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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

 

(Mark One)

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 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 _________________

Commission File Number 0-49952

NORTHEAST PENNSYLVANIA FINANCIAL CORP.
(Exact name of registrant as specified in its charter)

DELAWARE   06-1504091
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
   
12 E. BROAD STREET, HAZLETON, PENNSYLVANIA 18201-6591
(Address of principal executive offices) (Zip Code)

(570) 459-3700
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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     No   

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes     No   

The Registrant had 4,181,800 of Common Stock outstanding as of May 13, 2004.

TABLE OF CONTENTS
     
Item   Page
No.   Number
 
     
PART I — CONSOLIDATED FINANCIAL INFORMATION  
     
Item 1 CONSOLIDATED FINANCIAL STATEMENTS  
     
  Consolidated Statements of Financial Condition at  
  March 31, 2004 and September 30, 2003 (unaudited) 3
     
  Consolidated Statements of Operations for the Three and Six Months  
  Ended March 31, 2004 (unaudited) and 2003 (unaudited, as restated) 4
     
  Consolidated Statements of Comprehensive Income for the Three and Six  
  Months Ended March 31, 2004 (unaudited) and 2003 (unaudited, as restated) 5
     
  Consolidated Statements of Cash Flows for the Six Months Ended  
  March 31, 2004 (unaudited) and 2003 (unaudited, as restated) 6
     
  Notes to Consolidated Financial Statements (unaudited) 8
     
Item 2 Management Discussion and Analysis of Financial Condition  
  and Results of Operations 20
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 4 Controls and Procedures 28
     
Part II — OTHER INFORMATION  
     
Item 1 Legal Proceedings 29
     
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 29
     
Item 3 Defaults Upon Senior Securities 29
     
Item 4 Submission of Matters to a Vote of Security Holders 29
     
Item 5 Other Information 29
     
Item 6 Exhibits and Reports on Form 8-K 30
     
Signatures 31

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     NORTHEAST PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

  March 31,   September 30,  
  2004   2003  
 
 
 
  (in thousands except per share data)
ASSETS            
   Cash and cash equivalents $ 18,421   $ 20,142  
   Investment securities available-for-sale   358,490     326,626  
   Investment securities held-to-maturity (estimated market value of            
      $2,767 at March 31, 2004 and $3,622 at September 30, 2003)   2,715     3,555  
   Loans held for sale   1,066     1,073  
   Loans (less allowance for loan loss of $10,178 at March 31, 2004            
      and $10,196 at September 30, 2003)   446,529     489,986  
   Accrued interest receivable   3,250     3,892  
   Assets acquired through foreclosure   488     1,022  
   Property and equipment, net   10,975     12,152  
   Goodwill   3,216     3,216  
   Intangible assets   7,598     8,595  
   Bank-owned life insurance   11,128     10,875  
   Other assets   13,701     15,161  
 
 
 
            TOTAL ASSETS $ 877,577   $ 896,295  
 
 
 
             
LIABILITIES            
   Deposits   534,543     547,305  
   Federal Home Loan Bank advances   229,255     258,901  
   Trust-preferred debt   22,681     22,000  
   Other borrowings   20,787     529  
   Advances from borrowers for taxes and insurance   2,273     1,239  
   Accrued interest payable   1,565     1,318  
   Other liabilities   4,382     6,646  
 
 
 
            TOTAL LIABILITIES   815,486     837,938  
 
 
 
             
STOCKHOLDERS’ EQUITY            
   Preferred stock ($.01 par value; 2,000,000 authorized shares; none issued)   —     —  
   Common stock ($.01 par value; 16,000,000 shares authorized,            
      6,427,350 shares issued)   64     64  
   Additional paid-in capital   62,173     61,879  
   Common stock acquired by stock benefit plans   (3,156 )   (3,772 )
   Retained earnings – substantially restricted   31,744     29,368  
   Accumulated other comprehensive income, net   2,110     1,730  
   Treasury stock, at cost (2,245,551 shares at March 31, 2004            
      and 2,250,756 shares at September 30, 2003)   (30,844 )   (30,912 )
 
 
 
            TOTAL STOCKHOLDERS’ EQUITY   62,091     58,357  
 
 
 
            TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 877,577   $ 896,295  
 
 
 

 

See accompanying notes to the unaudited consolidated financial statements.

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NORTHEAST PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

     
Three Months Ended
March 31,
    
Six Months Ended
March 31,
  
2004
  
As Restated
2003
2004
  
As Restated
2003
 
 
      (in thousands, except per share data)  
INTEREST INCOME                        
  Interest and fees on loans $ 7,025   $ 8,346   $ 14,606   $ 17,131  
  Mortgage-related securities   2,108     1,646     4,039     3,681  
  Investment securities:                        
    Taxable   932     1,272     1,943     2,455  
    Tax-exempt   140     234     346     467  
  Other interest income   4     —     4     —  
     
 
 
 
 
            Total interest income   10,209     11,498     20,938     23,734  
     
 
 
 
 
INTEREST EXPENSE                        
  Deposits   2,089     3,209     4,318     6,920  
  Federal Home Loan Bank advances   2,381     2,949     5,357     5,956  
  Trust-preferred debt   263     281     528     517  
     
 
 
 
 
            Total interest expense   4,733     6,439     10,203     13,393  
     
 
 
 
 
NET INTEREST INCOME   5,476     5,059     10,735     10,341  
                             
Provision for loan losses   485     610     1,162     980  
     
 
 
 
 
NET INTEREST INCOME AFTER                        
  PROVISION FOR LOAN LOSSES    4,991     4,449     9,573     9,361  
     
 
 
 
 
NONINTEREST INCOME                        
  Service charges and other fees   686     618     1,565     1,273  
  Insurance premium income   842     902     1,708     1,826  
  Trust fees   220     214     437     446  
  Gain on sale of:                        
    Branch   798     —     798     —  
    Assets acquired through foreclosure   30     50     30     60  
    Loans   199     359     663     603  
    Available for sale securities   872     1,131     872     1,142  
   Other   263     454     522     996  
     
 
 
 
 
            Total noninterest income   3,910     3,728     6,595     6,346  
     
 
 
 
 
NONINTEREST EXPENSE                        
  Salaries and employee benefits   3,255     3,444     6,297     6,747  
  Occupancy costs   708     852     1,386     1,656  
  Amortization of intangibles   197     257     441     517  
  Data processing costs   218     197     529     378  
  Advertising   97     247     255     511  
  Professional fees   380     412     815     909  
  Federal Home Loan Bank and other charges   260     233     497     462  
  Other   871     1,105     1,764     2,191  
     
 
 
 
 
            Total noninterest expense   5,986     6,747     11,984     13,371  
     
 
 
 
 
Income before income taxes   2,915     1,430     4,184     2,336  
Income taxes   825     510     1,055     747  
     
 
 
 
 
                             
NET INCOME $ 2,090   $ 920   $ 3,129   $ 1,589  
     
 
 
 
 
EARNINGS PER SHARE:                        
  Basic   0.53     0.24     0.80     0.42  
  Diluted   0.51     0.23     0.76     0.40  

See accompanying notes to the unaudited consolidated financial statements.

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NORTHEAST PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
Three Months Ended
March 31,
  
 
Six Months Ended
March 31,
   
 2004
  
 As Restated
2003
2004
  
 As Restated
 2003
 
 
(in thousands)
Net Income $ 2,090   $ 920   $ 3,129   $ 1,589  
Other comprehensive income, net of tax                        
 
Unrealized gains (losses) on securities and on retained
interest on asset securitization
   —     —     —     —  
  Unrealized holding gains (losses) arising during the period   1,707     (890 )   915     (1,197 )
  Less: Reclassification adjustment for gains (losses) included in net income   535     694     535     701  
   
 
 
 
 
  Other comprehensive income (loss)   1,172     (1,584 )   380     (1,898 )
   
 
 
 
 
Comprehensive income $ 3,262   $ (664 ) $ 3,509   $ (309 )
   
 
 
 
 

See accompanying notes to the unaudited consolidated financial statements.

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NORTHEAST PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

       
Six Months Ended
March 31,
        
2004
     
As Restated
2003
   
OPERATING ACTIVITIES          
          (in thousands) 
Net income $ 3,129   $ 1,589  
  Adjustments to reconcile net income to net cash provided by operating activities:            
    Provision for loan losses   1,162     980  
    Provision for assets acquired through foreclosure   —     243  
    Depreciation   608     711  
    Amortization of intangibles   441     517  
    Deferred income tax provision (benefit)   (1,496 )   (3,727 )
    ESOP shares committed to be released   186     435  
    Stock award expense   5     114  
    Bank-owned life insurance income   (253 )   (312 )
    Origination of loans held for sale   (11,537 )   (21,423 )
    Proceeds from loans sold   35,793     22,026  
    Deconsolidation of capital trusts   681     —  
    Amortization and accretion on:            
    Held-to-maturity securities   (5 )   (1 )
    Available-for-sale securities   1,835     3,136  
    Amortization of deferred loan fees   (259 )   (723 )
    (Gain) loss on sale of:            
      Assets acquired through foreclosure   (30 )   (60 )
      Loans   (663 )   (603 )
      Available-for-sale securities   (872 )   (1,142 )
      Disposal of fixed assets   12     —  
      Branch   (798 )   —  
  Change in assets and liabilities:            
    Decrease (increase) in accrued interest receivable   643     (36 )
    Decrease (increase) in other assets   4,796     (1,487 )
    Increase in accrued interest payable   247     142  
    Increase in accrued taxes payable   —     3,084  
    Increase (decrease) in other liabilities   (1,819 )   1,865  
       
 
 
      Net cash provided by operating activities   31,806     5,328  
       
 
 
INVESTING ACTIVITIES            
Net decrease (increase) in loans $ 17,763   $ (4,496 )
Proceeds from sale of:            
  Available-for-sale securities   30,906     62,132  
  Assets acquired through foreclosure   1,619     620  
Proceeds from repayments of held-to-maturity securities   29,222     99  
Proceeds from repayments of available-for-sale securities   18,139     100,088  
Proceeds from sale of branch real estate and transfer of deposits   (8,244 )   —  
Purchase of:            
  Available-for-sale securities   (105,432 )   (148,285 )
  Office properties and equipment   (229 )   (642 )
  Regulatory stock   (4,183 )   (1,041 )
       
 
 
      Net cash provided by (used for) investing activities $ (20,439 ) $ 8,475  
       
 
 

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NORTHEAST PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

    Six Months Ended
March 31,		  
 
 
    2004     As Restated
2003		  
 
 
 
   
(in thousands)
  
FINANCING ACTIVITIES            
      Net (decrease) in deposit accounts $ (2,418 ) $ (8,589 )
      Net (decrease) in Federal Home Loan Bank short-term advances   (106,500 )   (10 )
      Net increase in Federal Home Loan Bank long-term advances   74,989     —  
      Net increase in advances from borrowers for taxes and insurance   1,034     682  
      Net increase (decrease) in other borrowings   20,258     (2,122 )
      Proceeds from issuance of trust-preferred securities   —     15,000  
      Purchase of stock for stock employee compensation trust   —     (1,096 )
      Cash dividend on common stock   (753 )   (982 )
      Stock options exercised   302     36  
 
 
 
            Net cash provided by (used for) financing activities   (13,088 )   2,919  
 
 
 
            Increase (decrease) in cash and cash equivalents   (1,721 )   16,722  
             
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   20,142     25,302  
 
 
 
CASH AND CASH EQUIVALAENTS, END OF PERIOD $ 18,421   $ 42,024