose
- -------------------------- -------------------------------------- ----------------------------
500 Macungie Avenue Premises leased by Bank is Utilized as a branch
Emmaus, Pennsylvania located within Emmaus High
Lehigh County School, which is brick construction;
Space is comprised of 900 square feet;
Opened November 1999
2003 rent expense: none
18 S. Seventh Street Bank owned-wood construction; Administrative offices
Emmaus, Pennsylvania Comprised of 4,800 square feet;
Lehigh County Opened September 1998
Property mortgage: none
4283 Chestnut Street Premises leased by Bank; Administrative offices
Emmaus, Pennsylvania Comprised of 5,100 square feet; and record retention
Lehigh County Opened August 1999
2004 rent expense: $42,120
22 South Second Street Bank owned three-story brick Administrative offices
Emmaus, Pennsylvania construction; and operations center
Lehigh County Comprised of 20,000 square feet;
Opened October 2004
Property mortgage: none
222 Main Street Property leased by Bank; Utilized as a parking lot
Emmaus, Pennsylvania Comprised of 4,400 square feet; for up to 12 motor vehicles
Lehigh County Placed in service November 2004
2004 rent expense: $2,200
218 Main Street Property leased by Bank; Utilized as a parking lot
Emmaus, Pennsylvania Comprised of 4,392 square feet; for up to 12 motor vehicles
Lehigh County Placed in service November 2004
2004 rent expense: $1,200
Rear of 226 and Property leased by Bank; Utilized as a parking lot
232 Main Street Comprised of 10,000 square feet; for up to 30 motor vehicles
Emmaus, Pennsylvania Placed in service November 2004
Lehigh County 2004 rent expense: $1,530
8 South Second Property leased by Bank; Utilized as a parking lot
Emmaus, Pennsylvania Comprised of 1,500 square feet; for up to 10 motor vehicles
Lehigh County Placed in service November 2004
2004 rent expense: $660
Management believes that these buildings and properties are in good
condition and are adequate for the Company's current purposes.
The Bank has signed agreements to purchase properties. One is to purchase
a property located at Harrison Street and State Road, Emmaus, Pennsylvania to
build a branch office, and the other is to purchase a property located at 28
South Second Street, Emmaus, Pennsylvania, adjacent to the Company's newly
opened administrative offices, to be developed to accommodate future parking
needs. The total cost of both purchases will be $890,000. The Bank received the
appropriate regulatory approval for the future branch site. At December 31,
2004, there is currently $169,000 in deposits and other costs related to the
purchases. In addition, the Bank has a commitment to renovate its newly acquired
administrative offices at 22 South Second Street, Emmaus, Pennsylvania at a cost
of $550,000.
Page 14
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The nature of the Company's business generates some litigation involving
matters arising in the ordinary course of business. Management is not aware of
any litigation that would have a materially adverse effect on the consolidated
financial position of the Company. There are no proceedings pending other than
ordinary routine litigation incidental to the business of the Company. In
addition, no material proceedings against the Company are known to be
contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matter was submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
- ------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
As part of the Plan of Reorganization to form a bank holding company,
which became effective July 1, 2003, each share of common stock of the Bank was
exchanged for one share of common stock of the Company. Prior to July 1, 2003,
the Bank's common stock traded on the NASDAQ SmallCap Market under the symbol
"EPEN". After the reorganization, the Company's common stock continues to trade
on the NASDAQ SmallCap Market under the same symbol "EPEN".
The information provided below reflects the actual high, low and closing
prices and the status of dividends declared for each share of the Company's
common stock for each quarter of 2004 and 2003. The prices do not include retail
mark-ups or markdowns or any commissions to broker-dealers.
Stock Price Range
------------------ Closing
High Low Price
---- --- ------
2004
- ----
First Quarter $ 9.50 $ 8.00 $ 9.25
Second Quarter 10.35 8.30 8.97
Third Quarter 8.95 7.90 8.35
Fourth Quarter 9.13 8.17 8.75
2003
- ----
First Quarter $ 5.89 $ 5.32 $ 5.65
Second Quarter 8.75 5.65 8.74
Third Quarter 9.10 7.30 9.00
Fourth Quarter 9.49 8.75 9.10
During 2004, the Company initiated the payment of a semi-annual cash
dividend. The first of the two cash dividends was in the amount of $0.08 per
share and was paid on February 28, 2004 to all shareholders of record as of
January 31, 2004. The second cash dividend paid during 2004 was in the amount of
$0.08 per share payable August 31, 2004 to all shareholders of record as of
August 4, 2004. The aggregate dividends paid in 2004 were $1,008,000. During
2003, the Bank declared a cash dividend of $0.10 per share, payable June 30,
2003 to all shareholders of record as of June 16, 2003. The aggregate dividend
paid in 2003 was $661,000.
The future dividend policy of the Company is subject to the discretion of
the Board of Directors, who will incorporate into their decision such factors as
future earnings, financial conditions, cash needs, capital requirements and
general business conditions. Holders of common stock will be entitled to receive
dividends as and when declared by the Company's Board of Directors out of funds
legally available for that purpose. The Company is dependent on dividends from
the Bank in order to declare its own dividends. Such payment from the Bank,
however, will be subject to the regulatory restrictions set forth in the
Pennsylvania Banking Code of 1965, the Federal Reserve Act and the FDIA.
Page 15
The Pennsylvania Banking Code provides that cash dividends may be declared
and paid only out of accumulated net earnings, which were $9,887,000 at December
31, 2004. Cash dividends must be approved by the FRB if the total of all cash
dividends declared by the Company in any calendar year, including the proposed
cash dividend, exceeds the total of the Company's net profits for that year plus
its retained net profits from the preceding two years less any required
transfers to surplus or to a fund for the retirement of preferred stock, if any.
The FDIA generally prohibits all payment of dividends by any bank, which is in
default of any assessment of the FDIC. As of December 31, 2004, the Company was
not in default of any FDIC assessments.
As of December 31, 2004, there were approximately 1,431 shareholders of
record of the Company's common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
- ------------------------------------------------------------------
The information required to be set forth hereunder is incorporated by
reference to page 12 of East Penn Financial Corporation's Proxy Statement.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following selected financial data should be read in conjunction with
the Company's audited consolidated financial statements and the accompanying
notes presented elsewhere herein.
December 31
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003 2002 2001 2000
----------------------------------------------------------------
Balance Sheet Data:
Total assets $359,414 $337,939 $272,077 $233,329 $220,320
Securities available for sale 87,609 104,034 61,439 47,300 45,215
Securities held to maturity, at cost 1,040 1,051 1,808 1,861 2,628
Mortgages held for sale 1,146 956 3,363 2,349 913
Loans receivable 240,669 207,016 176,987 153,765 147,161
Allowance for loan losses 2,838 2,403 2,167 1,843 1,544
Premises and equipment, net 7,510 6,181 6,033 5,520 5,401
Investment in restricted stock 2,986 2,096 882 1,373 1,233
Non-interest bearing deposits 42,029 36,961 32,607 26,700 25,510
Interest bearing deposits 256,236 242,937 211,033 179,936 168,605
-------- -------- -------- -------- --------
Total deposits 298,265 279,898 243,640 206,636 194,115
Stockholders' equity 21,667 19,543 19,664 16,575 14,715
Common shares outstanding 6,301 6,299 6,603 6,603 6,495
Book value per share $ 3.44 $ 3.10 $ 2.98 $ 2.51 $ 2.27
Statement of Income Data:
Total interest income $ 16,848 $ 14,897 $ 14,652 $ 14,963 $ 14,739
Total interest expense 5,115 4,685 5,378 7,253 7,776
-------- -------- -------- -------- --------
Net interest income 11,733 10,212 9,274 7,710 6,963
Provision for loan losses 498 380 367 367 480
-------- -------- -------- -------- --------
Net interest income after provision 11,235 9,832 8,907 7,343 6,483
Other income 2,130 2,271 1,669 1,341 862
Other expenses 9,093 8,368 7,414 6,816 6,293
Page 16
Income tax expense 1,022 926 759 295 78
-------- -------- -------- -------- --------
Net income $ 3,250 $ 2,809 $ 2,403 $ 1,573 $ 974
======== ======== ======== ======== ========
Basic earnings per share $ 0.52 $ 0.43 $ 0.36 $ 0.24 $ 0.15
Diluted earnings per share $ 0.51 $ 0.43 $ 0.36 $ 0.24 $ 0.15
Cash dividends per common share $ 0.16 $ 0.10 $ 0.06 $ 0.05 $ 0.00
Dividend payout ratio 31.02% 23.26% 16.66% 20.83% 0.00%
Selected Financial Ratios:
Net loans as a percent of deposits 79.74% 73.10% 71.75% 73.52% 75.02%
Average stockholders' equity to average assets 5.80% 6.76% 7.08% 7.19% 6.48%
Allowance for loan losses to total loans 1.18% 1.16% 1.22% 1.20% 1.05%
Nonperforming loans to total loans 0.44% 0.21% 0.51% 0.64% 1.02%
Allowance for loan losses to non-performing loans 267.48% 553.69% 241.58% 188.64% 103.00%
Selected Operating Ratios:
Return on average equity 16.07% 13.95% 13.35% 9.82% 7.31%
Return on average assets 0.93% 0.94% 0.95% 0.71% 0.47%
Equity to assets 6.03% 5.78% 7.23% 7.10% 6.68%
Net interest margin 3.79% 3.85% 4.08% 3.92% 3.80%
Other income to average assets 0.61% 0.76% 0.66% 0.60% 0.42%
Other expenses to average assets 2.61% 2.81% 2.92% 3.06% 3.06%
Page 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS OF EAST PENN FINANCIAL CORPORATION YEARS ENDED DECEMBER
---------------------------------------------------------------------
31, 2004, 2003 AND 2002
-----------------------
Information required under this Item 7 is incorporated by reference to the
Registrant's 2004 Annual Report to Shareholders under the heading, "Management
Discussion and Analysis of Financial Condition and Results of Operations of East
Penn Financial Corporation".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Information required under this Item 7A is incorporated by reference to
the Registrant's 2004 Annual Report to Shareholders under the heading,
"Quantitative Qualitative Disclosures About Market Risk".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Information required under this Item 8 is incorporated by reference to the
Registrant's 2004 Annual Report to Shareholders under the heading, "Financial
Statements".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of December 31, 2004.
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2004. There have been no material
changes in the Company's internal control over financial reporting during the
fourth quarter of 2004 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
- --------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information required by this Item is incorporated by reference herein
to the Registrant's Proxy Statement, under the heading, "Election of Directors",
and "Section 16(a) Beneficial Ownership Reporting Compliance" for its 2005
Annual Meeting of Shareholders to be held May 12, 2005.
The Registrant has adopted a Code of Ethics, which is attached to this
Report as Exhibit 14.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required by this Item is incorporated by reference herein,
to the Registrant's Proxy Statement, under the heading, "Compensation and Plan
Information", for its 2005 Annual Meeting of Shareholders to be held May 12,
2005.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- ---------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
Page 18
The information required by this Item is incorporated by reference herein,
to the Registrant's Proxy Statement, under the heading, "Share Ownership",
"Shareholder Return Performance Graph" and "Board Compensation Committee Report
on Executive Compensation", for its 2005 Annual Meeting of Shareholders to be
held May 12, 2005.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this Item is incorporated by reference herein,
to the Registrant's Proxy Statement, under the heading, "Election of Directors",
"Compensation and Plan Information" and "Transactions with Directors and
Executive Officers", for its 2005 Annual Meeting of Shareholders to be held May
12, 2005.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- -----------------------------------------------
The information required by this item is incorporated by reference to the
Registrant's Proxy Statement under the heading, "Report of the Audit Committee",
for its 2005 Annual Meeting of Shareholders to be held May 12, 2005.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
- ---------------------------------------------------
(a) 1. Financial statements are incorporated by reference in Part II, Item
8 hereof.
Independent Auditor's Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
2. The financial statement schedules, required by Regulation S-X, are
omitted because the information is either not applicable or is
included elsewhere in the consolidated financial statements.
3. The following Exhibits are filed as part of this filing on Form
10-K, or incorporated by reference hereto:
3(i) Registrant's Articles of Incorporation, as amended, are
incorporated herein by reference to Annex B to the
Registrant's Registration Statement on Form S-4 (Registration
No. 333-103673) as filed with the Securities and Exchange
Commission on March 7, 2003.
3(ii) Registrant's By-Laws are incorporated by reference to Annex C
to the Registrant's Registration Statement on Form S-4
(Registration No. 333-103673) as filed with the Securities and
Exchange Commission on March 7, 2003.
10.1 East Penn Financial Corporation's 1999 Stock Incentive Plan
for the benefit of officers and key employees is incorporated
by reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-4 (Registration No. 333-103673) as filed
with the Securities and Exchange Commission on March 7, 2003.
10.2 East Penn Financial Corporation's 1999 Independent Directors
Stock Option Plan for the benefit of non-employee directors is
incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-4 (Registration No.
333-103673) as filed with the Securities and Exchange
Commission on March 7, 2003.
10.3 Executive Employment Agreement between East Penn Bank and
Brent L. Peters, dated April 12, 2001, is incorporated by
reference to Exhibit 10.3 to the
Page 19
Registrant's Registration Statement on Form S-4 (Registration
No. 333-103673) as filed with the Securities and Exchange
Commission on March 7, 2003.
10.4 The Supplemental Executive Retirement Agreement ("SERP")
between East Penn Bank and Brent L. Peters, dated May 31,
2001, is incorporated herein by reference to Exhibit 10.4 to
the Registrant's Registration Statement on Form S-4
(Registration No. 333-103673) as filed with the Securities and
Exchange Commission on March 7, 2003.
10.5 East Penn Financial Corporation's Dividend Reinvestment and
Stock Purchase Plan is incorporated by reference to the
Registrant's Registration Statement on Form S-3 (Registration
No. 333-116754) as filed with the Securities and Exchange
Commission on June 23, 2004.
11 Statement re: Computation of per share earnings is
incorporated by reference herein from Note 1 of the
Consolidated Financial Statements contained in Exhibit 14 to
the Company's 2004 Annual Report.
13 2004 Annual Report.
14 East Penn Financial Corporation's Board of Directors and
Senior Management Code of Ethics is incorporated by reference
to Exhibit 14 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2003 as filed with the
Securities and Exchange Commission on March 29, 2004.
23.1 Consent of Independent Registered Public Accounting Firm
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-15(e)/15d-15(e).
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-15(e)/15d-15(e).
32.1 Certification of Chief Executive Officer pursuant to Section
1350 of the Sarbanes Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section
1350 of the Sarbanes Oxley Act of 2002.
Page 20
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
East Penn Financial Corporation
(Registrant)
By: /s/ Brent L. Peters
----------------------------------
Brent L. Peters
President and Chief Executive
Officer
(Principal Executive Officer)
Date: March 17, 2005
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATE
----
By: /s/ Brent L. Peters March 17, 2005
-------------------------------------------- -----------------------
Brent L. Peters
President, Chief Executive Officer and Director
(Principal executive officer)
By: /s/ Theresa M. Wasko March 17, 2005
-------------------------------------------- -----------------------
Theresa M. Wasko
Treasurer and Chief Financial Officer
(Principal financial and principal accounting
officer)
By: /s/ Dale A. Dries March 17, 2005
-------------------------------------------- -----------------------
Dale A. Dries
Director
By: /s/ Thomas R. Gulla March 17, 2005
-------------------------------------------- -----------------------
Thomas R. Gulla
Director
By: /s/ Allen E. Kiefer March 17, 2005
-------------------------------------------- -----------------------
Allen E. Kiefer
Director
By: /s/ Forrest A. Rohrbach March 17, 2005
-------------------------------------------- -----------------------
Forrest A. Rohrbach
Chairman of the Board and Director
Page 21
By: /s/ Gordon K. Schantz March 17, 2005
-------------------------------------------- -----------------------
Gordon K. Schantz
Director
By: /s/ Linn H. Schantz March 17, 2005
-------------------------------------------- -----------------------
Linn H. Schantz
Director
By: /s/ Donald R. Schneck March 17, 2005
-------------------------------------------- -----------------------
Donald R. Schneck
Director
By: /s/ Peter L. Shaffer March 17, 2005
-------------------------------------------- -----------------------
Peter L. Shaffer
Director
By: /s/ Konstantinos A. Tantaros March 17, 2005
-------------------------------------------- -----------------------
Konstantinos A. Tantaros
Director
By: /s/ F. Geoffrey Toonder March 17, 2005
-------------------------------------------- -----------------------
F. Geoffrey Toonder
Director
By: /s/ Donald S. Young March 17, 2005
-------------------------------------------- -----------------------
Donald S. Young
Vice Chairman of the Board and Director
Page 22
Exhibit Index
3(i) Registrant's Articles of Incorporation, as amended, are incorporated
herein by reference to Annex B to the Registrant's Registration Statement
on Form S-4 (Registration No. 333-103673) as filed with the Securities and
Exchange Commission on March 7, 2003.
3(ii) Registrant's By-Laws are incorporated by reference to Annex C to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-103673) as filed with the Securities and Exchange Commission on March
7, 2003.
10.1 East Penn Bank's 1999 Stock Incentive Plan for the benefit of officers and
key employees is incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-103673) as filed with the Securities and Exchange Commission on March
7, 2003.
10.2 East Penn Bank's 1999 Independent Directors Stock Option Plan for the
benefit of non-employee directors is incorporated by reference to Exhibit
10.1 to the Registrant's Registration Statement on Form S-4 (Registration
No. 333-103673) as filed with the Securities and Exchange Commission on
March 7, 2003.
10.3 Executive Employment Agreement between East Penn Bank and Brent L. Peters,
dated April 12, 2001, is incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-103673) as filed with the Securities and Exchange Commission on March
7, 2003.
10.4 The Supplemental Executive Retirement Agreement ("SERP") between East Penn
Bank and Brent L. Peters, dated May 31, 2001, is incorporated herein by
reference to Exhibit 10.4 to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-103673) as filed with the Securities and
Exchange Commission on March 7, 2003.
10.5 East Penn Financial Corporation's Dividend Reinvestment and Stock Purchase
Plan is incorporated by reference to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-116754) as filed with the
Securities and Exchange Commission on June 23, 2004.
11 Statement re: Computation of per share earnings is incorporated by
reference herein from Note 1 of the Consolidated Financial Statements
contained in the Company's 2004 Annual Report.
13 2004 Annual Report.
14 East Penn Financial Corporation's Board of Directors and Senior Management
Code of Ethics is incorporated by reference to Exhibit 14 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
2003 as filed with the Securities and Exchange Commission on March 29,
2004.
23.1 Consent of Independent Registered Public Accounting Firm
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-15(e)/15d-15(e).
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-15(e)/15d-15(e).
32.1 Certification of Chief Executive Officer pursuant to Section 1350 of the
Sarbanes Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 1350 of the
Sarbanes Oxley Act of 2002.
Page 23