SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A NO. 1
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [fee required], for the fiscal year ended December 31, 1995,
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [no fee required], for the transition period
from ________ to ________.
Commission file number 0-10957
NATIONAL PENN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2215075
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
Philadelphia and Reading Avenues, Boyertown, Pennsylvania 19512
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 367-6001
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($2.50 par value)
Preferred Stock Purchase Rights
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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common shares of the Registrant held by
nonaffiliates, based on the closing sale price as of March 15, 1996, was
$127,746,595.
As of March 15, 1996, the Registrant had 7,613,865 shares of Common Stock
outstanding.
Portions of the following documents are incorporated by reference: the
definitive Proxy Statement of the Registrant relating to the Registrant's Annual
Meeting of Shareholders to be held on April 23, 1996 - - Part III.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 39,195 $ 33,195
Interest bearing deposits in banks 2,014 964
Total cash and cash equivalents 41,209 34,159
Securities held to maturity
(approximate market value of $97,459 at 1994) -- 99,229
Securities available for sale at market value 240,902 138,873
----------- -----------
Total investment securities 240,902 238,102
Loans and leases, less allowance for loan and lease
losses of $20,36 and $19,310 at 1995 and 1994,
respectively 918,699 811,302
Premises and equipment 19,926 17,770
Accrued interest receivable 8,867 8,001
Investments at equity 4,827 4,677
Other assets 16,948 23,163
----------- -----------
Total assets $ 1,251,378 $ 1,137,174
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing $ 134,968 $ 121,273
Interest-bearing
(Includes certificates of deposit in excess of $100:
1995 -$89,881; 1994 -$65,630) 779,922 743,367
----------- -----------
Total deposits 914,890 864,640
Securities sold under repurchase agreements and
federal funds purchased 138,550 50,274
Short-term borrowings 4,370 47,967
Long-term borrowings 71,589 77,777
Accrued interest and other liabilities 15,364 11,645
----------- -----------
Total liabilities 1,144,763 1,052,303
Shareholders' equity
Preferred stock, no stated par value;
authorized 1,000,000 shares, none issued -- --
Common stock, par value $2.50 per share;
authorized 20,000,000 shares, issued and
outstanding 1995 -7,594,474; 1994 -
7,495,080, net of shares in Treasury:
1995 - 47,939; 1994 - 98,779 19,106 18,083
Additional paid-in capital 57,501 57,263
Valuation adjustment for securities available
for sale, net of tax 6,579 (4,011)
Retained earnings 24,646 16,598
Treasury stock at cost (1,217) (3,062)
----------- -----------
Total shareholders' equity 106,615 84,871
----------- -----------
Total liabilities and shareholders'equity $ 1,251,378 $ 1,137,174
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(Dollars in thousands, except per shara data) Year Ended December 31,
1995 1994 1993
INTEREST INCOME
<S> <C> <C> <C>
Loans and leases, including fees $ 82,776 $ 70,133 $ 60,181
Investment securities
Taxable 13,735 11,766 10,129
Tax-exempt 2,319 2,256 671
Federal funds sold and securities
purchased under reverse repurchase agreements 114 27 133
Deposits in banks 76 77 158
-------- -------- --------
Total interest income 99,020 84,259 71,272
-------- -------- --------
INTEREST EXPENSE
Deposits 32,739 22,825 20,051
Securities sold under repurchase agreements
and federal funds purchased 5,613 2,347 427
Short-term borrowings 1,078 369 124
Long-term borrowings 4,406 3,307 3,237
-------- -------- --------
Total interest expense 43,836 28,848 23,839
-------- -------- --------
Net interest income 55,184 55,411 47,433
Provision for loan and lease losses 3,200 3,200 5,145
-------- -------- --------
Net interest income after provision
for loan and lease losses 51,984 52,211 42,288
-------- -------- --------
OTHER INCOME
Trust income 1,811 1,422 1,250
Service charges on deposit accounts 2,748 2,560 2,075
Other service charges and fees 2,360 1,723 1,360
Net gains (losses) on sale of mortgages 388 (445) 73
Equity in undistributed net earnings of affiliates 301 149 173
-------- -------- --------
Total other income 7,608 5,409 4,931
-------- -------- --------
OTHER EXPENSES
Salaries, wages and employee benefits 20,215 18,984 14,295
Net premises and equipment 6,045 5,587 3,492
FDIC assessment 1,633 1,719 1,444
Other operating 9,649 10,624 9,398
-------- -------- --------
Total other expenses 37,542 36,914 28,629
-------- -------- --------
Income before income taxes and cumulative
effect of change in accounting for income taxes 22,050 20,706 18,590
Applicable income tax expense 6,668 6,057 5,782
-------- -------- --------
Income before cumulative effect of
change in accounting for income taxes 15,382 14,649 12,808
Cumulative effect on prior years (to January 1, 1993)
of change in accounting for income taxes -- -- 500
-------- -------- --------
Net income $ 15,382 $ 14,649 $ 13,308
======== ======== ========
PER SHARE OF COMMON STOCK
Income before cumulative effect of change in
accounting for income taxes $ 2.04 $ 1.95 $ 1.71
Cumulative effect on prior years (to January 1, 1993)
of change in accounting for income taxes -- -- $ 0.07
Net income $ 2.04 $ 1.95 $ 1.78
Dividends paid in cash $ 0.83 $ 0.71 $ 0.59
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
(Dollars in thousands) Gain (Loss) on
Additional Securities
Common Stock Paid-in Available Retained Treasury
Shares Par Value Capital for Sale Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 6,286,372 $ 15,741 $ 38,666 ($ 114) $ 16,617 ($ 210)
Net income -- -- -- -- 13,308 --
7% stock dividend 444,533 1,111 15,781 -- (16,892) --
Cash dividends declared -- -- -- -- (4,632) --
Shares issued under dividend
reinvestment plan 46,345 116 1,447 -- -- --
Increase in carrying value of
marketable equity securities -- -- -- 114 -- --
Shares issued under stock option plan 67,269 168 828 -- -- --
Effect of treasury stock transactions 10,000 -- (37) -- -- 210
--------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1993 6,854,519 17,136 56,685 -- 8,401 --
Net income -- -- -- -- 14,649 --
5% stock dividend 337,613 844 -- -- (844) --
Cash dividends declared -- -- -- -- (5,608) --
Shares issued under dividend
reinvestment plan 13,262 33 481 -- -- --
Net unrealized loss on securities
available for sale, net of taxes -- -- -- (4,011) -- --
Shares issued under stock option plan 28,732 70 375 -- -- --
Effect of treasury stock transactions (98,779) -- (278) -- -- (3,062)
--------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 7,135,347 18,083 57,263 (4,011) 16,598 (3,062)
Net income -- -- -- -- 15,382 --
5% stock dividend 359,733 899 -- -- (899) --
Cash dividends declared -- -- -- -- (6,435) --
Change in unrealized gain (loss) on
securities available for sale,
net of taxes -- -- -- 10,590 -- --
Shares issued under stock option plan 48,554 124 775 -- -- --
Effect of treasury stock transactions 50,840 -- (537) -- -- 1,845
--------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 7,594,474 $ 19,106 $ 57,501 $ 6,579 $ 24,646 ($ 1,217)
========= ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
(This space intentionally left blank)
34
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,382 $ 14,649 $ 13,308
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan and lease losses 3,200 3,200 5,145
Depreciation and amortization 3,032 2,399 1,173
Deferred income tax benefit (371) (1,047) (996)
Amortization of security discounts 512 578 529
Amortization of security premiums (589) (543) (200)
Investment securities and mortgage (gains) losses, net (388) 445 (73)
Mortgage loans originated for resale (11,460) (18,984) (27,262)
Sale of mortgage loans originated for resale 11,460 18,984 27,262
Changes in assets and liabilities, net of effects
from business acquired:
Increase in accrued interest receivable (866) (1,651) (112)
Increase (decrease) in interest payable 3,331 490 (114)
Net (increase) decrease in other assets 4,542 (5,335) 3,161
Net increase (decrease) in other liabilities 216 1,527 (4,859)
--------- --------- ---------
Net cash provided by operating activities 28,001 14,712 16,962
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash equivalents received in excess
of payments for business acquired -- -- 6,079
Proceeds from sales of investment securities
available for sale 6,853 1,635 --
Proceeds from maturities of investment securities
held to maturity 13,699 3,971 36,221
Proceeds from maturities of investment securities
available for sale 4,014 21,806 --
Purchase of investment securities - available for sale (14,905) (126,923) (36,266)
Proceeds from sale of loans -- -- 8,737
Net increase in loans (110,737) (94,646) (98,812)
Purchases of premises and equipment (4,560) (6,946) (4,653)
--------- --------- ---------
Net cash used in investing activities (105,636) (201,103) (88,694)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in interest and non-interest
bearing demand deposits and savings accounts (27,750) 16,786 84,746
Net increase (decrease) in certificates of deposit 78,000 99,625 (35,995)
Net increase (decrease) in securities sold under
agreements to repurchase and federal funds purchased 88,276 20,034 16,505
Net increase (decrease) in short-term borrowings (43,597) 35,375 6,940
Net increase (decrease) in long-term borrowings (6,188) 26,688 9,979
Issuance of common stock under dividend
reinvestment and stock option plans 899 959 2,559
Effect of Treasury stock transactions 1,308 (3,340) 173
Cash dividends (6,263) (5,344) (4,405)
--------- --------- ---------
Net cash provided by financing activities 84,685 190,783 80,502
--------- --------- ---------
Net increase in cash and cash equivalents 7,050 4,392 8,770
Cash and cash equivalents at beginning of year 34,159 29,767 20,997
--------- --------- ---------
Cash and cash equivalents at end of year $ 41,209 $ 34,159 $ 29,767
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
35
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by National Penn Bancshares, Inc.
(the "Company") and its wholly-owned subsidiaries, National Penn Bank (the
"Bank"), Investors Trust Company ("ITC"), National Penn Investment Company
and National Penn Life Insurance Company, conform with generally accepted
accounting principles and with general practice within the banking
industry.
The Company, primarily through its Bank subsidiary, has been serving
residents and businesses of southeastern Pennsylvania since 1874. The Bank,
which has in excess of 40 branch locations, is a locally managed community
bank providing commercial banking products, primarily loans and deposits.
Trust services are provided through ITC. The Bank and ITC encounter
vigorous competition for market share in the communities they serve from
bank holding companies, other community banks, thrift institutions and
other non-bank financial organizations such as mutual fund companies,
insurance companies and brokerage companies.
The Company, the Bank, and ITC are subject to regulations of certain
state and federal agencies. These regulatory agencies periodically examine
the Company and its subsidiaries for adherence to laws and regulations. As
a consequence, the cost of doing business may be affected.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries on a consolidated basis.
Investments owned between 20% and 50% are accounted for using the equity
method.
All material inter-company balances have been eliminated.
INVESTMENT SECURITIES
Investments in securities are classified in one of two categories:
held to maturity and available for sale. Debt securities that the Company
has the positive intent and ability to hold to maturity are classified as
held to maturity and are reported at amortized cost. As the Company does
not engage in security trading, the balance of its debt securities and any
equity securities are classified as available for sale. Net unrealized
gains and losses for such securities, net of tax, are required to be
recognized as a separate component of shareholders' equity and excluded
from determination of net income. Gains or losses on disposition are based
on the net proceeds and cost of the securities sold, adjusted for
amortization of premiums and accretion of discounts, using the specific
identification method.
LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases are stated at the amount of unpaid principal, reduced
by unearned discount and an allowance for loan and lease losses. Interest
on loans is calculated based upon the principal amount outstanding. The
allowance for loan and lease losses is established through a provision for
loan and lease losses charged as an expense. Loans and leases are charged
against the allowance for loan and lease losses when management believes
that the collectibility
36
<PAGE>
of the principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans and
leases that may become uncollectible, based on evaluations of the
collectibility of loans and leases and prior loan and lease loss
experience. The evaluations take into consideration such factors as changes
in the nature and volume of the loan and lease portfolio, overall portfolio
quality, review of specific problem loans and leases, and current economic
conditions that may affect the borrower's ability to pay. Accrual of
interest is stopped on a loan or lease when management believes, after
considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful.
The Company adopted Statement of Financial Accounting Standards
("SFAS") 114, "Accounting by Creditors for Impairment of a Loan" as amended
by SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" on January 1, 1995. This new standard requires
that a creditor measure impairment based on the present value of expected
future cash flows discounted at the loan's effective interest rate, except
that as a practical expedient, a creditor may measure impairment based on a
loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a
creditor must measure impairment based on the fair value of the collateral
when the creditor determines that foreclosure is probable. SFAS 114
excludes such homogeneous loans as consumer and mortgages. The adoption of
SFAS 114 on January 1, 1995 did not have a material impact on the Company's
financial consolidated condition or results of operations.
PREMISES AND EQUIPMENT
Buildings, equipment and leasehold improvements are stated at cost
less accumulated depreciation and amortization computed by the
straight-line method over the estimated useful lives of the assets.
The FASB issued a new standard, SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of",
which provides guidance on when to recognize and how to measure impairment
losses of long-lived assets and certain identifiable intangibles and how to
value long-lived assets to be disposed of. The adoption of this new
statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations. The Company is
required to adopt this new standard for its year ended December 31, 1996.
PENSION PLAN
Net pension expense consists of service cost, interest cost, return on
pension assets and amortization of unrecognized initial net assets. The
Company accrues pension costs annually.
INCOME TAXES
Under the liability method of accounting for income taxes specified by
SFAS 109, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The
37
<PAGE>
principal types of differences between assets and liabilities for financial
statement and tax return purposes are allowance for loan losses, deferred
loan fees, and securities available for sale.
The change from a previously adopted liability method to the liability
method, specified by SFAS 109, of accounting for income taxes increased net
earnings for 1993 by $500,000, or $.07 per share, by the cumulative effect
of the change in accounting related to years prior to 1993 which were not
restated.
STATEMENTS OF CASH FLOWS
The Company considers cash and due from banks, interest bearing
deposits in banks and federal funds sold as cash equivalents for the
purposes of reporting cash flows. Cash paid for interest and taxes is as
follows (in thousands):
Year Ended December 31
1995 1994 1993
Interest... $40,505 $28,358 $23,953
======= ======= =======
Taxes ..... $ 7,286 $ 7,244 $ 8,226
======= ======= =======
Non-cash transfers of investment securities from held to maturity to
available for sale amounted to $85,718,000 amortized cost and $87,708,000
fair value.
LOAN FEES AND RELATED COSTS
The Company defers and amortizes certain origination and commitment
fees, and certain direct loan origination costs over the contractual life
of the related loans. This results in an adjustment of the related loan's
yield.
FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures About Fair Value of Financial Instruments,"
requires all entities to disclose the estimated fair value of its assets
and liabilities considered to be financial instruments. Financial
instruments requiring disclosure consist primarily of investment
securities, loans and deposits.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding of 7,547,382, 7,525,100 and 7,480,740 for the
years ended December 31, 1995, 1994 and 1993, respectively, after giving
retroactive effect to 5% stock dividends paid on October 31, 1995 and
October 31, 1994, and to a 7% stock dividend paid on October 25, 1993. All
per share data included in these financial statements has been restated for
the stock dividends.
38
<PAGE>
2. INVESTMENT SECURITIES
The Company classifies debt and marketable equity securities in two
categories: securities available for sale and securities held to maturity.
Securities available for sale are measured at fair value, with net
unrealized gains and losses reported, net of tax, as a component in equity.
Securities held to maturity are carried at amortized cost.
The amortized cost, unrealized gains and losses and fair values of the
company's securities available for sale and securities held to maturity at
December 31, 1995 and 1994 are summarized as follows (in thouands):
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and U.S. Government agencies $102,357 $ 5,522 $ 20 $107,859
State and municipal bonds 45,712 1,180 56 46,836
Other bonds 2,727 28 4 2,751
Mortgage-backed securities 63,316 1,827 114 65,029
Marketable equity securities and other 16,667 1,760 -- 18,427
-------- -------- -------- --------
Totals $230,779 $ 10,317 $ 194 $240,902
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and U.S. Government agencies $ 39,055 $ -- $ 1,575 $ 37,480
State and municipal bonds 45,694 11 3,787 41,918
Other bonds 2,144 6 46 2,104
Mortgage-backed securities 42,527 103 1,884 40,746
Marketable equity securities and other 15,823 802 -- 16,625
-------- -------- -------- --------
Totals $145,243 $ 922 $ 7,292 $138,873
======== ======== ======== ========
Securities held to maturity
U.S. Treasury and U.S. Government agencies $ 76,607 $ 790 $ 2,057 $ 75,340
State and municipal bonds 7,388 80 324 7,144
Other bonds 1,018 -- 16 1,002
Mortgage-backed securities 14,216 195 438 13,973
-------- -------- -------- --------
Totals $ 99,229 $ 1,065 $ 2,835 $ 97,459
======== ======== ======== ========
</TABLE>
On November 15, 1995, the FASB issued a special report entitled "A
Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities." This guide allows enterprises
to reassess the appropriateness of the classification of all securities
held. A one-time reassessment can be made on one day between November 15,
1995 and December 31, 1995. Reclassifications from the held-to-maturity
category that result from this one-time reassessment will not call into
question the intent of an enterprise to ho other debt and equity securities
to maturity in the future.
Based on this special report, on December 29, 1995, the Company
reclassified certain securities from the held-to-maturity category to the
available-for-sale category. The transfer was made at fair value and
resulted in an estimated net unrealized gain of $10,123,000 and an increase
in retained earnings of $6,579,000 based on current market values.
The following table lists the maturities of securities held at
December 31, 1995 classified as securities available for sale at market
value and securities held to maturity. Expected maturities will differ from
contractu maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $20,435 $20,667
Due after one year through five years 21,007 22,110
Due after five years 109,354 114,669
-------- --------
150,796 157,446
Mortgage-backed securities 63,316 65,029
Marketable equity securities and other 16,667 18,427
-------- --------
$230,779 $240,902
======== ========
</TABLE>
Proceeds from the sales of investments in debt securities during 1995,
1994 and 1993 were $6,853,000, $1,635,000 and $0, respectively. Gross gains
and losses realized on those sales in 1995, 1994 and 1993 were not
material.
As of December 31, 1995 and 1994, investment securities with a book
value of $78,559,000 and $74,260,000, respectively, were pledged to secure
public deposits and for other purposes as provided by law. As of December
31, 1995 and 1994, the Company did not have any marketable equity
securities of any one issuer where the book value exceeded 10% of
shareholders' equity.
39
<PAGE>
3. LOANS AND LEASES
Major classifications of loans and leases are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Commercial and industrial loans $ 99,765 $ 79,726
Loans for purchasing and carrying securities 478 778
Loans to financial institutions 589 821
Real estate loans:
Construction and land development 42,978 31,760
Residential 526,577 472,227
Other 256,956 228,911
Loans to individuals 11,727 16,400
--------- ---------
939,070 830,623
Unearned income (5) (11)
--------- ---------
Total loans and leases, net of unearned income 939,065 830,612
Allowance for loan and lease losses (20,366) (19,310)
--------- ---------
Total loans and leases, net $ 918,699 $ 811,302
========= =========
</TABLE>
Loans and leases on which the accrual of interest has been
discontinued or reduced amounted to approximately $7,257,000 and $9,328,000
at December 31, 1995 and 1994, respectively. If interest on these loans had
been accrued, such income would have approximated $305,000 and $486,000 for
1995 and 1994, respectively. Loan balances past due 90 days or more which
are not on a non-accrual status, but which management expects will
eventually be paid in full, amounted to $1,764,000 and $2,114,000 at
December 31, 1995 and 1994, respectively.
The balance of impaired loans was $5,380,000 at December 31, 1995. The
Bank has identified a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of
the loan agreement. The impaired loan balance included $5,380,000 of
non-accrual loans. The allowance for loan loss associated with the
$5,380,000 of impaired loans was $931,000 at December 31, 1995. The average
impaired loan balance was $7,368,000 in 1995 and the income recognized on
impaired loans during 1995 was $528,000. The Bank's policy for interest
income recognition on impaired loans is to recognize income under the
accrual method. The Bank recognizes income on non-accrual loans under the
cash basis when the loans are both current and the collateral on the loan
is sufficient to cover the outstanding obligation to the Bank. If these
factors do not exist, the Bank will not recognize them.
Changes in the allowance for loan and lease losses were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $ 19,310 $ 17,909 $ 12,448
Reserves of acquired banks -- -- 2,260
Provision charged to operations 3,200 3,200 5,145
Loans and leases charged off (3,509) (3,002) (3,412)
Recoveries 1,365 1,203 1,468
-------- -------- --------
Balance, end of year $ 20,366 $ 19,310 $ 17,909
======== ======== ========
</TABLE>
The FASB issued a new standard, SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of SFAS No. 65," which requires that a
mortgage banking enterprise recognize as a separate asset rights to service
mortgage loans for others, however those servicing rights are acquired. In
circumstances where mortgage loans are originated, separate asset rights to
service mortgage loans are only recorded when the enterprise intends to
sell such loans. The adoption of this new statement is not expected to have
a material impact on the Company's consolidated financial position or
results of operations. The Company will be required to adopt this standard
for its year ended December 31, 1996.
40
<PAGE>
4. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as
follows (in thousnads):
<TABLE>
<CAPTION>
Estimated December 31,
Useful Life 1995 1994
<S> <C> <C> <C>
Land $ 2,260 $ 2,171
Buildings 5 to 40 years 14,429 13,361
Equipment 3 to 10 years 13,118 10,345
Leasehold improvements 2 to 40 years 1,705 1,075
------- ------
31,512 26,952
Accumulated depreciation and amortization (11,586) (9,182)
------- ------
$ 19,926 $ 17,770
======== ========
</TABLE>
Depreciation and amortization expense amounted to $2,404,000,
$1,821,000 and $1,173,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
5. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to
repurchase generally mature within thirty days from the date of the
transactions. Short-term borrowings consist of Treasury Tax and Loan Note
Options and various other borrowings which generally have maturities of
less than one year. The details of these categories are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Securities sold under repurchase agreements
and federal funds purchased
Balance at year end $138,550 $ 50,274 $ 30,240
Average during the year 89,509 55,569 17,204
Maximum month-end balance 138,550 89,089 30,240
Weighted average rate during the year 5.93% 4.55% 2.48%
Rate at December 31 5.56% 5.28% 2.86%
Short-term borrowings
Balance at year end $ 4,370 $ 47,967 $ 12,592
Average during the year 18,810 5,338 4,446
Maximum month-end balance 10,286 47,967 12,592
Weighted average rate during the year 7.36% 3.47% 2.81%
Rate at December 31 5.35% 6.58% 2.71%
</TABLE>
The weighted average rates paid in aggregate on these borrowed funds
for 1995, 1994 and 1993 were 6.18%, 4.46%, and 2.55%, respectively.
41
<PAGE>
6. LONG-TERM BORROWINGS
At December 31, 1995, advances from the Federal Home Loan Bank
totaling $71,589,000 will mature within one to seven years and are reported
as long-term borrowings. These advances had a weighted average interest
rate of 6.14%. Principal payments ranging from $631,000 to $45,479,000 are
due in years one through five.
(This space intentionally left blank.)
42
<PAGE>
7. PENSION AND CAPITAL ACCUMULATION PLANS
The Company has a non-contributory defined benefit pension plan
covering substantially all employees. The Company sponsored pension plan
provides retirement benefits under pension trust agreements and under
contracts with insurance companies. The benefits are based on years of
service and the employee's compensation during the highest five consecutive
years during the last ten years of employement. The Company's policy is to
fund pension costs allowable for income tax purposes.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
December 31,
Actuarial present value of benefit obligations: 1995 1994
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$4,084,000 and $3,054,000 at 1995 and 1994, respectively ($4,251) ($3,144)
Projected benefit obligation for service rendered to date ($6,461) ($4,912)
Plan assets at fair value 5,796 4,898
------- -------
Plan assets below projected benefit obligation (665) (14)
Unrecognized net (gain) loss from past experience different from that
assumed and effects of changes in assumptions 184 (551)
Unrecognized net obligation at January 1, 1987 being recognized
over 17 years 872 981
Unrecognized prior service costs (424) (466)
------- -------
Pension liability ($ 33) ($ 50)
======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
Net pension cost included the following components: 1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 332 $ 381 $ 302
Interest cost on projected benefit obligation 400 358 305
Actual return on plan assets (709) 108 (287)
Net amortization and deferral 322 (330) 19
----- ----- -----
Net periodic pension cost $ 345 $ 517 $ 339
===== ===== =====
</TABLE>
The assumed discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 7.25% and 4.75%, respectively, in 1995, 8.25% and
5.5%, respectively, in 1994; and 6.5% and 4.0%, respectively, in 1993. The
expected long-term rate of return on assets was 8.25% for 1995, 8.25% for
1994 and 6.5% for 1993.
The Company has a capital accumulation and salary reduction plan under
Section 401(k) of the Internal Revenue Code of 1986, as amended. Under the
plan, all employees are eligible to contribute from 3% to a maximum of 10%
of their annual salary with the Company matching 50% of any contribution
between 3% and 7%. Matching contributions to the plan were $303,000,
$285,000 and $208,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(This space intentionally left blank)
43
<PAGE>
8. INCOME TAXES
The components of the income tax expense included in the consolidated
statements of income, are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
Income tax expense 1995 1994 1993
<S> <C> <C> <C>
Current $ 7,039 $ 7,104 $ 6,924
Deferred federal benefit (371) (1,047) (1,142)
------- ------- -------
Applicable income tax expense $ 6,668 $ 6,057 $ 5,782
======= ======= =======
</TABLE>
The differences between applicable income tax expense and the amount
computed by applying the statutory Federal income tax rate of 35% are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Computed tax expense at statutory rate $ 7,718 $ 7,247 $ 6,475
Increase (decrease) in taxes resulting from:
Tax-exempt loan and investment income (1,076) (1,089) (563)
Stock options exercised (196) (181) (564)
Tax effect of unused temporary differences -- -- 337
Other, net 222 80 97
------- ------- -------
Applicable income tax expense $ 6,668 $ 6,057 $ 5,782
======= ======= =======
</TABLE>
Deferred tax assets and liabilities at December 31, 1995, 1994 and
1993 consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Deferred tax assets
Deferred loan fees $ 896 $ 1,491 $ 1,158
Loan loss allowance 7,109 6,369 5,873
Deferred compensation 518 439 401
Loan sales valuation 120 210 210
Securities available for sale -- 2,160 --
Other real estate reserves -- -- 118
------- ------- -------
8,643 10,669 7,760
------- ------- -------
Deferred tax liability
Pension $ 64 $ 32 $ 61
Bad debt reserve recapture 529 773 1,018
Partnership investments 168 142 116
Acquisition adjustments 81 103 125
Mark-to-market accounting 57 86 114
Securities available for sale 3,543 -- --
Rehab credit adjustment 44 44 44
------- ------- -------
4,486 1,180 1,478
------- ------- -------
Net deferred tax asset $ 4,157 $ 9,489 $ 6,282
======= ======= =======
</TABLE>
44
<PAGE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum payments under non-cancellable operating leases are due
as follows (in thousands):
<TABLE>
<S> <C> <C>
Year ending December 31, 1996 $878
1997 769
1998 678
1999 560
2000 480
Remaining terms of the leases 1,564
-----
$4,929
======
</TABLE>
The total rental expense was approximately $1,182,000, $939,000, and
$541,000 in 1995, 1994 and 1993, respectively.
(This space intentionally left blank)
45
<PAGE>
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit,
standby letters of credit, and interest rate swaps. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheets. The
contract or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
notional amount of these instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. For interest rate swaps, the contract or
notional amounts do not represent exposure to credit loss. The Company
controls the credit risk of its interest rate swap agreements through
credit approvals, limits, and monitoring procedures.
Unless otherwise noted, the Company does not require collateral or
other security to support financial instruments with credit risk. The
contract or notional amounts as of December 31, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Commitments to extend credit $105,432 $101,031
Standby letters of credit 9,048 7,793
Financial instruments whose
notional or contract amounts
exceed the amount of credit risk:
Interest rate swap agreements 100,000 100,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon
extension of credit is based on management's credit evaluation. Collateral
held varies but may include personal or commercial real estate, accounts
receivable, inventory and equipment.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters
46
<PAGE>
of credit is essentially the same as that involved in extending loan
facilities to customers. The extent of collateral held for those
commitments at December 31, 1995 varies up to 100%; the average amount
collateralized is 75%.
Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange
of the underlying principal amounts. The Company uses swaps as part of its
asset and liability management process with the objective of hedging the
relationship between money market deposits that are used to fund prime rate
loans. Past experience has shown that as the prime interest rate changes,
rates on money market deposits do not change with the same volatility. The
interest rate swaps have the effect of converting the rates on money market
deposit accounts to a more market driven floating rate typical of prime in
order for the Company to recognize a more even interest rate spread on this
business segment. This strategy will cause the Company to recognize, in a
rising rate environment, a lower overall interest rate spread than it
otherwise would have without the swaps in effect. Likewise, in a falling
rate environment, the Company will recognize a larger interest rate spread
than it otherwise would have without the swaps in effect. In 1995, the
interest rate swaps had the effect of increasing the Company's net interest
income by $1.1 million over what would have been realized had the Company
not entered into the swap agreements.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 requires disclosure of the estimated fair value of an
entity's assets and liabilities considered to be financial instruments. For
the Company, as for most financial institutions, the majority of its assets
and liabilities are considered to be financial instruments as defined in
SFAS 107. However, many of such instruments lack an available trading
market as characterized by a willing buyer and willing seller engaging in
an exchange transaction. Also, it is the Company's general practice and
intent to hold its financial instruments to maturity and to not engage in
trading or sales activities. Therefore, the Company had to use significant
estimations and present value calculations to prepare this disclosure.
Changes in assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned
that there may not be reasonable comparability between institutions due to
the wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
Fair values have been estimated using data that management considered
the best available, and estimation methodologies deemed suitable for the
pertinent category of financial instrument. The estimation methodologies
and resulting fair values, and recorded carrying amounts at December 31,
1995 were as follows (in thousands):
Fair value of loans and deposits with floating interest rates is
generally presumed to approximate the recorded carrying amounts. Financial
instruments actively traded in a secondary market have been valued using
quoted available market prices.
47
<PAGE>
<TABLE>
<CAPTION>
Estimated Fair Carrying
Value Amount
At December 31, 1995
<S> <C> <C>
Cash and cash equivalents $ 41,209 $ 41,209
Investment securities 240,902 240,902
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994
<S> <C> <C>
Cash and cash equivalents $ 34,159 $ 34,159
Investment securities 236,332 238,102
</TABLE>
Fair value of financial instruments with stated maturities has been
estimated using present value cash flow, discounted at a rate approximating
current market for similar assets and liabilities.
Estimated Fair Carrying
Value Amount
At December 31, 1995
Deposits with stated
maturities $459,144 $450,872
Short-term borrowings 142,920 142,920
Long-term borrowings 73,478 71,589
At December 31, 1994
Deposits with stated
maturities $372,666 $372,872
Short-term borrowings 98,241 98,241
Long-term borrowings 75,785 77,777
Fair value of financial instrument liabilities with no stated
maturities has been estimated to equal the carrying amount (the amount
payable on demand), totaling $464,018 for 1995 and $491,768 for 1994.
The fair value of the net loan portfolio has been estimated using
present value cash flow, discounted at the treasury rate adjusted for
non-interest operating costs and giving consideration to estimated
prepayment risk and credit loss factors.
Estimated Fair Carrying
Value Amount
At December 31, 1995
Net loans $953,962 $918,699
At December 31, 1994
Net Loans $814,056 $811,302
There is no material difference between the carrying amount and
estimated fair value of off-balance sheet items which total $216,229,000
and $211,380,000 at year end 1995 and 1994, respectively, which are
primarily comprised of interest rate swap agreements and unfunded loan
commitments which are generally priced at market at the time of funding.
The Company's remaining assets and liabilities are not considered
financial instruments. No disclosure of the relationship value of the
Company's deposits is required by SFAS 107.
48
<PAGE>
12. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants commercial and residential loans to customers
throughout southeastern Pennsylvania. Although the Company has a
diversified loan portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent upon the economic sector.
13. RELATED PARTY TRANSACTIONS
Certain directors and officers of the Company and the Bank, their
immediate families, and the companies with which they are associated, were
customers of and have had banking transactions with the Bank in the
ordinary course of business. All loans and commitments included in such
transactions were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and, in the opinion of management of the
Bank, do not involve more than a normal risk of collectibility or present
other unfavorable features. The aggregate dollar amount of these loans was
$3,893,000 and $4,496,000 at December 31, 1995 and 1994, respectively.
During 1995, $787,000 of new loans were made, and repayments totaled
$1,390,000.
(This space intentionally left blank.)
49
<PAGE>
14. EQUITY TRANSACTIONS
The Company has an employee stock option plan for certain key
employees. A total of 1,277,114 shares of common stock, restated for stock
dividends and splits, have been made available for options to be granted
through February 24, 1997. The Company also has a non-employee director
stock option plan. Under this plan, a total of 157,500 shares of common
stock, restated for stock dividends and splits, have been made available
for options to be granted through January 3, 2004. Under both plans, the
option price per share is equivalent to 100% of the quoted market price on
the date the options were granted. These options are exercisable pursuant
to vesting schedules, commencing two years and expiring ten years and one
month from the date of issue. The number of unoptioned shares available for
granting totaled 502,633 at the beginning of the year and 812,785 at the
end of the year. At December 31, 1995, 136,882 shares are exercisable.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Outstanding, beginning of year 576,649 450,814 382,836
Effect of stock dividends and splits 33,707 27,944 31,997
Granted 204,900 126,550 113,250
Exercised (50,118) (28,659) (77,269)
Cancelled or expired (5,768) -- --
------------ ------------ -----------
Outstanding, end of year 759,370 576,649 450,814
============ ============ ===========
Option price per share exercised $12.11-18.42 $12.72-18.70 $9.60-19.99
Outstanding, end of year $12.11-35.29 $12.72-36.99 $13.35-38.79
</TABLE>
The Company has authorized 1,000,000 shares of preferred stock with no
stated par value. Voting powers, preferences, dividend rights, conversion
rights, redemption and liquidation rights, if any, may be determined by the
Board of Directors in their sole discretion. There are no shares
outstanding at December 31, 1995, however, shares may be issued from time
to time as a class without series or either in whole or in part in one or
more series if so determined by the Board of Directors.
The Company has a dividend reinvestment plan available to shareholders
who elect to reinvest their dividends in additional shares of the Company's
common stock which may be purchased in the open market or from authorized
but unissued shares. All purchases to date that have been made from
authorized but unissued common shares were at a purchase price equal to the
fair market value of such shares. Fair market value, for this purpose, is
generally the closing sale price per common share as reported on The Nasdaq
Stock Market for the date of the dividend reinvestment.
The FASB issued a new standard, SFAS No. 123, "Accounting for
Stock-Based Compensation," which contains a fair-value based method for
valuing stock-based compensation that entities may use, which measures
compensation cost at the grant date based on the fair value of the award.
Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, the standard permits entities to
continue accounting for employee stock options and similar equity
instruments under Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion 25 are required to make pro
forma disclosures of net earnings per share, as if the fair-value based
method of accounting defined in SFAS No. 123 had been applied. The Company
has not determined which method it will follow in the future, but
anticipates following APB Opinion 25. The Company will be required to adopt
the new standard for its year ended December 31, 1996.
50
<PAGE>
15. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The following is a summary of selected financial information of
National Penn Bancshares, Inc., parent company only (in thousands):
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
1995 1994
<S> <C> <C>
Assets
Cash $ 50 $ 77
Investment in Bank subsidiary, at equity 90,993 72,802
Investment in other subsidiaries, at equity 15,627 11,834
Other assets 6 165
-------- --------
$106,676 $ 84,878
======== ========
Liabilities and shareholders' equity
Liabilities $ 61 $ 7
Shareholders' equity 106,615 84,871
-------- --------
$106,676 $ 84,878
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income
Equity in undistributed net earnings of subsidiaries $ 8,849 $ 4,691 $ 4,844
Dividends from Bank subsidiary 6,435 8,691 8,610
Dividends from other subsidiaries -- 1,267 --
Interest and other income 278 4 42
-------- -------- --------
15,562 14,653 13,496
-------- -------- --------
Expenses
Other operating expenses 127 4 267
-------- -------- --------
Income before income taxes 15,435 14,649 13,229
Applicable income tax expense (benefit) 53 -- (79)
-------- -------- --------
Net income $ 15,382 $ 14,649 $ 13,308
======== ======== ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 15,382 $ 14,649 $ 13,308
Equity in undistributed net earnings of subsidiaries (8,849) (4,691) (4,844)
Net (increase) decrease in other assets 159 138 85
Net increase (decrease) in other liabilities (11) 271 (113)
-------- -------- --------
Net cash provided by operating activities 6,681 10,367 8,436
-------- -------- --------
Cash flows from investing activities
Additional investment in subsidiaries at equity (2,480) (3,699) (6,297)
-------- -------- --------
Net cash (used in) investing activities (2,480) (3,699) (6,297)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of stock 899 959 2,559
Effect of Treasury stock transactions 1,308 (3,340) 173
Cash dividends (6,435) (5,344) (4,405)
-------- -------- --------
Net cash (used in) financing activities (4,228) (7,725) (1,673)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (27) (1,057) 466
Cash and cash equivalents at beginning of year 77 1,134 668
-------- -------- --------
Cash and cash equivalents at end of year $ 50 $ 77 $ 1,134
======== ======== ========
</TABLE>
51
<PAGE>
16. REGULATORY RESTRICTIONS
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of those balances for the year
ended December 31, 1995 was approximately $7,148,000.
Dividends are paid by the Company from its assets which are mainly
provided by dividends from the Bank. However, certain restrictions exist
regarding the ability of the Bank to transfer funds to the Company in the
form of cash dividends, loans or advances. Under the restrictions in 1996,
the Bank, without prior approval of bank regulators, can declare dividends
to the Company totaling $14,145,000 plus additional amounts equal to the
net earnings of the Bank for the period January 1, 1996 through the date of
declaration less dividends previously paid in 1996.
The Company is required to maintain minimum amounts of Tier 1 and
total capital to "risk-weighted" assets and a minimum Tier 1 leverage
ratio, as defined by banking regulators. At December 31, 1995, the Company
was required to have minimum Tier 1 and total capital ratios of 4.0% and
8.0% respectively and a minimum Tier 1 leverage ratio of 3.0%. In order for
the Company to be considered "well capitalized", as defined by banking
regulators, the Company must have minimum Tier 1 and total capital ratios
of 6.0% and 10.0%, respectively, and a minimum Tier 1 leverage ratio of
5.0%. The Company's actual Tier 1 and total capital ratios at December 31,
1995 were 10.97% and 12.23% respectively and the Company's Tier 1 leverage
ratio was 7.59%. The Company's management believes that, under current
regulations, the Company will continue to meet its minimum capital
requirements in the foreseeable future.
17. SHAREHOLDER RIGHTS PLAN
The Company adopted a Shareholder Rights Plan (the "Rights Plan) in
1989 to protect shareholders from attempts to acquire control of the
Company at an inadequate price. Under the Rights Plan, the Company
distributed a dividend of one right to purchase a unit of preferred stock
on each outstanding common share of the Company. The rights are not
currently exercisable or transferable, and no separate certificates
evidencing such rights will be distributed, unless certain events occur.
The rights expire on August 22, 1999.
After the rights become exercisable, under certain circumstances, the
rights (other than rights held by a 19.9% beneficial owner or an "adverse
person") will entitle the holders to purchase either the Company's common
shares or the common shares of the potential acquirer at a substantially
reduced price.
The Company is generally entitled to redeem the rights at $.001 per
right at any time until the tenth business day following a public
announcement that a 19.9% position has been acquired. Rights are not
redeemable following an "adverse person" determination.
The Rights Plan was not adopted in response to any specific effort to
acquire control of the Company. The issuance of rights had no dilative
effect, did not affect the Company's reported earnings per share, and was
not taxable to the Company or its shareholders.
52
<PAGE>
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the
Company, which, in the opinion of management, reflects all adjustments
(comprising only normal recurring accruals) necessary for a fair
presentation. Net income per share of common stock has been restated to
retroactively reflect certain stock dividends.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
1995 Dec. 31 Sept. 30 June 30 March 31
<S> <C> <C> <C> <C>
Interest income $ 25,880 $ 25,436 $ 24,454 $ 23,250
======== ======== ======== ========
Net interest income $ 14,276 $ 13,899 $ 13,549 $ 13,460
======== ======== ======== ========
Provision for loan and lease losses $ 950 $ 750 $ 750 $ 750
======== ======== ======== ========
Net gains (losses) on sale of securities & mortgages ($ 40) $ 125 $ 47 $ 256
======== ======== ======== ========
Income before income taxes $ 5,766 $ 5,579 $ 5,134 $ 5,571
======== ======== ======== ========
Net income $ 4,012 $ 3,895 $ 3,558 $ 3,917
======== ======== ======== ========
Net income per share of common stock $ 0.54 $ 0.51 $ 0.47 $ 0.52
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
1995 Dec. 31 Sept. 30 June 30 March 31
<S> <C> <C> <C> <C>
Interest income $ 22,672 $ 21,677 $ 20,693 $ 19,217
======== ======== ======== ========
Net interest income $ 14,068 $ 14,137 $ 14,017 $ 13,189
======== ======== ======== ========
Provision for loan and lease losses $ 750 $ 750 $ 950 $ 750
======== ======== ======== ========
Net losses on sale of mortgages ($ 87) ($ 46) ($ 91) ($ 221)
======== ======== ======== ========
Income before income taxes $ 4,866 $ 5,328 $ 4,907 $ 5,605
======== ======== ======== ========
Net income $ 3,683 $ 3,709 $ 3,454 $ 3,803
======== ======== ======== ========
Net income per share of common stock $ 0.49 $ 0.49 $ 0.46 $ 0.51
======== ======== ======== ========
</TABLE>
(This space intentionally left blank)
53
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
National Penn Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of National
Penn Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National Penn
Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Grant Thornton, LLP
Philadelphia, Pennsylvania
February 7, 1996
53A
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
NATIONAL PENN BANCSHARES, INC.
(Registrant)
February 26, 1997 By /s/ Lawrence T. Jilk, Jr.
Lawrence T. Jilk, Jr.
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to Report on Form 10-K has been signed below by the following
persons in the capacities and on the dates indicated:
Signatures Title
/s/ John H. Body Director February 26, 1997
John H. Body
Director February 26, 1997
J. Ralph Borneman, Jr.
/s/ John J. Dau Director February 26, 1997
John J. Dau
/s/ Lawrence T. Jilk, Jr. Director, President, and February 26, 1997
Lawrence T. Jilk, Jr. Chief Executive Officer
(Principal Executive
Officer)
/s/ Patricia L. Langiotti Director February 26, 1997
Patricia L. Langiotti
/s/ Kenneth A. Longacre Director February 26, 1997
Kenneth A. Longacre
/s/ Randall J. Nester Director February 26, 1997
Randall J. Nester
<PAGE>
Signatures Title
/s/ C. Robert Roth Director February 26, 1997
C. Robert Roth
/s/ Harold C. Wegman, D.D.S. Director February 26, 1997
Harold C. Wegman, D.D.S.
/s/ Wayne R. Weidner Director and Executive February 26, 1997
Wayne R. Weidner Vice President
/s/ Gary L. Rhoads Treasurer (Principal February 26, 1997
Gary L. Rhoads Financial and Accounting
Officer)
