SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ______________
to ______________.
Commission file number 0-10957
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 14, 1997, was
$157,688,377.
As of March 14, 1997, the Registrant had 8,005,727 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 22, 1997 -- Part III.
<PAGE>
NATIONAL PENN BANCSHARES, INC.
FORM 10-K
TABLE OF CONTENTS
Page
Part I
Item 1 Business...................................................... 1
Item 2. Properties....................................................20
Item 3. Legal Proceedings.............................................21
Item 4. Submission of Matters to a Vote of Security
Holders.......................................................21
Item 4A. Executive Officers of the Registrant..........................21
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................................23
Item 6. Selected Financial Data.......................................24
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................26
Item 8. Financial Statements and Supplementary Data...................31
Item 9. Disagreements on Accounting and Financial
Disclosure....................................................55
Part III
Item 10. Directors and Executive Officers of the
Registrant....................................................54
Item 11. Executive Compensation........................................54
Item 12. Security Ownership of Certain Beneficial
Owners and Management.........................................54
Item 13. Certain Relationships and Related
Transactions..................................................54
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.......................................54
<PAGE>
PART I
Item 1. BUSINESS.
The Company
National Penn Bancshares, Inc. (the "Company") is a Pennsylvania business
corporation and bank holding company headquartered at Philadelphia and Reading
Avenues, Boyertown, Pennsylvania 19512. The Company owns all of the outstanding
capital stock of National Penn Bank, formerly named National Bank of Boyertown
("NPB"). The Company was incorporated in January 1982. In addition, the Company
has three wholly-owned nonbank subsidiaries engaged in activities related to the
business of banking and has, indirectly through one of such subsidiaries, equity
investments in three other banks or banking companies. At December 31, 1996, the
Company and NPB had 578 full- and part-time employees.
National Penn Bank
NPB is a national bank chartered under the National Bank Act. Prior to
August 1, 1993, NPB's name was National Bank of Boyertown. On that date, the
bank's name was changed to National Penn Bank. National Penn Bank also operates
through Chestnut Hill National Bank ("CHNB Division") and 1st Main Line Bank
("1stMLB Division"), each a banking division of National Penn Bank. The CHNB
Division was established in December 1993 after the Company's acquisition of
Chestnut Hill National Bank; the 1stMLB Division was started in April 1995.
At December 31, 1996, NPB conducted operations through 46 full-service
branches and three loan production offices, of which two branches and one loan
production office constitute the CHNB Division, and two branches constitute the
1stMLB Division.
NPB is engaged in the commercial and retail banking business. NPB provides
checking and savings accounts, time deposits, personal, business, residential
mortgage, educational loans, interbank credit cards, and safe deposit and night
depository facilities.
In fourth quarter 1995, NPB began offering certain non-deposit (non-FDIC
insured) investment products through unaffiliated third-party vendors.
Nonbank Subsidiaries
The Company owns all of the outstanding capital stock of Investors Trust
Company ("ITC"), a Pennsylvania-chartered trust company. ITC opened for business
on June 20, 1994.
The Company also owns all of the outstanding capital stock of National Penn
Investment Company, a Delaware business corporation ("NPIC") that invests in and
holds equity investments in other banks and bank holding companies (as discussed
below), other equity investments, government and other debt securities, and
other investment securities, as permitted by applicable law and regulations.
NPIC began operations in January 1985. The Company also owns all of the
outstanding capital stock of National Penn Life Insurance Company, an Arizona
insurance company formed to reinsure credit life and accident and health
insurance in connection with loans made by NPB. National Penn Life Insurance
Company began operations in January 1985.
Other Bank Investments
The Company has, indirectly through NPIC, the following equity investments
in banks or banking companies:
1
<PAGE>
1. 20% of the outstanding capital stock of Penncore Financial Services
Corporation, a Pennsylvania bank holding company and parent corporation of
Commonwealth State Bank, a Pennsylvania bank headquartered in Newtown, Bucks
County, Pennsylvania. Commonwealth State Bank began operations as a bank in
April 1987.
2. 20% of the outstanding capital stock of First Capitol Bank, a
Pennsylvania bank headquartered in York, Pennsylvania. First Capitol Bank began
operations as a bank in November 1988.
3. 20% of the outstanding capital stock of Pennsylvania State Bank, a
Pennsylvania bank headquartered in Camp Hill, Pennsylvania. Pennsylvania State
Bank began operations as a bank in May 1989.
For financial reporting purposes, the Company accounts for its investment
in Penncore Financial Services Corporation, First Capitol Bank, and Pennsylvania
State Bank using the "equity" method.
Supervision and Regulation
Bank holding companies and banks operate in a highly-regulated environment
and are regularly examined by Federal and state regulatory authorities. The
following discussion concerns certain provisions of Federal and state laws and
certain regulations and the potential impact of such provisions and regulations
on the Company and its subsidiaries. To the extent that the following
information describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory or regulatory provisions
themselves.
Bank Holding Company Regulation
The Company is registered as a bank holding company and is subject to the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") under the Bank Holding Company Act of 1956, as amended
("BHCA"). Bank holding companies are required to file periodic reports with and
are subject to examination by the Federal Reserve. The Federal Reserve has
issued regulations under the BHCA that require a bank holding company to serve
as a source of financial and managerial strength to its subsidiary banks. As a
result, the Federal Reserve, pursuant to such regulations, may require the
Company to stand ready to use its resources to provide adequate capital funds to
NPB during periods of financial stress or adversity.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined by regulations) with the terms of any capital restoration plan filed
by such subsidiary with its appropriate federal banking agency, up to specified
limits.
Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.
The BHCA prohibits the Company from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve. Such
a transaction would also require approval of the Pennsylvania Department of
Banking. Pennsylvania law permits Pennsylvania bank holding companies to control
an unlimited number of banks.
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a nonbanking business unless
such business is determined by the Federal Reserve, by regulation or by order,
to be so "closely related to banking" as to be a "proper incident" thereto. The
BHCA does not place territorial restrictions on the activities of such
nonbanking-related businesses.
2
<PAGE>
In February 1997, the Federal Reserve adopted a revised regulation
concerning permissible nonbanking activities, effective April 21, 1997. This
revised regulation provides fourteen categories of functionally related
activities that are permissible nonbanking activities. These are:
(1) extending credit and servicing loans;
(2) certain activities related to extending credit;
(3) leasing personal or real property under certain conditions;
(4) operating nonbank depository institutions, including savings
associations;
(5) trust company functions;
(6) certain financial and investment advisory activities;
(7) certain agency transactional services for customer investments,
including securities brokerage activities;
(8) certain investment transactions as principal;
(9) management consulting and counseling activities;
(10) certain support services, such as courier and printing services;
(11) certain insurance agency and underwriting activities;
(12) community development activities;
(13) issuance and sale of money orders, savings bonds, and traveler's
checks; and
(14) certain data processing services.
Depending on the circumstances, Federal Reserve approval may be required
before the Company or its nonbank subsidiaries may begin to engage in any such
activity and before any such business may be acquired.
Dividend Restrictions
The Company is a legal entity separate and distinct from NPB and the
Company's nonbank subsidiaries. The Company's revenues (on a parent Company only
basis) result almost entirely from dividends paid to the Company by its
subsidiaries. The right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of any subsidiary through the payment of such dividends or
otherwise is necessarily subject to the prior claims of creditors of the
subsidiary (including depositors, in the case of NPB), except to the extent that
claims of the Company in its capacity as a creditor may be recognized.
Federal and state laws regulate the payment of dividends by the Company's
subsidiaries. See "Supervision and Regulation - Regulation of NPB" herein.
Further, it is the policy of the Federal Reserve that bank holding
companies should pay dividends only out of current earnings. Federal banking
regulators also have the authority to prohibit banks and bank holding companies
from paying a dividend if they should deem such payment to be an unsafe or
unsound practice.
3
<PAGE>
Capital Adequacy
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. The required minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half (4%) of the total capital is
required to be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries, less certain intangible assets. The remainder ("Tier
2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance. In addition to the risk-based capital guidelines, the
Federal Reserve requires a bank holding company to maintain a minimum "leverage
ratio." This requires a minimum level of Tier 1 capital (as determined under the
risk-based capital rules) to average total consolidated assets of 3% for those
bank holding companies that have the highest regulatory examination ratings and
are not contemplating or experiencing significant growth or expansion. All other
bank holding companies are expected to maintain a ratio of at least 1% to 2%
above the stated minimum. Further, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities. The Federal Reserve has not advised the Company of
any specific minimum leverage ratio applicable to the Company.
Pursuant to FDICIA, the federal banking agencies have specified, by
regulation, the levels at which an insured institution is considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." Under these regulations, an
institution is considered "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, a leverage ratio of 5% or greater, and is not subject to any order or
written directive to meet and maintain a specific capital level. The Company and
NPB, at December 31, 1996, qualify as "well capitalized" under these regulatory
standards.
FDIC Insurance Assessments
NPB is subject to FDIC deposit insurance assessments. These assessments
fund both the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations and are based on the risk
classification of the depository institution.
On August 8, 1995, the FDIC reduced the insurance assessment that
BIF-member banks deemed to have the least risk (including NPB) had to pay on
insured deposits to $.04 per $100 of deposits from the then current rate of $.23
per $100 of deposits, but continued SAIF premiums at the then current level of
$.23 per $100 of deposits. Because NPB had acquired approximately $225 million
of SAIF-insured deposits from savings associations from 1990 to the present, NPB
continued to pay insurance assessments on these acquired deposits at $.23 per
$100 of deposits. The reduction in rate on BIF-insured deposits to $.04 was
retroactive to May 1, 1995. On January 1, 1996, the FDIC reduced the insurance
assessment to zero for BIF-member banks in the least risk category.
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 became effective. This Act recapitalized the SAIF through
a one-time special assessment and provides for assessing BIF-insured deposits,
as well as SAIF-insured deposits, to fund the Federal goverment's FICO bond
payments. As a result, NPB paid a one-time assessment of $1,175,000 to the FDIC
on November 30, 1996, and, effective January 1, 1997, NPB's insurance assessment
rate for its SAIF-insured deposits became $.0644 per $100 of deposits and $.0129
per $100 of deposits for its BIF-insured deposits. Substantially all of these
on-going assessments are to fund debt service on the FICO bonds. Beginning in
2000, BIF-insured deposits and SAIF-insured deposits will be assessed at the
same rates to fund remaining debt service on the FICO bonds. The FICO bonds
mature in 2017.
4
<PAGE>
Regulation of NPB
The operations of NPB are subject to Federal and state statutes applicable
to banks chartered under the banking laws of the United States, to members of
the Federal Reserve System, and to banks whose deposits are insured by the FDIC.
NPB's operations are also subject to regulations of the Office of the
Comptroller of the Currency (the "OCC"), the Federal Reserve, and the FDIC.
The OCC, which has primary supervisory authority over NPB, regularly
examines banks in such areas as reserves, loans, investments, management
practices, and other aspects of operations. These examinations are designed for
the protection of NPB's depositors rather than the Company's shareholders. NPB
must furnish annual and quarterly reports to the OCC, which has the authority
under the Financial Institutions Supervisory Act to prevent a national bank from
engaging in an unsafe or unsound practice in conducting its business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may make, the reserves
against deposits a bank must maintain, the types and terms of loans a bank may
make and the collateral it may take, the activities of a bank with respect to
mergers and consolidations, and the establishment of branches. Pennsylvania law
permits statewide branching.
Under the National Bank Act, as amended, NPB is required to obtain the
prior approval of the OCC for the payment of dividends if the total of all
dividends declared by NPB in one year would exceed NPB's net profits (as defined
and interpreted by regulation) for the current year plus its retained net
profits (as defined and interpreted by regulation) for the two preceding years,
less any required transfers to surplus. In addition, NPB may only pay dividends
to the extent that its retained net profits (including the portion transferred
to surplus) exceed statutory bad debts (as defined by regulation). Under FDICIA,
any depository institution, including NPB, is prohibited from paying any
dividends, making other distributions or paying any management fees if, after
such payment, it would fail to satisfy its minimum capital requirements.
A subsidiary bank of a bank holding company, such as NPB, is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The Federal Reserve
Act and Federal Reserve regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to the principal shareholders of
its parent holding company, among others, and to related interests of such
principal shareholders. In addition, such legislation and regulations may affect
the terms upon which any person becoming a principal shareholder of a holding
company may obtain credit from banks with which the subsidiary bank maintains a
correspondent relationship.
NPB, and the banking industry in general, are affected by the monetary and
fiscal policies of government agencies, including the Federal Reserve. Through
open market securities transactions and changes in its discount rate and reserve
requirements, the Board of Governors of the Federal Reserve exerts considerable
influence over the cost and availability of funds for lending and investment.
Competition
The financial services industry in the Company's service area is extremely
competitive. The Company's competitors within its service area include
multi-bank holding companies, with resources substantially greater than those of
the Company. Many competitor financial institutions have legal lending limits
substantially higher than NPB's legal lending limit. In addition, NPB competes
with savings banks, savings and loan associations, credit unions, money market
and other mutual funds, mortgage companies, leasing companies, finance
companies, and other financial services companies that offer products and
services similar to those offered by NPB on competitive terms.
In September 1994, Federal legislation was enacted that is having a
significant effect in restructuring the banking industry in the United States.
See "Interstate Banking Legislation" herein. As a result, the operating
environment for Pennsylvania-based financial institutions is becoming
increasingly competitive.
5
<PAGE>
Additionally, the manner in which banking institutions conduct their
operations may change materially if the activities in which bank holding
companies and their banking and nonbanking subsidiaries are permitted to engage
continue to increase, and if funding and investment alternatives continue to
broaden, although the long-range effects of such changes cannot be predicted,
with reasonable certainty, at this time. If these trends continue, they most
probably will further narrow the differences and intensify competition between
and among commercial banks, thrift institutions, and other financial service
companies. See "Proposed Legislation and Regulations" herein.
Interstate Banking Legislation
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Banking Act") was enacted. The Interstate
Banking Act facilitates the interstate expansion and consolidation of banking
organizations (i) by permitting bank holding companies that are adequately
capitalized and adequately managed, beginning September 29, 1995, to acquire
banks located in states outside their home states regardless of whether such
acquisitions are authorized under the law of the host state; (ii) by permitting
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or "opt out" of this authority before that date;
(iii) by permitting banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state; (iv) by permitting, beginning September 29, 1995, a bank to engage in
certain agency relationships (i.e., to receive deposits, renew time deposits,
close loans (but not including loan approvals or disbursements), service loans,
and receive payments on loans and other obligations) as agent for any bank or
thrift affiliate, whether the affiliate is located in the same state or a
different state than the agent bank; and (v) by permitting foreign banks to
establish, with approval of the regulators in the United States, branches
outside their "home" states to the same extent that national or state banks
located in the home state would be authorized to do so. One effect of this
legislation is to permit the Company to acquire banks and bank holding companies
located in any state and to permit qualified banking organizations located in
any state to acquire banks and bank holding companies located in Pennsylvania,
irrespective of state law.
In July 1995, the Pennsylvania Banking Code was amended to authorize full
interstate banking and branching under Pennsylvania law. Specifically, the
legislation (i) eliminates the "reciprocity" requirement previously applicable
to interstate commercial bank acquisitions by bank holding companies, (ii)
authorizes interstate bank mergers and reciprocal interstate branching into
Pennsylvania by interstate banks, and (iii) permits Pennsylvania institutions to
branch into other states with the prior approval of the Pennsylvania Department
of Banking.
Overall, this Federal and state legislation is having the effect of
increasing consolidation and competition and promoting geographic
diversification in the banking industry.
Proposed Legislation and Regulations
Because of concerns relating to the competitiveness and the safety and
soundness of the banking industry, the U.S. Congress continues to consider a
number of proposals for changing the structure, regulation, and competitive
relationships of the nation's financial insitituions. These include proposals to
require thrift institutions to convert to commercial bank charters, to alter the
statutory separation of commerical and investment banking, to restrain the OCC
from authorizing new business activities for national banks, and to further
expand the powers of depository institutions, bank holding companies and their
competitors. It cannot be predicted whether or in what form any of these
proposals will be enacted or the extent to which the business of the Company may
be affected thereby.
Interest Rate Swaps
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
requires that information about the amounts, nature, and terms of interest rate
swaps be disclosed. See Note 11 to the Company's Consolidated Financial
Statement
6
<PAGE>
included at Item 8 hereof. In 1996, the interest rate swaps to which NPB was a
party had the effect of increasing the Company's net interest income by $1.5
million over what would have been realized had NPB not entered into the swap
agreements. Should rates rise in 1997, the Company may recognize lower net
interest income for the year than would have been recognized had NPB not entered
into the interest rate swap agreements.
The Company uses interest rate swap agreements for interest rate risk
management. No derivative financial instruments are held for trading purposes.
The contract or notional amounts of the swap agreements do not represent
exposure to credit loss. Potential credit risk on these contracts arises from
the counterparty's inability to meet the terms of the agreement. Management
considers the credit risk of these agreements to be minimal and manages this
risk through routine review of the counterparty's financial ratings.
(This space intentionally left blank.)
7
<PAGE>
Average Balances, Average Rates, and Interest Rate Spread*
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing deposits at banks $1,186 $60 5.06% $1,239 $76 6.13% $2,184 $77 3.53%
--------- ------- --------- ------- ------- ------
U.S. Treasury 86,751 5,976 6.89 99,374 7,321 7.37 96,231 7,446 7.74
U.S. Government agencies 75,461 5,478 7.26 71,957 5,136 7.14 47,192 3,530 7.48
State and municipal* 52,309 3,760 7.19 47,735 3,515 7.36 47,081 3,419 7.26
Other bonds and securities 22,820 1,302 5.71 21,100 1,276 6.05 14,464 791 5.47
--------- ------- --------- ------- ------- ------
Total investments 237,341 16,516 6.96 240,166 17,248 7.18 204,968 15,186 7.41
--------- ------- --------- ------- ------- ------
Federal funds sold 3,817 162 4.24 1,929 114 5.91 708 27 3.81
--------- ------- --------- ------- ------- ------
Commercial loans and lease financing* 540,140 49,949 9.25 463,106 43,197 9.33 391,624 34,916 8.92
Installment loans 220,292 20,044 9.10 212,855 20,280 9.53 186,564 17,075 9.15
Mortgage loans 221,317 21,624 9.77 206,331 19,791 9.59 197,487 18,633 9.44
--------- ------- --------- ------- ------- ------
Total loans and leases 981,749 91,617 9.33 882,292 83,268 9.44 775,675 70,624 9.10
--------- ------- --------- ------- ------- ------
Total earning assets 1,224,093 108,355 8.85% 1,125,626 100,706 8.95% 983,535 85,914 8.74%
------- --------- ------- ------
Allowance for loan and lease losses (21,671) (19,859) (18,503)
Non-interest earning assets 84,758 81,884 76,071
---------- ---------- ----------
Total assets $1,287,180 $1,187,651 $1,041,103
========== ========== ==========
INTEREST BEARING LIABILITIES:
Interest bearing deposits $820,728 34,331 4.18 $781,686 32,738 4.19 $722,657 22,825 3.16
Securities sold under repurchase
agreements and federal funds
purchased 157,182 8,083 5.14 94,375 5,613 5.95 55,569 2,531 4.55
Short-term borrowings 3,863 193 5.00 13,944 1,078 7.73 5,338 185 3.47
Long-term borrowings 53,424 3,411 6.38 75,392 4,406 5.84 56,555 3,308 5.85
--------- ------- --------- ------- ------- ------
Total interest bearing liabilities 1,035,197 46,018 4.45% 965,397 43,835 4.54% 840,119 28,849 3.43%
------- ------- ------
Non-interest bearing deposits 128,002 113,442 104,609
Other non-interest bearing
liabilities 15,463 14,529 11,831
---------- ---------- ----------
Total liabilities 1,178,662 1,093,368 956,559
Equity capital 108,518 94,283 84,544
---------- ---------- ----------
Total liabilities and equity
capital $1,287,180 $1,187,651 $1,041,103
========== ========== ==========
INTEREST RATE SPREAD** 62,337 5.09% $56,871 5.05% $57,065 5.80%
====== ======= =======
<FN>
* Full taxable equivalent basis, using a 35% effective tax rate.
** Represents the difference between interest earned and interest paid,
divided by total earning assets.
Loans outstanding, net of unearned income, include nonaccruing loans.
Fee income included.
</FN>
</TABLE>
8
<PAGE>
Interest Rate Sensitivity Analysis
Information with respect to interest rate sensitivity of the Company's
assets and liabilities is included in the information under Management's
Discussion and Analysis at Item 7 hereof.
Investment Portfolio
A summary of securities available for sale and securities held to maturity
at December 31, 1996, 1995, and 1994 follows (in thousands).
<TABLE>
<CAPTION>
1996 1995 1994
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and U.S.
Government agencies $108,569 $111,611 $102,357 $107,859 $ 39,055 $ 37,480
State and municipal 49,485 49,621 45,712 46,836 45,694 41,918
Other bonds 1,184 1,198 2,727 2,751 2,144 2,104
Mortgage-backed securities 50,594 51,785 63,316 65,029 42,527 40,746
Marketable equity securities
and other 20,216 22,599 16,667 18,427 15,823 16,625
-------- -------- -------- -------- -------- --------
Totals $230,048 $236,814 $230,779 $240,902 $145,243 $138,873
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity
U.S. Treasury and U.S.
Government agencies $ -- $ -- $ -- $ -- $76,607 $75,340
State and municipal -- -- -- -- 7,388 7,144
Other bonds -- -- -- -- 1,018 1,002
Mortgage-backed securities -- -- -- -- 14,216 13,973
Marketable equity securities
and other -- -- -- -- -- --
------- ------- -------- -------- ------- -------
Totals $ -- $ -- $ -- $ -- $99,229 $97,459
======= ======= ======== ======== ======= =======
</TABLE>
9
<PAGE>
Investment Securities Yield by Maturity
The maturity distribution and weighted average yield of the investment portfolio
of the Company at December 31, 1996, are presented in the following table.
Weighted average yields on tax-exempt obligations have been computed on a fully-
taxable equivalent basis assuming a tax rate of 35%. All average yields were
calculated on the book value of the related securities. Stocks and other
securities having no stated maturity have been included in the "After 10 Years"
category.
Securities Available for Sale Yield by Maturity at December 31, 1996
<TABLE>
<CAPTION>
Securities available for sale at market value
(Dollars in thousands)
After 1 But After 5 But
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 7,840 8.94% $39,885 6.85% $63,441 7.24% $444 6.53% $111,610 7.22%
State and municipal 501 11.92% 3,347 7.66% 42,203 7.43% 3,571 7.31% 49,622 7.48%
Other bonds 943 7.06% 255 7.05% --- ---% --- ---% 1,198 7.06%
Mortgage-backed securities --- ---% 5,685 6.95% 8,631 7.70% 37,469 6.98% 51,785 7.10%
Marketable equity securities
and other --- ---% --- ---% --- --% 18,427 ---% 18,427 --%
-------- ---- ------- ---- -------- ---- ------- ---- -------- ----
Total $ 9,284 8.91% $49,172 6.92% $114,275 7.34% $64,083 4.53% $236,814 6.56%
======== ==== ======= ==== ======== ==== ======= ==== ======== ====
</TABLE>
10
<PAGE>
Loan Maturity and Interest Rate Sensitivity
Maturities and sensitivity to changes in interest rates in certain loan
categories in the Company's loan portfolio at December 31, 1996, are summarized
below:
Remaining Maturity* - At December 31, 1996
<TABLE>
<CAPTION>
After One
One Year Year to After
or Less Five Years Five Years Total
(In Thousands)
<S> <C> <C> <C> <C>
Commercial and Industrial
Loans $ 63,152 $ 48,627 $ 14,525 $126,304
Loans for Purchasing and
Carrying Securities 153 118 35 306
Loans to Financial
Institutions 227 174 52 453
Real Estate Loans:
Construction and Land
Development 42,468 -- -- 42,468
-------- -------- -------- --------
$106,000 $ 48,919 $ 14,612 $169,531
======== ======== ======== ========
</TABLE>
* Demand loans, past-due loans, and overdrafts are reported in "One Year or
Less." Construction real estate loans are reported maturing in "One Year or
Less" because of their short-term maturity or index to Prime Rate. An
immaterial amount of loans have no stated schedule of repayments.
Segregated in terms of sensitivity to changes in interest rates, the
foregoing loan balances at December 31, 1996, are summarized below:
After One
Year to After
Five Years Five Years
(In Thousands)
Predetermined Interest Rate $48,430 $14,612
Floating Interest Rate 489 --
------- -------
Total $48,919 $14,612
======= =======
Determinations of maturities included in the loan maturity table are based
upon contract terms. In situations where a "rollover" is appropriate, the
Company's policy in this regard is to evaluate the credit for collectability
consistent with the normal loan evaluation process. This policy is used
primarily in evaluating ongoing customers' use of their lines of credit that are
at floating interest rates. The Company's outstanding lines of credit to
customers are not material.
11
<PAGE>
Loan Portfolio
The Company's loans are widely diversified by borrower, industry group, and
geographical area. The following summary shows the year-end composition of the
Company's loan portfolio for each year in the five-year period ended December
31, 1996:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial and Industrial
Loans $ 126,304 $ 99,765 $ 79,726 $ 68,599 $ 58,936
Loans for Purchasing and
Carrying Securities 306 478 778 1,008 1,171
Loans to Financial
Institutions 453 589 821 2,063 2,286
Real Estate Loans:
Construction and Land
Development 42,468 42,978 31,760 22,690 22,074
Residential 564,748 526,577 472,227 428,540 350,261
Other 302,787 256,956 228,911 191,875 145,995
Loans to Individuals 14,014 11,722 16,389 22,963 22,780
Lease Financing
Receivables -- -- -- 27 458
---------- ---------- ---------- ---------- ----------
Total $1,051,080 $ 939,065 $ 830,612 $ 737,765 $ 603,961
========== ========== ========== ========== ==========
</TABLE>
Risk Elements
The Company's consolidated financial statements are prepared on the accrual
basis of accounting, including the recognition of interest income on the loan
portfolio.
In determining income from loans, including consumer and residential
mortgage loans, the Company generally adheres to the policy of not accruing
interest on a loan on which default of principal or interest has existed for a
period of 90 days or more. A loan past due 90 days or more remains on accrual
only if the loan is fully secured and in the process of collection. When a loan
reaches nonaccrual status, any interest accrued but unpaid on it, if payment is
considered questionable, is reversed and charged against current income.
Thereafter, until such time as the loan becomes current, interest is included in
income only to the extent it is received in cash.
Restructured loans are loans on which the interest rate has been reduced
because of a weakened financial position of the borrower. There were no
restructured loans at December 31, 1996, and an immaterial amount of such loans
at the end of prior years.
Nonaccrual loans, loans 90 days or more past due and still on accrual, and
restructured loans together constitute nonperforming loans. When other real
estate owned is included with nonperforming loans, the total is nonperforming
assets.
12
<PAGE>
Other real estate owned decreased in 1996 due primarily to properties
acquired through bank acquisition having substantially been resolved through
sales.
The following table shows the balance at year-end and the effect on
interest income of nonperforming assets in the Company's loan portfolio, by
category, for each year in the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans $ 8,722 $ 7,257 $ 9,328 $ 8,698 $ 8,848
Loans Past Due 90 or
More Days as to
Interest or Principal 3,649 1,764 2,114 2,349 2,168
Restructured Loans -- -- -- --
Total Nonperforming
Loans 12,371 9,021 11,442 11,047 11,016
Other Real Estate Owned 319 760 2,047 3,122 2,825
------- ------- ------- ------- -------
Total Nonperforming
Assets $12,690 $ 9,781 $13,489 $14,169 $13,841
======= ======= ======= ======= =======
Gross Amount of Interest
That Would Have Been
Recorded at Original
Rate on Nonaccrual
and Restructured Loans $ 1,039 $ 961 $ 1,517 $ 804 $ 802
Interest Received From
Customers on Nonaccrual
and Restructured Loans 834 656 1,031 160 336
------- ------- ------- ------- -------
Net Impact on Interest
Income of Nonperforming
Loans $ 205 $ 305 $ 486 $ 644 $ 466
======= ======= ======= ======= =======
</TABLE>
At December 31, 1996, the Company had no foreign loans and no loan
concentrations exceeding 10% of total loans not disclosed in the table on page
12 hereof. "Loan concentrations" are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities that
would cause them to be similarly affected by economic or other conditions. Loans
recorded in the category of other real estate owned are valued at the lower of
book value of loans outstanding or fair market value.
At December 31, 1996, the Company was not aware of any potential problem
loans that are not otherwise included in the foregoing table. "Potential problem
loans" are loans where information about possible credit problems of borrowers
has caused management to have serious doubts about the borrowers' ability to
comply with present repayment terms.
At December 31, 1996, the Company had no loans that are considered
highly-leveraged transactions under applicable regulations, although the Company
had approximately $9,948,000 in aggregate loans outstanding that, but for their
small individual amount, would be considered such loans. A "highly-leveraged
transaction" is a transaction for the purpose of the buyout, acquisition, or
recapitalization of a corporation, which involves new debt that doubles the
corporation's debt and results in a leverage ratio greater than 50%, produces a
leverage ratio
13
<PAGE>
greater than 75% where 25% or more results from the buyout, acquisition, or
recapitalization, or is designated as such by a syndication agent or regulatory
agency.
Allowance for Possible Loan and Lease Losses
A detailed analysis of the Company's allowance for loan and lease losses
for the five years ended December 31, 1996, is shown below:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $20,366 $19,310 $17,909 $12,448 $10,593
Charge-offs:
Commercial and Industrial
Loans 289 544 679 478 2,518
Real Estate Loans:
Construction and Land
Development -- 366 125 552 514
Residential 1,242 882 941 1,055 813
Other 392 932 435 596 914
Loans to Individuals 422 785 822 728 89
Lease Financing Receivables -- -- -- 3 1,146
------- ------- ------- ------- -------
Total Charge-offs $ 2,345 $ 3,509 $ 3,002 $ 3,412 $ 5,994
------- ------- ------- ------- -------
Recoveries:
Commercial and Industrial
Loans 110 365 190 141 643
Real Estate Loans:
Construction and Land
Development 131 148 47 58 290
Residential 182 491 494 383 166
Other 235 124 155 448 495
Loans to Individuals 167 237 313 428 21
Lease Financing Receivables 4 10 9
------- ------- ------- ------- -------
Total Recoveries $ 825 $ 1,365 $ 1,203 $ 1,468 $ 1,624
------- ------- ------- ------- -------
Net Charge-offs $ 1,520 $ 2,144 $ 1,799 $ 1,944 $ 4,370
------- ------- ------- ------- -------
Provisions Charged to Expense 3,900 3,200 3,200 5,145 6,225
Adjustments:
14
<PAGE>
Changes Incident to Mergers
and Absorptions, Net -- -- -- 2,260 --
------- ------- ------- ------- -------
Balance at End of Year $22,746 $20,366 $19,310 $17,909 $12,448
======= ======= ======= ======= =======
Ratio of Net Charge-offs
During the Period to
Average Loans Outstanding
During the Period 0.15% 0.24% 0.23% 0.30% 0.77%
======= ======= ======= ======= =======
</TABLE>
The allowance for loan and lease losses is established through charges to
earnings in the form of a provision for loan and lease losses. Loans and leases
that are determined to be uncollectible are charged against the allowance, and
subsequent recoveries are credited to the allowance. Factors that influence
management's judgment in determining the amount of the provision for loan and
lease losses charged to operating expense include the following:
1. An ongoing review by management of the quality of the overall loan
and lease portfolio.
2. Management's continuing evaluation of potential problem and
nonperforming loans and leases.
3. Loan and lease classifications and evaluations as a result of
periodic examinations by federal supervisory authorities.
4. Management's evaluation of prevailing and anticipated economic
conditions and their related effect on the existing loan and lease portfolio.
5. Comments and recommendations by the Company's independent
accountants as a result of their regular examination of the Company's financial
statements.
It is management's practice to review the allowance for loan and lease
losses regularly to determine whether additional provision should be made after
considering the factors noted above. In 1996, the provision was increased due to
current loan quality, economic conditions, and net loan charge-offs in 1996.
The Company makes partial loan charge-offs when it determines that the
underlying collateral is not sufficient to cover a nonperforming loan. Loan loss
allowances are maintained at least in amounts sufficient to cover the estimated
future loss, if any. Partial charge-offs in 1996 totalled $1,349,000, or 58% of
the gross charge-off amount of $2,345,000, as compared to $1,383,000, or 39% of
the gross charge-off amount of $3,509,000 in 1995. Partial charge-offs
represented .1% and .2% of average total loans for 1996 and 1995, respectively
15
<PAGE>
The year end 1996, 1995, 1994, 1993, and 1992 allocation of the
allowance for loan and lease losses, and the percent of loans in each category
to total loans, is illustrated in the following table (dollars in thousands):
Allocation of the Allowance for Loan and Lease Losses (1)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
% Loan % Loan % Loan % Loan % Loan
Type to Type to Type to Type to Type to
Total Total Total Total Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Industrial loans $ 3,229 12.0% $ 2,547 10.6% $ 1,289 9.6% $1,689 9.3% $880 9.8%
Loans for purchasing and carrying
securities --- 0.1% --- 0.1% --- 0.1% --- 0.1% --- 0.2%
Loans to financial institutions --- 0.1% --- 0.1% --- 0.1% --- 0.3% --- 0.4%
Real estate loans:
Construction and land development 1,458 4.0% 644 4.5% 2,294 3.8% 1,016 3.1% 773 3.7%
Residential 4,764 53.7% 4,595 56.1% 3,841 56.8% 3,325 58.1% 3,500 58.0%
Other 7,905 28.8% 6,548 27.4% 3,708 27.6% 4,732 26.0% 4,229 24.1%
Loans to individuals 2,296 1.3% 2,296 1.2% 1,462 2.0% 1,456 3.1% 616 3.7%
Lease financing receivables --- -- --- ---- ------- --- --- ---- --- 0.1%
Unallocated 3,094 N/A 3,736 N/A 6,716 N/A 5,691 N/A 2,450 N/A
-------- ----- ------- ---- ------- ----- ------- ---- ------- -----
$ 22,746 100.0% $20,366 100.0% $19,310 100.0% $17,909 100.0% $12,448 100.0%
======== ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
(1) This allocation is made for analytical purposes. The total allowance
is available to absorb losses from any segment of the portfolio.
- ----------------------
The Company regards the allowance as a general allowance which is available
to absorb losses from all loans. The allocation of the allowance as shown in the
table should neither be interpreted as an indication of future charge-offs, nor
as an indication that charge- offs in future periods will occur in these amounts
or in these proportions.
16
<PAGE>
Historical Statistics
The following table shows historical statistics of the Company relative to
the relationship among loans (net of unearned discount), net charge-offs, and
the allowance for possible loan and lease losses:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
(In Thousands)
<S> <C> <C> <C> <C> <C>
Average Total Loans $ 981,749 $ 882,292 $ 775,675 $ 643,188 $ 565,659
Total Loans at Year End 1,051,080 939,065 830,612 737,765 603,961
Net Charge-offs 1,520 2,144 1,799 1,944 4,370
Allowance for Possible
Loan and Lease Losses
at Year End 22,746 20,366 19,310 17,909 12,448
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Ratios
Net Charge-offs to:
Average Total Loans 0.15% 0.24% 0.23% 0.30% 0.77%
Total Loans at Year End 0.14 0.23 0.22 0.26 0.72
Allowance for Possible
Loan and Lease Losses 6.68 10.53 9.32 10.85 35.11
Allowance for Possible
Loan and Lease Losses to:
Average Total Loans 2.32 2.31 2.49 2.78 2.20
Total Loans at Year End 2.16 2.17 2.32 2.43 2.06
</TABLE>
(This space left intentionally blank.)
17
<PAGE>
Deposit Structure
The following is a distribution of the average amount of, and the average
rate paid on, the Company's deposits for each year in the three-year period
ended December 31, 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars in Thousands)
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest-
Bearing Demand
Deposits $128,002 ---% $113,442 ---% $104,609 ---%
Savings Deposits 326,902 1.82 345,176 2.26 394,508 2.01
Time Deposits* 493,826 5.75 436,510 5.71 328,149 4.54
-------- -------- --------
Total $948,730 3.62 $895,128 3.66 $827,266 2.76
======== ======== ========
</TABLE>
* Included are average time deposits, issued in the amount of $100,000
or more, of $97,115,000 in 1996, $89,881,000 in 1995, and $65,630,000
in 1994.
The following is a breakdown, by maturities, of the Company's time
certificates of deposit of $100,000 or more as of December 31, 1996. The Company
has no other time deposits of $100,000 or more as of December 31, 1996.
Maturity Amount of Time Certificates of Deposit
(In Thousands)
3 months or less $27,960
Over 3 through 6 months 11,130
Over 6 through 12 months 23,766
Over 12 months 34,259
-------
Total $97,115
=======
Short-Term Borrowings
Information with respect to the Company's short-term borrowings is set
forth in footnote 6 to the Company's Consolidated Financial Statements which are
included at Item 8 hereof, Financial Statements and Supplementary Data.
(This space left intentionally blank.)
18
<PAGE>
Financial Ratios
The following ratios for the Company are among those commonly used in
analyzing financial statements of financial services companies:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Earnings Ratios
Net Income on:
Average Earning Assets 1.38% 1.37% 1.49%
Average Total Assets 1.31 1.30 1.41
Average Shareholders' Equity 16.10 16.30 17.30
Net Operating Income Before
Securities and Mortgage
Transactions and Cumulative
Effect of a Change in
Accounting for Income Taxes on:
Average Earning Assets 1.38 1.34 1.52
Average Total Assets 1.31 1.27 1.44
Average Shareholders' Equity 15.54 16.05 17.67
Liquidity and Capital Ratios
Average Shareholders' Equity
to Average Earning Assets 8.87% 8.38% 8.60%
Average Shareholders' Equity
to Average Total Assets 8.43 7.94 8.12
Dividend Payout Ratio 41.50 40.70 36.50
Tier 1 Leverage Ratio 7.83 7.59 7.35
Tier 1 Risk-Based Ratio 10.82 10.97 10.85
Total Risk-Based Capital Ratio 12.09 12.23 12.11
</TABLE>
(This space left intentionally blank.)
19
<PAGE>
The following table shows, on a taxable equivalent basis, the changes in
the Company's net interest income, by category, due to shifts in volume and
rate, for the years ended December 31, 1996 and 1995. The information is
presented on a taxable equivalent basis, using an effective rate of 35%.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 over 1995 (1) 1995 over 1994 (1)
Increase (decrease) in: Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest bearing deposits
at banks ($ 3) ($ 13) ($ 16) ($ 33) $ 32 ($ 1)
Securities:
U.S. Treasury and
U. S. Government agencies (663) (340) (1,003) 2,138 (657) 1,481
State and municipal 337 (92) 245 47 49 96
Other bonds and securities 104 (78) 26 361 124 485
-------- -------- -------- -------- -------- --------
Total securities (222) (510) (732) 2,546 (484) 2,062
-------- -------- -------- -------- -------- --------
Federal funds sold 112 (64) 48 47 40 87
Loans:
Commercial loans and
lease financing 7,185 (433) 6,752 6,373 1,908 8,281
Installment loans 709 (945) (236) 2,406 799 3,205
Mortgage loans 1,437 396 1,833 834 324 1,158
-------- -------- -------- -------- -------- --------
Total loans 9,331 (982) 8,349 9,613 3,031 12,644
-------- -------- -------- -------- -------- --------
Total interest income $ 9,218 ($ 1,569) $ 7,649 $ 12,173 $ 2,619 $ 14,792
======== ======== ======== ======== ======== ========
Interest expense:
Interest bearing deposits 1,635 (42) 1,593 1,864 8,049 9,913
Borrowed funds:
Securities sold under
repurchase agreements and
federal funds purchased 3,735 (1,265) 2,470 1,767 1,315 3,082
Short-term borrowings (779) (106) (885) 298 595 893
Long-term borrowings and
subordinated capital note (1,284) 289 (995) 1,100 (2) 1,098
-------- -------- -------- -------- -------- --------
Total borrowed funds 1,672 (1,082) 590 3,165 1,908 5,073
-------- -------- -------- -------- -------- --------
Total interest expense $ 3,307 ($ 1,124) $ 2,183 $ 5,029 $ 9,957 $ 14,986
======== ======== ======== ======== ======== ========
Increase (decrease) in
net interest income $ 5,911 ($ 445) $ 5,466 $ 7,144 ($ 7,338) ($ 194)
======== ======== ======== ======== ======== ========
<FN>
(1) Variance not solely due to rate or volume is allocated to the volume
variance. The change in interest due to both rate and volume is
allocated to rate and volume changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
</FN>
</TABLE>
Item 2. PROPERTIES.
The Company does not own or lease any property. As of December 31, 1996,
NPB owns 37 properties in fee and leases 33 other properties. The properties
owned in fee, at such date, were not subject to any major liens, encumbrances,
or collateral assignments.
The principal office of the Company and of NPB is owned in fee and is
located at Philadelphia and Reading Avenues, Boyertown, Pennsylvania 19512. The
principal office of NPB's CHNB Division is leased and is located at 9 West
Evergreen Avenue, Chestnut Hill, Philadelphia, Pennsylvania 19118. The principal
office of NPB's 1stMLB Division is leased and is located at 528 East Lancaster
Avenue, St. Davids, Pennsylvania 19087.
20
<PAGE>
NPB presently has 49 branches located in the following Pennsylvania
counties: Berks, Bucks, Chester, Delaware, Lehigh, Montgomery, Northampton, and
Philadelphia.
In addition to its branches, NPB presently leases three properties at which
it operates loan production offices, and owns or leases 42 automated teller
machines located throughout the eight-county area, all of which are located at
bank branch locations, except for ten that are "free-standing" (not located at a
branch).
Item 3. LEGAL PROCEEDINGS.
Various actions and proceedings are presently pending to which NPB is a
party. These actions and proceedings arise out of routine operations and, in
management's opinion, will have no material adverse effect on the consolidated
financial position of the Company and its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The principal executive officers of the Company, as of the date hereof, are
as follows:
Principal Business Occupation
Name Age During the Past Five Years
Lawrence T. Jilk, Jr. 58 President and Chief Executive Officer
of the Company since January 1990,
and President of the Company from
April 1988 to January 990. Also,
Chairman of NPB.
Wayne R. Weidner 54 Executive Vice President of the
Company since April 1990, and
Treasurer of the Company from 1983 to
1990. Also, Chief Executive Officer
and President of NPB.
William H. Sayre 63 Vice Chairman of NPB since April
1995. Executive Vice President of NPB
from August 1992 to April 1995. Prior
thereto, President of Sayre
Associates, Inc. (bank consulting
firm) from January 1991 to July 1992,
and Executive Vice President and
Chief Credit Policy Officer of
Fidelity Bank, N.A. from 1988 to
December 1990.
Russell J. Kunkel 54 Vice Chairman of NPB since April
1996. Prior thereto, Vice Chairman of
Meridian Bancorp, Inc., and Meridian
Bank from 1985 to 1995, and President
and CEO of Meridian Mortgage
Corporation from 1992 to 1995.
21
<PAGE>
Sandra L. Spayd 53 Secretary of the Company, and Senior
Vice President and Corporate
Secretary of NPB.
Gary L. Rhoads 42 Treasurer of the Company, and Senior
Vice President, Controller and
Cashier of NPB.
Executive officers of the Company are elected by the Board of Directors and
serve at the pleasure of the Board. Executive Officers of the Bank are appointed
by the Board of Directors of the Bank and serve until they resign, retire,
become disqualified, or are removed by such Board.
(This space intentionally left blank.)
22
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock currently trades on the Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol: NPBC.
The following table reflects the high and low sales prices reported for the
Common Stock, and the cash dividends declared on the Common Stock, for the
periods indicated, after giving retroactive effect to 5% stock dividends paid on
October 31, 1996, and on October 31, 1995.
MARKET VALUE OF COMMON STOCK
1996
High Low
lst Quarter 24 1/2 22 5/8
2nd Quarter 26 1/4 22 7/8
3rd Quarter 26 1/2 25
4th Quarter 27 1/2 25 1/2
1995
High Low
lst Quarter 23 5/8 21 1/8
2nd Quarter 24 3/4 22 1/4
3rd Quarter 26 1/2 22 1/2
4th Quarter 27 1/8 23 1/8
CASH DIVIDENDS DECLARED ON COMMON STOCK
1996 1995
lst Quarter $.22 $.19
2nd Quarter .22 .20
3rd Quarter .23 .21
4th Quarter .24 .21
(This space intentionally left blank.)
23
<PAGE>
Item 6. SELECTED FINANCIAL DATA.
FIVE-YEAR STATISTICAL SUMMARY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENTS OF CONDITION
Total assets 1,358,013 $1,251,378 $1,137,174 $ 933,736 $ 775,888
Total deposits 980,808 914,890 864,640 748,229 631,186
Loans and leases, net 1,028,334 918,699 811,302 719,856 591,513
Total investments 236,814 240,902 238,102 144,488 129,794
Total shareholders' equity 114,721 106,615 84,871 82,222 70,700
Book value per share* 14.34 13.37 10.78 10.37 9.05
Realized book value per share** 13.79 12.54 n/a n/a n/a
Percent shareholders' equity to assets 8.45% 8.52% 7.46% 8.81% 9.11%
Trust assets 411,916 401,532 313,898 286,710 232,658
EARNINGS
Total interest income $ 106,558 $ 99,020 $ 84,259 $ 71,272 $ 69,073
Total interest expense 46,018 43,836 28,848 23,839 26,699
---------- ---------- ---------- ---------- ----------
Net interest income 60,540 55,184 55,411 47,433 42,374
Provision for loan and lease losses 3,900 3,200 3,200 5,145 6,225
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan and lease losses 56,640 51,984 52,211 42,288 36,149
Other income 9,088 7,608 5,409 4,931 4,494
Other expenses 41,258 37,542 36,914 28,629 23,846
---------- ---------- ---------- ---------- ----------
Income before income taxes 24,470 22,050 20,706 18,590 16,797
Income taxes 7,548 6,668 6,057 5,782 5,484
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting for income taxes 16,922 15,382 14,649 12,808 11,313
Cumulative effect on prior years
(to January 1, 1993) of change in
accounting for income taxes -- -- -- 500 --
---------- ---------- ---------- ---------- ----------
Net income $ 16,922 $ 15,382 $ 14,649 $ 13,308 $ 11,313
========== ========== ========== ========== ==========
Cash dividends paid $ 7,025 $ 6,263 $ 5,344 $ 4,405 $ 3,750
Return on average assets 1.31% 1.30% 1.41% 1.60% 1.50%
Return on average shareholders' equity 15.6% 16.3% 17.3% 17.4% 17.1%
Return on average realized shareholders' equity** 16.1% 16.3% n/a n/a n/a
PER SHARE DATA*
Income per common share before cumulative
effect of change in accounting for
income taxes $ 2.12 $ 1.94 $ 1.85 $ 1.63 $ 1.45
Cumulative effect on prior years to
(January 1, 1993) of change in
accounting for income taxes -- -- -- 0.06 --
Net income 2.12 1.94 1.85 1.69 1.45
Dividends paid in cash 0.88 0.79 0.68 0.56 0.48
Dividends paid in stock 5% 5% 5% 7% 5%
plus 2-for-1
stock split
SHAREHOLDERS AND STAFF
Average shares outstanding* 7,994,472 7,927,739 7,905,457 7,861,097 7,775,333
Shareholders 2,750 2,823 2,787 2,701 2,531
Staff - Full-time equivalents 578 517 559 449 368
<FN>
* Restated to reflect 5% stock dividends in 1996, 1995, and 1994, a 7%
stock dividend in 1993, and a 2-for-1 stock split and a 5% stock
dividend in 1992.
** Excluding unrealized gain (loss) on securities available for sale.
</FN>
</TABLE>
24
<PAGE>
The unaudited quarterly results of the Company's operations in 1996 and 1995 are
included in footnote 19 to the Company's Consolidated Financial Statements
included herein at Item 8, Financial Statements and Supplementary Data.
(This space intentionally left blank.)
25
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and is intended to assist in
understanding and evaluating the major changes in the financial condition and
earnings results of operations of the Company with a primary focus on the
Company's performance.
FINANCIAL CONDITION
During 1996 total assets increased to $1,358.0 million, an increase of
$106.6 million or 8.52% over the $1,251.4 million at year-end 1995. Total assets
at the end of 1995 increased $114.2 million or 10.0% over the $1,137.2 million
at year-end 1994.
Total cash and cash equivalents increased $.8 million or 1.9% in 1996
compared to 1995 versus an increase of $7.1 million or 20.6% in 1995 compared to
1994. The increase in 1995 is due to an increased number of branch locations
requiring vault cash, as well as a higher level of interest bearing deposits in
banks.
Net loans and leases increased to $1,028.3 million during 1996, an increase
of $109.6 million or 11.9% compared to 1995. Net loans increased $107.4 million
in 1995 or 13.2% compared to 1994. Loan growth in 1996 was primarily the result
of favorable local economic conditions and the investment of deposits from new
branch locations. Residential mortgages originated for immediate resale during
1996 amounted to $21.9 million. For 1996 the Company's credit quality is
reflected by the ratio of net charge-offs to average loans of .15%, and the
level of non-performing loans to total loans of 0.83%. The Company has no
significant exposure to energy and agricultural-related loans. Non-performing
loans in 1995 were .96% of total loans.
Investments, which are the Company's secondary use of funds, decreased $4.1
million or 1.7% to $236.8 million at year-end 1996. In 1995, the investment
portfolio reflected an increase of $2.8 million or 1.2% compared to 1994. The
small decrease in 1996 was due to investment purchases of $63.7 million, which
were more than offset by calls and maturities of securities, securities sales
and payments on mortgage-backed securities. At year-end 1995, the FASB provided
a one-time window of opportunity for reclassifying investments accounted for
under Statement of Financial Accounting Standards (SFAS) 115, "Accounting for
Certain Investments in Debt and Equity Securities." As a result, the Company
designated its entire investment portfolio as available for sale. Changes in the
market value of these securities are accounted for, net of tax, as an adjustment
to shareholder's equity. Because SFAS 115 explicitly allows for a held to
maturity category for investment securities, reclassifications from the held to
maturity category that resulted from the one-time reassessment will not call
into question the intent of the Company to hold investment securities to
maturity in the future. Proceeds from the sale of investment securities in 1996
were $39.2 million, on which a net gain of $591,000 was recognized.
As the primary source of funds, aggregate deposits of $980.8 million
increased $65.9 million or 7.2% compared to 1995. Deposits of $914.9 million
increased $50.3 million in 1995 or 5.8% compared to 1994. In addition to
deposits, growth in earning assets has been funded somewhat through purchased
funds and borrowings. These include securities sold under repurchase agreements,
federal funds purchased, short-term borrowings, and long-term borrowings. In the
aggregate, these funds totaled $248.0 million at the end of 1996, a $33.5
million or 15.6% increase compared to 1995. The 1995 amount of borrowings and
purchased funds of $214.5 million represented an increase of $38.5 million or
21.9% compared to 1994.
Shareholders' equity increased by $8.1 million or 7.6% in 1996 to $114.7
million. This increase was due primarily to the retention of earnings and
reinvestment of cash dividends under the Company's dividend reinvestment plan.
Cash dividends paid in 1996 increased $762,000 or 12.2% compared to the cash
dividends paid in 1995 which increased $919,000 or 17.2% compared to cash
dividends paid in 1994. Earnings retained in 1996 were 58.5% compared to 59.3%
in 1995.
26
<PAGE>
RESULTS OF OPERATIONS
Net income for 1996 of $16.9 million was 10.0% more than the $15.4 million
reported in 1995. The 1995 amount was 5.0% more than the $14.6 million in 1994.
On a per share basis, net income was $2.12, $1.94 and $1.85 for 1996, 1995 and
1994, respectively.
Net interest income is the difference between interest income on assets and
interest expense on liabilities. Net interest income increased $5.4 million or
9.7% to $60.5 million in 1996 from the 1995 amount of $55.2 million. The
increase in interest income is a result of growth in average loans outstanding
and higher rates on loans that were partially offset by growth in average
deposits and higher rates on deposits and borrowings. Interest rate risk is a
major concern in forecasting the earnings potential. In 1996, the Company's
prime rate was 8.50% through January 31, 1996. On February 1, 1996, the prime
rate changed to 8.25%. In 1995, the Company's prime rate was 8.50% through
January 31, 1995. From February 1, 1995 through July 6, 1995, the prime rate was
9.00%. From July 7, 1995 to December 20, 1995, the prime rate was 8.75%. On
December 21, 1995 the prime rate was 8.50% through year end. Net interest income
in 1995 decreased $227,000 or 0.4% to $55.2 million from 1994 due primarily to a
significant increase in the cost of interest bearing liabilities that was only
partially offset by a higher yield on total interest earning assets. Interest
expense during 1996 increased $2.2 million or 5.0% compared to the prior year
due to higher interest rates on deposits and short-term borrowings. Interest
expense during 1995 increased $15.0 million or 52.0% compared to 1994. Despite
the current stable rate environment, the cost of attracting and holding
deposited funds is an ever-increasing expense in the banking industry. These
increases are the real costs of deposit accumulation and retention, including
marketing and branch overhead expenses. Such costs are necessary for continued
growth and to maintain and increase market share of available deposits.
The provision for loan and lease losses is determined by periodic reviews
of loan quality, current economic conditions, loss experience and loan growth.
Based on these factors, the provision for loan and lease losses increased
$700,000 to $3,900,000 for 1996. The provision for loan and lease losses was
$3,200,000 for both 1995 and 1994. The allowance for loan and lease losses of
$22.7 million at year-end 1996 and $20.4 million at year-end 1995 as a
percentage of total loans was 2.2% for both 1996 and 1995, respectively. Net
loan charge-offs of $1,520,000, $2,144,000 and $1,799,000 during 1996, 1995 and
1994, respectively, continue to be comparable with those of the Company's peers.
The increase in other income in 1996 compared to 1995 was $1,480,000 or
19.5% and was due to increased service charges on deposit accounts of $717,000,
increased trust income of $543,000, increased other service charges and fees of
$241,000, and increased equity in undistributed net earnings of affiliates of
$103,000. Net gains on sales of investment securities and mortgages decreased
$124,000 in 1996 compared to 1995. The increase in other income in 1995 compared
to 1994 was $2.2 million or 40.7% and was due to a gain on the sale of
securities and mortgages of $388,000 versus a loss on same of $445,000 in 1994,
increased other service charges and fees of $637,000, increased trust income of
$389,000, increased service charges on deposit accounts of $188,000, and
increased equity in undistributed net earnings of affiliates of $152,000. Sales
of investment securities in 1995 and 1994 totaled $39.2 million and $6.9
million, respectively. "Total other expenses" increased $3,716,000 or 9.9% in
1996 when compared to 1995. By category, the Company's "salaries, wages and
employee benefits" increased $1,995,000, "other operating" expenses increased
$1,413,000, and "net premises and equipment" increased $816,000 while "FDIC
assessment" decreased $508,000 due to lower FDIC insurance premiums on all
commercial bank deposits partially offset by a one-time FDIC assessment in the
amount of $1,175,000 on approximately $225 million of thrift deposits acquired
from Sellersville Savings and Loan Association and Central Pennsylvania Savings
Association. "Total other expenses" increased $628,000 or 1.7% in 1995 when
compared to 1994. By category, the Company's "salaries, wages and employee
benefits" increased $1,231,000; "net premises and equipment" increased $458,000;
"FDIC assessment" decreased $86,000; and "other operating" expenses decreased
$975,000. For 1996 and 1995, there are no individual items of other operating
expenses that exceed one percent of the aggregate of total interest income and
other income.
Income before income taxes increased by $2,420,000 or 11.0% compared to
1995 when income before income taxes increased by $1,344,000 or 6.5% compared to
1994. The increase in income taxes for both years is due to higher pre-tax
income levels.
27
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-earning assets
and interest-bearing liabilities.
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. Funding affecting short-term liquidity, including deposits,
repurchase agreements, federal funds purchased, and short-term borrowings
increased $94.9 million during 1996. Long-term liquidity and funding needs were
met in 1996 by the use of additional long-term borrowings in the amount of $4.5
million from the Federal Home Loan Bank to fund longer term assets. For cash
flow information regarding liquidity, please refer to the Company's Consolidated
Statements of Cash Flows included herein.
The goal of interest rate sensitivity management is to avoid fluctuating
net interest margins, and to enhance consistent growth of net interest income
through periods of changing interest rates. Such sensitivity is measured as the
difference in the volume of assets and liabilities in the existing portfolio
that are subject to repricing in a future time period.
The following table shows separately the interest rate sensitivity of each
category of interest-earning assets and interest-bearing liabilities at December
31, 1996:
<TABLE>
<CAPTION>
Repricing Periods
Within Three Months One Year
Three Through Through Over
Months One Year Five Years Five Years
Assets (In thousands)
<S> <C> <C> <C> <C>
Interest bearing deposits
at banks $ 1,802 $ -- $ -- $ --
Investment securities(1) 25,066 24,041 106,302 81,405
Loans and leases(1) 295,020 143,747 432,173 157,394
Other assets 2,855 -- -- 88,208
--------- --------- --------- ---------
324,743 167,788 538,475 327,007
--------- --------- --------- ---------
Liabilities and equity
Non-interest bearing deposits 145,107 -- -- --
Interest bearing deposits(2) 233,065 160,923 213,425 228,288
Borrowed funds 208,352 1,000 5,110 33,575
Other liabilities -- -- -- 14,447
Hedging instruments 90,000 (10,000) (80,000) --
Shareholders' equity -- -- -- 114,721
--------- --------- --------- ---------
676,524 151,923 138,535 391,031
--------- --------- --------- ---------
Interest sensitivity gap (351,781) 15,865 399,940 (64,024)
--------- --------- --------- ---------
Cumulative interest rate
sensitivity gap ($351,781) ($335,916) $ 64,024 $ --
========= ========= ========= =========
<FN>
(1) Adjustable rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due. Fixed rate loans are included in the period in which they are
scheduled to be repaid and are adjusted to take into account estimated
prepayments based upon assumptions estimating the prepayments in the
interest rate environment prevailing during the fourth calendar quarter of
1996. The table assumes prepayments and scheduled principal amortization of
fixed-rate loans and mortgage-backed securities, and assumes that
adjustable rate mortgages will reprice at contractual repricing intervals.
There has been no adjustment for the impact of future commitments and loans
in process.
28
<PAGE>
(2) Savings and NOW deposits are scheduled for repricing based on historical
deposit decay rate analyses, as well as historical moving averages of
run-off for the Company's deposits in these categories. While generally
subject to immediate withdrawal, management considers a portion of these
accounts to be core deposits having significantly longer effective
maturities based upon the Company's historical retention of such deposits
in changing interest rate environments. Specifically, 25.2% of these
deposits are considered repriceable within three months and 74.2% are
considered repriceable in the over five years category.
</FN>
</TABLE>
Interest rate sensitivity is a function of the repricing characteristics of
the Company's assets and liabilities. These characteristics include the volume
of assets and liabilities repricing, the timing of the repricing, and the
relative levels of repricing. Attempting to minimize the interest rate
sensitivity gaps is a continual challenge in a changing rate environment. Based
on the Company's gap position as reflected in the above table, current accepted
theory would indicate that net interest income would increase in a falling
interest rate environment and would decrease in a rising interest rate
environment. An interest rate gap table does not, however, present a complete
picture of the impact of interest rate changes on net interest income. First,
changes in the general level of interest rates do not affect all categories of
assets and liabilities equally or simultaneously. Second, assets and liabilities
which can contractually reprice within the same period may not, in fact, reprice
at the same time or to the same extent. Third, the table represents a one-day
position; variations occur daily as the Company adjusts its interest sensitivity
throughout the year. Fourth, assumptions must be made to construct such a table.
For example, non-interest bearing deposits are assigned a repricing interval of
within three months, although history indicates a significant amount of these
deposits will not move into interest bearing categories regardless of the
general level of interest rates. Finally, the repricing distribution of interest
sensitive assets may not be indicative of the liquidity of those assets.
The Company anticipates that short-term interest rate levels may fall in
1997. Given this assumption, the Company's asset/liability strategy for 1997 is
to remain in a negative gap position (interest-bearing liabilities subject to
repricing greater than interest-earning assets subject to repricing) for periods
up to a year so that the impact of a falling rate environment will not have a
negative impact on net interest income and will not be significant to the
Company's results of operations. Effective monitoring of these interest
sensitivity gaps is the priority of the Company's asset/liability management
committee.
CAPITAL ADEQUACY
The following table sets forth certain capital performance ratios.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CAPITAL LEVELS
Tier 1 leverage ratio 7.83% 7.59% 7.35%
Tier 1 risk-based ratio 10.82 10.97 10.85
Total risk-based ratio 12.09 12.23 12.11
CAPITAL PERFORMANCE
Return on average assets 1.31 1.30 1.41
Return on average equity 15.60 16.30 17.30
Earnings retained 58.50 59.30 63.50
Internal capital growth 7.60 25.60 3.20
</TABLE>
The Company's capital ratios above compare favorably to the minimum
required amounts of Tier 1 and total capital to "risk-weighted" assets and the
minimum Tier 1 leverage ratio, as defined by banking regulators. At December 31,
1996, 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 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
currently meets the criteria for a well capitalized institution, and management
believes that, under current regulations, the Company will continue to meet its
minimum capital requirements in the foreseeable future.
29
<PAGE>
The Company does not presently have any commitments for significant capital
expenditures. The Company is not under any agreement with regulatory authorities
nor is it aware of any current recommendations by the regulatory authorities
which, if they were to be implemented, would have a material effect on
liquidity, capital resources or operations of the Company.
In June 1996, the Company's Board of Directors approved the repurchase of
up to 380,000 shares of its common stock to be used for general corporate
purposes, including the Company's dividend reinvestment and stock option plans.
The stock repurchase plan authorizes the Company to make repurchases from time
to time in open market or privately negotiated transactions. At December 31,
1996, a total of 38,050 shares have been repurchased at an aggregate cost of
$942,000. A prior repurchase program of 200,000 shares authorized in February
1994 was completed in June 1996.
FUTURE OUTLOOK
For 1997, FDIC insurance premiums have been reduced on approximately $225
million of the Company's deposits at branches acquired from Sellersville Savings
and Loan Association and Central Pennsylvania Savings Association to an annual
rate of 6.44 cents per hundred dollars of deposits, more comparable to the 1.29
cents per hundred dollars of deposits now charged on commercial bank deposits.
This is the result of the FDIC recapitalizing the Savings Association Insurance
Fund through one-time assessments on all financial institutions owning thrift
deposits. The Company's one-time assessment paid to this fund on November 30,
1996 amounted to $1,175,000, and will result in lower FDIC costs in 1997.
In 1997, the Company intends to open up to three new supermarket branches
and possibly one new full service banking office. The Company also intends to
install up to ten new cash dispenser ATMs at off-site or remote locations
throughout its general market area. These new initiatives, if completed, are not
expected to start contributing to profits until 1998 and beyond so that 1997
earnings may be somewhat negatively impacted by the initial costs of these new
facilities.
On the other hand, the Company is projecting increases in excess of 10% in
its commercial, real estate, and retail loan portfolios and some of the
branches, supermarkets, and other prior years expansion activities are
increasingly contributing to the Company's profits.
FORWARD-LOOKING STATEMENTS
The Company has projected that net income will grow in 1997 at a double
digit rate over 1996 net income and that certain of its loan portfolios will
increase over 10% during 1997. The Company has also discussed its planned new
investments in branch locations, ATMs, and new technology, in this report. These
are forward-looking statements.
Risks and uncertainties could cause actual future results and investments
to differ materially from those contemplated in such forward-looking statements.
These risks and uncertainties include, but are not limited to, the following:
(a) loan growth and/or loan margins may be less than expected, due to
competitive pressures in the banking industry and/or changes in the interest
rate environment; (b) general economic conditions in the Company's market area
may be less favorable than expected, resulting in, among other things, a
deterioration in credit quality; (c) costs of the Company's planned training
initiatives, product development, branch expansion and new technology and
operating systems may exceed expectations; (d) volatility in the Company's
market area due to recent mergers may have unanticipated consequences, such as
customer turnover; and (e) changes in the regulatory environment, securities
markets, general business conditions and inflation may be adverse. These risks
and uncertainties are all difficult to predict, and most are beyond the control
of the Company's management.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this report.
30
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 40,194 $ 39,195
Interest bearing deposits in banks 1,802 2,014
----------- -----------
Total cash and cash equivalents 41,996 41,209
Investment securities available for sale, at market value 236,814 240,902
Loans and leases, less allowance for loan and lease losses of
$22,746 and $20,366 in 1996 and 1995, respectively 1,028,334 918,699
Premises and equipment, net 20,303 19,926
Accrued interest receivable 7,633 8,867
Investments, at equity 5,199 4,827
Other assets 17,734 16,948
----------- -----------
Total assets $ 1,358,013 $ 1,251,378
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing $ 145,107 $ 134,968
Interest bearing
(includes certificates of deposit $100,000 or greater:
1996 - $97,115; 1995 - $89,881) 835,701 779,922
----------- -----------
Total deposits 980,808 914,890
Securities sold under repurchase agreements and
federal funds purchased 164,996 138,550
Short-term borrowings 6,931 4,370
Long-term borrowings 76,110 71,589
Accrued interest payable and other liabilities 14,447 15,364
----------- -----------
Total liabilities 1,243,292 1,144,763
----------- -----------
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
1996 - 8,002,648; 1995 - 7,974,831, net of shares
in Treasury: 1996 - 31,204; 1995 - 47,939 20,085 19,106
Additional paid-in capital 83,707 74,499
Net unrealized gains on securities available for sale 4,398 6,579
Retained earnings 7,357 7,648
Treasury stock, at cost (826) (1,217)
----------- -----------
Total shareholders' equity 114,721 106,615
----------- -----------
Total liabilities and shareholders' equity $ 1,358,013 $ 1,251,378
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 91,098 $ 82,776 $ 70,133
Investment securities
Taxable 12,756 13,735 11,766
Tax-exempt 2,482 2,319 2,256
Federal funds sold 162 114 27
Deposits in banks 60 76 77
-------- -------- --------
Total interest income 106,558 99,020 84,259
-------- -------- --------
INTEREST EXPENSE
Deposits 34,331 32,739 22,825
Securities sold under repurchase agreements
and federal funds purchased 8,083 5,613 2,347
Short-term borrowings 193 1,078 369
Long-term borrowings 3,411 4,406 3,307
-------- -------- --------
Total interest expense 46,018 43,836 28,848
-------- -------- --------
Net interest income 60,540 55,184 55,411
Provision for loan and lease losses 3,900 3,200 3,200
-------- -------- --------
Net interest income after provision
for loan and lease losses 56,640 51,984 52,211
-------- -------- --------
OTHER INCOME
Trust income 2,354 1,811 1,422
Service charges on deposit accounts 3,465 2,748 2,560
Other service charges and fees 2,601 2,360 1,723
Net gains (losses) on sale of investment securities and mortgages 264 388 (445)
Equity in undistributed net earnings of affiliates 404 301 149
-------- -------- --------
Total other income 9,088 7,608 5,409
-------- -------- --------
OTHER EXPENSES
Salaries, wages and employee benefits 22,210 20,215 18,984
Net premises and equipment 6,861 6,045 5,587
FDIC assessment 1,125 1,633 1,719
Other operating 11,062 9,649 10,624
-------- -------- --------
Total other expenses 41,258 37,542 36,914
-------- -------- --------
Income before income taxes 24,470 22,050 20,706
Income taxes 7,548 6,668 6,057
-------- -------- --------
Net income $ 16,922 $ 15,382 $ 14,649
======== ======== ========
PER SHARE OF COMMON STOCK
Net income $ 2.12 $ 1.94 $ 1.85
Dividends paid in cash 0.88 0.79 0.68
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Net unrealized
gain (loss)
Additional on securities
Common paid-in available Retained Treasury
Shares Par value capital for sale earnings stock
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 6,854,519 $ 17,136 $ 56,685 $- $ 8,401 $-
Net income -- -- -- -- 14,649 --
5% stock dividend 337,613 844 8,229 -- (9,073) --
Cash dividends declared -- -- -- -- (5,608) --
Shares issued under dividend
reinvestment plan 13,262 33 481 -- -- --
Change in unrealized gain (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 65,492 (4,011) 8,369 (3,062)
Net income -- -- -- -- 15,382 --
5% stock dividend 359,733 899 8,769 -- (9,668) --
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 74,499 6,579 7,648 (1,217)
Net income -- -- -- -- 16,922 --
5% stock dividend 380,357 951 8,986 -- (9,937) --
Cash dividends declared -- -- -- -- (7,276) --
Change in unrealized gain (loss)
on securities available for sale,
net of taxes -- -- -- (2,181) -- --
Shares issued under stock option plan 11,082 28 124 -- -- --
Effect of treasury stock transactions 16,735 -- 98 -- -- 391
--------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 8,002,648 $ 20,085 $ 83,707 $ 4,398 $ 7,357 $ (826)
========= ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
33
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,922 $ 15,382 $ 14,649
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan and lease losses 3,900 3,200 3,200
Depreciation and amortization 3,375 3,032 2,399
Deferred income tax benefit (714) (371) (1,047)
Amortization of premiums and discounts on investment
securities, net 26 (77) 35
Investment securities and mortgage (gains) losses, net (264) (388) 445
Mortgage loans originated for resale (21,930) (11,460) (18,984)
Sale of mortgage loans originated for resale 21,930 11,460 18,984
Changes in assets and liabilities
Decrease (increase) in accrued interest receivable 1,234 (866) (1,651)
(Decrease) increase in accrued interest payable (1,125) 3,331 490
(Increase) decrease in other assets (700) 4,542 (5,335)
(Decrease) increase in other liabilities (43) 216 1,527
--------- --------- ---------
Net cash provided by operating activities 22,611 28,001 14,712
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities available
for sale 39,210 6,853 1,635
Proceeds from maturities of investment securities held
to maturity -- 13,699 3,971
Proceeds from maturities of investment securities available
for sale 26,619 4,014 21,806
Purchase of investment securities available for sale (64,056) (14,905) (126,923)
Net increase in loans (113,535) (110,737) (94,646)
Purchases of premises and equipment (3,124) (4,560) (6,946)
--------- --------- ---------
Net cash used in investing activities (114,886) (105,636) (201,103)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in interest and non-interest
bearing demand deposits and savings accounts 3,955 (27,750) 16,786
Net increase in certificates of deposit 61,963 78,000 99,625
Net increase in securities sold under
agreements to repurchase and federal funds purchased 34,436 88,276 20,034
Net (decrease) increase in short-term borrowings (5,429) (43,597) 35,375
Net increase (decrease) in long-term borrowings 4,521 (6,188) 26,688
Issuance of common stock under dividend
reinvestment and stock option plans 152 899 959
Effect of treasury stock transactions 489 1,308 (3,340)
Cash dividends (7,025) (6,263) (5,344)
--------- --------- ---------
Net cash provided by financing activities 93,062 84,685 190,783
--------- --------- ---------
Net increase in cash and cash equivalents 787 7,050 4,392
Cash and cash equivalents at beginning of year 41,209 34,159 29,767
--------- --------- ---------
Cash and cash equivalents at end of year $ 41,996 $ 41,209 $ 34,159
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
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.
BASIS OF FINANCIAL STATEMENT PRESENTATION AND REPORTING ENTITY
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 intercompany balances have been eliminated.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the balance sheets, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The principal estimate that is susceptible to significant change in the
near term relates to the allowance for loan and lease losses. The evaluation
of the adequacy of the allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size of the different
loan portfolios, and takes into consideration current economic and market
conditions, the capability of specific borrowers to pay specific loan
obligations, as well as current loan collateral values. However, actual
losses on specific loans, which also are encompassed in the analysis, may
vary from estimated losses.
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.
35
<PAGE>
LOANS AND LEASES, AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases are stated at the amount of unpaid principal, reduced by
unearned income 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 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 consolidated
financial position or results of operations.
On January 1, 1996, the Company adopted SFAS 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 SFAS 122 did not have a material
impact on the Company's consolidated financial position or results of
operations.
The Financial Accounting Standards Board ("FASB") issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," as amended by SFAS 127, which provides
accounting guidance on transfers of financial assets, servicing of financial
assets and extinguishment of liabilities. This statement is effective for
transfers of financial assets, servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. Adoption
of this new statement is not expected to have a material impact on the
Company's consolidated financial position 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 Company adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
standard 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 SFAS
121 on January 1, 1996 did not have a material impact on the Company's
consolidated financial position or results of operations.
36
<PAGE>
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
The Company accounts for income taxes under the liability method of
accounting for income taxes specified by SFAS 109, "Accounting for Income
Taxes." 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 principal types of
differences between assets and liabilities for financial statement and tax
return purposes are allowance for loan losses, deferred loan fees, deferred
compensation and securities available for sale.
EQUITY TRANSACTIONS
On January 1, 1996, the Company adopted SFAS 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 income and
earnings per share, as if the fair value-based method of accounting defined
in SFAS 123 had been applied. The Company's employee stock option plan is
accounted for under APB Opinion 25.
The Company reclassified retained earnings to additional paid-in capital
for the years ended December 31, 1995 and 1994 to charge retained earnings
for the stock dividends paid at the fair value of additional shares which
were previously recorded at par.
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,
1996 1995 1994
Interest $47,143 $40,505 $28,358
Taxes 8,947 7,286 7,244
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 during the year ended December 31, 1995.
37
<PAGE>
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.
PROPERTY ACQUIRED THROUGH LOAN FORECLOSURE ACTIONS
Foreclosed property is recorded at the lower of cost or estimated fair
market value less costs of disposal. When property is acquired, the excess,
if any, of the loan balance over fair market value is charged to the
allowance for possible loan losses. Periodically thereafter, the asset is
reviewed for subsequent declines in the estimated fair market value.
Subsequent declines, if any, and holding costs, as well as gains and losses
on subsequent sale, are included in the consolidated statements of income.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding of 7,994,472, 7,927,739 and 7,905,457 for the
years ended December 31, 1996, 1995 and 1994, respectively, after giving
retroactive effect to 5% stock dividends paid on October 31, 1996, 1995 and
1994. All per share data included in these financial statements has been
restated for the stock dividends.
ADVERTISING COSTS
It is the Company's policy to expense advertising costs in the period in
which they are incurred. Advertising expense for the years ended December
31, 1996, 1995 and 1994 was approximately $1,130,000, $788,000 and
$1,338,000, respectively.
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 of equity.
Securities held to maturity are carried at amortized cost.
The amortized cost, gross unrealized gains and losses, and estimated
market values of the Company's securities available for sale and securities
held to maturity at December 31, 1996 and 1995 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
<S> <C> <C> <C> <C>
Investment securities available for sale
U.S. Treasury and U.S. Government
agencies $108,569 $ 3,120 $ 78 $111,611
State and municipal bonds 49,485 461 325 49,621
Other bonds 1,184 14 -- 1,198
Mortgage-backed securities 50,594 1,280 89 51,785
Marketable equity securities and other 20,216 2,383 -- 22,599
-------- -------- -------- --------
Totals $230,048 $ 7,258 $ 492 $236,814
======== ======== ======== ========
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
<S> <C> <C> <C> <C>
Investment 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>
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 allowed enterprises to reassess
the appropriateness of the classification of all securities held. A one-time
reassessment could 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 hold other debt 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 amortized cost and estimated market value of investment securities
available for sale, by contractual maturity, at December 31, 1996 are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Amortized market
cost value
Due in one year or less $ 9,115 $ 9,284
Due after one through five years 48,137 49,172
Due after five through ten years 112,159 114,275
Due after ten years 40,421 41,484
-------- --------
209,832 214,215
Marketable equity securities and other 20,216 22,599
-------- --------
$230,048 $236,814
======== ========
Proceeds from the sales of investment securities during 1996, 1995 and
1994 were $39,210,000, $6,853,000 and $1,635,000, respectively. Gross gains
and losses realized on those sales in 1996, 1995 and 1994 were not material.
As of December 31, 1996 and 1995, investment securities with a book value of
$91,204,000 and $78,559,000, respectively, were pledged to secure public
deposits and for other purposes as provided by law. As of December 31, 1996
and 1995, the Company did not have any marketable equity securities of any
one issuer where the carrying 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,
1996 1995
<S> <C> <C>
Commercial and industrial loans and leases $ 126,304 $ 99,765
Loans for purchasing and carrying securities 306 478
Loans to financial institutions 453 589
Real estate loans
Construction and land development 42,468 42,978
Residential 564,748 526,577
Other 302,787 256,956
Loans to individuals 14,016 11,727
----------- -----------
1,051,082 939,070
Unearned income (2) (5)
----------- -----------
Total loans and leases, net of unearned income 1,051,080 939,065
Allowance for loan and lease losses (22,746) (20,366)
----------- -----------
Total loans and leases, net $ 1,028,334 $ 918,699
=========== ===========
</TABLE>
Loans and leases on which the accrual of interest has been discontinued
or reduced amounted to approximately $8,723,000 and $7,257,000 at December
31, 1996 and 1995, respectively. If interest on these loans had been
accrued, such income would have approximated $206,000 and $305,000 for 1996
and 1995, respectively. Loan balances past due 90 days or more and still
accruing interest, but which management expects will eventually be paid in
full, amounted to $3,650,000 and $1,764,000 at December 31, 1996 and 1995,
respectively.
The balance of impaired loans was $6,859,000 at December 31, 1996. 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 $6,859,000 of non-accrual
loans. The allowance for loan loss associated with the $6,859,000 of
impaired loans was $1,437,000 at December 31, 1996. The average impaired
loan balance was $6,676,000 in 1996 and the income recognized on impaired
loans during 1996 was $689,000. The Bank recognizes income on impaired 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 income on such
loans.
The balance of impaired loans was $5,380,000 at December 31, 1995. 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.
Changes in the allowance for loan and lease losses were as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning of year $ 20,366 $ 19,310 $ 17,909
Provision charged to operations 3,900 3,200 3,200
Loans and leases charged off (2,345) (3,509) (3,002)
Recoveries 825 1,365 1,203
-------- -------- --------
Balance, end of year $ 22,746 $ 20,366 $ 19,310
======== ======== ========
</TABLE>
40
<PAGE>
4. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Estimated December 31,
useful lives 1996 1995
<S> <C> <C> <C>
Land $ 2,196 $ 2,260
Buildings 5 to 40 years 13,457 14,429
Equipment 3 to 10 years 15,293 13,118
Leasehold improvements 2 to 40 years 2,892 1,705
------------ -------------
33,838 31,512
Accumulated depreciation and amortization (13,535) (11,586)
----------- ------------
$ 20,303 $ 19,926
=========== ============
</TABLE>
Depreciation and amortization expense amounted to $2,746,000, $2,404,000
and $1,821,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
5. DEPOSITS
The aggregate amount of jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $97,115,000 and
$89,881,000 in 1996 and 1995, respectively.
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows:
1997 $ 238,209
1998 84,379
1999 31,362
2000 40,677
2001 and thereafter 22,590
-----------
$ 417,217
===========
6. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to
repurchase generally mature within 30 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 presented below (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Securities sold under repurchase agreements
and federal funds purchased
Balance at year-end $164,996 $138,550 $ 50,274
Average during the year 157,182 89,509 55,569
Maximum month-end balance 218,364 138,550 89,089
Weighted average rate during the year 5.14% 5.93% 4.55%
Rate at December 31 6.23% 5.56% 5.28%
Short-term borrowings
Balance at year-end $ 6,931 $ 4,370 $ 47,967
Average during the year 3,863 18,810 5,338
Maximum month-end balance 25,413 10,286 47,967
Weighted average rate during the year 5.00% 7.36% 3.47%
Rate at December 31 5.25% 5.35% 6.58%
</TABLE>
41
<PAGE>
The weighted average rates paid in aggregate on these borrowed funds for
1996, 1995 and 1994 were 5.14%, 6.18% and 4.46%, respectively.
7. LONG-TERM BORROWINGS
At December 31, 1996, advances from the Federal Home Loan Bank ("FHLB")
totaling $76,110,000 will mature within one to six years and are reported as
long-term borrowings. The advances are collateralized by FHLB stock and
certain first mortgage loans and mortgage-backed securities. These advances
had a weighted average interest rate of 5.02%. Unused lines of credit at the
FHLB were $216,884 and $239,517 at December 31, 1996 and 1995, respectively.
Outstanding borrowings mature as follows (in thousands):
1997 $ 1,000
1998 11,979
1999 631
2000 --
2001 and thereafter 62,500
-----------
$ 76,110
===========
8. 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 10 years of employment. 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,
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation, including vested benefits of
$4,576,000 and $4,084,000 in 1996 and 1995, respectively $(4,749) $(4,251)
======= =======
Projected benefit obligation for service rendered to date $(7,140) $(6,461)
Plan assets at fair value 7,989 5,796
------- -------
Plan assets in excess of (below) projected benefit obligation 849 (665)
Unrecognized net (gain) loss from past experience different from
that assumed and effects of changes in assumptions (311) 184
Unrecognized net obligation at January 1, 1987 being recognized
over 17 years 764 872
Unrecognized prior service costs (382) (424)
------- -------
Prepaid (accrued) pension cost $ 920 $ (33)
======= =======
</TABLE>
42
<PAGE>
Net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 507 $ 332 $ 381
Interest cost on projected benefit obligation 464 400 358
Actual return on plan assets (854) (709) 108
Net amortization and deferral 410 322 (330)
----- ----- -----
Net periodic pension cost $ 527 $ 345 $ 517
===== ===== =====
</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 1996; 7.25% and
4.75%, respectively, in 1995; and 8.25% and 5.50%, respectively, in 1994.
The expected long-term rate of return on assets was 8.25% for 1996, 1995 and
1994.
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 $307,000,
$303,000 and $285,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
9. 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,
1996 1995 1994
<S> <C> <C> <C>
Income tax expense
Current $ 8,262 $ 7,039 $ 7,104
Deferred federal benefit (714) (371) (1,047)
------- ------- -------
Applicable income tax expense $ 7,548 $ 6,668 $ 6,057
======= ======= =======
</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,
1996 1995 1994
<S> <C> <C> <C>
Computed tax expense at statutory rate $ 8,565 $ 7,718 $ 7,247
Decrease in taxes resulting from
Tax-exempt loan and investment income (1,221) (1,076) (1,089)
Stock options exercised (46) (196) (181)
Other, net 250 222 80
------- ------- -------
Applicable income tax expense $ 7,548 $ 6,668 $ 6,057
======= ======= =======
</TABLE>
43
<PAGE>
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax assets
Deferred loan fees $ 753 $ 896 $ 1,491
Loan loss allowance 7,674 7,109 6,369
Deferred compensation 610 518 439
Loan sales valuation 120 120 210
Securities available for sale -- -- 2,160
------- ------- -------
9,157 8,643 10,669
------- ------- -------
Deferred tax liability
Pension 136 64 32
Bad debt reserve recapture 285 529 773
Partnership investments 195 168 142
Acquisition adjustments 55 81 103
Mark-to-market accounting 28 57 86
Securities available for sale 2,368 3,543 --
Rehab credit adjustment 44 44 44
------- ------- -------
3,111 4,486 1,180
------- ------- -------
Net deferred tax asset $ 6,046 $ 4,157 $ 9,489
======= ======= =======
</TABLE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum payments under non-cancellable operating leases are due as
follows (in thousands):
Year ending December 31,
1997 $ 1,201
1998 1,126
1999 1,036
2000 955
2001 730
Thereafter 2,202
-----------
$ 7,250
===========
The total rental expense was approximately $1,458,000, $1,182,000 and
$939,000 in 1996, 1995 and 1994, respectively.
11. 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 non-performance 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.
44
<PAGE>
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, 1996 and 1995 are as follows (in
thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk
Commitments to extend credit $138,830 $105,432
Standby letters of credit 10,666 9,048
Financial instruments whose notional or contract amounts
exceed the amount of credit risk
Interest rate swap agreements 90,000 100,000
</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 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, 1996 varies up to 100%; the average amount collateralized is 74%.
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 1996, the
interest rate swaps had the effect of increasing the Company's net interest
income by $1,500,000 over what would have been realized had the Company not
entered into the swap agreements.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments,"
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.
45
<PAGE>
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,
resulting fair values and recorded carrying amounts at December 31, 1996 and
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.
December 31, 1996
Carrying Estimated fair
amount value
Cash and cash equivalents $ 41,996 $ 41,996
Investment securities 236,814 236,814
December 31, 1995
Carrying Estimated fair
amount value
Cash and cash equivalents $ 41,209 $ 41,209
Investment securities 240,902 240,902
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.
December 31, 1996
Carrying Estimated fair
amount value
Deposits with stated maturities $512,835 $513,902
Short-term borrowings 171,927 171,927
Long-term borrowings 76,110 77,169
December 31, 1995
Carrying Estimated fair
amount value
Deposits with stated maturities $450,872 $459,144
Short-term borrowings 142,920 142,920
Long-term borrowings 71,589 73,478
Fair value of financial instrument liabilities with no stated maturities
has been estimated to equal the carrying amount (the amount payable on
demand), totaling $467,973 for 1996 and $464,018 for 1995.
46
<PAGE>
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.
December 31, 1996
Carrying Estimated fair
amount value
Net loans $ 1,028,334 $ 1,066,594
December 31, 1995
Carrying Estimated fair
amount value
Net loans $ 918,699 $ 953,962
There is no material difference between the carrying amount and estimated
fair value of off-balance sheet items which total $239,496,000 and
$216,229,000 at year-end 1996 and 1995, 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.
13. 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.
14. RELATED PARTY TRANSACTIONS
Certain directors and officers of the Company and the Bank, their
immediate families, and the companies with which they are associated, 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 $3,962,000 and $3,893,000 at
December 31, 1996 and 1995, respectively. During 1996, $1,467,000 of new
loans were made and repayments totaled $1,398,000.
15. EQUITY TRANSACTIONS
The Company has an employee stock option plan for certain key employees
accounted for under APB Opinion 25 and related interpretations. A total of
1,340,970 shares of common stock, restated for stock dividends and splits,
have been made available for options to be granted through February 24,
1997. The options granted under this plan are subject to a vesting schedule
commencing at two years and expire ten years and one month from the date of
issue. The Company also has a non-employee director stock option plan. Under
this plan, a total of 165,375 shares of common stock, restated for stock
dividends and splits, have been made available for options to be granted
through January 3, 2004. The options granted under this plan fully vest
after two years and expire ten years from the date of issue. Under both
plans, the option price per share is equivalent to 100% of the quoted market
price on the date the options were granted. Accordingly, no compensation
cost has been recognized for the plans. The number of unoptioned shares
available for granting totaled 812,785 at the beginning of the year and
554,941 at the end of 1996.
47
<PAGE>
Had compensation cost for the plans been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS
123, the Company's net income and earnings per share of common stock would
have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Income
As reported $ 16,922 $ 15,382
Pro forma 16,626 15,196
Earnings per share of common stock
As reported 2.12 1.94
Pro forma 2.08 1.92
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions used for grants in 1996 and 1995, respectively: dividend
yield of 3.50% and 2.54%; expected volatility of 13.0% and 8.2%; risk-free
interest rates for each plan of 5.66% and 6.38% for 1996 and 7.75% and 6.36%
for 1995; and expected lives of 9.3 years for all years.
A summary of the status of the Company's fixed option plans as of
December 31, 1996, 1995 and 1994 and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted
average average
exercise exercise
Shares price Shares price Shares
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of year 759,370 $ 23.72 576,649 $ 21.74 450,814
Effect of stock dividends and splits 41,321 - 33,707 -- 27,944
Granted 159,359 26.56 204,900 26.75 126,550
Exercised (11,370) 13.35 (50,118) 19.44 (28,659)
Forfeited (8,647) 21.88 (5,768) 22.13 -
----------- ------- --------- ------- ----------
Outstanding, end of year 940,033 $ 23.30 759,370 $ 23.72 576,649
========== ======= ========= ======= ==========
Options exercisable at year-end 251,844 136,882 84,036
========== ========= ==========
Weighted average fair value of
options granted during the year $ 5.47 $ 6.33
======= ========
</TABLE>
The following information applies to options outstanding at December 31, 1996:
Number outstanding 940,033
Range of exercise prices $11.40 - $33.61
Weighted average exercise price $23.30
Weighted average remaining contractual life 7.25
48
<PAGE>
16. 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 SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Assets
Cash $ 33 $ 50
Investment in Bank subsidiary, at equity 97,106 90,993
Investment in other subsidiaries, at equity 17,708 15,627
Other assets 20 6
-------- --------
$114,867 $106,676
======== ========
Liabilities and shareholders' equity
Liabilities $ 146 $ 61
Shareholders' equity 114,721 106,615
-------- --------
$114,867 $106,676
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Income
Equity in undistributed net earnings of subsidiaries $ 9,630 $ 8,849 $ 4,691
Dividends from Bank subsidiary 7,277 6,435 8,691
Dividends from other subsidiaries -- -- 1,267
Interest and other income 129 278 4
------- ------- -------
17,036 15,562 14,653
Expenses
Other operating 106 127 4
------- ------- -------
Income before income taxes 16,930 15,435 14,649
Income taxes 8 53 --
------- ------- -------
Net income $16,922 $15,382 $14,649
======= ======= =======
</TABLE>
49
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 16,922 $ 15,382 $ 14,649
Equity in undistributed net earnings of subsidiaries (9,630) (8,849) (4,691)
(Increase) decrease in other assets (14) 159 138
Increase (decrease) in other liabilities 85 (11) 271
-------- -------- --------
Net cash provided by operating activities 7,363 6,681 10,367
-------- -------- --------
Cash flows from investing activities
Additional investment in subsidiaries, at equity (744) (2,480) (3,699)
-------- -------- --------
Net cash used in investing activities (744) (2,480) (3,699)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of stock 152 899 959
Effect of treasury stock transactions 489 1,308 (3,340)
Cash dividends (7,277) (6,435) (5,344)
-------- -------- --------
Net cash used in financing activities (6,636) (4,228) (7,725)
-------- -------- --------
Net decrease in cash and cash equivalents (17) (27) (1,057)
Cash and cash equivalents at beginning of year 50 77 1,134
-------- -------- --------
Cash and cash equivalents at end of year $ 33 $ 50 $ 77
======== ======== ========
</TABLE>
17. 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, 1996 was approximately $7,553,000.
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 $16,910,000 plus additional amounts equal to the net
earnings of the Bank for the period January 1, 1997 through the date of
declaration less dividends previously paid in 1997.
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, 1996, the Company was
required to have minimum Tier 1 and total capital ratios of 4% and 8%,
respectively, and a minimum Tier 1 leverage ratio of 3%. 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% and 10%, respectively, and a minimum Tier 1 leverage ratio of 5%. The
Company's actual Tier 1 and total capital ratios at December 31, 1996 were
10.82% and 12.09%, respectively, and the Company's Tier 1 leverage ratio was
7.83%. The Company's management believes that, under current regulations,
the Company will continue to meet its minimum capital requirements in the
foreseeable future.
(This space intentionally left blank.)
50
<PAGE>
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purpose action provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total capital (to risk-weighted assets)
National Penn Bancshares, Inc. $ 115,653 12.09% $ 76,551 8.00% $ 95,689 10.00%
National Penn Bank 99,539 10.47 76,220 8.00 95,025 10.00
Tier I capital (to risk-weighted assets)
National Penn Bancshares, Inc. 103,559 10.82 38,276 4.00 57,413 6.00
National Penn Bank 87,527 9.21 38,010 4.00 57,013 6.00
Tier I capital (to average assets)
National Penn Bancshares, Inc. 103,559 7.83 52,883 4.00 66,104 5.00
National Penn Bank 87,527 6.67 52,500 4.00 65,626 5.00
As of December 31, 1995
Total capital (to risk-weighted assets)
National Penn Bancshares, Inc. $ 103,323 12.23% $ 67,583 8.00% $ 84,479 10.00%
National Penn Bank 88,797 10.59 67,053 8.00 83,816 10.00
Tier I capital (to risk-weighted assets)
National Penn Bancshares, Inc. 92,642 10.97 33,792 4.00 50,687 6.00
National Penn Bank 78,198 9.33 33,526 4.00 50,290 6.00
Tier I capital (to average assets)
National Penn Bancshares, Inc. 92,642 7.59 48,823 4.00 61,029 5.00
National Penn Bank 78,198 6.45 48,492 4.00 60,616 5.00
</TABLE>
18. 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 $0.001 per
right at any time until the 10th 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 dilutive
effect, did not affect the Company's reported earnings per share, and was
not taxable to the Company or its shareholders.
19. QUARTERLY CONSOLIDATED 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.
51
<PAGE>
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
1996 Dec. 31 Sept. 30 June 30 March 31
<S> <C> <C> <C> <C>
Interest income $ 27,821 $ 27,151 $ 25,867 $ 25,719
============== ============== =============== ========
Net interest income $ 15,953 $ 15,424 $ 14,713 $ 14,450
============== ============== =============== ========
Provision for loan and lease losses $ 975 $ 975 $ 975 $ 975
============== ============== =============== ========
Net gains (losses) on sale of mortgages $ 336 $ (57) $ 88 $ (103)
============== ============== =============== ========
Income before income taxes $ 6,565 $ 6,158 $ 5,776 $ 5,971
============== ============== =============== ========
Net income $ 4,528 $ 4,286 $ 3,993 $ 4,115
============== ============== =============== ========
Net income per share of common stock $ 0.57 $ 0.54 $ 0.50 $ 0.51
============== ============== =============== ========
</TABLE>
<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 $ 3,899 $ 13,549 $13,460
============= ============= =============== =======
Provision for loan and lease losses $ 950 $ 750 $ 750 $ 750
============= ============= =============== =======
Net gains (losses) on sale of securities
and 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 $ 0.51 $ 0.49 $ 0.46 $ 0.50
============= ============= =============== =======
</TABLE>
(This space intentionally left blank)
52
<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, 1996 and 1995, 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, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 that 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, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
January 17, 1997
53
<PAGE>
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to executive officers of the Company is included
under Item 4A in Part I hereof. The information required by this item relating
to directors of the Company and compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference to pages 2, 3, and 24
of the Company's definitive Proxy Statement to be used in connection with the
Company's 1997 Annual Meeting of Shareholders (the "Proxy Statement").
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference
to pages 19 through 21 and page 23 of the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by reference
to pages 4, 23, and 24 of the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by reference
to page 23 of the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements are included in
Part II, Item 8 hereof:
National Penn Bancshares, Inc., and Subsidiaries.
Consolidated Balance Sheets.
Consolidated Statements of Income.
Consolidated Statement of Changes in Shareholders' Equity.
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
Financial statement schedules are omitted because the required
information is either not applicable, not required, or is shown
in the respective financial statements or in the notes thereto.
54
<PAGE>
3. Exhibits.
2.1 Agreement dated June 25, 1993, between National Penn Bancshares,
Inc., and Community Financial Bancorp, Inc. (Incorporated by
reference to Exhibit 28.1 to the Company's Current Report on 8-K
dated June 25, 1993.)
2.2 Agreement dated December 6, 1993, between National Penn
Bancshares, Inc., and Central Pennsylvania Savings Association,
F.A. relating to East Central branches. (Incorporated by
reference to Exhibit 28.3 to the Company's Current Report on 8-K
dated December 1, 1993.)
2.3 Agreement dated December 6, 1993, between National Penn
Bancshares, Inc., and Central Pennsylvania Savings Association,
F.A. relating to South Eastern branches. (Incorporated by
reference to Exhibit 28.4 to the Company's Current Report on 8-K
dated December 1, 1993.)
3.1 Articles of incorporation, as amended, of National Penn
Bancshares, Inc. (Incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
3.2 Bylaws, as amended, of National Penn Bancshares, Inc.
10.1 National Penn Bancshares, Inc., Amended and Restated Dividend
Reinvestment Plan. (Incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.)
10.2 National Penn Bancshares, Inc., Pension Plan. *(Incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.)
10.3 Amendment No. 1 to National Penn Bancshares, Inc., Pension Plan.*
(Incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.)
10.4 National Penn Bancshares, Inc., Capital Accumulation Plan.*
(Incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.)
10.5 National Penn Bancshares, Inc., Capital Accumulation Plan
Amendment 1995-1.* (Incorporated by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.)
10.6 National Penn Bancshares, Inc., Capital Accumulation Plan
Amendment 1996-1.* (Incorporated by reference to Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.)
10.7 National Penn Bancshares, Inc., Executive Incentive Plan.*
(Incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.)
10.8 National Penn Bancshares, Inc., Executive Incentive
Plan/Schedules.*
55
<PAGE>
10.9 National Penn Bancshares, Inc., Amended and Restated Stock
Option Plan.* (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-87654 on Form S-8 as
filed on December 22, 1995.)
10.10 National Penn Bancshares, Inc., Officers' and Key Employees'
Stock Compensation Plan.*
10.11 National Penn Bancshares, Inc., Directors' Fee Plan.*
10.12 National Penn Bancshares, Inc., Non-Employee Directors' Stock
Option Plan.* (Incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)
10.13 National Penn Bancshares, Inc., Employee Stock Purchase Plan.*
10.14 Executive Supplemental Benefit Agreement dated December 27,
1989, among National Penn Bancshares, Inc., National Bank of
Boyertown, and Lawrence T. Jilk, Jr.* (Incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.15 Amendatory Agreement dated February 23, 1995, between National
Penn Bancshares, Inc., National Penn Bank, and Lawrence T.
Jilk, Jr.* (Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.16 Executive Supplemental Benefit Agreement dated December 27,
1989, among National Penn Bancshares, Inc., National Bank of
Boyertown, and Wayne R. Weidner.* (Incorporated by reference
to Exhibit 10.9 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.17 Amendatory Agreement dated February 23, 1995, between National
Penn Bank and Wayne R. Weidner.* (Incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
10.18 Stock Purchase Agreement dated July 25, 1988, between National
Penn Bancshares, Inc., and First Capitol Bank. (Incorporated
by reference to Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.)
10.19 Stock Purchase Warrant dated November 18, 1988, issued to
National Penn Investment Company by First Capitol Bank (14,112
of First Capitol Bank common stock). (Incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.20 Stock Purchase Agreement dated April 20, 1989, between
National Penn Bancshares, Inc., and Pennsylvania State Bank.
(Incorporated by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.)
10.21 Stock Purchase Warrant dated July 3, 1989, issued to National
Penn Investment Company by Pennsylvania State
Bank.(Incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.22 Rights Agreement dated August 23, 1989, between National Penn
Bancshares, Inc., and National Bank of Boyertown, as Rights
Agent. (Incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement No. 33-87654 on Form S-8 as
filed on December 22, 1994.)
56
<PAGE>
10.23 Assignment and Assumption Agreement dated January 31, 1992,
between Sellersville Interim Federal Savings and Loan
Association and National Bank of Boyertown. (Incorporated by
reference to Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.)
11 Computation of Earnings per Common Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
99 Forward-Looking Statements.
* Denotes a compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the
last quarter of 1996.
57
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL PENN BANCSHARES, INC.
(Registrant)
March 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
report has been signed below by the following persons in the capacities and on
the dates indicated:
Signatures Title
/s/ John H. Body Director March 26, 1997
John H. Body
/s/ J. Ralph Borneman, Jr. Director March 26, 1997
J. Ralph Borneman, Jr.
/s/ Frederick H. Gaige Director March 26, 1997
Frederick H. Gaige
/s/ John J. Dau Director March 26, 1997
John J. Dau
/s/ Lawrence T. Jilk, Jr. Director, President, and Chief March 26, 1997
Lawrence T. Jilk, Jr. Executive Officer (Principal
Executive Officer)
/s/ Patricia L. Langiotti Director March 26, 1997
Patricia L. Langiotti
/s/ Kenneth A. Longacre Director March 26, 1997
Kenneth A. Longacre
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/s/ Randall J. Nester Director March 26, 1997
Randall J. Nester
/s/ C. Robert Roth Director March 26, 1997
C. Robert Roth
/s/ Harold C. Wegman, D.D.S. Director March 26, 1997
Harold C. Wegman, D.D.S.
/s/ Wayne R. Weidner Director and Executive March 26, 1997
Wayne R. Weidner Vice President
/s/ Gary L. Rhoads Treasurer (Principal Financial March 26, 1997
Gary L. Rhoads Accounting Officer)
Exhibit 3.2
BYLAWS
NATIONAL PENN BANCSHARES, INC.
(A Pennsylvania Business Corporation)
ARTICLE I
Meetings of Shareholders
Section 1.01. Place of Meeting. Meetings of shareholders of the Corporation
shall be held at such place, within the Commonwealth of Pennsylvania or
elsewhere, as may be fixed by the Board of Directors. If no place is so fixed,
they shall be held at the office of the Corporation at Boyertown, Pennsylvania.
Section 1.02. Annual Meeting. The annual meeting of shareholders for the
election of directors whose terms are expiring and the transaction of any other
business which may be brought properly before the meeting shall be held on such
date and at such time as the Board of Directors shall determine from time to
time. If for any reason such meeting is not held at the time fixed therefor,
such election may be held at a subsequent meeting called for that purpose.
Section 1.03. Special Meetings. Special meetings of the shareholders may be
called at any time by the Board of Directors or the Chief Executive Officer or
by any other person or persons authorized by statute. Such meetings shall be
held on such date and time as may be fixed by the Board of Directors or the
Secretary or, in the absence of such designation, as fixed by the person or
persons calling the meeting.
Section 1.04. Notice of Meetings. Notice of all annual meetings of
shareholders shall be given by the Secretary. Written notice of the date, place,
and time of all meetings of shareholders, and of the general nature of the
business to be transacted at special meetings, shall be mailed by first class
mail to each shareholder of record entitled to vote at the meeting at least ten
days prior to the day named for the meeting, unless a greater period of notice
is by law required in a particular case.
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Section 1.05. Organization. At every meeting of the shareholders, the
Chairman of the Board or, if there is no such Chairman or if he is absent, the
senior present Vice Chairman of the Board or, if there is no such Vice Chairman
or if he is absent, the President or, in his absence, the senior present Vice
President or, in his absence, a chairman chosen by the shareholders, shall act
as chairman, and the Secretary or, in his absence, a person appointed by the
Chairman, shall act as secretary.
Section 1.06. Quorum; Action by Shareholders. The presence, in person or by
proxy, of the shareholders entitled to cast a majority of the votes which all
shareholders are entitled to cast on a particular matter shall constitute a
quorum for the purpose of considering such matter. Unless otherwise provided
herein, or in the Articles of Incorporation or by law, any action to be taken by
vote of the shareholders shall be authorized upon receiving the affirmative vote
of a majority of the votes cast by all shareholders entitled to vote thereon
and, if any shareholders are entitled to vote thereon as a class, upon receiving
the affirmative vote of a majority of the votes cast by the shareholders
entitled to vote as a class.
Section 1.07. Procedure for Nomination of Candidates for Director.
Nominations for election to the Board of Directors may be made by the Board of
Directors and by any holder of any outstanding shares of the Corporation
entitled to vote for the election of directors. Nominations, other than those
made by the Board of Directors, shall be made in writing and shall be delivered
or mailed to the Corporation at its principal office not less than 14 days prior
to any meeting of shareholders called for the election of directors whose terms
expire at such meeting and shall contain the same information to the extent
known to the notifying shareholder as that required to be stated by the
Corporation in its proxy statement for the nominees of the Board of Directors;
provided, however, that if less than 21 days' notice of the meeting is given to
shareholders, such notice of nomination shall be mailed or delivered to the
Corporation not later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Nominations not made in
accordance with this section in his discretion, be disregarded by the
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chairman of the meeting, and upon his instructions, the vote tellers may
disregard all votes cast for each such nominee.
Section 1.08. Financial Statements. Financial statements shall be sent to
shareholders annually as prescribed by law, but such statements need not be
examined by a certified public accountant or by a firm thereof.
ARTICLE II
Directors
Section 2.01. Number and Term of Office. There shall be such number of
directors who shall be divided into such classes and who shall be elected to
serve for such terms of office as is provided in the Articles of Incorporation.
Section 2.02. Vacancies. Vacancies on the Board of Directors, should they
occur for whatever reason, including vacancies resulting from death,
resignation, retirement, disqualification, or an increase in the number of
directors, shall be filled by a majority vote of the remaining directors though
less than a quorum. Each director elected by the Board of Directors pursuant to
this Section 2.02 shall hold such office for a term expiring at the annual
meeting of shareholders at which the term of the class to which he has been
elected expires and until his successor is elected and qualified.
Section 2.03. Resignations. Any director may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary. Any
such resignation shall take effect at the time of the receipt of such notice or
at any later time specified therein. Unless otherwise specified therein, the
acceptance of a resignation shall not be necessary to make it effective.
Section 2.04. Annual Meeting. Immediately after each annual election of
directors, the Board of Directors shall meet for the purpose of organization,
election of officers, and the
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transaction of other business at the place where such election of directors was
held. Notice of such meeting need not be given. In the absence of a quorum at
said meeting, the same may be held at any other time and place which shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 2.05. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as shall be designated from time to time by
resolution of the Board. Notice of such meetings need not be given.
Section 2.06. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, if any, a Vice Chairman
of the Board, if any, the President or one-third or more of the directors in
office. Notice of the date, time, place, and general nature of the business to
be transacted at each special meeting shall be given by telephone, telegram,
letter or in person, unless such notice is waived, by or at the direction of the
person or persons authorized to call such meeting, to each director, at least
forty-eight hours in advance of the meeting.
Section 2.07. Organization. Every meeting of the Board of Directors shall
be presided over by the Chairman of the Board or, if there is no such Chairman
or if he is absent, the senior present Vice Chairman of the Board or, if there
is no such Vice Chairman or if he is absent, the President or, in his absence, a
chairman chosen by a majority of the directors present. The Secretary or, in his
absence, a person appointed by the Chairman, shall act as secretary.
Section 2.08. Quorum; Action by Board. Except to the extent that a greater
number is required by law, a majority of all of the directors in office shall
constitute a quorum for the transaction of business at any meeting, and the acts
of a majority of the directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors.
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Section 2.09. Participation in Meetings. One or more directors may
participate in a meeting of the Board of Directors or a committee of the Board
of Directors by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other.
Section 2.10. Compensation. Fees and expenses payable for services as a
director or member of a committee of the Board of Directors shall be in such
amounts as shall be determined by the Board of Directors, except that no person
who receives a salary from the Corporation as an officer or employee thereof
shall receive any compensation as a director or a member of a committee of the
Board of Directors.
Section 2.11. Directors and Emergency Officers Succession. In the event of
an emergency resulting from warlike damage or an attack on the United States or
any nuclear disaster of sufficient severity to prevent the conduct and
management of the affairs and business of the Corporation under the direction of
its directors and officers as contemplated by these Bylaws, the officers and
employees of the Corporation shall continue to conduct the affairs of the
Corporation under such guidance from the directors as may be available, subject
to conformance with any governmental directives during the emergency.
The officers shall have authority to execute and carry into effect any and
all of the actions, duties, and powers which may be authorized by governmental
directives for operations during emergencies, including the power to curtail,
limit, suspend, or resume any operation of the Corporation and change the
location of any office of the Corporation.
The officers at the time of such emergency shall have the broadest powers
to perform any and all acts which may be necessary for the purposes set forth in
the preceding paragraphs, including power to employ additional officers and
employees, to purchase and acquire or contract for the use of any services, real
estate, equipment, and other supplies, materials, and resources as they may deem
necessary or appropriate for the continued conduct of the operations of the
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Corporation on such terms and conditions as to them shall seem desirable, and to
obligate the Corporation to pay the expenses thereof.
In order to provide for automatic succession of authority among the officer
personnel of the Corporation in such an emergency, the priorities of seniority
and succession of authority may be established and delegated to and among the
officers of the Corporation by resolution of the Board of Directors. The officer
in authority under the terms of the resolution shall have the power to assign
and reassign functions and duties among any of the other officers of the
Corporation.
Any authority granted to such officers herein shall be subject to the
authority otherwise vested in the Board of Directors, but shall not be deemed to
be restricted in any way by the inability on the part of the Board of Directors
to act.
Section 2.12. Age Qualification and Mandatory Retirement of Directors. No
person who has attained the age of sixty (60) years and is not then a director
shall be qualified for nomination or for election to the Board of Directors. No
person who has attained the age of seventy (70) years and was not a director on
April 27, 1983, shall be qualified for nomination or election to the Board of
Directors. No person who has attained the age of seventy-two (72) years shall be
qualified for nomination or for election to the Board of Directors.
No person who was a director on April 27, 1983, shall be qualified to serve
as a director from and after the date of the annual meeting of shareholders that
comes after his seventy-second birthday, and no person who was not a director on
April 27, 1983, shall be qualified to serve as a director from and after the
date of the annual meeting of shareholders that comes after his seventieth
birthday. Accordingly, a director, upon attaining such age, shall retire from
the Board of Directors effective on the date of the annual meeting of
shareholders that comes after the date upon which he attains such age. The
failure of any director to retire as provided in this section shall constitute
proper cause for the Board of Directors to declare vacant the office of such
director.
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Section 2.13. Director Emeritus. A director who is ineligible for
reelection to the Board because of age shall be eligible to serve as Director
Emeritus. Such a Director may be named by the Board annually at its
reorganization meeting, but may not serve more than three consecutive terms. A
Director Emeritus shall have the privilege of attending all meetings of the
Board and shall have the opportunity of sharing his experience with the Board,
but shall have none of the responsibilities of a member of the Board, and shall
have no vote on matters put before the Board.
The terms "Director," "Board," or "Board of Directors" where used in these
Bylaws shall not be deemed to apply to or to include a Director Emeritus.
ARTICLE III
Committees
Section 3.01. Executive Committee. There shall be an Executive Committee
consisting of such directors as shall from time to time be appointed by the
Board of Directors on the recommendation of the Chief Executive Officer. The
Board of Directors shall designate the Chairman of the Executive Committee. The
Executive Committee shall meet on call of the Chairman of the Executive
Committee, the Chairman of the Board, any Vice Chairman of the Board, or the
President. During the intervals between the meetings of the Board of Directors,
the Executive Committee shall possess and may exercise all the powers of the
Board of Directors in the management of the business and affairs of the
Corporation conferred by the Bylaws or otherwise, including, without limiting
the generality of the foregoing, the power to review and act upon Corporation
matters involving employee compensation, donations, insurance, pension and
profit sharing, and long-range planning. Except to the extent that a greater
number is required by law, a majority of all of the members of the Executive
Committee in office shall constitute a quorum for the transaction of business at
any meeting, and the acts of a majority of the members present at a meeting at
which a quorum is present shall be the acts of the Executive Committee. The
Executive Committee shall keep a record of its proceedings and report its
actions to the next following meeting of the Board of Directors.
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Section 3.02. Audit Committee. There shall be an Audit Committee which
shall consist entirely of outside Directors to be appointed annually by the
Board of Directors on the recommendation of the Chief Executive Officer. The
object of the Audit Committee shall be to give additional assurance of the
integrity of the financial information used by the management of the Corporation
and by the Board in making decisions, and the integrity of the financial
information used by the management of the Corporation and by the Board in making
decisions, and the integrity of the financial information distributed to the
shareholders and the public at large. The Audit Committee shall review the
internal audit controls of the Corporation and shall have the authority to cause
and supervise such examinations and audits to be made by public accountants of
the books and affairs of the Corporation and subsidiary companies as it, in its
discretion, deems advisable. The Audit Committee also shall review audit
policies, oversee internal audits, review external audits, and review any
examination reports. Members of management of the Corporation, or any of its
subsidiary companies, whether or not directors of the Corporation, may be
invited by the Audit Committee to attend meetings thereof.
Section 3.03. Other Committees. The Board of Directors may, at any time and
from time to time, appoint such other standing or special committees to perform
such duties and make such investigations and reports as the Board of Directors
shall by resolution determine. Such committees shall determine their own
organization and times and places of meeting, unless otherwise directed by such
resolution.
ARTICLE IV
Officers
Section 4.01. Officers. The officers of the Corporation shall be a
President, a Secretary, a Treasurer, and may include a Chairman of the Board,
one or more Vice Chairmen of the Board, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
as the Board of Directors may from time to time determine.
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Section 4.02. Qualifications. The officers shall be natural persons of full
age.
Section 4.03. Election and Term of Office. The officers of the Corporation
shall be elected by the Board of Directors and shall serve at the pleasure of
the Board of Directors.
Section 4.04. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary. Any
such resignation shall take effect at the time of the receipt of such notice or
at any later time specified therein. Unless otherwise specified therein, the
acceptance of a resignation shall not be necessary to make it effective.
Section 4.05. Chairman of the Board. The Board of Directors may elect one
of its members to be Chairman of the Board. He shall preside at all meetings of
the Board of Directors. He shall also have such other powers and duties as may
be conferred upon or assigned to him by the Board of Directors, as well as any
other powers specifically conferred upon him by these Bylaws.
Section 4.06. Vice Chairman of the Board. The Board of Directors may elect
one or more of its members to be a Vice Chairman of the Board. In the absence of
the Chairman, the senior present Vice Chairman shall preside at meetings of the
Board of Directors. Each Vice Chairman shall have such other powers and duties
as may be conferred upon or assigned to him by the Board of Directors.
Section 4.07. President. The President shall, in the absence of the
Chairman and the Vice Chairmen, or if no Chairman or Vice Chairmen have been
elected, preside at any meeting of the Board of Directors. The President shall
have and may exercise any and all other powers and duties pertaining by law,
regulation, or practice to the office of President, or imposed by these Bylaws.
He shall have such other powers and duties as may be conferred upon or assigned
to him by the Board of Directors.
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Section 4.08. Chief Executive Officer. The Board of Directors may designate
the Chairman of the Board, and Vice Chairman of the Board or the President as
Chief Executive Officer. The Chief Executive Officer shall have general
supervision over the business and operations of the Corporation, subject,
however, to the control of the Board of Directors. He, or such persons as shall
be designated by him, shall sign, execute, acknowledge, verify, deliver, and
accept, in the name of the Corporation, deeds, mortgages, bonds, contracts, and
other instruments authorized by the Board of Directors, except in cases where
the signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation; and, in general, he
shall have general executive powers as well as such other powers and duties as
may be conferred upon or assigned to him by the Board of Directors.
Section 4.09. Vice Presidents. The Board of Directors may elect one or more
Executive Vice Presidents and may elect or appoint one or more Senior Vice
Presidents and Vice Presidents. Each such person shall have such powers and
duties as may be conferred upon or assigned to him by the Board of Directors or
the Chief Executive Officer.
Section 4.10. Secretary. The Secretary shall attend to the giving of all
notices required by these Bylaws to be given. He shall keep accurate minutes of
meetings of the Board of Directors and shall serve as Secretary to all
shareholder meetings. He shall be custodian of the corporate seal, records,
documents, and papers of the Corporation including election returns and
proceedings of shareholder meetings. He shall provide for the keeping of proper
records of all transactions of the Corporation assigned to him, from time to
time, by the Board of Directors or the Chief Executive Officer, and he shall
have all other powers and duties pertaining by law, regulation, or practice, to
the office of Secretary, or imposed by these Bylaws, or as may from time to time
be conferred upon or assigned to him by the Board of Directors or the Chief
Executive Officer.
Section 4.11. Assistant Secretaries. In the absence or disability of the
Secretary or when so directed by the Secretary, any Assistant Secretary may
perform all the duties of the Secretary, and,
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when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Secretary. The Assistant Secretaries shall perform such
other duties as from time to time may be conferred upon or assigned to them
respectively by the Board of Directors, the Chief Executive Officer, or the
Secretary.
Section 4.12. The Treasurer. The Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of its funds and securities; he shall have full authority to receive and
give receipts for all money due and payable to the Corporation, to endorse
checks, drafts, and warrants in its name and on its behalf, and to give full
discharge for the same; he shall deposit all funds of the Corporation, except
such as may be required for current use, in such banks or other places of
deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be conferred upon or assigned to him
by the Board of Directors or the Chief Executive Officer.
Section 4.13. Assistant Treasurers. In the absence or disability of the
Treasurer or when so directed by the Treasurer, any Assistant Treasurer may
perform all the duties of the Treasurer, and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such other duties as from time to time may be
conferred upon or assigned to them respectively by the Board of Directors, the
Chief Executive Officer, or the Treasurer.
Section 4.14. Compensation of Officers and Others. The compensation of all
officers shall be fixed from time to time by the Board of Directors, or any
committee or officer authorized by the Board of Directors so to do.
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ARTICLE V
Limitation of Directors' Liability; Indemnification
Section 5.01. To the fullest extent permitted by the Directors' Liability
Act (42 Pa. C.S. ss.8361 et seq.) and the Business Corporation Law of the
Commonwealth of Pennsylvania, a director of the Corporation shall not be
personally liable to the Corporation, its shareholders, or others for monetary
damages for any action taken or any failure to take any action unless the
director has breached or failed to perform the duties of his or her office, as
set forth in the Directors' Liability Act, and such breach or failure
constitutes self-dealing, willful misconduct, or recklessness. The provisions of
this Article Fifth shall not apply with respect to the responsibility or
liability of a director under any criminal statute or the liability of a
director for the payment of taxes pursuant to local, state, or federal law.
Section 5.02. (a) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative by reason of the fact that such person is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), amounts paid in settlement, judgments, and
fines actually and reasonably incurred by such person in connection with such
action, suit, or proceeding; provided, however, that no indemnification shall be
made in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
(b) Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit, or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit, or proceeding, upon receipt of an
undertaking by or on behalf of the director, officer, employee, or agent to
repay such amount if it shall be ultimately determined that he or she is not
entitled to be indemnified by the Corporation as authorized in this Article
Fifth.
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(c) The indemnification and advancement of expenses provided by this
Article Fifth shall not be deemed exclusive of any other right to which persons
seeking indemnification and advancement of expenses may be entitled under any
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to actions in such persons' official capacity and as to their actions in
another capacity while holding office, and shall continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
(d) The Corporation may purchase and maintain insurance on behalf of any
person, may enter into contracts of indemnification with any person, may create
a fund of any nature (which may, but need not be, under the control of a
trustee) for the benefit of any person, and may otherwise secure in any manner
its obligations with respect to indemnification and advancement of expenses,
whether arising under this Article Fifth or otherwise, to or for the benefit of
any person, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this Article Fifth.
Section 5.03. The limitation of liability provided in Section 5.01 of this
Article Fifth and the right to indemnification provided in Section 5.02 of this
Article Fifth shall apply to any action or any failure to take any action
occurring on or after January 27, 1987.
Section 5.04. Notwithstanding anything herein contained to the contrary,
this Article Fifth may not be amended or repealed and a provision inconsistent
herewith may not be adopted, except by the affirmative vote of 80% of the
members of the entire Board of Directors or by the affirmative vote of
shareholders of the Corporation entitled to cast at least 80% of the votes which
all shareholders of the Corporation are then entitled to cast, except that if
the Business Corporation Law or the Directors' Liability Act is amended or any
other statute is enacted so as to decrease the exposure of directors to
liability or to increase the indemnification rights available to directors,
officers, or others, then this Article Fifth and any other provision of these
Bylaws inconsistent with
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such decreased exposure or increased indemnification rights shall be amended,
automatically and without further action on the part of shareholders or
directors, to reflect such decreased exposure or to include such increased
indemnification rights, unless such legislation expressly requires otherwise.
Any repeal or modification of this Article Fifth by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation or any
right to indemnification from the Corporation with respect to any action or any
failure to take any action occurring prior to the time of such repeal or
modification.
Section 5.05. If, for any reason, any provision of this Article Fifth shall
be held invalid, such invalidity shall not affect any other provision not held
so invalid, and each such other provision shall, to the full extent consistent
with law, continue in full force and effect. If any provision of this Article
Fifth shall be held invalid in part, such invalidity shall in no way affect the
remainder of such provision, and the remainder of such provision, together with
all other provisions of this Article Fifth shall, to the full extent consistent
with law, continue in full force and effect.
Section 5.06. Article Fifth (as in effect on the day prior to the day on
which this new Article Fifth is approved by the shareholders of the
Corporation), and all provisions of the Bylaws of the Corporation insofar as
they are inconsistent with this Article Fifth, are hereby repealed, except that
with respect to acts or omissions occurring prior to January 27, 1987, such
former Article Fifth and such other provisions of the Bylaws of the Corporation
shall remain in full force and effect.
ARTICLE VI
Share Certificates; Transfer
Section 6.01. Share Certificates. Share certificates shall be signed by the
manual, facsimile, printed, or engraved signatures of the Chairman of the Board
or a Vice Chairman of the Board or the President or a Vice President and the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer
of the Corporation, but one of such signatures shall be a manual
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signature unless the certificates are signed by a transfer agent or a registrar,
and shall be sealed with the corporate seal, which may be a facsimile, engraved,
or printed seal. In case any officer who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the officer had not ceased to be such at
the date of its issue.
Section 6.02. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the books of the Corporation by the owner thereof or by
his attorney thereunto authorized, upon surrender of the share certificates to
the Secretary or a transfer agent of the Corporation accompanied by a duly
executed power of attorney.
Section 6.03. Transfer Agent and Registrar; Regulations. The Corporation
may, if and whenever the Board of Directors so determines, maintain one or more
transfer offices or designate one or more transfer agents, where or by which the
shares of the Corporation shall be transferable, and also maintain one or more
registry offices or designate one or more registrars where or by which the
shares shall be registered; and no certificates for shares of the Corporation in
respect of which a registrar shall have been designated shall be valid unless
countersigned and registered by such registrar. The Board of Directors may also
make such additional rules and regulations as it may deem expedient concerning
the issue, transfer, and registration of share certificates.
Section 6.04. Lost, Destroyed, and Mutilated Certificates. The Board of
Directors, by standing resolution or by resolutions with respect to particular
cases, may authorize the issue of new share certificates in lieu of share
certificates lost, destroyed, or mutilated, upon such terms and conditions,
including the posting of an open-penalty bond, as the Board of Directors may
direct.
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ARTICLE VII
Miscellaneous Provisions
Section 7.01. Notice of Meetings. Any notice required to be given by the
Corporation to any shareholder, director, or committee member may be (i)
delivered personally, (ii) mailed by first class United States mail, postage
prepaid, addressed to the shareholder's, director's, or committee member's
address appearing on the books of the Corporation, or supplied by him to the
Corporation for the purpose of notice, or (iii) telegraphed or transmitted by a
similar mode of communication to the address identified in clause (ii) above. If
notice is sent by mail less than ten days prior to any shareholders',
directors', or committee meeting, notice shall be deemed to have been given to
the person entitled thereto twenty-four hours after deposit in the United States
mail; otherwise, notice shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or when deposited with
a telegraph or other transmitting office for transmission to such person. Any
shareholder, director, or committee member may waive notice of any meeting
before or after the meeting, and his attendance at a meeting shall constitute a
waiver of notice of such meeting, unless he announces at the meeting that he is
attending solely for the purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 7.02. Amendments. Bylaws may be adopted, amended, or repealed by
the Board of Directors in the manner provided in Section 2.08 or by the
shareholders in the manner provided in Section 1.06.
- ----------
Bylaws effective October 1, 1982
Amended April 11, 1984 - Sections 2.01; 2.02
Amended April 9, 1986 - Sections 2.02; 2.12; 3.01; 3.02
Amended April 21, 1987 - Article 5
Amended April 24, 1996 - Section 2.13
Amended March 26, 1997 - Section 1.06
-16-
Exhibit 10.8
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted by Board of Directors
December 26, 1984
PLAN YEAR 1997
<PAGE>
SCHEDULE B
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
1997 PERFORMANCE GOALS
Awards pursuant to the Plan will not be made unless the internal and
external performance goals set forth below are met.
INTERNAL PERFORMANCE GOALS FOR THE 1997 PLAN YEAR
The net operating income of NPB before securities transactions for 1997 must
exceed the net operating income of NPB before securities transactions for 1996.
EXTERNAL PERFORMANCE GOALS FOR THE 1997 PLAN YEAR
The net operating income of NPB before securities transactions on realized
return on average common equity for 1997 must exceed the average of the net
operating income before securities transactions on realized return on average
common equity for 1997 for the banks or bank holding companies in the peer group
set forth on Schedule B-2 A.
<PAGE>
SCHEDULE B-1
PAY OUT FORMULA
1. Obtaining an operating return on average equity
triggers an incentive pay out as follows:
100% of peer group $0
100.1% of peer group .031% of average assets
130% of peer group .11% of average assets
Interpolation is required between 100.1% and 130%.
2. Obtaining #1 in return on equity triggers an added
pay out of $25,000.
<PAGE>
SCHEDULE B-2
There is a change in the peer group from last year. The list of the nine
banking companies which form the peer group are:
Univest (Souderton)
Keystone Heritage
Fulton Financial Corp.
Susquehanna Bancshares
Harleysville National Corp.
Keystone Financial
S & T Bancorp
National Penn Bancshares, Inc.
BT Financial Corporation
Omega Financial Corp.
Jeff Banks, Inc.
Exhibit 10.10
NATIONAL PENN BANCSHARES, INC.
OFFICERS' AND KEY EMPLOYEES' STOCK COMPENSATION PLAN
1. PURPOSE
The purpose of the Officers' and Key Employees' Stock Compensation Plan
(the "Plan") is to advance the interests of National Penn Bancshares, Inc. (the
"Corporation") by enhancing the ability of the Corporation and its Subsidiaries
to attract and retain officers and other key employees, to reward such
individuals for their contributions, and to encourage them to take into account
the long-term interests of the Corporation through interests in the
Corporation's common stock, $2.50 par value (the "Stock").
This Plan provides for (i) the grant of options to acquire Stock
("Options"), which may be incentive stock options ("ISOs") within the meaning of
the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
stock options, and (ii) awards of Stock subject to certain restrictions and the
risk of forfeiture ("Restricted Stock"). Under this Plan, Restricted Stock
consists of (i) Stock subject to restrictions, including performance-based
restrictions intended to comply with the provisions of Code Section 162(m)
("Performance-Based Restricted Stock"), and (ii) Stock subject to restrictions,
not including performance-based restrictions. Grants of Options and awards of
Restricted Stock are referred to herein collectively as "Awards".
Any officer or key employee selected to receive an Award under this Plan is
sometimes referred to as a "participant" herein, and any officer or key employee
selected to receive an Option under this Plan is sometimes referred to as an
"optionee" herein.
2. ADMINISTRATION
This Plan shall be administered by a committee composed of three to six
members of the Corporation's Board of Directors (the "Board") who are (i)
"non-employee directors" of the Corporation within the meaning of Rule
16b-3(b)(3) under Section 16 of the Securities Exchange Act of 1934 (the "1934
Act"), and (ii) "outside directors" of the Corporation within the meaning of
Code Section 162(m) (the "Committee"). The Board may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board.
Subject to the terms, provisions and conditions of this Plan, the Committee
shall have exclusive jurisdiction to: (i) make Awards to such participants as
the Committee may select; (ii)
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determine the time or times when Awards shall be granted and the number of
shares of Stock subject to each Award; (iii) determine which Options are, and
which Options are not, intended to be ISOs; (iv) determine the terms and
conditions of each Award; (v) prescribe the form or forms of any instruments
evidencing Awards and any other instruments required under this Plan and to
change such forms from time to time; (vi) adopt, amend, and rescind rules and
regulations for the administration of this Plan; and (vii) interpret this Plan
and to decide any questions and settle all controversies and disputes that may
arise in connection with this Plan. Such determinations of the Committee shall
be conclusive and shall bind all parties.
No member of the Committee or of the Board shall be liable for any
determination, decision or action made in good faith, and the members shall be
entitled to indemnification and reimbursement in the manner provided in the
Corporation's Bylaws.
3. ELIGIBILITY
Persons eligible to receive Awards under this Plan shall be those officers
and key employees who, in the opinion of the Committee, are in a position to
make a significant contribution to the success of the Corporation and its
Subsidiaries. No person who beneficially owns ten percent or more of the
outstanding Stock shall be eligible to participate in this Plan, to exercise an
Option previously granted to him, or to take full possession of Restricted Stock
previously issued to him. A "Subsidiary" of the Corporation shall mean a
corporation in which the Corporation shall own, directly or indirectly, a
majority of the capital stock entitled to vote for the election of directors.
4. STOCK SUBJECT TO AWARDS
The Stock subject to Awards under this Plan shall be either authorized but
unissued shares or treasury shares. Subject to adjustment in accordance with the
provisions of Paragraph 5(G) and 6(F) hereof, the total number of shares of such
Stock shall be 750,000 shares.
If any outstanding Option or Restricted Stock Award under this Plan for any
reason expires, is forfeited or is terminated prior to the end of the period
during which Awards may be made under this Plan, the shares of Stock allocable
to the unexercised portion of such Option or the portion of such Restricted
Stock Award that has terminated or been forfeited may again be subject to award
under this Plan. Shares of Stock delivered to the Corporation to pay the
exercise price of any Option or to satisfy the tax withholding consequences of
an Option exercise or the grant or vesting of Restricted Stock shall again be
subject to award under this Plan.
5. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
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Options granted pursuant to this Plan shall be evidenced by agreements in
such form as the Committee shall, from time to time, approve, which agreements
shall in substance include and comply with and be subject to the following terms
and conditions:
A. MEDIUM AND TIME OF PAYMENT
The exercise price of an Option shall be payable either (i) in United
States dollars in cash or by check, bank draft or money order payable to the
order of the Corporation, (ii) through the delivery of shares of Stock owned by
the optionee with a fair market value equal to the Option's exercise price, or
(iii) by a combination of (i) and (ii). Fair market value of Stock so delivered
shall be determined as of the date of exercise, as provided in Paragraph 5(C)
hereof. Unless the Committee otherwise determines, an optionee may engage in a
successive exchange (or series of exchanges) in which Stock such optionee is
entitled to receive upon exercise of an Option may be simultaneously utilized as
payment for the exercise of an additional Option or Options.
To the extent permitted by applicable law and regulations, the Committee
may permit payment of the Option exercise price through arrangements with a
brokerage firm under which such firm, on behalf of the optionee, will pay to the
Corporation the exercise price of the shares being purchased, and the
Corporation will promptly deliver to such firm the number of shares of Stock
subject to the Option so that the firm may sell such shares, or a portion
thereof, for the account of the optionee. In addition, the Committee may permit
payment of the Option exercise price by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Corporation
sufficient funds to pay the exercise price as soon as the shares subject to the
Option, or a portion thereof, are sold on behalf of the optionee.
B. NUMBERS OF SHARES
The Option shall state the total number of shares to which it pertains.
Subject to adjustment as provided in Paragraph 5(G), in any fiscal year of the
Corporation, the aggregate number of shares of Stock as to which Options may be
granted to any one participant shall not exceed 60,000.
C. OPTION PRICE
The exercise price of an Option shall not be less than the fair market
value of the shares of Stock covered by the Option on the date of grant.
As used in this Plan, the "fair market value" of a share of Stock as of any
date shall be determined (i) based on the average of the closing sale prices of
a share of Stock for the ten (10) day trading period ending on the given date,
as reported on the National Association of Securities Dealers Automated
Quotation ("Nasdaq") National Market and published in The Wall Street Journal,
(ii) if no closing sale prices are reported during such ten (10) day trading
period, based on
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<PAGE>
the average of the mean of the bid and asked prices per share of Stock for such
ten (10) day trading period, as reported on Nasdaq, (iii) if the Stock is listed
on a stock exchange, based on the average of the closing sale prices of a share
of Stock for the ten (10) day trading period ending on the given date, as
reported in The Wall Street Journal, or (iv) if the Stock is not listed on
Nasdaq or on a stock exchange, by the Committee in its sole discretion.
D. EXPIRATION OF OPTIONS
Each Option granted under this Plan shall expire on a date determined by
the Committee, which date, in the case of an ISO, may not be more than ten years
from the date the Option is granted, and in the case of a non-qualified Option,
may not be more than ten years and one month from the date the Option is
granted.
E. VESTING OF OPTIONS
If and to the extent an Option has become vested, an Option may be
exercised in whole at any time, or in part from time to time, during its term.
Except as provided in Paragraph 5(F) hereof, an Option may only be exercised at
a time when the optionee is employed by the Corporation or one of its
Subsidiaries.
An optionee shall have a cumulative vested interest in the right to
exercise an Option, determined by reference to his continuous employment with
the Corporation and/or a Subsidiary following the date of grant of the Option,
as follows:
Period of Continuous Cumulative Vested
Employment Following Grant Percentage
Less than 1 year -0-
1 year or more 20.0
2 years or more 40.0
3 years or more 60.0
4 years or more 80.0
5 years or more 100.0
To the extent the application of the above vesting schedule would at any
time result in the right to acquire a fractional share, the right to acquire
such fractional share shall be deferred to the next vesting period.
4
<PAGE>
F. TERMINATION OF SERVICE
Except as otherwise provided in this Paragraph 5(F), upon the termination
of employment of an optionee for any reason, the unexercised vested portion of
any Option held by him shall lapse on the earlier of (i) the expiration of the
term of the Option, or (ii) three months from the date of such termination of
employment.
Upon the termination of employment of an optionee because of retirement at
age 60 or later or death, the unexercised vested portion of any Option held by
him (including any portion that became vested on account of such retirement or
death) shall lapse on the earlier of (i) the expiration of the term of the
Option, or (ii) three years from the date of such termination of employment.
Upon the termination of employment of an optionee because of permanent and
total disability (as defined in Code Section 22(e)(3), referred to herein as
"disability"), the unexercised vested portion of any Option held by him
(including any portion that became vested on account of such disability) shall
lapse on the earlier of (i) the expiration of the term of the Option, or (ii)
three years from the date of such termination of employment.
In the case of the discharge of an optionee for "cause", the unexercised
vested portion of any Option held by him shall lapse immediately. An optionee
will be deemed discharged for "cause" if he is discharged by his employer and
the ground for such discharge is the employer's good faith and reasonable belief
that (i) he has committed fraud or dishonesty toward his employer (or any
business affiliated with his employer, or any individual or company doing
business with any of them), or (ii) he has committed a felony, not otherwise
described in clause (i), which involves a crime of moral turpitude. Any lapse
occurring under provisions of this paragraph shall be final, whether or not the
optionee is convicted of or admits to the commission of the offense, and no
person or corporation shall be liable to the optionee therefor.
Upon termination of employment of an optionee for any reason other than
retirement at age 60 or later, disability, or death, the nonvested portion of
any Option held by him shall lapse immediately.
Upon termination of employment of an optionee because of retirement at age
60 or later, disability, or death, the nonvested portion of any Option held by
him shall vest immediately.
G. ADJUSTMENTS FOR CHANGES IN STOCK
The aggregate number of shares of Stock as to which Options may be granted
to participants under this Plan, the aggregate number of shares of Stock as to
which Options may be granted to any one such participant, the number of shares
of Stock covered by each outstanding Option, and the exercise price per share of
each outstanding Option, shall be proportionately adjusted by the Committee for
any increase or decrease in the number of outstanding shares of Stock resulting
from the subdivision or consolidation of shares or other capital adjustments,
the payment of a Stock dividend, or any other increase or decrease in such
shares effected without
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<PAGE>
receipt of consideration by the Corporation. Any such determination by the
Committee shall be conclusive.
H. TRANSFERABILITY
Except as otherwise provided in this Paragraph 5(H), no Option may be
assigned or transferred except by will, by the laws of descent and distribution,
or pursuant to a qualified domestic relations order.
Unless the Committee determines otherwise in connection with the grant of a
non-qualified Option, non-qualified Options granted hereunder shall be
transferable, without payment of consideration, by an optionee to a member of
the optionee's immediate family, to a trust whose beneficiaries are all members
of the optionee's immediate family, or to a partnership whose partners are all
members of the optionee's immediate family. In any such case, the Option shall
be exercisable only by such transferee. For purposes of this provision, an
optionee's "immediate family" shall mean the optionee's spouse, children and
grandchildren.
So long as non-transferability of ISOs is a requirement of the Code, no
Option granted as an ISO may be assigned or transferred except by will, by the
laws of descent and distribution, or pursuant to a qualified domestic relations
order.
I. RIGHTS AS A SHAREHOLDER
An optionee shall have no rights as a shareholder with respect to shares
covered by an Option until the date the shares are issued and only after such
shares are fully paid. No adjustment will be made for dividends or other rights
the record date for which is prior to the date of such issuance.
J. NO RIGHTS AS AN EMPLOYEE
Neither this Plan, the grant of any Option hereunder, nor the execution of
any agreement with respect to such an Option, shall confer upon any optionee any
right to remain in the employ of the Corporation or any Subsidiary or limit the
right of the Corporation or any Subsidiary to terminate the optionee's
employment at any time for any reason.
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<PAGE>
K. TAX WITHHOLDING
The Committee shall have the right to require that a participant exercising
an Option remit to the Corporation an amount sufficient to satisfy any federal,
state, or local withholding tax requirements (or make other arrangements
satisfactory to the Committee with regard to such taxes) prior to the delivery
of any Stock pursuant to the exercise of the Option. If permitted by the
Committee, either at the time of the grant of the Option or in connection with
its exercise, a participant may elect, at such time and in such manner as the
Committee may prescribe, to satisfy such withholding obligation by (i)
delivering Stock having a fair market value equal to such withholding
obligation, or (ii) requesting that the Corporation withhold from the shares of
Stock to be delivered upon the exercise a number of shares of Stock having a
fair market value equal to such withholding obligation.
In the case of an ISO, the Committee may require as a condition of exercise
that the participant exercising the Option agree to inform the Corporation
promptly of any disposition (within the meaning of Code Section 424(c) and the
regulations thereunder) of Stock received upon exercise.
L. CHANGE IN CONTROL
Notwithstanding Paragraph 5(E) or any other provision of this Plan, all
outstanding Options shall become immediately and fully exercisable, whether or
not otherwise exercisable by their terms, in the event of a "Change in Control".
For purposes of this Paragraph 5(L), a "Change in Control" shall mean any
of the following events: (i) the Corporation acquires actual knowledge that any
Person other than the Corporation, a Subsidiary or any employee benefit plan(s)
sponsored by the Corporation, has acquired the Beneficial Ownership, directly or
indirectly, of securities of the Corporation entitling such Person to 25% or
more of the Voting Power of the Corporation; (ii) a Tender Offer is made to
acquire securities of the Corporation entitling the holders thereof to 50% or
more of the Voting Power of the Corporation; (iii) Voting Shares are first
purchased pursuant to any other Tender Offer; or (iv) at any time less than 60%
of the members of the Board shall be individuals who were either (A) Directors
on the effective date of this Plan or (B) individuals whose election, or
nomination for election, was approved by a vote (including a vote approving a
merger or other agreement providing for the membership of such individuals on
the Board) of at least two-thirds of the Directors then still in office who were
Directors on the effective date of this Plan or who were so approved.
For purposes of this Paragraph 5(L), the following terms shall have the
following meanings:
(1) "Affiliate", "Associate", and "Parent" shall have the respective
meanings set forth in Rule 12b-2 under the 1934 Act as in effect on the
effective date of this Plan.
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(2) The term "Person" shall be used as that term is used in Sections 13(d)
and 14(d) of the 1934 Act.
(3) "Beneficial Ownership" shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on the effective date of this Plan.
(4) "Voting Shares" shall mean all securities of a company entitling the
holders thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than common stock to
elect directors by a separate class vote); and a specified percentage of "Voting
Power" of a company shall mean such number of the Voting Shares as shall enable
the holders thereof to cast such percentage of all the votes which could be cast
in an annual election of directors (without consideration of the rights of any
class of stock other than common stock to elect directors by a separate class
vote).
(5) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of the Corporation (other than such an offer made by the Corporation
or any Subsidiary), whether or not such offer is approved or opposed by the
Board.
(6) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing at least
fifty percent (50%) or more of the total combined Voting Power of all classes of
stock in one of the other corporations in the chain.
M. ADDITIONAL RESTRICTIONS AND CONDITIONS
The Committee may impose such other restrictions and conditions (in
addition to those required by the provisions of this Plan) on any Award of
Options hereunder and may waive any such additional restrictions and conditions,
so long as (i) any such additional restrictions and conditions are consistent
with the terms of this Plan and (ii) such waiver does not waive any restriction
or condition required by the provisions of this Plan.
6. TERMS AND CONDITIONS APPLICABLE TO RESTRICTED STOCK AWARDS
Awards of Restricted Stock may be Performance-Based Restricted Stock, as
described in Paragraph 6(K), or Restricted Stock without performance-based
restrictions. The provisions of Paragraphs 6(A) through 6(J) are applicable to
all shares of Restricted Stock.
A. NUMBER OF SHARES
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The total number of shares of Restricted Stock that may be awarded under
this Plan on a cumulative basis shall not exceed one percent of the Stock
outstanding at the date of any such Award. In any fiscal year of the
Corporation, the aggregate number of shares of Stock as to which Restricted
Stock Awards may be made to any one participant shall not exceed 5,000.
Each Restricted Stock Award under this Plan shall be evidenced by a stock
certificate of the Corporation, registered in the name of the participant,
accompanied by an agreement in such form as the Committee shall prescribe from
time to time. Restricted Stock Awards shall comply with the terms and conditions
of this Plan and with such other terms and conditions not inconsistent with the
terms and conditions of this Plan as the Committee, in its discretion, shall
establish.
B. RESTRICTED PERIOD; RESTRICTIONS
The Committee shall provide that shares of Stock issued to a participant in
connection with a Restricted Stock Award may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the laws of
descent and distribution, for such period as the Committee shall determine,
beginning on the date on which the Award is granted (the "Restricted Period"),
and that the Restricted Period applicable to such Restricted Stock shall lapse
(if at all) only at the end of the Restricted Period if all other terms and
conditions of the Restricted Stock Award are then satisfied. Without limiting
the generality of the foregoing, the other terms and conditions of the
Restricted Stock Award may include the requirement that the participant be
continuously employed by the Corporation or a Subsidiary during the Restricted
Period.
If all terms and conditions of the Restricted Stock Award are not satisfied
at the end of the Restricted Period, the Restricted Stock shall be forfeited and
transferred to, and reacquired by, the Corporation at no cost to the
Corporation.
C. STOCK LEGENDS; PROHIBITION ON DISPOSITION
Certificates for shares of Restricted Stock shall bear an appropriate
legend referring to the restrictions to which they are subject, and any attempt
to dispose of any such shares of Stock in contravention of such restrictions
shall be null and void and without effect. The certificates representing shares
of Restricted Stock shall be held by the Corporation until the restrictions are
satisfied.
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<PAGE>
D. TERMINATION OF SERVICE
The Committee shall determine the extent to which the restrictions on any
Restricted Stock Award shall lapse upon the termination of the participant's
service to the Corporation and its Subsidiaries due to death, disability,
retirement or for any other reason. If the restrictions on all or any portion of
a Restricted Stock Award shall not lapse, the participant, or in the event of
his death, his personal representative, shall forthwith deliver to the Secretary
of the Corporation such instruments of transfer, if any, as may reasonably be
required to transfer the shares back to the Corporation.
E. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, as determined in Paragraph 5(L)
of this Plan, all restrictions then outstanding with respect to shares of
Restricted Stock shall automatically expire and be of no further force and
effect, and all certificates representing such shares of Stock shall be
delivered to the respective participants.
F. ADJUSTMENT FOR CHANGES IN STOCK
The Committee shall proportionately adjust the aggregate number of shares
of Stock as to which Restricted Stock Awards may be granted to participants
under this Plan and the aggregate number of shares of Stock as to which
Restricted Stock Awards may be granted to any one such participant for any
increase or decrease in the number of outstanding shares of Stock resulting from
the subdivision or consolidation of shares or other capital adjustments, the
payment of a Stock dividend, or any other increase or decrease in such shares
effected without receipt of consideration by the Corporation; provided that any
factional shares resulting from any such adjustment shall be eliminated. Any
such determination by the Committee shall be conclusive. Shares of Stock issued
with respect to any outstanding Awards as a result of any of the foregoing
events shall be subject to the same restrictions.
G. EFFECT OF ATTEMPTED TRANSFER
No benefit payable or interest in any Restricted Stock Award shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge and any such attempted action shall be void, and
no such interest in any Restricted Stock Award shall be in any manner liable for
or subject to debts, contracts, liabilities, engagements or torts of any
participant or his beneficiary. If any participant or beneficiary shall become
bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit payable under or interest in any
Restricted Stock Award, then the Committee, in its discretion, may hold or apply
such benefit or interest or any part thereof to or for the benefit of such
participant or his beneficiary, his spouse, children, blood relatives or other
dependents, or any of them, in any such manner and such proportions as the
Committee may consider proper.
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H. PAYMENT OF TAXES
The Corporation shall have the right to deduct from any Restricted Stock
Award or other payment hereunder any amount that federal, state, or local tax
law requires to be withheld with respect to such Award or payment or to require
that the participant, prior to or simultaneously with the Corporation incurring
any obligation to withhold any such amount, pay such amount to the Corporation
in cash or, at the option of the Corporation, shares of Stock (which shall be
valued at their fair market value on the date of payment). There is no
obligation under this Plan that any participant be advised of the existence of
the tax or the amount required to be withheld. Without limiting the generality
of the foregoing, in any case where it is determined that tax is required to be
withheld in connection with the issuance, transfer or delivery of shares of
Stock under this Plan, the Corporation may, pursuant to such rules as the
Committee may establish, reduce the number of shares so issued, transferred or
delivered by such number of shares as the Corporation may deem appropriate in
its sole discretion to comply with such withholding. Notwithstanding any other
provision of this Plan, the Committee may impose such conditions on the payment
of any withholding obligations as may be required to satisfy applicable
regulatory requirements.
I. RIGHTS AS A SHAREHOLDER
A participant shall have the right to receive dividends on shares of Stock
subject to the Restricted Stock Award during the applicable Restricted Period,
to vote the Stock subject to the Award and to enjoy all other shareholder
rights, except that the participant shall not be entitled to delivery of the
stock certificate until the applicable Restricted Period shall have lapsed (if
at all).
J. NO RIGHTS AS AN EMPLOYEE
Neither this Plan, the award of any Restricted Stock hereunder, nor the
execution of any agreement with respect to such Restricted Stock, shall confer
upon any optionee any right to remain in the employ of the Corporation or any
Subsidiary or limit the right of the Corporation or any Subsidiary to terminate
the optionee's employment at any time for any reason.
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K. PERFORMANCE-BASED RESTRICTED STOCK
Awards of Performance-Based Restricted Stock are intended to qualify as
"performance-based" for purposes of Code Section 162(m). The Committee shall
provide that shares of Stock issued to a participant in connection with an Award
of Performance-Based Restricted Stock may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the laws of
descent and distribution, during the Restricted Period, and that the Restricted
Period applicable to such Restricted Stock shall lapse (if at all) only if
certain pre-established objectives are attained. Performance goals may be based
on any of the following criteria: (i) earnings or earnings per share, (ii)
return on equity, (iii) return on assets, (iv) revenues, (v) expenses, (vi) one
or more operating ratios, (vii) stock price, (viii) shareholder return, (ix)
market share, (x) charge-offs, (xi) credit quality, (xii) reductions in
non-performing assets, (xiii) customer satisfaction measures, and (xiv) the
accomplishment of mergers, acquisitions, dispositions or similar extraordinary
business transactions. The Committee shall establish one or more objective
performance goals for each such Award of Performance-Based Restricted Stock on
the date of grant. The performance goals selected in any case need not be
applicable across the Corporation, but may be particular to an individual's
function or business unit. The Committee shall determine whether such
performance goals are attained and such determination shall be final and
conclusive. If the performance goals are not met, the Performance-Based
Restricted Stock shall be forfeited and transferred to, and reacquired by, the
Corporation at no cost to the Corporation.
The Committee may impose such other restrictions and conditions (in
addition to the performance-based restrictions described above) on any Award of
shares of Performance-Based Restricted Stock as the Committee deems appropriate
and may waive any such additional restrictions and conditions, so long as such
waiver does not waive any restriction described in the previous paragraph.
Nothing herein shall limit the Committee's ability to reduce the amount payable
under an Award upon the attainment of the performance goal(s), provided,
however, that the Committee shall have no right under any circumstance to
increase the amount payable under, or waive compliance with, any applicable
performance goal(s).
7. AMENDMENT
The Committee may at any time amend or suspend this Plan or alter and amend
Awards granted hereunder; provided, however, that no such amendment may, without
the consent of any participant to whom an Option shall theretofore have been
granted or to whom a Restricted Stock Award shall theretofore have been issued,
adversely affect the right of such participant under such Award; and provided,
further, that no amendment that requires shareholder approval in order for (i)
this Plan to continue to be eligible to satisfy the requirements for exemption
of the acquisition of securities under this Plan pursuant to Rule 16b-3 under
Section 16 of the 1934 Act, or (ii) this Plan to continue to be eligible to
comply with Code Section 162(m), or any amendment of or substitute
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for either of them, shall be effective unless the same shall be approved by the
requisite vote of the shareholders of the Corporation.
8. TERMINATION
The Board may terminate this Plan at any time, and no Awards shall be made
thereafter. Unless previously terminated by the Board, this Plan shall terminate
on, and no Awards shall be made after, December 17, 2006.
9. LEGALITY OF GRANT
The granting of any Award under this Plan and the issuance or transfer of
Options and shares of Stock pursuant hereto are subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
regulatory or governmental agency (including, without limitation, no-action
positions of the Securities and Exchange Commission) which may, in the opinion
of counsel for the Corporation, be necessary or advisable in connection
therewith. Without limiting the generality of the foregoing, no Awards may be
granted under this Plan and no Options or shares shall be issued by the
Corporation, nor cash payments made by the Corporation pursuant to or in
connection with any such Award unless and until in any such case all legal
requirements applicable to the issuance or payment have, in the opinion of
counsel for the Corporation, been complied with. In connection with any Option
or Stock issuance or transfer, the person acquiring the Option or the shares of
Stock shall, if requested by the Corporation, give assurance satisfactory to
counsel to the Corporation with respect to such matters as the Corporation may
deem desirable to assure compliance with all applicable legal requirements.
10. CAPTIONS; PRONOUNS
The captions contained in this Plan are for convenience of reference only,
and shall not be considered part of this Plan in its interpretation and
construction.
The use of any masculine pronoun herein shall be construed to include the
corresponding feminine pronoun, as the context requires.
11. EFFECTIVE DATE
This Plan was adopted by the Board on December 18, 1996, subject, however,
to approval of this Plan by the shareholders of the Corporation at its 1997
Annual Meeting. If so approved, this Plan shall be effective as of December 18,
1996.
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Exhibit 10.11
DIRECTORS' FEE PLAN
NATIONAL PENN BANCSHARES, INC.
SECTION I - DEFINITIONS
A. Board of Directors: The Board of Directors of the Company.
B. Common Stock: The Company's common stock, $2.50 par value.
C. Company: National Penn Bancshares, Inc.
D. Compensation Committee: The Compensation Committee of the Board of
Directors (comprised solely of persons who are "non-employee directors" of the
Company, as such term is defined by the Securities and Exchange Commission
pursuant to Section 16 of the Securities Exchange Act of 1934).
E. Corporate Secretary: The Corporate Secretary of the Company.
F. Current Stock Election: An election to receive current payment of
Director Fees in shares of Common Stock, without deferral.
G. Deferred Cash Compensation Account: A book-entry reserve account
maintained in the records of the Company (in the case of its participating
Directors) or of a Subsidiary (in the case of its participating Directors)
indicating the amount owed to an individual Director as a result of a cash
deferral of his Director Fees.
H. Deferred Cash Election: An election to defer the receipt of all or a
portion of Director Fees and to receive eventual payment of such Director Fees
in cash.
I. Deferred Stock Compensation Account: A book-entry reserve account
maintained in the records of the Company (in the case of its participating
Directors) or of a Subsidiary (in the case of its participating Directors)
indicating the amount owed to an individual Director as a result of a stock
deferral of his Director Fees.
J. Deferred Stock Election: An election to defer the receipt of all
Director Fees and to receive eventual payment of such Director Fees in shares of
Common Stock.
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K. Director: Any duly elected or appointed director of the Company or of a
Subsidiary, other than a director who is also a common law employee of the
Company or of a Subsidiary. For purposes of administering and construing this
Plan, such a common law employee shall be deemed to be a person who is not a
Director.
L. Director Fees: Fees which are payable to a Director for services
performed by such Director as a member of the Board of Directors, as a member of
a Subsidiary's board of directors, or as a member of any committee.
M. Election: The election by a Director to receive payment of Director Fees
other than currently in cash.
N. Fair Market Value: The fair market value of a share of Common Stock,
determined pursuant to Section XII hereof.
O. Interest Crediting Date: March 31, June 30, September 30 and December 31
of each Plan Year.
P. Plan: This Directors' Fee Plan, as adopted by the Company and as it may
be amended from time to time.
Q. Plan Quarter: A calendar quarter.
R. Plan Year: A calendar year.
S. Subsidiary: Any corporation, 50% or more of the capital stock of which
is owned, directly or indirectly, by the Company. ----------
SECTION II - PURPOSE; RESERVATION OF SHARES
The purposes of the Plan are to provide each Director with payment
alternatives for Director Fees and to increase the identification of interests
between Directors and the shareholders of the Company by providing Directors
with the opportunity to elect to receive payment of Director Fees in shares of
Common Stock. For each Plan Year, the aggregate number of shares of Common Stock
which may be issued under Current Stock Elections or credited to Deferred Stock
Compensation Accounts for subsequent issuance under the Plan is limited to
25,000 shares, subject to adjustment and substitution as set forth in Section
VII.B.
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SECTION III - ELIGIBILITY TO PARTICIPATE
Except as otherwise provided in Section VI or Section VIII, any Director is
eligible to participate in the Plan.
SECTION IV - PAYMENT OR DEFERRAL OF DIRECTORS' FEES
A. General. Each Director may elect to receive current payment of Director
Fees either in cash or in shares of Common Stock, without deferral. Each
Director also may elect to defer payment of Director Fees and to receive such
deferred payment either in cash or in shares of Common Stock. An Election is
made by filing with the Corporate Secretary a "Notice of Election" in the form
prescribed by the Company, appropriately completed. Director Fees earned at any
time for which an Election is not effective shall be paid in cash on the date
when the Director Fees are otherwise payable. Subject to the terms of the Plan,
an Election may be changed, modified or terminated by filing with the Corporate
Secretary a "Notice of Amendment or Revocation of Election" in the form
prescribed by the Company, appropriately completed. Any Election shall terminate
on the date a Director ceases to be a Director. Any "Notice of Election" or
"Notice of Amendment or Revocation of Election" shall become irrevocable when
filed, except by the filing of a new "Notice of Election" or "Notice of
Amendment or Revocation of Election" which thereafter becomes effective in
accordance with the provisions of this Section IV.
B. Current Stock Payment. Any Director desiring to make a Current Stock
Election shall file with the Corporate Secretary a "Notice of Election",
appropriately completed. A Current Stock Election shall be effective on the date
on which the "Notice of Election" is filed. Any Current Stock Election shall
remain in effect for each succeeding Plan Year unless and until the Director
revokes such Election by filing a "Notice of Amendment or Revocation of
Election" with the Corporate Secretary, appropriately completed. Any such
revocation shall become effective for the Plan Year immediately following the
Plan Year in which such revocation is duly filed.
During the period that a Current Stock Election is effective, all Director
Fees payable shall be paid by the issuance to the Director of a number of whole
shares of Common Stock equal to the Director Fees payable divided by the Fair
Market Value of a share of Common Stock on the date on which such Director Fees
are payable (as provided in Section XII hereof). Any amount of Director Fees
which is not paid in Common Stock because it is less than the Fair Market Value
of a whole share shall be accumulated in cash without interest and added to the
amount used in computing the number of shares of Common Stock issuable to the
Director on the next succeeding date on which Director Fees are payable under
the Current Stock Election. Any such accumulated fractional amount remaining as
of the effective date of any termination of a Current Stock Election or of the
termination of the Plan shall be paid to the Director in cash on the next
succeeding date on which Director Fees would have been payable to the Director
under the Current Stock Election.
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The Company shall issue share certificates to the Director for the shares
of Common Stock acquired or, if requested in writing by the Director, the shares
acquired shall be added to the Director's account under the Company's Dividend
Reinvestment Plan. As of the date on which the Director Fees are payable in
shares of Common Stock, the Director shall be a shareholder of the Company with
respect to such shares.
C. Deferred Cash Payment. Any Director desiring to make a Deferred Cash
Election shall, no later than December 31 of the Plan Year immediately preceding
the Plan Year for which such Deferred Cash Election is to become effective, file
with the Corporate Secretary a "Notice of Election", appropriately completed. In
the case of a person who is elected or appointed as a Director and who was not a
Director on the preceding December 31st, such Deferred Cash Election shall be
made prior to the commencement of his term of office. For 1997, a Deferred Cash
Election shall be made prior to January 1, 1997. Any Deferred Cash Election
shall remain in effect for each succeeding Plan Year unless and until the
Director amends or revokes such Election by filing with the Corporate Secretary
a "Notice of Amendment or Revocation of Election", appropriately completed. Any
such amendment or revocation shall become effective for the Plan Year
immediately following the Plan Year in which such amendment or revocation is
duly filed, and shall remain effective until similarly changed.
D. Deferred Stock Payment. Any Director desiring to make a Deferred Stock
Election shall, no later than December 31 of the Plan Year immediately preceding
the Plan Year for which such Deferred Stock Election is to become effective,
file with the Corporate Secretary a "Notice of Election", appropriately
completed. In the case of a person who is elected or appointed as a Director and
who was not a Director on the preceding December 31st, such Deferred Stock
Election shall be made prior to the commencement of his term of office. For
1997, a Deferred Stock Election shall be made prior to January 1, 1997. Any
Deferred Stock Election shall remain in effect for each succeeding Plan Year
unless and until the Director revokes such Election by filing with the Corporate
Secretary a "Notice of Amendment or Revocation of Election", appropriately
completed. Any such revocation shall become effective for the Plan Year
immediately following the Plan Year in which such revocation is duly filed.
SECTION V - DEFERRED CASH COMPENSATION ACCOUNT
A. General. The amount of any Director Fees deferred in accordance with a
Cash Deferral Election shall be credited to a Deferred Cash Compensation Account
in the name of the Director on the date on which such Director Fees are
otherwise payable.
B. Interest. On each Interest Crediting Date, each Deferred Cash
Compensation Account shall be credited with additional amounts in the nature of
interest. The rate of interest that will accrue with respect to a Deferred Cash
Compensation Account for a given Plan Year will be equal to the rate of return
realized by the Mandatory Deferral Accounts ("Mandatory Deferral Accounts")
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of the National Penn Bancshares, Inc. Executive Incentive Plan (the "Executive
Incentive Plan") during the three-month period ended within such Plan Quarter.
Interest on amounts in Deferred Cash Compensation Accounts shall accrue daily
and shall be determined by reference to a 365/366-day year; provided, however,
that no deferred Director Fee shall commence accruing interest until the first
day of the Plan Quarter immediately following the Plan Quarter in which it is
earned.
Notwithstanding the provisions of the preceding paragraph, if a Deferred
Cash Compensation Account is completely liquidated on a date other than an
Interest Crediting Date, interest shall be credited to such Account, as of the
date of its liquidation, for the period since the last Interest Crediting Date.
The interest rate to be used shall be the rate of return realized by the
Mandatory Deferral Accounts during the three-month period ended within the last
preceding Plan Quarter.
Notwithstanding anything herein to the contrary, the Compensation Committee
may vary the method of calculating interest on Deferred Cash Compensation
Account balances if the Executive Incentive Plan is terminated or amended to
materially alter the present nature of calculation of interest on Mandatory
Deferral Accounts. The decision of the Compensation Committee as to the use of a
substituted method of calculating interest shall be final and binding on all
affected Directors.
SECTION VI - DISTRIBUTION OF DEFERRED
CASH COMPENSATION ACCOUNT BALANCES
A. General. No distribution from a Deferred Cash Compensation Account shall
be made or commence prior to the occurrence of the event selected by the
Director in his Deferred Cash Election as occasioning such distribution. The
actual date on which distribution will be made or commence will be determined by
the Compensation Committee; provided, however, that such date may be no later
than December 31 of the Plan Year in which such event occurs.
Distributions from Deferred Cash Compensation Accounts may be made in a
lump sum or in annual installments over a period of five or ten years. The
amount of any annual installment shall be calculated by dividing the balance in
a Director's Deferred Cash Compensation Account at the relevant time by the
number of installments remaining to be paid. The actual method of distribution
from a Director's Deferred Cash Compensation Account will be determined by the
method of distribution selected by the Director in his Deferred Cash Election.
The balance of the Deferred Cash Compensation Account shall be appropriately
reduced on the date of payment to the Director or the Director's designated
beneficiary to reflect the installment payments made hereunder. Amounts held
pending distribution pursuant to this Section VI shall continue to be credited
with interest on a quarterly basis as described in Section V hereof.
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Notwithstanding anything herein to the contrary, if an individual becomes a
proprietor, officer, partner, employee or otherwise becomes affiliated with any
business or governmental agency which is in competition with or has regulatory
authority over the Company or a Subsidiary, the Compensation Committee shall be
entitled, in its sole discretion, to terminate his participation in the Plan and
direct that distribution be made to him in one lump sum at that time.
Once made, an election as to the event which shall occasion a distribution
and an election as to the method of distribution shall be irrevocable, unless
the Compensation Committee consents in writing to a change. In no event shall
such consent be granted with respect to a request by an individual after the
occurrence of the event selected by him as occasioning a distribution.
B. Beneficiary Designation. A Director may designate one or more persons to
receive the balance in his Deferred Cash Compensation Account in the event of
his death prior to receipt of the total amount therein. No such designation will
be valid unless made on a "Beneficiary Designation" form prescribed by the
Company, and duly and timely filed with the Corporate Secretary. A Director may
at any time, and from time to time, revoke or amend such designation by duly and
timely filing a new "Beneficiary Designation" form with the Corporate Secretary.
If a Director dies without a completed "Beneficiary Designation" form on file
with the Corporate Secretary, payment will be made to his estate. All
distributions made as a result of death shall be paid in lump sums.
SECTION VII - DEFERRED STOCK COMPENSATION ACCOUNT
A. General. The amount of any Director Fees deferred in accordance with a
Stock Deferral Election shall be credited to a Deferred Stock Compensation
Account in the name of the Director. On each date on which Director Fees are
payable to Directors for whom Stock Deferral Elections are in effect, the
Director's Deferred Stock Compensation Account shall be credited with a number
of shares of Common Stock (including fractional shares) equal to the Director
Fees payable divided by the Fair Market Value of a share of Common Stock, on the
date on which such Director Fees are payable (as provided in Section XII
hereof). If a dividend or distribution is paid on the Common Stock in cash or
property other than Common Stock, then, on the date of payment of the dividend
or distribution to holders of the Common Stock, each Deferred Stock Compensation
Account shall be credited with the number of shares of Common Stock (including
fractional shares) equal to the number of shares of Common Stock credited to
such Account on the date fixed for determining the shareholders entitled to
receive such dividend or distribution times the amount of the dividend or
distribution paid per share of Common Stock divided by the Fair Market Value of
a share of Common Stock on the date on which the dividend or distribution is
paid. If the dividend or distribution is paid in property, the amount of the
dividend or distribution shall equal the fair market value of the property on
the date on which the dividend or distribution is paid. The Deferred Stock
Compensation Account of a Director shall be charged on the date of distribution
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with any distribution of shares of Common Stock made to the Director from such
Account pursuant to Section VIII.A. hereof.
B. Adjustment and Substitution. The number of shares of Common Stock
credited to each Deferred Stock Compensation Account, and the number of shares
of Common Stock available for issuance or crediting under the Plan in each Plan
Year in accordance with Section II hereof, shall be proportionately adjusted to
reflect any dividend or other distribution on the outstanding Common Stock
payable in shares of Common Stock or any split or consolidation of the
outstanding shares of Common Stock. If the outstanding Common Stock shall, in
whole or in part, be changed into or exchangeable for a different class or
classes of securities of the Company or securities of another company or cash or
property other than Common Stock, whether through reorganization,
reclassification, recapitalization, merger, consolidation or otherwise, the
Board of Directors shall adopt such amendments to the Plan as it deems necessary
to carry out the purposes of the Plan, including the continuing deferral of any
amount of any Deferred Stock Compensation Account.
SECTION VIII - DISTRIBUTION OF DEFERRED
STOCK COMPENSATION ACCOUNT BALANCES
A. General. No distribution from a Deferred Stock Compensation Account
shall be made or commence prior to the occurrence of the event selected by the
Director in his Deferred Stock Election as occasioning such distribution. The
actual date on which distribution will be made or commence will be determined by
the Compensation Committee; provided, however, that such date may be no later
than December 31 of the Plan Year in which such event occurs.
Distributions of Common Stock from Deferred Stock Compensation Accounts may
be made in a lump sum or in annual installments over a period of five or ten
years. The number of shares of Common Stock distributed in any annual
installment shall be calculated by dividing the balance in a Director's Deferred
Stock Compensation Account at the relevant time by the number of installments
remaining to be paid. The actual method of distribution from a Director's
Deferred Stock Compensation Account will be determined by the method of
distribution selected by the Director in his Deferred Stock Election.
The balance of the number of shares of Common Stock in the Deferred Stock
Compensation Account shall be appropriately reduced to reflect the installment
payments made hereunder. Shares of Common Stock remaining in a Deferred Stock
Compensation Account pending distribution pursuant to this Section shall
continue to be credited with respect to dividends or distributions paid on the
Common Stock pursuant to Section VII hereof and shall be subject to adjustment
or substitution pursuant to Section VII hereof. If a lump sum payment or the
final installment payment hereunder would result in the issuance of a fractional
share of Common Stock, such fractional share shall not be issued and cash in
lieu of such fractional share shall be paid to the
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Director based on the Fair Market Value of a share of Common Stock on the date
immediately preceding the date of such payment.
The Company shall issue share certificates to the Director, or the
Director's designated beneficiary, for the shares of Common Stock distributed
hereunder, or if requested in writing by the Director, the shares to be
distributed shall be added to the Director's account under the Company's
Dividend Reinvestment Plan. As of the date on which the Director is entitled to
receive payment of shares of Common Stock, the Director shall be a shareholder
of the Company with respect to such shares.
Notwithstanding anything herein to the contrary, if an individual becomes a
proprietor, officer, partner, employee or otherwise becomes affiliated with any
business or governmental agency which is in competition with or has regulatory
authority over the Company or a Subsidiary, the Compensation Committee shall be
entitled, in its sole discretion, to terminate his participation in the Plan and
direct that distribution of the balance of his Deferred Stock Compensation
Account be made to him in one lump sum at that time.
Once made, an election as to the event which shall occasion a distribution
and an election as to the method of distribution shall be irrevocable, unless
the Compensation Committee consents in writing to a change. In no event shall
such consent be granted with respect to a request by an individual after the
occurrence of the event selected by him as occasioning a distribution.
B. Beneficiary Designation. A Director may designate one or more persons to
receive the balance in his Deferred Stock Compensation Account in the event of
his death prior to receipt of the total amount therein. No such designation will
be valid unless made on a "Beneficiary Designation" form prescribed by the
Company, and duly and timely filed with the Corporate Secretary. A Director may
at any time, and from time to time, revoke or amend such designation by duly and
timely filing a new "Beneficiary Designation" form with the Corporate Secretary.
If a Director dies without a completed "Beneficiary Designation" form on file
with the Corporate Secretary, payment will be made to his estate. All
distributions made as a result of death shall be paid in lump sums.
SECTION IX - NON-ALIENABILITY OF BENEFITS
Neither the Director nor any beneficiary designated by the Director shall
have the right, directly or indirectly, to alienate, assign, transfer, pledge,
anticipate or encumber (except by reason of death) any amount that is or may be
payable hereunder, nor shall any such amount be subject to anticipation,
alienation, sale, assignment, transfer, pledge, encumbrance, attachment or
garnishment by creditors of the Director or the Director's designated
beneficiary or to the debts, contracts, liabilities, engagements or torts of any
Director or the Director's designated beneficiary, or transfer
8
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by operation of law in the event of bankruptcy or insolvency of the Director or
the Director's designated beneficiary, or any legal process.
SECTION X - NATURE OF DEFERRED ACCOUNTS
Any Deferred Cash Compensation Account or Deferred Stock Compensation
Account shall be established and maintained only on the books and records of the
Company or the applicable Subsidiary, and no assets or funds of the Company, a
Subsidiary or the Plan or shares of Common Stock shall be removed from the
claims of the Company's or a Subsidiary's general or judgment creditors or
otherwise made available until such amounts are actually payable to Directors or
their designated beneficiaries as provided herein. The Plan constitutes a mere
promise by the Company or the applicable Subsidiary to make payments in the
future. The Directors and their designated beneficiaries shall have the status
of, and their rights to receive a payment of cash or shares of Common Stock
under the Plan shall be no greater than the rights of, general unsecured
creditors of the Company or the applicable Subsidiary. No person shall be
entitled to any voting rights with respect to shares credited to a Deferred
Stock Compensation Account and not yet payable to a Director or the Director's
designated beneficiary. The Company and the Subsidiaries shall not be obligated
under any circumstances to fund their respective financial obligations under the
Plan and the Plan is intended to constitute an unfunded plan for Federal income
tax purposes.
SECTION XI - PLAN ADMINISTRATION; HARDSHIP WITHDRAWAL
The Compensation Committee shall, with respect to the Plan, have full power
and authority to construe, interpret, manage, control and administer this Plan,
and to pass and decide upon cases in conformity with the objectives of the Plan
under such rules as the Board of Directors and/or the Compensation Committee may
establish.
If the Compensation Committee deems any person entitled to receive a
distribution incapable of receiving or disbursing the same by reason of age,
illness or any infirmity or incapacity of any kind, payment may be made directly
for the comfort, support and maintenance of such person or to any person
selected by the Compensation Committee to disburse the same, whose receipt shall
be a complete acquittance therefor.
Notwithstanding the terms of a Cash Deferral Election or a Stock Deferral
Election made by a Director hereunder, the Compensation Committee may, in its
sole discretion, permit the withdrawal of amounts credited to a Deferred Cash
Compensation Account or of shares credited to a Deferred Stock Compensation
Account with respect to Director Fees previously payable, upon the request of a
Director or the Director's representative, if the Compensation Committee
determines that the Director or the Director's representative, as the case may
be, is confronted with an unforeseeable emergency. For this purpose, an
unforeseeable emergency is an unanticipated
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emergency caused by an event that is beyond the control of the Director or the
Director's representative and that would result in severe financial hardship to
the Director if an early hardship withdrawal were not permitted. The Director or
the Director's representative shall provide to the Compensation Committee such
evidence as the Compensation Committee, in its discretion, may require to
demonstrate that such emergency exists and financial hardship would occur if the
withdrawal were not permitted. The withdrawal shall be limited to the amount or
to the number of shares, as the case may be, necessary to meet the emergency.
For purposes of the Plan, a hardship shall be considered to constitute an
immediate and unforseen financial hardship if the Director has an unexpected
need for cash to pay for expenses incurred by him or a member of his immediate
family (spouse and/or natural or adopted children) such as those arising from
illness, casualty loss, or death. Cash needs arising from foreseeable events,
such as the purchase or building of a house or education expenses will not be
considered to be the result of an unforeseeable financial emergency. Payment
shall be made as soon as practicable after the Compensation Committee approves
the payment and determines the amount of the payment or number of shares which
shall be withdrawn, in a single lump sum. No Director shall participate in any
decision of the Compensation Committee regarding such Director's request for a
withdrawal under this Section XI.
SECTION XII - PAYMENT DATES; FAIR MARKET VALUE
Director Fees payable currently in cash or to be credited to a Deferred
Cash Compensation Account shall be paid or credited, as the case may be, on such
dates as the Company's or the Subsidiary's management shall determine, but not
less frequently than June 30 and December 31 of each Plan Year. Director Fees
payable currently in shares of Common Stock or to be credited to a Deferred
Stock Compensation Account shall be paid or credited, as the case may be, on
June 30 and December 31 of each Plan Year, in each case covering the six-month
period ending on such date.
"Fair Market Value" of a share of Common Stock on a given date shall be
determined (i) based on the average of the closing sale prices of a share of
Common Stock for the ten (10) day trading period ending on the given date, as
reported on the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market and published in The Wall Street Journal, (ii) if no
closing sale prices are reported during such ten (10) day trading period, based
on the average of the mean of the bid and asked prices per share of Common Stock
for such ten (10) day trading period, as reported on Nasdaq, (iii) if the Common
Stock is listed on a stock exchange, based on the average of the closing sale
prices of a share of Common Stock for the ten (10) day trading period ending on
the given date, as reported in The Wall Street Journal, or (iv) if the Common
Stock is not listed on Nasdaq or on a stock exchange, by the Board of Directors
in its sole discretion.
SECTION XIII - SECURITIES LAWS; ISSUANCE OF SHARES
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The obligation of the Company to issue or credit shares of Common Stock
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares, if deemed necessary or appropriate by counsel for the Company, (ii) the
condition that the shares shall have been listed (or authorized for listing upon
official notice of issuance) upon Nasdaq or each stock exchange, if any, on
which the shares of Common Stock may then be listed and (iii) all other
applicable laws, regulations, rules and orders which may then be in effect. If,
on the date on which any shares of Common Stock would be issued pursuant to a
Current Stock Election or credited to a Deferred Stock Compensation Account,
sufficient shares of Common Stock are not available under the Plan or the
Company is not obligated to issue shares pursuant to this Section XIII, then no
shares of Common Stock shall be issued or credited, but rather, in the case of a
Current Stock Election, cash shall be paid in payment of the Director Fees
payable, and in the case of a Deferred Stock Compensation Account, Director Fees
and dividends which would otherwise have been credited in shares of Common Stock
shall be credited in cash to a Deferred Cash Compensation Account in the name of
the Director. The Compensation Committee shall adopt appropriate rules and
regulations to carry out the intent of the immediately preceding sentence if the
need for such rules and regulations arises.
SECTION XIV - AMENDMENT,
MODIFICATION, SUSPENSION OR TERMINATION
The Company reserves the right, by and through the Board of Directors, to
amend, suspend or terminate all or any part of the Plan at any time; provided,
that no such amendment, suspension or termination shall adversely affect the
amounts or shares then credited to any Deferred Cash Compensation Account or to
any Deferred Stock Compensation Account. If this Plan is terminated,
distributions may be made at such time and in such manner as the Board of
Directors determines, regardless of the prior provisions of this Plan and any
elections made hereunder. The Compensation Committee will give prompt written
notice to each Director of any amendment, suspension or termination, or any
material modification of the Plan.
SECTION XV - GOVERNING LAW; PRONOUNS
Except to the extent pre-empted by Federal law, the provisions of the Plan
shall be construed, administered and enforced in accordance with the domestic
internal law (but not the law of conflicts of law) of the Commonwealth of
Pennsylvania. Each masculine, feminine or neuter pronoun used herein shall be
deemed a reference to each other gender, as the content requires.
SECTION XVI - RESTATEMENT; EFFECTIVE DATE
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The Plan is an amendment and restatement of the Company's Deferred
Compensation Plan for Non-Employee Directors, originally adopted by the Board of
Directors effective January 1, 1995.
The amended and restated Plan was adopted by the Board of Directors on
December 18, 1996, subject to approval by the shareholders of the Company at its
1997 Annual Meeting. If so approved, the amended and restated Plan shall be
effective as of January 1, 1997 and shall continue in effect for a term through
December 31, 2006, unless sooner terminated under Section XIV; if not so
approved, the Plan shall continue in its form as adopted effective January 1,
1995, and any Deferred Stock Election filed prior to January 1, 1997 shall be
treated as a Deferred Cash Election.
12
Exhibit 10.13
NATIONAL PENN BANCSHARES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the Employee Stock Purchase
Plan (the "Plan") of National Penn Bancshares, Inc. (the "Company").
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the Company's intention to have the Plan qualify as an "Employee
Stock Purchase Plan" under Section 423 of the Code. Accordingly, the provisions
of the Plan shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Company's common stock, $2.50 par value.
(d) "Compensation" means all regular straight-time gross earnings excluding
payments for overtime, incentive compensation, incentive payments, bonuses,
commissions and other compensation.
(e) "Continuous Status as an Employee" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.
(f) "Contributions" means all amounts credited to the account of a
participant pursuant to the Plan.
(g) "Employee" means any person employed by the Company or one of its
Subsidiaries, including any officer of the Company or of one of its
Subsidiaries.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(i) "Offering Date" means the first business day of each Offering Period of
the Plan.
(j) "Offering Period" means a period of six (6) months beginning on January
1 or July 1 of each year.
<PAGE>
(k) "Purchase Date" means the last day of each Offering Period of the Plan.
(l) "Subsidiary" means a corporation of which not less than fifty percent
(50%) of the voting shares are held by the Company or a Subsidiary, whether or
not such corporation now exists or is hereafter organized or acquired by the
Company or a Subsidiary.
3. Eligibility.
(a) Any person who has been continuously employed as an Employee for at
least three (3) months prior to the Offering Date of a given Offering Period
shall be eligible to participate in such Offering Period under the Plan, subject
to the requirements of Section 5(a) and the limitations imposed by Section
423(b) of the Code.
(b) No Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any Subsidiary, or (ii) which permits his
or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by a series of Offering
Periods, with a new Offering Period commencing on January 1 and July 1 of each
year. The Plan shall continue until terminated in accordance with Section 19
hereof.
5. Participation. An eligible Employee may become a participant in the Plan
by completing a subscription agreement on the form provided by the Company and
filing it with the Company prior to the applicable Offering Date, unless a later
time for filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given offering. The subscription agreement shall set
forth the percentage of the participant's Compensation (which shall be not less
than one percent (1%) and not more than ten percent (10%)) to be paid as
Contributions pursuant to the Plan.
6. Method of Payment of Contributions.
(a) The participant shall elect to have payroll deductions made on each
payday during an Offering Period in an amount not less than one percent (1%) and
not more than ten percent (10%) of such participant's Compensation on each such
payday; provided that the aggregate of such payroll deductions during an
Offering Period shall not exceed ten percent (10%) of the participant's
aggregate Compensation during such Offering Period. All payroll deductions made
by
2
<PAGE>
a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) Payroll deductions shall commence on the first payroll following the
Offering Date and shall end on the last payroll paid on or prior to the Purchase
Date of the offering to which the subscription agreement is applicable, unless
sooner terminated by the participant as provided in Section 10.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or, on one occasion only during an Offering Period, may
increase or decrease the rate of his or her Contributions during such Offering
Period, without withdrawing from the Plan, by completing and filing with the
Company a new subscription agreement within the ten (10) day period immediately
preceding the beginning of any month during the Offering Period. The change in
rate shall be effective as of the beginning of the month following the date of
filing of the new subscription agreement and shall comply with the limits as
provided in Section 6(a).
(d) To the extent necessary to comply with Section 423(b)(8) of the Code
and Section 3(b) herein, a participant's payroll deductions may be decreased to
zero percent (0%) at such time, during any Offering Period which is scheduled to
end during the current calendar year, that the aggregate of all payroll
deductions accumulated with respect to such Offering Period and any other
Offering Period ending within the same calendar year equals $25,000. Payroll
deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase, on
the Purchase Date of such Offering Period, the number of shares of Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by ninety percent (90%) of the fair market value of a share of Common Stock on
the Purchase Date; provided, however, that the maximum number of shares an
Employee may purchase in any one calendar year shall be determined at the
Offering Date by dividing $25,000 by the fair market value of a share of Common
Stock on the Offering Date, and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. The fair
market value of a share of Common Stock shall be determined as provided in
Section 7(b) herein.
(b) The option price per share of the shares offered in a given Offering
Period shall be ninety percent (90%) of the fair market value of a share of
Common Stock on the Purchase Date. The fair market value of a share of Common
Stock on a given date shall be determined (i) based on the average of the
closing sale prices of a share of Common Stock for the ten (10) day trading
period ending on the given date, as reported on the National Association of
Securities Dealers
3
<PAGE>
Automated Quotation ("Nasdaq") National Market and published in The Wall Street
Journal, (ii) if no closing sale prices are reported during such ten (10) day
trading period, based on the average of the mean of the bid and asked prices per
share of Common Stock for such ten (10) day trading period, as reported on
Nasdaq, (iii) if the Common Stock is listed on a stock exchange, based on the
average of the closing sale prices of a share of Common Stock for the ten (10)
day trading period ending on the given date, as reported in The Wall Street
Journal, or (iv) if the Common Stock is not listed on Nasdaq or on a stock
exchange, by the Board in its sole discretion.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of shares will be
exercised automatically on the Purchase Date of the Offering Period, and the
maximum number of full shares subject to option will be purchased for him or her
at the applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Stock Certificates; Cash Balances; Dividend Reinvestment.
(a) Stock certificates will not be issued to participants for shares
purchased on the Purchase Date. Shares purchased for a participant on a Purchase
Date shall be held in an account for such participant under the Plan, and all
rights accruing to an owner of record of such shares (including voting rights)
shall belong to the participant for whose account such shares are held. A
participant may file a written election with the Company to withdraw some or all
of the shares of Common Stock held in his or her account, in which case a stock
certificate will be issued to such participant for such withdrawn shares.
(b) Any cash balance remaining in a participant's account under the Plan
after a purchase by him or her of shares on a Purchase Date, or which is
insufficient to purchase a full share of Common Stock, shall be carried over to
the next Offering Period, provided that he or she continues to participate in
the Plan. If he or she does not continue to participate in the Plan, such cash
balance shall be returned to him or her.
(c) Each participant in the Plan shall be deemed to have authorized the
collection and accumulation of all dividends paid on shares held in his or her
account and the application of such dividends to the purchase of additional
shares of Common Stock as of the dividend payment date, at its fair market value
on such date (without any discount). Fair market value shall be determined as of
the dividend payment date, in the manner set forth in Section 7(b) hereof.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all, but not less than all, of the
Contributions credited to his or her account under the Plan at any time prior to
the Purchase Date of an Offering Period by giving written notice to the Company.
All of such participant's Contributions credited to his or her
4
<PAGE>
account will be paid to him or her promptly after receipt of such notice of
withdrawal, and his or her option for the current period will be automatically
terminated, and no further Contributions for the purchase of shares will be made
during the Offering Period.
(b) Upon termination of a participant's Continuous Status as an Employee
prior to the Purchase Date of an Offering Period for any reason, including
retirement or death, the Contributions credited to his or her account prior to
the Purchase Date will be returned to him or her or, in the case of his or her
death, to the person or persons entitled thereto under Section 14, and his or
her option will automatically be terminated.
(c) A participant who withdraws from an Offering Period will not be
eligible to participate again in the Plan until the first anniversary of the
Purchase Date of the Offering Period during which such participant withdrew from
the Plan. The Board, or its committee established under Section 13 hereof, may
waive the non-participation period in its sole discretion. A participant's
withdrawal from an Offering Period will not have any effect upon his or her
eligibility to participate in any similar plan which may hereafter be adopted by
the Company.
11. No Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 250,000 shares, subject to adjustment
upon changes in capitalization of the Company as provided in Section 18. If the
total number of shares which would otherwise be subject to options granted
pursuant to Section 7(a) hereof on the Offering Date of an Offering Period
exceeds the number of shares then available under the Plan (after deduction of
all shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available for
option grant in as uniform a manner as shall be practicable and as it shall
determine to be equitable. Any amounts remaining in an Employee's account not
applied to the purchase of Common Stock pursuant to this Section 12 shall be
refunded on or promptly after the Purchase Date. In such event, the Company
shall give written notice of such reduction of the number of shares subject to
the option to each Employee affected thereby and shall similarly reduce the rate
of Contributions, if necessary.
(b) No participant will have any interest or voting rights in any shares
covered by his or her option until such option has been exercised.
13. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to (i) adopt, amend
and rescind any rules deemed desirable and appropriate for the administration of
the Plan and not inconsistent with the Plan, (ii) construe and interpret the
Plan, and (iii) make all other determinations necessary or advisable for
5
<PAGE>
the administration of the Plan. The Board, or a committee named by the Board,
may engage a firm or entity to administer the Plan, subject to the Board's or
committee's control and authority.
14. Designation of Beneficiary.
(a) A participant may file with the Company a written designation of a
beneficiary who is to receive any shares and/or cash, if any, from the
participant's account under the Plan upon such participant's death.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. Upon the death of a participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
15. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 14 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
16. Use of Funds. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend,
6
<PAGE>
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock affected without receipt of
consideration by the Company.
(b) Upon a proposed dissolution or liquidation of the Company, the Offering
Period will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board.
(c) Upon a sale of all or substantially all of the assets of the Company or
the merger of the Company with or into another corporation, each option under
the Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Purchase Date (the "New Purchase Date"). If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) days prior to the New Purchase
Date, that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 18, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent, equal in fair market
value to the per share consideration received by holders of Common Stock in the
sale of assets or merger.
(d) The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, if the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, or if
the Company is consolidated with or merged into any other corporation.
19. Amendment or Termination.
(a) The Board may at any time terminate or amend the Plan. Except as
provided in Section 18, no such termination may affect options previously
granted, nor may an amendment make any change in any option theretofore granted
which adversely affects the rights of any
7
<PAGE>
participant. In addition, to the extent, if any, necessary to comply with
Section 423 of the Code (or any successor provision) or any other applicable law
or regulation, the Company shall obtain shareholder approval in such a manner
and to such a degree as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to permit payroll withholding in excess of
the amount designated by a participant in order to adjust for delays or mistakes
in the Company's processing of properly completed withholding elections,
establish reasonable waiting and adjustment periods and/or accounting and
crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
such participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
20. Notices. All subscription agreements, designations, notices or other
communications by a participant to the Company under or in connection with the
Plan shall be deemed to have been duly given when received in the form specified
by the Company at the location, or by the person, designated by the Company for
the receipt thereof.
21. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued with respect to an option unless the
exercise of such option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of Nasdaq or any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Effective Date; Term of Plan. The Plan was approved by the Board on
December 18, 1996. Upon approval by the shareholders of the Company, the Plan
will become effective and shall continue in effect for a term through June 30,
2007, unless sooner terminated under Section 19.
23. Section 16. With respect to persons subject to Section 16 of the
Exchange Act, this Plan is intended to be a "tax-conditioned plan" within the
meaning of Rule 16b-3(c) and to otherwise comply with all applicable conditions
of Rule 16b-3 (or any successor rule) under the
8
<PAGE>
Exchange Act. Accordingly, the provisions of the Plan shall be construed in a
manner consistent with the requirements of Rule 16b-3(c).
24. Captions. All section captions in this Plan are for convenience of
reference only.
9
Exhibit 11
NATIONAL PENN BANCSHARES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE*
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
Primary (Dollars in Thousands)
<S> <C> <C> <C>
Net income $ 16,922 $ 15,382 $ 14,649
Shares**
Weighted average number of
common shares outstanding 7,994,472 7,927,739 7,905,457
Assuming exercise of options
reduced by the number of
shares which could have
been purchased with the
proceeds from exercise of
such options *** *** ***
Weighted average number of
common shares outstanding
as adjusted 7,994,472 7,927,739 7,905,457
=========== ========== ==========
Primary earnings per common share $ 2.12 $ 1.94 $ 1.85
=========== ========== ==========
Assuming full dilution
Net income $ 16.022 $ 15,382 $ 14,649
=========== ========== ==========
Shares**
Weighted average number of
common shares outstanding 7,994,472 7,927,739 7,905,457
Assuming exercise of options
reduced by the number of
shares which could have
been purchased with the
proceeds from exercise of
such options *** *** ***
=========== ========== ==========
Weighted average number of
common shares outstanding
as adjusted 7,994,472 7,927,739 7,905,457
=========== ========== ==========
Earnings per common share
assuming full dilution $ 2.12 $ 1.94 $ 1.85
=========== ========== ==========
</TABLE>
* See notes 1 and 15 to the consolidated financial statements.
** Restated to reflect 5% stock dividends paid in 1996, 1995 and 1994.
*** The stock options are not included because the incremental number of common
stock equivalents would have an effect of less than 3% on the reported earnings
per share. At December 31, 1996, 1995, and 1994, respectively, options for
251,844, 136,882, and 84,036 shares are exercisable.
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
Investors Trust Company Pennsylvania
National Penn Bank United States of America
National Penn Investment Company Delaware
National Penn Life Insurance Company Arizona
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 17, 1997, accompanying the
consolidated financial statements included in the Annual Report of National Penn
Bancshares, Inc., and Subsidiaries on Form 10-K for the year ended December 31,
1996. We hereby consent to the incorporation by reference of said report in the
Registration Statements of National Penn Bancshares, Inc., and Subsidiaries on
Form S-8 (File No. 33-91630, effective April 27, 1995; File No. 33-87654,
effective December 22, 1994; and File No. 33-15696, effective July 9, 1987) and
on Form S-3 (File No 333-04729, effective May 30, 1996; File No. 33-86094,
effective November 7, 1994; File No. 33-47067, effective April 29, 1992; and
File No. 33-02567, effective January 8, 1986).
/s/ Grant Thornton, LLP
Grant Thornton, LLP
Philadelphia, Pennsylvania
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000700733
<NAME> NATIONAL PENN BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 40,194
<INT-BEARING-DEPOSITS> 1,802
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 236,814
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,051,080
<ALLOWANCE> 22,746
<TOTAL-ASSETS> 1,358,013
<DEPOSITS> 980,808
<SHORT-TERM> 6,931
<LIABILITIES-OTHER> 14,447
<LONG-TERM> 76,110
20,085
0
<COMMON> 0
<OTHER-SE> 94,636
<TOTAL-LIABILITIES-AND-EQUITY> 1,358,013
<INTEREST-LOAN> 91,098
<INTEREST-INVEST> 15,238
<INTEREST-OTHER> 222
<INTEREST-TOTAL> 106,558
<INTEREST-DEPOSIT> 34,331
<INTEREST-EXPENSE> 46,018
<INTEREST-INCOME-NET> 60,540
<LOAN-LOSSES> 3,900
<SECURITIES-GAINS> 591
<EXPENSE-OTHER> 41,258
<INCOME-PRETAX> 24,470
<INCOME-PRE-EXTRAORDINARY> 16,922
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,922
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 4.95
<LOANS-NON> 8,722
<LOANS-PAST> 3,649
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,366
<CHARGE-OFFS> 2,345
<RECOVERIES> 825
<ALLOWANCE-CLOSE> 22,746
<ALLOWANCE-DOMESTIC> 19,652
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,094
</TABLE>
Exhibit 99
FORWARD-LOOKING STATEMENTS
The Company has projected that net income will grow in 1997 at a double
digit rate over 1996 net income and that certain of its loan portfolios will
increase over 10% during 1997. The Company has also discussed its planned new
investments in branch locations, ATMs, and new technology, in this report. These
are forward-looking statements.
Risks and uncertainties could cause actual future results and investments
to differ materially from those contemplated in such forward-looking statements.
These risks and uncertainties include, but are not limited to, the following:
(a) loan growth and/or loan margins may be less than expected, due to
competitive pressures in the banking industry and/or changes in the interest
rate environment; (b) general economic conditions in the Company's market area
may be less favorable than expected, resulting in, among other things, a
deterioration in credit quality; (c) costs of the Company's planned training
initiatives, product development, branch expansion and new technology and
operating systems may exceed expectations; (d) volatility in the Company's
market area due to recent mergers may have unanticipated consequences, such as
customer turnover, and (e) changes in the regulatory environment, securities
markets, general business conditions and inflation may be adverse. These risks
and uncertainties are all difficult to predict, and most are beyond the control
of the Company's management.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this report.
