SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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|_| Preliminary proxy statement
|_| Confidential, for Use of the Commission only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Northeast Pennsylvania Financial Corp.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE>
December 19, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of Northeast Pennsylvania Financial Corp. The meeting will be held at Genetti's
Best Western Motor Lodge, Route 309 North, Hazleton, Pennsylvania, on Wednesday,
January 31, 2001 at 11:00 a.m., local time.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of KPMG LLP,
the Company's independent auditors, will be present to respond to appropriate
questions of stockholders.
It is important that your shares are represented at this meeting,
whether or not you attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, we urge you to
complete and mail the enclosed proxy card. If you attend the meeting, you may
vote in person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Thomas L. Kennedy
---------------------
Thomas L. Kennedy
Chairman of the Board
<PAGE>
Northeast Pennsylvania Financial Corp.
12 E. Broad Street
Hazleton, Pennsylvania 18201
(570) 459-3700
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Notice of Annual Meeting of Stockholders
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On Wednesday, January 31, 2001, Northeast Pennsylvania Financial Corp.
(the "Company") will hold its annual meeting of stockholders at Genetti's Best
Western Motor Lodge, Route 309 North, Hazleton, Pennsylvania. The meting will
begin at 11:00 a.m., local time. At the meeting, stockholders will consider and
act on the following:
1. The election of three directors to serve for a term of three years;
2. The ratification of the appointment of KPMG LLP as the independent
auditors for the Company for the fiscal year ending September 30,
2001; and
3. To transact any other business that may properly come before the
meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Stockholders of record at the close of business on December 8, 2000 are
entitled to receive notice of the meeting and to vote at the meeting and any
adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited
by the Board of Directors, and mail it promptly in the enclosed envelope. The
proxy will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Megan Kennedy
-------------------
Megan Kennedy
Corporate Secretary
Hazleton, Pennsylvania
December 19, 2000
IMPORTANT: The prompt return of proxies will save the Company the expense of
further requests for proxies in order to ensure a quorum. A self-addressed
envelope is enclosed for your convenience. No postage is required if mailed in
the United States.
<PAGE>
Northeast Pennsylvania Financial Corp.
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Proxy Statement
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This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Northeast Pennsylvania Financial Corp.
(the "Company") to be used at the annual meeting of stockholders of the Company.
The Company is the holding company for First Federal Bank ("First Federal" or
the "Bank"). The annual meeting will be held at Genetti's Best Western Motor
Lodge, Route 309 North, Hazleton, Pennsylvania on Wednesday, January 31, 2001,
at 11:00 a.m., local time. This proxy statement and the enclosed proxy card are
being first mailed to stockholders on or about December 19, 2000.
Voting and Proxy Procedure
Who Can Vote at the Meeting
You are entitled to vote your Company common stock if the records of
the Company show that you held your shares as of the close of business on
December 8, 2000. As of the close of business on that date, a total of 5,138,949
shares of Company common stock was outstanding. Each share of common stock has
one vote. As provided in the Company's Certificate of Incorporation, in no event
shall any record holder of the Company's common stock which is beneficially
owned, either directly or indirectly, by a person who beneficially owns in
excess of 10% of the Company's outstanding shares, be entitled to vote shares
which would involve such beneficial owner voting in excess of that 10% limit.
Attending the Meeting
If you are a beneficial owner of Company common stock held by a broker,
bank or other nominee (i.e., in "street name"), you will need proof of ownership
to be admitted to the meeting. A recent brokerage statement or letter from a
bank or broker are examples of proof of ownership. If you want to vote your
shares of Company common stock held in street name in person at the meeting, you
will have to get a written proxy or authorization in your name from the broker,
bank or other nominee who holds your shares.
Vote Required
A majority of the outstanding shares of common stock entitled to vote
is required to be represented at the meeting in order to constitute a quorum for
the transaction of business. If you return valid proxy instructions or attend
the meeting in person, your shares will be counted for purposes of determining
whether there is a quorum, even if you abstain from voting. Broker non-votes
also will be counted for purposes for determining the existence of a quorum. A
broker non-vote occurs when a broker, bank or other nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
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<PAGE>
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
are elected by a plurality of the votes cast for the election of directors. This
means that the nominees receiving the greatest number of votes will be elected.
Votes that are withheld and broker non- votes will have no effect on the outcome
of the election. In voting on the ratification of the appointment of KPMG LLP as
the independent auditors, you may vote in favor of the proposal, vote against
the proposal or abstain from voting. This matter will be decided by the
affirmative vote of a majority of the votes cast. Broker non-votes and
abstentions will not be counted as votes cast and will have no effect on the
voting.
Voting by Proxy
This proxy statement is being sent to you on behalf of the Company's
Board of Directors for the purpose of requesting that you allow your shares of
Company common stock to be represented at the annual meeting by the persons
named in the enclosed proxy card. All shares of Company common stock represented
at the meeting by properly executed proxies will be voted according to the
instructions indicated on the proxy card. If you sign and return a proxy card
without giving voting instructions, your shares will be voted as recommended by
the Company's Board of Directors. The Board of Directors recommends a vote "FOR"
each of the nominees and "FOR" ratification of KPMG LLP as the independent
auditors.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own judgment to determine how to vote your shares. This includes a motion
to adjourn or postpone the meeting in order to solicit additional proxies. If
the annual meeting is postponed or adjourned, your Company common stock may be
voted by the persons named in the proxy card on the new meeting date as well,
unless you have revoked your proxy. The Company does not know of any other
matters to be presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Corporate Secretary of
the Company in writing before your common stock has been voted at the annual
meeting, deliver a later dated proxy, or attend the meeting and vote your shares
in person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your Company common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet and, if so, will
provide you instructions how to do so. If you wish to change your voting
instructions after you have returned your voting instruction form to your broker
or bank, you must contact your broker or bank.
Participants in First Federal's ESOP or 401(k) Plan
If you participate in First Federal's Employee Stock Ownership Plan or
if you hold shares through First Federal's 401(k) Plan, there is included with
this proxy statement a voting instruction form for each plan that reflects all
shares you may vote under the plan. Under the terms of the ESOP, all shares held
by the ESOP are voted by the ESOP trustee, but each participant in the ESOP may
direct the trustee how to vote the shares of Company common stock allocated to
his or her account. Unallocated shares of common stock held by the ESOP and
allocated shares for which no timely voting instructions are received will be
voted by the ESOP trustee in the same proportion as shares for which the trustee
has received voting instructions, subject to the exercise of the trustee's
fiduciary duties. Under the terms of the 401(k) Plan, a participant is entitled
to direct the trustee as to the shares in the Northeast Pennsylvania Financial
Corp. Stock Fund
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<PAGE>
credited to his or her account. The trustee will vote all shares for which no
directions are given or for which timely instructions were not received in the
same proportion as shares for which the trustee received voting instructions.
The deadline for returning your voting instructions to each plan's trustee is
January 22, 2001.
Stock Ownership
The following table provides information as of December 1, 2000 with
respect to persons believed by the Company to be the beneficial owners of more
than 5% of the Company's outstanding common stock based upon reports of
beneficial ownership filed with the Securities and Exchange Commission. A person
may be considered to own any shares of common stock over which he or she has,
directly or indirectly, sole or shared voting or investing power.
<TABLE>
<CAPTION>
Number of Shares Percent of Common
Name and Address Owned Stock Outstanding
---------------------- --------------------- ----------------------
<S> <C> <C>
First Federal Bank Employee Stock Ownership Plan 510,945(1) 9.9%
and Trust
12 E. Broad Street
Hazleton, Pennsylvania 18201
First Federal Charitable Foundation 445,500(2) 8.7
12 E. Broad Street
Hazleton, Pennsylvania 18201
Wellington Management Company, LLP 342,800 6.7
75 State Street
Boston, Massachusetts 02109
Frederick J. Jaindl et al. 319,339 6.2
3150 Coffeetown Road
Orefield, Pennsylvania
First Financial Fund, Inc. 301,000 5.8
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, New Jersey 07102
</TABLE>
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(1) Under the terms of the ESOP, the ESOP Trustee, subject to its fiduciary
responsibilities, will vote unallocated shares and allocated shares for
which no timely voting instructions are received in the same proportion as
shares for which the trustee has received voting instructions from
participants. As of December 1, 2000, 99,593 shares have been allocated to
participants' accounts and 411,352 shares remain unallocated. The trustee
of the ESOP is First Bankers Trust Company, N.A.
(2) The Foundation was established and funded in connection with the Bank's
conversion to stock form on March 31, 1998. Pursuant to the terms of the
contribution of common stock, as mandated by the Office of Thrift
Supervision, all shares of common stock held by the Foundation must be
voted in the same ratio as all other shares of Company common stock on all
matters considered by stockholders of the Company.
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<PAGE>
The following table provides information about the shares of Company
common stock that may be considered to be owned by each director or nominee for
director of the Company, by the executive officers named in the Summary
Compensation Table and by all directors and executive officers of the Company as
a group as of December 1, 2000. A person may be considered to own any shares of
common stock over which he or she has, directly or indirectly, sole or shared
voting or investment power. Unless otherwise indicated, each of the named
individuals has sole voting and investment power with respect to the shares
shown.
<TABLE>
<CAPTION>
Number of Shares
Number of That May Be
Shares Acquired Within Percent of
Owned 60 Days By Common Stock
Name (excluding options) Exercising Options Outstanding (1)
-------------------------------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C>
E. Lee Beard.......................... 78,193(2) 64,274 2.7%
Paul L. Conard........................ 13,013(3) 8,750 *
William R. Davidson................... 19,942(4) 8,750 *
Barbara M. Ecker...................... 35,684(5) 8,600 *
R. Peter Haentjens, Jr................ 33,839(6) 8,600 *
Thomas L. Kennedy..................... 93,394(7) 59,345 2.9
John P. Lavelle....................... 27,000(8) 8,750 *
Michael J. Leib....................... 33,185(9) 8,600 *
Patrick J. Owens, Jr.................. 22,987(10) 14,000 *
Joseph K. Osiecki..................... 26,105(11) 14,000 *
William J. Spear...................... 22,072(12) 8,600 *
All Executive Officers and 415,472(13) 212,269 11.7%
Directors as a Group (15 persons)
</TABLE>
* Less than 1% of shares outstanding
(1) Based on 5,148,949 shares of Company common stock outstanding and entitled
to vote as of December 1, 2000, plus for each person, the number of shares
that such person may acquire within 60 days by exercising stock options.
(2) Includes 22,485 shares of unvested restricted stock and 4,001 shares held
under the ESOP as to which Ms. Beard has voting but not investment power.
(3) Includes 3,420 shares of unvested restricted stock as to which Mr. Conard
has voting but not investment power.
(4) Includes 3,420 shares of unvested restricted stock as to which Mr. Davidson
has voting but not investment power and 1,044 shares owned by Dr.
Davidson's spouse.
(5) Includes 3,420 shares of unvested restricted stock as to which Ms. Ecker
has voting but not investment power and 13,053 shares owned by Ms. Ecker's
spouse.
(6) Includes 3,420 shares of unvested restricted stock as to which Mr.
Haentjens has voting but not investment power and 5,017 shares held by his
children.
(7) Includes 17,487 shares of unvested restricted stock and 3,509 shares held
under the ESOP as to which Mr. Kennedy has voting but not investment power
and 8,750 shares held by Mr. Kennedy's spouse.
(8) Includes 3,420 shares of unvested restricted stock as to which Mr. Lavelle
has voting but not investment power.
(9) Includes 3,420 shares of unvested restricted stock as to which Mr. Leib has
voting but not investment power, 11,321 shares held by Mr. Leib's spouse
and 1,044 shares held by Mr. Leib's children.
(10) Includes 5,589 shares of unvested restricted stock and 2,845 shares held
under the ESOP as to which Mr. Owens has voting but not investment power,
402 shares held by Mr. Owens' children and 475 shares held by Mr. Owens'
spouse.
(11) Includes 5,562 shares of unvested restricted stock and 2,861 shares held
under the ESOP as to which Mr. Osiecki has voting but not investment power.
(12) Includes 3,420 shares of unvested restricted stock as to which Mr. Spear
has voting but not investment power and 2,065 shares held by Mr. Spear's
spouse.
(13) Includes ownership of Mr. Osiecki who, although a named executive officer
as of September 30, 2000, retired on November 10, 2000.
4
<PAGE>
Proposal 1 -- Election of Directors
The Company's Board of Directors consists of nine members, two of whom
are members of management. The Board is divided into three classes with
three-year staggered terms, with one class of the directors elected each year.
Three directors will be elected at the annual meeting to serve for a three-year
term, or until their respective successors have been elected and qualified. The
nominees for election this year are E. Lee Beard, William R. Davidson and Thomas
L. Kennedy, each of whom is a director of the Company and the Bank.
It is intended that the proxies solicited by the Board of Directors
will be voted for the election of the nominees named above. If any nominee is
unable to serve, the persons named in the proxy card would vote your shares to
approve the election of any substitute proposed by the Board of Directors.
Alternatively, the Board of Directors may adopt a resolution to reduce the size
of the Board. At this time, the Board of Directors knows of no reason why any
nominee might be unable to serve.
The Board of Directors recommends a vote "FOR" the election of all of
the nominees.
Information regarding the nominees and the directors continuing in
office is provided below. Unless otherwise stated, each individual has held his
current occupation for the last five years. The age indicated in each nominee's
biography is as of September 30, 2000. There are no family relationships among
the directors or executive officers. The indicated period for service as a
director includes service as a director of First Federal.
Nominees for Election of Directors
The nominees standing for election are:
E. Lee Beard. Ms. Beard has served as President and Chief Executive
Officer since January 1993. Prior to 1993, Ms. Beard spent 15 years in the
thrift industry in the Washington, D.C. area, where she served as an Executive
Vice President of Citizens Savings Bank in Silver Spring, Maryland and Senior
Vice President/Treasurer for Perpetual Savings Bank. Ms. Beard is a certified
public accountant. Age 49. Director since 1993.
William R. Davidson, Ed.D. Dr. Davidson is currently an assistant
professor at Pennsylvania State University, Schuylkill Campus. Dr. Davidson
previously served as Superintendent of the Pottsville City School District,
Pottsville, Pennsylvania for twenty years. Age 64. Director since 1988.
Thomas L. Kennedy. Mr. Kennedy has been a practicing attorney for over
30 years. He is the President of the law firm of Kennedy & Lucadamo, P.C. Mr.
Kennedy serves as Chairman of the Board of the Company and the Bank. Age 56.
Director since 1986.
Directors Continuing in Office
The following directors have terms ending in 2002:
Barbara M. Ecker. Mrs. Ecker is a certified public accountant with the
Hazleton St. Joseph Medical Center. Age 58. Director since 1987.
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<PAGE>
R. Peter Haentjens, Jr. Mr. Haentjens is employed as a Vice President,
General Manager of Hazleton Pumps, Inc. Age 55. Director since 1981.
William J. Spear. Mr. Spear is the owner and President of Hazle Drugs,
Inc., a retail pharmacy located in Hazleton, Pennsylvania. Age 64. Director
since 1981.
The following directors have terms ending in 2003:
Paul L. Conard. Mr. Conard is a retired Assistant Vice President of
Bloomsburg University, located in Bloomsburg, Pennsylvania. Age 67. Director
since 1989.
The Honorable John P. Lavelle. Judge Lavelle has served as the
President Judge for the Court of Common Pleas of Carbon County, Pennsylvania
since 1978. Age 69. Director since 1972.
Michael J. Leib. Mr. Leib is the president of Weatherly Casting &
Machine Company, located in Weatherly, Pennsylvania. Mr. Leib is also a director
of EMCEE Broadcasting Products, Inc., a manufacturer of transmitters and related
equipment for the wireless cable and television broadcast industries. Age 52.
Director since 1989.
Meetings and Committees of the Board of Directors
During the fiscal year ended September 30, 2000, the Board of Directors
of the Company held 13 meetings. No director attended fewer than 75% of the
total meetings of the Board and committees on which such person served during
this period.
The Audit Committee, consisting of Ms. Ecker and Messrs. Conard,
Lavelle, Leib and Spear, reviews audit reports and management's actions
regarding the implementation of audit findings and compliance with all relevant
laws and regulations. The Audit Committee met one time in fiscal 2000.
The Company's Nominating Committee consists of Ms. Ecker and Messrs.
Conard, Haentjens, Lavelle, Leib, and Spear. The committee selects the nominees
of the Board of Directors for election as directors. The Nominating Committee
will accept and consider stockholder recommendations that are made pursuant to
timely written notice to the secretary of the Company. All recommendations must
include all information necessary for the Nominating Committee to fully review
the qualifications and credentials of the candidate. The Nominating Committee
met one time in fiscal 2000.
The Personnel and Compensation Committee of the Company, consisting of
Ms. Beard and Messrs. Davidson, Kennedy, Lavelle and Leib, is responsible for
all matters regarding compensation and fringe benefits for officers and
employees of the Company. The Personnel and Compensation Committee of the
Company met two times in fiscal 2000.
Directors' Compensation
All directors of the Company are paid an annual retainer of $4,000. All
directors of the Bank are currently paid an annual retainer of $10,500, paid
quarterly, and $400 for each Board meeting attended. All non-employee directors
of the Bank also receive $325 for each committee meeting attended.
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<PAGE>
During the year ended September 30, 2000, each non-employee director
received options to acquire 1,000 shares of Company common stock, which vest in
equal installments over five years. Additionally, during the 2000 fiscal year
Messrs. Conard, Davidson and Lavelle, as directors of the Bank's advisory
committee, each received options to acquire 150 shares of Company common stock.
Those options vested immediately.
Executive Compensation
Summary Compensation Table
The following information is furnished for the chief executive officer
and all other executive officers of First Federal who received salary and bonus
of $100,000 or more during the year ended September 30, 2000.
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------
Annual Compensation Awards
------------------------------ -----------------------
Other Securities
Annual Restricted Underlying
Compensation Stock Awards Options/SARs All Other
Name and Principal Positions Year Salary($) Bonus($) ($)(1) ($)(2) (#) Compensation
---------------------------- ---- ------- ------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Lee Beard....................... 2000 $217,360 $ -- $-- $ 20,750 -- $42,777 (3)
President and Chief Executive Office 1999 197,350 910 -- 694,719 160,684 29,330
1998 171,931 23,558 -- -- -- 24,680
Thomas L. Kennedy.................. 2000 $140,204 $ -- $-- $-- 7,500 $30,117 (4)
Chairman of the Board 1999 127,406 590 -- 570,756 144,616 23,222
1998 97,123 -- -- -- -- 28,301
Patrick J. Owens, Jr............... 2000 $109,611 $1,856 $-- $-- -- $ 2,571 (5)
Senior Vice President and Chief 1999 100,454 2,077 -- 182,419 35,000 2,236
Financial Officer 1998 88,909 9,608 -- -- -- --
Joseph K. Osiecki.................. 2000 $107,385 $1,819 $-- $-- -- $ 3,263 (5)
Senior Vice President of the Bank 1999 99,561 2,036 -- 181,538 35,000 3,013
1998 88,062 9,420 -- -- -- 2,744
</TABLE>
-------------------------
(1) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than 10% of the total annual salary and bonus
reported.
(2) Includes 2,000 shares of restricted stock granted under the Northeast
Pennsylvania Financial Corp. 1998 Stock- Based Incentive Plan. The dollar
amounts set forth in the table represent the market value on the date of
the grant of the shares. The restricted stock awards vest in five equal
annual installments commencing on November 30, 2000, the first anniversary
of the awards. When shares become vested and are distributed from the trust
in which they are held, the recipients will also receive an amount equal to
accumulated cash and stock dividends (if any) paid with respect thereto,
plus earnings thereon. As of September 30, 2000, the market values of the
shares subject to the restricted stock awards was $23,000.
(3) Consists of directors' fees of $20,100, employer contributions to First
Federal's 401(k) plan of $5,112 and amounts credited under First Federal's
supplemental executive retirement plan of $17,565.
(4) Consists of directors' fees of $20,100, employer contributions to First
Federal's 401(k) plan of $3,093 and amounts credited under First Federal's
supplemental executive retirement plan of $6,924.
(5) Consists of employer contributions to First Federal's 401(k) plan.
7
<PAGE>
Employment Agreements
The Company and the Bank have employment agreements with Ms. Beard and
Mr. Kennedy. The employment agreements are intended to ensure that the Company
and the Bank will be able to maintain a stable and competent management base.
The continued success of the Company and the Bank depends to a significant
degree on the skills and competence of Ms. Beard and Mr. Kennedy.
The employment agreements provide for three-year terms for each
executive. The terms of the Company employment agreements are extended on a
daily basis, unless written notice of non-renewal is given by the Board of
Directors. The terms of the Bank employment agreements are renewable on an
annual basis. The employment agreements provide that the executive's base salary
will be reviewed annually. The base salaries currently effective for such
employment agreements are $211,570 and $136,468 for Ms. Beard and Mr. Kennedy,
respectively. In addition to the base salary, the employment agreements provide
for, among other things, participation in stock benefits plans and other fringe
benefits applicable to similarly- situated executive personnel.
The employment agreements provide for termination by the Company or the
Bank for cause, as defined in the employment agreements, at any time. In the
event the Company and the Bank choose to terminate the executive's employment
for reasons other than for cause, or in the event of the executive's resignation
from the Company and the Bank after specified circumstances that would
constitute constructive termination, the executive, or if the executive dies,
his or her beneficiary, would be entitled to receive an amount equal to the
remaining base salary payments due to the executive and the contributions that
would have been made on the executive's behalf to any employee benefit plans of
the Company and the Bank during the remaining term of the employment agreement.
The employment agreements restrict each executive's right to compete against the
Bank or the Company for a period of one year from the date of termination of the
agreement if his or her employment is terminated without cause, except if
termination follows a change in control.
Under the employment agreements, if involuntary or, under certain
circumstances, voluntary termination follows a change in control of the Company
or the Bank, the executive or, in the event of the executive's death, his or her
beneficiary, would be entitled to a severance payment equal to the greater of:
(i) the payments due for the remaining terms of the agreement; or (ii) three
times the average of the five preceding taxable years' annual compensation. The
Company and the Bank would also continue the executive's life, health, and
disability coverage for thirty-six months. Notwithstanding that both the Company
and the Bank employment agreements provide for a severance payment in the event
of a change in control, no duplicate payments would be made under the
agreements.
Payments under the employment agreements are paid by the Company to the
extent payments (or other benefits) are not paid by the Bank. All reasonable
costs and legal fees paid or incurred by the executive pursuant to any dispute
or question of interpretation relating to the employment agreements shall be
paid by the Company or the Bank, respectively, if the executive is successful on
the merits pursuant to a legal judgment, arbitration or settlement. The
employment agreements also provide that the Company and the Bank shall indemnify
the executive to the fullest extent allowable under federal and Delaware law,
respectively.
8
<PAGE>
Change in Control Agreements
The Company and the Bank currently maintain two-year change in control
agreements with Mr. Owens. The Bank agreement is renewable annually. The Company
agreement is extended on a daily basis unless written notice of non-renewal is
given by the Board of Directors. The agreements provide that if involuntary
termination or, under certain circumstances, voluntary termination follows a
change in control of the Bank or the Company, Mr. Owens would be entitled to
receive a severance payment equal to three times his average annual compensation
for the five most recent taxable years preceding termination. The Company or the
Bank would also continue and pay for life, health and disability coverage for
twenty-four months following termination. Payments to Mr. Owens under the
agreements are paid by the Company to the extent that payments (or other
benefits) are not paid by the Bank. Notwithstanding that both the Company and
the Bank change in control agreements provide for a severance payment in the
event of a change in control, no duplicate payments would be made under the
agreements.
Retirement Plan
The Bank participates in the Financial Institutions Retirement Fund
(the "Retirement Plan") to provide retirement benefits for eligible employees.
Employees are generally eligible to participate in the Retirement Plan if they
are 21 years old and have completed 12 consecutive months of employment with the
Bank. Hourly paid employees are excluded from participating in the Retirement
Plan. Benefits payable to a participant under the Retirement Plan are based on
the participant's years of service and salary. The formula for normal retirement
benefits payable annually under the Retirement Plan is 2% multiplied by years of
benefit service multiplied by the participant's career average salary paid by
the Bank. A participant may elect early retirement as early as age 45. However,
such participant's normal retirement benefits will be reduced by an early
retirement factor based on an age at early retirement. Participants generally
have no vested interest in Retirement Plan benefits prior to the completion of
five years of service with the Bank. Following the completion of five years of
service, or in the event of a participant's attainment of age 65, death or
termination of employment due to disability, a participant will become 100%
vested in the accrued benefits under the Retirement Plan.
The following table sets forth the estimated annual benefits payable
upon retirement at age 65 for the period ended September 30, 2000.
<TABLE>
<CAPTION>
Years of Benefit Service
Career Average -----------------------------------------------------------------------------------
Compensation 15 20 25 30 35
------------------ ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 75,000 $22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
100,000 30,000 40,000 50,000 60,000 70,000
125,000 37,500 50,000 62,500 75,000 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
225,000 67,500 90,000 112,500 135,000 157,500
250,000 75,000 100,000 125,000 150,000 175,000
275,000 82,500 110,000 137,500 165,000 192,500
</TABLE>
The benefits listed in the foregoing table for the Retirement Plan are
not subject to a deduction for Social Security benefits or any other offset
amount. As of September 30, 2000, Ms. Beard and Messrs. Kennedy, Owens and
Osiecki had 6 years, 10 months; 1 year, 11 months; 7 years, 7 months; and 6
years, 3 months of credited service, respectively.
9
<PAGE>
Management Supplemental Executive Retirement Plan
The Bank implemented a non-qualified management supplemental executive
retirement plan ("MSERP") to provide certain officers and highly compensated
employees of the Bank and its affiliates, including the Company, with additional
retirement benefits. The MSERP benefit is intended to make up benefits lost
under the ESOP allocation procedures to participants who retire prior to the
complete repayment of the ESOP loan. At the retirement of a participant the
benefits under the MSERP are determined by: (1) projecting the number of shares
that would have been allocated to the participant under the ESOP if they had
been employed throughout the period of the ESOP loan (measured from the
participant's first date of ESOP participation) and reducing such number by the
number of shares actually allocated to the participant's account under the ESOP;
and (2) by multiplying the number of shares that represent the difference
between such figures by the average fair market value of the Common Stock over
the preceding five years. Benefits under the MSERP vest in five equal annual
increments commencing as of the date of a participant's participation in the
MSERP. The vested portion of the MSERP participant's benefits are payable to the
participant upon retirement (as defined in the ESOP) or to the participant's
beneficiary in the event of the participant's death.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of
Underlying Options Stock Price
Options Granted to Exercise or Appreciation for
Name Granted Employees in Base Price Expiration Options (2)
(#)(1) Fiscal Year Per Share Date 5% 10%
---------------------------------- ------------- -------------- ------------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
E. Lee Beard...................... -- -- $ -- -- $ -- $ --
Thomas L. Kennedy................. 7,500 65.7% 10.375 November 30, 2004 48,938 124,013
Patrick J. Owens, Jr.............. -- -- -- -- -- --
Joseph K. Osiecki ................ -- -- -- -- -- --
</TABLE>
----------------------
(1) Options become exercisable in five equal annual installments commencing on
November 30, 2000, provided, however, options will be immediately
exercisable if the optionees terminate employment due to death or
disability.
(2) The dollar gains under these columns result from calculations required by
the Securities and Exchange Commission's rules and are not intended to
forecast future price appreciation of the Company's common stock. It is
important to note that options have value only if the stock price increases
above the exercise price shown in the table during the effective option
period. In order for the executive to realize the potential values set
forth in the 5% and 10% columns in the table, the price per share of the
Company's common stock would be approximately $16.90 and $26.91,
respectively, as of the expiration date of the options.
10
<PAGE>
No stock options were exercised by Ms. Beard or Messrs. Kennedy, Owens
or Osiecki during the fiscal year ended September 30, 2000. The following table
provides certain information with respect to the number and value of shares of
Common Stock represented by outstanding options held by the named executive
officers as of September 30, 2000.
Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End(#)(1) at Fiscal Year-End($)
Name Exercisable Unexercisable Exercisable Unexercisable
------- ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
E. Lee Beard...................... 32,137 128,547 $ -- $--
Thomas L. Kennedy................. 28,924 123,192 -- 8,438
Patrick J. Owens.................. 7,000 28,000 -- --
Joseph K. Osiecki................. 7,000 28,000 -- --
</TABLE>
------------------------
(1) Value of unexercised in-the-money stock options equals the market value of
shares covered by in-the-money options on September 30, 2000 less the option
exercise price. Options are in-the-money if the market value of shares
covered by the options is greater than the exercise price.
The following report of the Personnel and Compensation Committee, the stock
performance graph and the report of the Audit Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or the
Exchange Act, except as to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
Report of the Personnel and Compensation Committee
Committee Report on Executive Compensation. Under rules established by
the Securities and Exchange Commission, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to its Chief Executive Officer and its other executive officers. The disclosure
requirements regarding compensation for these executive officers include the use
of a report explaining the rationale and considerations that led to fundamental
compensation decisions affecting those individuals. In fulfillment of this
requirement, the Personnel and Compensation Committee has prepared the following
report for inclusion in this proxy statement.
Compensation Policies. The policies and objectives of the Personnel and
Compensation Committee are designed to assist the Company in attracting and
retaining qualified executives, to recognize and reward individual contributions
towards achieving strategic business initiatives and to closely align the
financial interests of the executive officers with those of stockholders. In
furtherance of these objectives, the Company and the Bank maintain a
compensation program for executives officers which consists of both cash and
equity based compensation.
11
<PAGE>
The Board, following a recommendation from the Committee, sets the
level of annual salaries for the President and Chief Executive Officer and the
Chairman of the Board, generally based upon a review of the performance of the
President and Chief Executive Officer, the Chairman of the Board and the Company
during the prior year and competitive data for those positions. Only
non-employee directors participate in the recommendation and determination of
executive compensation. The President and Chief Executive Officer and the
Chairman of the Board are then responsible for determining the base salaries of
the remaining executive officers.
In addition, in order to align the interests and performance of its
executive officers with the long term interests of its stockholders, the Company
has adopted plans which reward the executives for delivering long-term value to
the Company and the Bank through stock ownership.
The compensation package available to executive officers is composed of
the following components:
(i) Base Salary;
(ii) Performance Incentive Plan; and
(iii) Long Term Incentive Compensation, including option and stock
awards.
Ms. Beard and Mr. Kennedy have employment agreements which specify a
base salary and require an annual review of such salary. In addition, Ms. Beard
and Mr. Kennedy and all other executive officers of the Company and the Bank
participate in other benefit plans available to all employees, including the
employee stock ownership plan.
Base Salaries. The salary levels are intended to be consistent and
competitive with the practices of other comparable financial institutions and
each executive's level of responsibility. The Personnel and Compensation
Committee consulted surveys of compensation paid to executive officers
performing similar duties for depository institutions and their holding
companies with particular focus on the level of compensation paid by
institutions of comparable size and characteristics primarily in Pennsylvania
and the Northeast region of the United States. Although no specific formula is
used for decision making, salary increases are aimed at reflecting the overall
performance of the Company and the performance of the individual executive
officer.
Performance Incentive Plan. The Bank maintains the First Federal Bank
Performance Incentive Plan for all employees except for the President and Chief
Executive Officer, the Chairman of the Board and the Chief Financial Officer.
The Performance Incentive Plan was designed by senior officers and approved by
the Board to give all employees an incentive for effectively operating the Bank.
The Performance Incentive Plan provides all employees an opportunity to earn
semi-annual cash payments equal to a certain percentage of their base salaries
upon the attainment of specific financial performance goals. In establishing the
financial performance goals the Bank considers the Company's efficiency ratio
and return on equity.
Incentive Compensation Bonus Plan. In February 2000, the Personnel and
Compensation Committee adopted an Incentive Compensation Bonus Plan, of which
the Company's President and Chief Executive Officer, Chairman and Chief
Financial Officer currently are participants. The plan provides for the granting
of future bonuses in the form of stock options if certain pre-established
corporate and personal objectives, such as earnings per share, return on equity
and efficiency ratio, are achieved. Additionally, if the goals are not reached,
but certain budgeted targets are achieved, partial payout may be considered. The
participants in this plan do not participate in any other Company bonus program.
12
<PAGE>
Long Term Incentive Compensation. The Company maintains the Stock-Based
Incentive Plan and the Northeast Pennsylvania Financial Corp. 2000 Stock Option
Plan under which officers and employees may receive grants and awards of Common
Stock and options to purchase Common Stock of the Company. The Board believes
that stock ownership is a significant incentive in building stockholder value
and aligning the interests of employees with stockholders. The specific grants
of awards and options for the named executive officers are reflected in the
Summary Compensation Table. The value of this component of compensation
increases as the Common Stock of the Company appreciates in value.
Chief Executive Compensation. The Chief Executive Officer is evaluated
annually on her performance in managing the Company, including the effort
related to operating the Company as a public company, fiscal performance, and
stock appreciation. Certain quantitative and qualitative factors were reviewed
to determine the Chief Executive Officer's compensation. In addition to that
review of the Chief Executive's performance, the Board established the total
compensation for the Chief Executive Officer after reviewing an analysis of the
Chief Executive Officer's base salary in comparison to other institutions
selected by the Board with specific consideration given to the level of the
Bank's operations in comparison to peer institutions.
John P. Lavelle (Chair) Thomas L. Kennedy
E. Lee Beard Michael J. Leib
William R. Davidson
Personnel and Compensation Committee Interlocks and Insider Participation
Ms. Beard and Mr. Kennedy each served on the Personnel and Compensation
Committee during the 2000 fiscal year. During that time, Ms. Beard served as
President and Chief Executive Officer of the Company and the Bank and Mr.
Kennedy was Chairman of the Board of the Company and the Bank and General
Counsel of the Bank.
13
<PAGE>
Stock Performance Graph
The following graph compares the cumulative total stockholder return on
the Company Common Stock with the cumulative total return on the American Stock
Exchange Index and with the American Stock Exchange Savings Institutions Index.
Total return assumes the reinvestment of all dividends. The graph assumes $100
was invested at the close of business on April 1, 1998, the initial day of
trading of the Company common stock.
[GRAPHIC OMITTED]
[GRAPH]
<TABLE>
<CAPTION>
Period Ended
------------------------------------------------------
4/01/98 9/30/98 9/30/99 9/30/00
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Northeast Pennsylvania Financial Corp.............. $100.00 $72.58 $ 67.89 76.80
The American Stock Exchange Index.................. 100.00 84.23 108.21 134.30
AMEX Savings Institutions Index.................... 100.00 70.54 73.06 77.90
</TABLE>
Audit Committee Report
The Audit Committee of the Board of Directors is responsible for
assisting the Board of Directors in fulfilling its responsibility to the
stockholders relating to corporate accounting, reporting practices and the
quality and integrity of the financial reports of the Company. Additionally, the
Audit Committee selects the auditors and reviews their independence and their
annual audit. The Audit Committee is comprised of five directors, each of whom
is independent under the American Stock Exchange's listing standards. The Audit
Committee acts under a written charter adopted by the Board of Directors, a copy
of which is attached to this proxy statement as Appendix A.
14
<PAGE>
The Audit Committee reviewed and discussed the annual financial
statements with management and the independent accountants. As part of this
process, management represented to the Audit Committee that the financial
statements were prepared in accordance with generally accepted accounting
principles. The Audit Committee also received and reviewed written disclosures
and a letter from the accountants concerning their independence as required
under applicable standards for auditors of public companies. The Audit Committee
discussed with the accountants the contents of such materials, the accountant's
independence and the additional matters required under Statement on Auditing
Standards No. 61. Based on such review and discussions, the Audit Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended September 30, 2000 for filing with the Securities and Exchange Commission.
Barbara M. Ecker (Chair) Michael J. Leib
Paul L. Conard William J. Spear
John P. Lavelle
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely on its review of the copies of the reports it has received
and written representations provided to the Company from the individuals
required to file the reports, the Company believes that each of its executive
officers and directors has complied with applicable reporting requirements for
transactions in Company common stock during the fiscal year ended September 30,
2000 with the exception of one late report filed by Mr. Leib with respect to a
purchase transaction and one late Form 3 filed by each of Messrs. Allan Farius,
Senior Vice President of the Bank, and Thomas Burns, President of Northeast
Pennsylvania Trust Co., a subsidiary of the Company.
Transactions with Management
Loans and Extensions of Credit
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In addition,
loans made to a director or executive officer in excess of the greater of
$25,000 or 5% of the Bank's capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Directors.
The Bank currently makes loans to its executive officers and directors
on the same terms and conditions offered to the general public. As of September
30, 2000, the Bank had $1.7 million of loans to executive officers or directors,
all of which were made by the Bank in the ordinary course of business with no
favorable terms and which did not involve more than the normal risk of
collectibility or present unfavorable features.
15
<PAGE>
Other Transactions
Kennedy & Lucadamo, P.C., of which Thomas L. Kennedy is President,
performs legal services for the Company and First Federal. In fiscal 2000, the
Company and First Federal paid a total of $45,075 in legal fees to Kennedy &
Lucadamo, P.C. This amount represented more than five percent of the law firm's
gross revenues in fiscal 2000.
Proposal 2 -- Ratification of Independent Auditors
The Board of Directors has appointed KPMG LLP to be its auditors for
the 2001 fiscal year, subject to the ratification by stockholders. A
representative of KPMG LLP is expected to be present at the annual meeting to
respond to appropriate questions from stockholders and will have the opportunity
to make a statement should he or she desire to do so.
If the ratification of the appointment of the auditors is not approved
by a majority of the votes cast by stockholders at the annual meeting, other
independent public accountants will be considered by the Board of Directors. The
Board of Directors recommends that stockholders vote "FOR" the ratification of
the appointment of auditors.
Miscellaneous
The Company will pay the cost of this proxy solicitation. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Company common stock. In addition to soliciting proxies by
mail, directors, officers and regular employees of the Company may solicit
proxies personally or by telephone. None of these persons will receive
additional compensation for these activities.
The Company's Annual Report to Stockholders has been included with this
proxy statement. Any stockholder who has not received a copy of the Annual
Report may obtain a copy by writing to the Secretary of the Company. The Annual
Report is not to be treated as part of the proxy solicitation material or as
having been incorporated herein by reference.
A copy of the Company's Form 10-K for the fiscal year ended September
30, 2000, as filed with the Securities and Exchange Commission will be furnished
without charge to all persons who were stockholders as of the close of business
on December 8, 2000 upon written request to Megan Kennedy, Corporate Secretary,
Northeast Pennsylvania Financial Corp., 12 E. Broad Street, Hazleton,
Pennsylvania 18201.
16
<PAGE>
Stockholder Proposals
To be considered for inclusion in the Company's proxy statement and
form of proxy relating to the 2001 Annual Meeting of Stockholders, a stockholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Stockholders not later than August 21,
2001. If such Annual Meeting is held on a date more than 30 calendar days from
January 31, 2002, a stockholder proposal must be received by a reasonable time
before the proxy solicitation for such Annual Meeting is made. Any such proposal
will be subject to 17 C.F.R. ss. 240.14a-8 of the Rules and Regulations under
the Exchange Act.
The Bylaws of the Company set forth the procedures by which a
stockholder may properly bring business before a meeting of stockholders.
Pursuant to the Bylaws, only business brought by or at the direction of the
Board of Directors may be conducted at a special meeting. The Bylaws of the
Company provide an advance notice procedure for a stockholder to properly bring
business before an annual meeting. The stockholder must give written advance
notice to the Secretary of the Company not less than ninety (90) days before the
date originally fixed for such meeting; provided, however, that in the event
that less than one hundred (100) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the date on which the Company's notice to stockholders of the
annual meeting date was mailed or such public disclosure was made. The advance
notice by stockholders must include the stockholder's name and address, as they
appear on the Company's record of stockholders, a brief description of the
proposed business, the reason for conducting such business at the annual
meeting, the class and number of shares of the Company's common stock that are
beneficially owned by such stockholder and any material interest of such
stockholder in the proposed business. In the case of nominations to the Board of
Directors, certain information regarding the nominee must be provided. Nothing
in this paragraph shall be deemed to require the Company to include in its proxy
statement or the proxy relating to any annual meeting any stockholder proposal
which does not meet all of the requirements for inclusion established by the
Securities and Exchange Commission in effect at the time such proposal is
received.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Megan Kennedy
--------------------
Megan Kennedy
Corporate Secretary
Hazleton, Pennsylvania
December 19, 2000
17
<PAGE>
APPENDIX A
Audit Committee Charter
Audit Committee
Committee Composition. The Committee shall consist of at least three
board members, all of whom shall be independent of management and the Company.
Committee members shall have: (1) knowledge of the primary industries in which
the Company operates; and (2) the ability to read and understand financial
statements, including the balance sheet, income statement, statement of cash
flows, and key performance indicators. At least one member of the committee must
have past employment experience in finance or accounting, requisite professional
certification in accounting or other comparable experience or background that
results in the individual's financial sophistication, including being or having
been a chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities. Committee appointments, including
selection of the committee chairperson, shall be approved annually by the full
board.
Responsibilities. The Audit Committee shall recommend to the Board of
Directors the selection and replacement if considered necessary of the
independent audit firm and its fees to audit the records of the Company and its
subsidiaries. The Audit Committee shall obtain from such audit firm a written
statement delineating all relationships between the auditor and the Company,
consistent with Independence Standards Board Standard 1 and shall engage in a
dialogue with such auditor with respect to any disclosed relationships or
services that may impact the objectivity and independence of the auditor. The
Audit Committee shall approve all non-audit services which may be performed by
the independent audit firm. Via the review of all the relationships of the audit
firm with the Company and any appropriate recommendations to the Board of
Directors, the Committee shall also ensure that the external audit firm remains
independent. The independent auditor is directly accountable to the Board of
Directors and the Audit Committee.
The Audit Committee shall review and approve the independent auditor's
annual plan and results. This should include the desirability of expanding the
scope of the audit activity beyond the recognized standards, a review of the
external auditor's Management Letter and Management's response to this letter.
The independent auditor will be ultimate accountable to the Board of Directors
and the Audit Committee as representatives of the shareholders. The Committee
shall also review all internal audit reports, and the reports provided by
regulatory agencies, along with Management's response.
The Audit Committee shall determine, in conjunction with the
Independent External Auditors, the Internal Auditor, and the Company's Executive
and Financial Management, that internal controls are adequate and effective.
When so indicated, the Committee should review Management's handling of
identified material inadequacies and reportable conditions in the internal
controls over financial reporting and compliance with laws and regulations.
The Audit Committee shall supervise the Internal Audit Function and
approve the selection, compensation, and termination, of the Internal Auditor.
They should approve the scope of internal audits to assure regular testing of
the systems and controls associated with preparation of financial reports,
complying with laws and regulations and preventing Management from overriding
the internal control system or compromising the control environment.
The Audit Committee shall provide the Internal Auditor with adequate
resources and authority to discharge his responsibilities.
A-1
<PAGE>
Through reviews performed by the Internal Auditor, the Audit Committee
shall oversee the SEC reporting process. This oversight process should include
an ongoing review of the controls that protect the integrity of the reporting
process. This oversight process should also include the timely communications
between the Committee, Senior Management, and the Internal and External
Auditors.
The Audit Committee should ensure that the Internal Auditor's
involvement in the audit of the entire financial reporting process is
appropriate and properly coordinated with the external auditor.
The Audit Committee should inquire as to the extent to which planned
audit scope by the external auditor can be relied on to detect fraud or
weaknesses in internal controls and to discuss the external auditor's plans for
reviewing the Company's procedures and controls.
The Audit Committee should review Management's evaluation of factors
related to the independence of the Company's Auditors.
Finally, the Audit Committee must maintain minutes and the relevant
records of their meetings and activities. The minutes must be available for
review by the appropriate regulatory agencies.
Internal Auditor
Responsibilities. The Internal Auditor should have direct communication
with the Audit Committee of the Board of the Directors. Such communication
involves the Internal Auditor regularly attending and participating in meetings
of the Committee which relate to audit oversight responsibilities for financial
reporting, organization, and control.
The Internal Auditor's attendance at these meetings should include the
submission of formal reports of the plans and activities of the Internal Audit
Department. The Internal Auditor should, at least on an annual basis, meet
privately with the Committee without members of Management present.
The Internal Auditor should submit, to the Audit Committee for its
information, a summary of the Internal Audit Department's work schedule and
staffing plan at least annually. These work schedules and staffing plans should
inform the Audit Committee of the scope of the Internal Audit work and any
limitations placed on that scope.
Submission to the Audit Committee of the Department's approved audit
schedule and staffing plan, along with all significant interim changes, should
be made in writing. This information should be in sufficient detail to enable
the Committee to ascertain whether the Internal Audit Department's objectives
and plans support those of the organization and the Audit Committee.
It should be recognized that Management and the Audit Committee should
provide general direction as to the scope of the Internal Audit work and the
activities to be audited.
The Internal Auditor should submit activity reports to Management and
to the Audit Committee at least annually or more frequently as necessary. Such
reports should highlight significant audit findings and recommendations.
Significant audit findings may include: conditions dealing with irregularities,
illegal acts, errors, inefficiency, policy violations, waste, conflicts of
interest, and internal control weaknesses. The Internal Auditor should report
all such findings to the Audit Committee whether or not they have been
satisfactorily resolved.
A-2
<PAGE>
It is the responsibility of Management to make decisions on the
appropriate action to be taken regarding significant audit findings. Management
may decide to assume the risk of not correcting the reported condition because
of cost or other considerations. However, the Audit Committee should be informed
of Management's decisions on all significant audit findings.
The Internal Auditor should consider whether it is appropriate to
inform the Audit Committee regarding previously-reported, significant audit
findings, particularly when there have been organizational, management, or other
changes.
Should the Audit Committee and Management decide not to correct certain
significant audit findings, an ethical problem for the Internal Auditor may
occur. The Internal Auditor should follow proper communication channels through
the firm's external auditors and, if necessary, the proper regulatory agency for
resolving such ethical problems.
The internal and external audit work should be coordinated to ensure
adequate audit coverage and to minimize duplicate efforts.
The Internal Auditor should communicate results of evaluations by
coordination between the internal and independent external auditor to Management
and the Audit Committee, along with any relevant comments on the performance of
the independent auditor.
The Internal Auditor should communicate with the independent external
auditor regarding these matters so as to have an understanding of the issues in
order to be able to make appropriate comments to the Audit Committee.
A-3
<PAGE>
REVOCABLE PROXY
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
ANNUAL MEETING OF STOCKHOLDERS
January 31, 2001
11:00 a.m. Eastern Time
-------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the official proxy committee of
Northeast Pennsylvania Financial Corp. (the "Company"), consisting of E. Lee
Beard, Thomas L. Kennedy, Barbara M. Ecker, Michael J. Leib and William J.
Spear, or any of them, with full power of substitution in each, to act as proxy
for the undersigned, and to vote all shares of common stock of the Company which
the undersigned is entitled to vote only at the Annual Meeting of Stockholders,
to be held on January 31, 2001, at 11:00 a.m., local time, at Genetti's Best
Western Motor Lodge, Route 309 North, Hazleton, Pennsylvania and at any and all
adjournments thereof, with all of the powers the undersigned would possess if
personally present at such meeting as follows:
1. The election as directors of all nominees listed below (unless the
"For All Except" box is marked and the instructions below are
complied with).
E. Lee Beard, William R. Davidson and Thomas L. Kennedy
With- For all
For hold Except
[ ] [ ] [ ]
INSTRUCTION: To withhold your vote for any one or more individual nominee, mark
"FOR ALL EXCEPT" and write the name of the nominee you do not want to vote for
on the line provided below.
--------------------------------------------------------------------------------
2. The ratification of the appointment of KPMG LLP as independent
auditors of Northeast Pennsylvania Financial Corp. for the fiscal
year ending September 30, 2001.
With- For all
For hold Except
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted "FOR" the election of all
nominees and the ratification of KPMG LLP. If any other business is presented at
the Annual Meeting, including whether or not to adjourn the meeting, this proxy
will be voted by the proxies in their best judgment. At the present time, the
Board of Directors knows of no other business to be presented at the Annual
Meeting. This proxy also confers discretionary authority on the Board of
Directors to vote with respect to the election of any person as director where
the nominees are unable to serve or for good cause will not serve and matters
incident to the conduct of the meeting.
<PAGE>
Please be sure to sign and date this Proxy in the box below.
_________________________________________
Date
_________________________________________
SIGNATURE OF SHAREHOLDER
_________________________________________
SIGNATURE OF CO-HOLDER (IF ANY)
<PAGE>
Detach above card, sign, date and mail in postage paid envelope provided.
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders and of a
Proxy Statement dated December 19, 2000 and of the Annual Report to
Shareholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
