FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _________________ to _________________
Commission file number: 0-10957
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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, PA 19512
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 367-6001
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 6, 1998
Common Stock (no stated par value) (No.) 13,171,751 Shares
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information. Page
Item 1. Financial Statements.............................. 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation ..... 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk....................................... 16
Part II - Other Information.
Item 1. Legal Proceedings ................................ 17
Item 2. Changes in Securities............................. 17
Item 3. Defaults Upon Senior Securities................... 17
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 17
Item 5. Other Information ................................ 17
Item 6. Exhibits and Reports on Form 8-K.................. 17
Signature............................................................. 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET Sept. 30 Dec. 31
(Dollars in thousands, except per share data) 1998 1997
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 39,839 $ 40,009
Interest bearing deposits in banks 1,670 1,089
Federal funds sold 4,000 --
----------- -----------
Total cash and cash equivalents 45,509 41,098
Trading account securities 21,522 --
Investment securities available for sale at market value 410,442 321,760
Loans, less allowance for loan losses of $27,769 and
$25,122 in 1998 and 1997 respectively 1,172,151 1,097,662
Other assets 84,567 73,858
----------- -----------
Total Assets 1,734,191 1,534,378
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 152,855 $ 146,772
Interest bearing deposits
(Includes certificates of deposit in excess of $100,000 or greater:
1998 - $141,549; 1997 - $110,447) 984,166 968,828
----------- -----------
Total Deposits 1,137,021 1,115,600
Securities sold under repurchase agreements
and federal funds purchased 152,940 77,225
Short-term borrowings 8,291 6,109
Long-term obligations 248,481 155,460
Guaranteed preferred beneficial interests in
Company's subordinated debentures 40,250 40,250
Accrued interest and other liabilities 18,587 16,546
----------- -----------
Total Liabilities 1,605,570 1,411,190
Commitments and contingent liabilities -- --
Shareholders' equity
Preferred stock, no stated par value;
authorized 1,000,000 shares, none issued -- --
Common stock, no stated par value;
authorized 62,500,000 shares; issued and outstanding
1998 - 13,166,808; 1997 - 13,284,175, net of shares
in Treasury: 1998 - 0; 1997 - 104,623 92,546 101,748
Retained earnings 25,139 17,337
Net unrealized gains on securities available for sale 10,936 7,531
Treasury stock at cost -- (3,428)
----------- -----------
Total Shareholders' Equity 128,621 123,188
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,734,191 $ 1,534,378
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Note: The Balance Sheet at Dec. 31, 1997 has been derived from the audited
financial statements at that date.
3
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30 September 30
---------------------------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans including fees $ 27,368 $ 26,033 $ 80,059 $ 75,656
Deposits in banks 48 22 96 66
Federal funds sold 5 42 29 93
Trading Assets 315 -- 518 --
Investment securities 5,921 4,414 16,844 11,727
-------- -------- -------- --------
Total interest income 33,657 30,511 97,546 87,542
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 10,968 10,564 32,922 29,663
Federal funds purchased, borrowed funds and
securities sold under repurchase agreements 6,384 3,684 16,340 9,905
-------- -------- -------- --------
Total interest expense 17,352 14,248 49,262 39,568
-------- -------- -------- --------
Net interest income 16,305 16,263 48,284 47,974
Provision for loan losses 1,200 1,200 3,600 3,600
-------- -------- -------- --------
Net interest income after provision
for loan losses 15,105 15,063 44,684 44,374
-------- -------- -------- --------
OTHER INCOME
Trust and investment management income 828 683 2,420 2,006
Service charges on deposit accounts 1,097 1,013 3,206 2,974
Net gains (losses) on sale of securities and mortgages (114) 620 330 1,462
Trading Revenue 328 -- 513 --
Other 1,934 979 5,306 2,782
-------- -------- -------- --------
Total other income 4,073 3,295 11,775 9,224
-------- -------- -------- --------
OTHER EXPENSES
Salaries, wages and employee benefits 7,009 6,563 20,620 19,450
Net premises and equipment 1,997 1,818 5,707 5,544
Other operating 3,463 3,267 10,551 8,946
-------- -------- -------- --------
Total other expenses 12,469 11,648 36,878 33,940
-------- -------- -------- --------
Income before income taxes 6,709 6,710 19,581 19,658
Applicable income tax expense 1,419 1,991 4,463 6,020
-------- -------- -------- --------
Net income $ 5,290 $ 4,719 $ 15,118 $ 13,638
======== ======== ======== ========
PER SHARE OF COMMON STOCK
Net income per share - basic $ 0.40 $ 0.36 $ 1.14 $ 1.03
Net income per share - diluted 0.39 0.35 1.12 1.01
Dividends paid in cash 0.19 0.17 0.53 0.46
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
(Dollars in thousands) Net Unrealized
Gain (Loss) on
Additional Securities Compre-
Common Stock Paid-in Retained Available hensive Treasury
Shares Par Value Capital Earnings for Sale Income Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 10,606,726 $20,085 $81,663 $17,337 $7,531 -- ($3,428) $123,188
Comprehensive income:
Net income -- -- -- 15,118 -- 15,118 -- $15,118
Unrealized gains(losses) on
securities available for sale,
net of taxes and
reclassification adjustment
(see disclosure) -- -- -- -- 3,405 3,933 -- $3,405
-------
Comprehensive income $19,051
=======
Conversion to no par value stock -- 80,113 (80,113) -- -- -- --
5 for 4 stock split 2,677,449
Shares issued under stock option plan 3,721 19 -- -- -- -- $19
Cash dividends declared -- -- -- (7,316) -- -- ($7,316)
Effect of treasury stock transactions (121,088) (7,671) (1,550) -- -- 3,428 ($5,793)
---------- ------- ------- ------- ------- ----- --------
Balance at September 30, 1998 13,166,808 $92,546 $0 $25,139 $10,936 $0 $128,621
========== ======= ======= ======= ======= ===== ========
Disclosure of reclassification amount:
Unrealized holding loss
arising during period $3,933
Less: reclassification adjustment
for gains included in net income (528)
------
Net unrealized loss on securities $3,405
======
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands) Net Unrealized
Gain (Loss) on
Additional Securities Compre-
Common Stock Paid-in Retained Available hensive Treasury
Shares Par Value Capital Earnings for Sale Income Stock Total
Balance at December 31, 1996 8,002,648 $20,085 $83,707 $7,357 $4,398 -- ($826) $114,721
Comprehensive income:
Net income -- -- -- 13,638 -- 13,638 -- $13,638
Unrealized gains(losses) on
securities available for sale,
net of taxes and
reclassification adjustment
(see disclosure) -- -- -- -- (787) 1,129 -- ($787)
-------
Comprehensive income $14,767
=======
Conversion to no par value stock -- 83,268 (83,268) -- -- --
4 for 3 stock split 2,677,497
Cash dividends declared -- -- -- (6,422) -- -- ($6,422)
Effect of treasury stock transactions (5,139) (792) (439) -- -- (294) ($1,525)
---------- -------- ------- ------- ------- ------- --------
Balance at September 30, 1997 10,675,006 $102,561 $0 $14,573 $3,611 ($1,120) $119,625
========== ======== ======= ======= ======= ======= ========
Disclosure of reclassification amount:
Unrealized holding loss arising
during period $1,129
Less: reclassification adjustment
for gains included in net income (342)
------
Net unrealized loss on securities $787
======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(Dollars in thousands)
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $15,118 $13,638
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Provision for loan and lease losses 3,600 3,600
Depreciation and amortization 2,780 2,627
Net (gains) losses on sale of securities and mortgages (330) (1,462)
Trading-related assets (21,522) --
Mortgage loans originated for resale (40,083) (15,610)
Sale of mortgage loans originated for resale 40,083 15,610
Other (8,065) (1,964)
--------- ---------
Net cash provided by (used in) operating activities (8,419) 16,439
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities - available for sale 48,500 12,584
Proceeds from maturities of investment securities - held to maturity -- 14,008
Proceeds from maturities of investment securities - available for sale 25,289 740
Purchase of investment securities - available for sale (160,901) (107,581)
Proceeds from sales of loans -- --
Net increase in loans (78,089) (55,563)
Purchases of premises & equipment (1,217) (2,333)
--------- ---------
Net cash provided by (used in) investing activities (166,418) (138,145)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in:
Deposits 21,421 92,581
Repurchase agreements, fed funds & short-term borrowings 77,897 (70,211)
Long-term borrowings 93,021 119,600
(Increase) decrease in treasury stock 3,428 (294)
Issuance of common stock under dividend reinvestment plan (9,202) (1,231)
Cash dividends (7,317) (6,422)
--------- ---------
Net cash provided by (used in) financing activities 179,248 134,023
Net increase (decrease) in cash and cash equivalents 4,411 12,317
Cash and cash equivalents at January 1 41,098 41,996
--------- ---------
Cash and cash equivalents at September 30 $45,509 $54,313
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2. The results of operations for the nine-month period ended September 30, 1998
are not necessarily indicative of the results to be expected for the full year.
3. Per share data are based on the weighted average number of shares outstanding
of 13,190,196 and 13,181,487 for 1998 and 1997, respectively, and on the
weighted average number of diluted shares outstanding of 13,510,772 and
13,515,377 for 1998 and 1997, respectively, and are computed after giving
retroactive effect to a 5-for-4 stock split paid July 31, 1998.
4. On September 23, 1998, the Company's Board of Directors declared a cash
dividend of $.19 per share payable on November 17, 1998, to shareholders of
record on October 31, 1998.
5. In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative (gains and losses) depends on the intended use of the derivative and
resulting designation. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Earlier application is permitted
only as of the beginning of any fiscal quarter. The Company is currently
reviewing the provisions of SFAS No. 133.
6. The Company identifies 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 balance of impaired loans was $7,935,000 at September 30,
1998, all of which are non-accrual loans. The allowance for loan loss associated
with these impaired loans was $380,000 at September 30, 1998. The Company
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 Company. If these factors do not exist, the Company will not
recognize income on such loans.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis is intended to assist in
understanding and evaluating the major changes in the financial condition and
earnings performance of the Company with a primary focus on an analysis of
operating results.
FINANCIAL CONDITION
Total assets increased to $1.734 billion, an increase of $198.8 million or
13.0% over the $1.534 billion at December 31, 1997. This increase is reflected
primarily in the investment category, the result of the investment of deposits,
the Company's primary source of funds, short-term borrowings and long-term
borrowings.
Total cash and cash equivalents increased $4.4 million or 10.7% at
September 30, 1998 when compared to December 31, 1997. This increase was
primarily in federal funds sold and interest bearing deposits in banks.
Loans increased to $1.172 billion at September 30, 1998. The increase of
$74.5 million or 6.8% compared to December 31, 1997 was primarily the result of
the investment of deposits and long-term borrowings. Loans originated for
immediate resale during the first six months of 1998 amounted to $40.1 million.
The Company's credit quality is reflected by the annualized ratio of net
charge-offs to total loans of .08% through the third quarter of 1998 versus .20%
for the year 1997, and the ratio of non-performing assets to total loans of .89%
at September 30, 1998 and December 31 1997. Non-performing assets, including
non-accruals, loans 90 days past due, restructured loans and other real estate
owned, were $10.7 million at September 30, 1998 compared to $10.0 million at
December 31, 1997. Of these amounts, non-accrual loans represented $7.9 million
and $6.8 million at September 30, 1998 and December 31, 1997, respectively.
Loans 90 days past due and still accruing interest were $2.4 million and $2.8
million at September 30, 1998 and December 31, 1997, respectively. Other real
estate owned was $387,000 and $375,000 at September 30, 1998 and December 31,
1997, respectively. The Company had no restructured loans at September 30, 1998
or December 31, 1997. The allowance for loan losses to non-performing assets was
258.6% and 251.6% at September 30, 1998 and December 31, 1997, respectively. As
is evident from the above amounts relative to non-performing assets, there have
been no significant changes between December 31, 1997 and September 30, 1998.
The Company has no significant exposure to energy and agricultural-related
loans.
Investments, the Company's secondary use of funds, increased $88.7 million
or 27.6% to $410.4 million at September 30, 1998 when compared to December 31,
1997. The increase is due to investment purchases of $160.9 million, primarily
in municipal securities, which was partially offset by investment sales and
maturities and the amortization of mortgage-backed securities.
A new line item on the consolidated balance sheet is "Trading account
securities" of $21.5 million at September 30, 1998. This represents investment
securities that are actively traded by the Company with the goal of generating
higher total returns. Investors Trust Company, a subsidiary of the Company,
manages this portfolio. Interest income from these securities appears on the
consolidated statements of income on the line item "Trading assets." Trading
gains and losses, both realized and unrealized, appear on the line item "Trading
revenue" in the "Other Income" category.
As the primary source of funds, aggregate deposits of $1.137 billion at
September 30, 1998 increased $21.4 million or 1.9% compared to December 31,
1997. The increase in deposits during the first nine months of 1998 was
primarily in interest bearing deposits which increased $15.3 million while
non-interest bearing deposits increased $6.1 million. Certificates of deposit in
excess of $100,000 increased $31.1 million. In addition to deposits, earning
assets are funded to some extent through purchased funds and borrowings. These
include securities sold under repurchase agreements, federal funds purchased,
short-term borrowings and long-term debt obligations. In aggregate, these funds
totaled $450.0 million at September 30, 1998, and $279.0 million at December 31,
1997. The increase of $170.9 million represents
8
<PAGE>
an increase in long-term obligations of $93.0 million and an increase in
short-term borrowings, primarily securities sold under repurchase agreements and
federal funds purchased, of $77.9 million.
Shareholders' equity increased $5.4 million through September 30, 1998.
This increase was due to an increase in earnings retained and an increase in the
valuation adjustment for securities available for sale, which represents the
accounting treatment required under Statement of Financial Accounting Standards
115, "Accounting for Certain Investments in Debt and Equity Securities," applied
to the increase in market value of the Company's investment portfolio. Cash
dividends paid during the first nine months of 1998 increased $945,000 or 15.5%
compared to the cash dividends paid during the first nine months of 1997.
Earnings retained during the first nine months of 1998 were 53.4% compared to
55.3% during the first nine months of 1997.
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1998 was $5.3 million, 12.1%
more than the $4.7 million reported for the same period in 1997. For the first
nine months, net income reached $15.1 million, or 10.9% more than the $13.6
million reported for the first nine months of 1997. The Company's performance
has been and will continue to be in part influenced by the strength of the
economy and conditions in the real estate market.
Net interest income is the difference between interest income on assets and
interest expense on liabilities. Net interest income increased $42,000 or .3% to
$16.3 million during the third quarter of 1998 . For the comparative nine month
period, net interest income increased $310,000 or .6% to $48.3 million from
$48.0 million in 1997. The increase in interest income is a result of growth in
loan outstandings and higher rates on loans that was partially offset by growth
in deposits and higher rates on deposits and borrowings. Interest rate risk is a
major concern in forecasting earnings potential. From March 26, 1997 to
September 28, 1998, the prime rate was 8.50%. On September 29, 1998, the prime
rate changed to 8.25%. Interest expense during the first nine months of 1998
increased $9.7 million or 24.5% compared to the prior year's first nine months.
Despite the current 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
FDIC insurance costs 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 remained the
same for the nine month period ended September 30, 1998 compared to the same
period in 1997. The allowance for loan and lease losses of $27.8 million at
September 30, 1998 and $25.1 million at December 31, 1997 as a percentage of
total loans was 2.3% and 2.2%, respectively. The Company's net charge-offs of
$953,000 and $1,495,000 during the first nine months of 1998 and 1997,
respectively, continue to be comparable to those of the Company's peers, as
reported in the Bank Holding Company Performance Report.
"Total other income" increased $778,000 or 23.6% during the third quarter
of 1998, as a result of increased other income of $955,000, trading revenue of
$328,000, increased trust and investment management income of $145,000, and
increased service charges on deposit accounts of $84,000. This was partially
offset by a decrease in net gains (losses) on the sale of securities and
mortgages of $734,000. Year to date, other income increased $2.6 million or
27.7% when compared to the first nine months of 1997 as a result of increased
other income of $2.5 million, trading revenue of $513,000, increased trust and
investment management income of $414,000, and increased services charges on
deposit accounts of $232,000. This was partially offset by a decrease in net
gains (losses) on the sale of securities and mortgages of $1.1 million. "Total
other expenses" increased $821,000 or 7.0% during the quarter ended September
30, 1998 and increased $2.9 million or 8.7% for the nine month period. Of this
year-to-date increase, other operating expenses increased $1.6 million or 17.9%,
salaries, wages and benefits increased $1.2 million or 6.0%, and net premises
and equipment increased $163,000 or 2.9%.
9
<PAGE>
Income before income taxes remained even compared to the third quarter of
1997. In comparing the first nine months of 1998 to 1997, income before income
taxes decreased $77,000 or .4%. Income taxes decreased $572,000 for the quarter
and decreased $1.6 million the nine month period.
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, fed funds purchased, and
short-term borrowings, increased $99.3 million from year end 1997. Long-term
borrowings increased $93.0 million during the first nine months of 1998.
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
September 30, 1998:
<TABLE>
<CAPTION>
Repricing Periods (1)
Three Months One Year
Within Three Through One Through Five Over
Months Year Years Five Years
(In Thousands)
<S> <C> <C> <C> <C>
Assets
Interest-bearing deposits
at banks $1,670 $ -- $ -- $ --
Investment securities 28,868 47,189 125,080 209,305
Trading account securities 21,522 -- -- --
Loans and leases 312,278 134,079 389,797 335,997
Other assets 4,000 -- -- 124,406
--------- --------- --------- ---------
368,338 181,268 514,877 669,708
--------- --------- --------- ---------
Liabilities and equity
Noninterest-bearing deposits 152,855 -- -- --
Interest-bearing deposits 213,458 314,252 200,230 256,226
Borrowed funds 153,703 631 222,500 32,878
Preferred securities -- -- -- 40,250
Other liabilities -- -- -- 18,587
Hedging instruments 100,000 (20,000) (80,000) --
Shareholders' equity -- -- -- 128,621
--------- --------- --------- ---------
620,016 294,883 342,730 476,562
--------- --------- --------- ---------
Interest sensitivity gap (251,678) (113,615) 172,147 193,146
--------- --------- --------- ---------
Cumulative interest rate
sensitivity gap ($251,678) ($365,293) $193,146 $ --
========= ========= ========= =========
<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 prepayments in the interest rate environment prevailing
during the third calendar quarter of 1998. 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
10
<PAGE>
repricing intervals. There has been no adjustment for the impact of future
commitments and loans in process.
(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, 28.3% of these deposits are considered repriceable
within three months and 71.7% 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 rate
environment and would decrease in a rising 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
within one year, 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 volatile interest rate levels for the remainder of
1998, with no clear indication of sustainable rising or falling rates. Given
this assumption, the Company's asset/liability strategy for 1998 is to maintain
a negative gap (interest-bearing liabilities subject to repricing exceed
interest-earning assets subject to repricing) for periods up to a year. The
impact of a volatile interest rate environment on net interest income is not
expected to 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.
Sept. 30, Dec. 31,
1998 1997
CAPITAL LEVELS
Tier 1 leverage ratio 8.85% 9.84%
Tier 1 risk-based ratio 11.98 13.49
Total risk-based ratio 13.32 14.91
CAPITAL PERFORMANCE
Return of average assets (annualized) 1.23 1.31
Return on average equity (annualized) 16.30 15.90
Earnings retained 59.60 55.30
Internal capital growth (annualized) 8.74 8.35
11
<PAGE>
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 September
30, 1998, 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. At present,
the Company has no commitments for significant capital expenditures.
The Company is not under any agreement with regulatory authorities nor is
the Company aware of any current recommendations by the regulatory authorities
which, if such recommendations were implemented, would have a material effect on
liquidity, capital resources or operations of the Company.
FUTURE OUTLOOK
The Company's previously reported acquisition of Elverson National Bank is
proceeding and is expected to close during the first quarter 1999. Merger and
consolidation costs related to this acquisition may have a negative impact on
the Company's 1999 earnings.
Penn Securities, Inc., a new full service broker/dealer subsidiary of the
Company, commenced operations in early October 1998. This new venture is not
expected to make positive contributions to earnings until sometime in 1999 or
beyond.
Year 2000 Issues: The Company's Year 2000 initiative began in 1996 with the
creation of a "Year 2000 Compliance Project team" comprised of various Company
employees, including senior management. The Year 2000 project was divided into
five phases -- Awareness, Assessment, Renovation, Validation and Implementation.
The initial Awareness and Assessment Phases have been completed. Non-information
technology systems have been assessed and do not present a Year 2000 concern.
The Company anticipates that the Renovation Phase of mission critical systems
will be complete before November 30, 1998. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 issue could
have a material adverse impact on the operations of the Company. Validation
Phase efforts remain on schedule to be substantially complete before December
31, 1998. The Implementation Phase of compliant mission critical systems is
anticipated to be completed before November 30, 1998. Validation and
Implementation Phases of non-mission critical systems will continue through the
first two quarters of 1999. Actual costs for 1998 remain within the previously
announced budgeted amount of $300,000, which represents approximately 9% of the
total information technology budget for 1998. Approximately $116,000 of Year
2000 costs have been incurred year to date through September 1998. Of this
amount, approximately $96,000 was related to network hardware and software with
the remainder for miscellaneous Year 2000 issues. At this time the Company
estimates the amount budgeted for 1999 will be less than $200,000. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
may cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. A business
impact analysis has been completed for the systems which support critical
functions. The Company believes the most likely worst case scenario to be a
total or partial failure to perform of one or more of the Company's material
third party business partners or providers of service, commodity, or data which
failure could have a material adverse impact on the Company's operations. In an
attempt to mitigate this risk the Company has included the assessment of these
partners and providers in its Year 2000 project. However, there can be no
guarantee that the systems of other companies on which Company's systems rely
will be timely converted and would not have a material adverse effect on the
Company's systems and operations. Furthermore, mission critical third parties
will be included in the Company's contingency plans which the Company
anticipates will be substantially written before December 31, 1998. No major
information technology projects have been delayed as a result of the Year 2000
Project. In addition, the Company's audit department contracted for an
independent consultant to verify and validate the
12
<PAGE>
Company's Year 2000 Project. No major recommendations were suggested by the
independent consultant to mitigate exposures in the Company's Year 2000 Project
plan.
The following is a more detailed discussion of the Year 2000 Project:
The Year 2000 Project has been in operation at the Company since 1996.
During this time the Company has been operating under a project plan reflected
in many individual documents such as the Microsoft Project charts, binders for
specific project areas, and the inventories which were created.
For the purposes of consistency with the guidance's of our regulatory
agencies the Company has structured the project in the standard five phases:
Awareness, Assessment, Renovation, Validation, and Implementation. None of these
phases are purely consecutive chronologically. For example, awareness, the phase
which was begun before the others, will most likely continue well into the first
and second quarters of 2000.
It is important to note that the Year 2000 project at the Company includes
both the progression from 1999 to 2000 and the identification of February 29,
2000 as a leap year day.
The following is a more detailed description of each project phase.
Awareness
This phase began in 1996 with the assignment of project managers. The first
task was to review as much information as possible from user groups, seminars,
periodicals, and the guidance's from regulatory information. The project
managers created a project plan to address any possible Year 2000 issues.
To address the individual areas of responsibility in the project plan, a
team was formed composing of representatives of the various end user
departments. This team includes individuals from Information Systems,
Purchasing, Item Processing, Marketing, Electronic Banking, Security, Loan
Administration, Compliance, Audit, and CIF. Furthermore, representatives from
the Company's subsidiaries, Investors Trust Company and Penn Securities
(starting in 1998), joined the group.
The next step in the Awareness phase was to educate the Company's employees
on Year 2000 issues. This was accomplished through periodic items in the Monday
Morning Memos and through e-mail notices to all employees. Year 2000 training
was conducted for all bank officers. In the Spring of 1998 seminars were offered
for our business loan customers and our lending staff.
The seminars were one component of our effort to educate customers. Another
was a variety of statement stuffers concerning the Year 2000 issue and
specifically providing information on the Company's project plan and status. In
September of 1998, a Year 2000 update was added to the Company's internet home
page.
The Company intends to continue to use this variety of channels (statement
stuffers, letters, seminars, home page, and printed brochures) to attempt to
provide frequent updates on the status of the Year 2000 project at the Company
and all of its subsidiary organizations.
Assessment
The purpose of the Assessment phase is to inventory all potentially
affected software, hardware, equipment (including faxes, ATM's, hand held
calculators, etc.), interfaces, environmental systems, and third parties. Once
this information was gathered, it was entered into a database to provide
organization and efficient tracking. Letters were sent and web sites visited to
ascertain the compliance status of the individual product or project at the
particular organization.
The assessment process went one step further with the investigation of the
Year 2000 compliance status of the Company's largest business depositors (funds
providers), large commercial loan customers (funds takers), and correspondent
banks (capital market counterparties). The depositor investigation was
13
<PAGE>
done through a mailed survey to any business account holder with a balance of
$100,000 or greater. Commercial loan relationships with an aggregate balance
greater than $300,000 were individually assessed by the lender. The status of
correspondent banks has been tracked as part of the third party portion of the
project.
Year 2000 issues were addressed as part of the acquisition planning with
Elverson National Bank in 1998. After the acquisition was announced, the teams
began to share information by the project leaders participating in the other
institution's team meetings, through data sharing, and through joint testing of
common applications.
In an effort to control the inventory of systems and applications after the
assessment was completed, control points were reviewed. A policy was drafted
requiring all new software purchases to be certified Year 2000 compliant. All
hardware and software purchases will be tested before they are placed into a
production environment. As all PC based hardware and software are installed
through the Network Services group and all mainframe applications are supported
through Data Processing, two central control points are established. These
groups are responsible for the ongoing monitoring of new software and hardware
installation. As an additional control, the MIS department must approve all
requests for payment of hardware and software purchases.
Renovation
The renovation phase involves upgrading or replacing hardware and software
as necessary. Core systems have the highest priority. Other mission critical
systems follow. Finally, non mission critical systems are addressed. A
Remediation Contingency Plan has been written to address any potential
difficulties that may be encountered before December 31, 1999.
In January 1998 the mainframe hardware and operating system were replaced
with compliant products. In May 1998 a new core system, Dimension, was
installed.
Throughout 1998, compliant releases of software applications were
installed. Non compliant items are continuously monitored through the database
established in the assessment phase.
In September and October 1998, all ATM machines are being upgraded to
compliant releases of software and the memory necessary to process them.
In December 1998, the core processing system of Investors Trust Company
will be replaced with a compliant version. This will include new hardware,
software, and operating system. All have been thoroughly tested by the users
group, as discussed herein in the Validation phase.
Validation
The validation phase of the project is guided by a written test plan. All
mission critical systems will be tested in 1998. Many non mission critical
systems will be tested in 1999 in descending order of priority.
The project leader and the end users are jointly responsible for the
individual tests. The project leader schedules the date and ensures that the
testing environment is prepared. He then meets with the end user to develop the
testing scripts and scenarios. The project leader is responsible for ensuring
that the test adheres to the requirements of the Year 2000 testing plan. The end
user is responsible for the data entry and system operation during the test and
for reviewing the results to verify that the test was successful. When the test
is completed and documented, both the end user and the project leader sign to
indicate its completion.
When a system is tested, all interfaces and file transmissions will be
tested at the same time whenever possible. As appropriate and feasible, testing
with third parties will be completed also.
14
<PAGE>
Initiatives to complete the Validation phase include the creation of an
isolated PC/network testing lab, the use of a secondary logical partition for
validating mainframe applications and interfaces, user group testing for the
core trust application, and proxy testing by the network vendor for ATM's.
Implementation
Hardware and software certified to be compliant by the vendor will be
thoroughly tested as addressed in the Validation phase. Any product not
currently in production must be tested and accepted by the end user before being
placed into a production environment. After a system is certified to be
compliant, no future releases or updates will be installed unless first tested
and confirmed to be compliant through the procedures discussed in the Validation
phase. The control points for ensuring the future installation of releases will
continue to be the Network Services and Data Processing departments.
Additional Project Efforts
Throughout the remainder of 1998 and 1999, a database is being established
and maintained to track the compliance status of third parties with which the
Company conducts its affairs. This information will be reported to the project
team and forwarded to executive management as necessary.
A separate budget for Year 2000 expenses is being maintained for 1998 and
1999. The status of the budget will be reported to executive management. The
project leader is responsible for working with the Chief Financial Officer to
prepare the quarterly Year 2000 information for SEC filings.
During the fourth quarter of 1998 and first quarter of 1999, contingency
plans will be written for all mission critical and high priority non mission
critical systems. An overview of the contingency planning process was written in
August 1998. After the Business Resumption Contingency Plans are written, they
will be tested as prescribed by the overview.
Although the Company believes that the program outlined above should be
adequate to address the Year 2000 issue, there can be no assurance to that
effect.
This report contains forward-looking statements concerning earnings, asset
quality, Year 2000 compliance and other future events. Actual results could
differ materially due to, among other things, the risks and uncertainties
discussed herein and in Exhibit 99 to the Company's Report on Form 10-K for
1997, which is incorporated herein by reference. Readers are cautioned not to
place undue reliance on these statements. The Company undertakes no obligation
to publicly release or update any of these statements.
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in the Company's assessment of its
sensitivity to market risk since its presentation in the 1997 annual report on
Form 10-K filed with the SEC.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
During third quarter 1998, the Registrant's banking subsidiary,
National Penn Bank (the "Bank"), opened a supermarket branch in Sinking Spring
(Berks County) and installed three, and closed five, automated teller machines
(ATMs) in southeastern Pennsylvania.
On October 6, 1998, the Registrant's wholly-owned subsidiary, Penn
Securities, Inc., opened for business as a full service securities brokerage
firm.
During third quarter 1998, the Registrant and the Bank amended certain
agreements with various senior officers of the Bank which provide them with
certain severance benefits in the event of a change in control of the
Registrant. Copies of such amendments are included in this Report as Exhibits
10.1, 10.2, 10.3, 10.4, 10.5 and 10.6.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 10.1 - Amendatory Agreement dated August 26, 1998 between
National Penn Bancshares, Inc., National Penn Bank, and Lawrence
T. Jilk, Jr.
Exhibit 10.2 - Amendatory Agreement dated August 26, 1998 between
National Penn Bancshares, Inc., National Penn Bank, and Wayne R.
Weidner.
Exhibit 10.3 - Amendatory Agreement dated August 26, 1998 between
National Penn Bancshares, Inc., National Penn Bank, and Garry D.
Koch.
Exhibit 10.4 - Amendatory Agreement dated August 26, 1998 between
National Penn Bancshares, Inc., National Penn Bank, and Gary L.
Rhoads.
Exhibit 10.5 - Amendatory Agreement dated August 26, 1998 between
National Penn Bancshares, Inc., National Penn Bank, and Sandra L.
Spayd.
Exhibit 10.6 - Amendatory Agreement dated August 26, 1998 between
National Penn Bancshares, Inc., National Penn Bank, and Sharon L.
Weaver.
Exhibit 27 - Financial Data Schedule.
17
<PAGE>
(b) Reports on Form 8-K. The Registrant did not file any Reports on
Form 8-K during the quarter ended September 30, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NATIONAL PENN BANCSHARES, INC.
(Registrant)
Dated: November 13, 1998 By /s/ Wayne R. Weidner
------------------------------
Wayne R. Weidner, President
Dated: November 13, 1998 By /s/ Gary L. Rhoads
------------------------------
Gary L. Rhoads, Principal
Financial Officer
AMENDATORY AGREEMENT
AMENDATORY AGREEMENT dated August 26, 1998, among NATIONAL PENN BANCSHARES,
INC., a Pennsylvania business corporation ("NPB"), NATIONAL PENN BANK, formerly
named National Bank of Boyertown, a national banking association ("Bank"), and
LAWRENCE T. JILK, JR. ("Executive").
BACKGROUND
1. NPB, Bank and Executive entered into a certain Executive Supplemental
Benefit Agreement dated as of December 27, 1989, as amended by an Amendatory
Agreement dated February 23, 1994 (as amended, the "Agreement").
2. NPB, Bank and Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, NPB, Bank and Executive agree as
follows:
1. Amendment. The final paragraph of Section 3 of the Agreement captioned
"Resignation of Executive" is hereby amended to delete the words "each and every
of the foregoing events" and to insert in lieu thereof the words "any of the
foregoing events".
2. Ratification. As amended hereby, the Agreement is hereby ratified,
confirmed and approved.
3. Governing Law. This Amendatory Agreement shall be governed by and
construed in accordance with the domestic internal law of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Amendatory
Agreement on the date first above written.
NATIONAL PENN BANCSHARES, INC.
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President
1
<PAGE>
NATIONAL PENN BANK
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President & CEO
/s/ Lawrence T. Jilk, Jr.
-------------------------------
Lawrence T. Jilk, Jr.
Witness: /s/ Pamela K. Koeshartanto
2
AMENDATORY AGREEMENT
AMENDATORY AGREEMENT dated August 26, 1998, among NATIONAL PENN BANCSHARES,
INC., a Pennsylvania business corporation ("NPB"), NATIONAL PENN BANK, formerly
named National Bank of Boyertown, a national banking association ("Bank"), and
WAYNE R. WEIDNER ("Executive").
BACKGROUND
1. NPB, Bank and Executive entered into a certain Executive Supplemental
Benefit Agreement dated as of December 27, 1989, as amended by an Amendatory
Agreement dated February 24, 1994 (as amended, the "Agreement").
2. NPB, Bank and Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, NPB, Bank and Executive agree as
follows:
1. Amendment. The final paragraph of Section 3 of the Agreement captioned
"Resignation of Executive" is hereby amended to delete the words "each and every
of the foregoing events" and to insert in lieu thereof the words "any of the
foregoing events".
2. Ratification. As amended hereby, the Agreement is hereby ratified,
confirmed and approved.
3. Governing Law. This Amendatory Agreement shall be governed by and
construed in accordance with the domestic internal law of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Amendatory
Agreement on the date first above written.
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
-------------------------------
Name: Lawrence T. Jilk, Jr.
Title: Chairman & CEO
1
<PAGE>
NATIONAL PENN BANK
By: /s/ Lawrence T. Jilk, Jr.
-------------------------------
Name: Lawrence T. Jilk, Jr.
Title: Chairman
/s/ Wayne R. Weidner
-------------------------------
Wayne R. Weidner
Witness: /s/ Pamela K. Koeshartanto
2
AMENDATORY AGREEMENT
AMENDATORY AGREEMENT dated August 26, 1998, among NATIONAL PENN BANCSHARES,
INC., a Pennsylvania business corporation ("NPB"), NATIONAL PENN BANK, a
national banking association ("Bank"), and Garry D. Koch ("Executive").
BACKGROUND
1. NPB, Bank and Executive entered into a certain Executive Agreement dated
September 24, 1997 (the "Agreement").
2. NPB, Bank and Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, NPB, Bank and Executive agree as
follows:
1. Amendment. The final paragraph of Section 2 of the Agreement captioned
"Resignation of Executive" is hereby amended to delete the words "each and every
of the foregoing events" and to insert in lieu thereof the words "any of the
foregoing events".
2. Ratification. As amended hereby, the Agreement is hereby ratified,
confirmed and approved.
3. Governing Law. This Amendatory Agreement shall be governed by and
construed in accordance with the domestic internal law of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Amendatory
Agreement on the date first above written.
NATIONAL PENN BANCSHARES, INC.
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President
NATIONAL PENN BANK
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President & CEO
Witness: /s/ Pamela K. Koeshartanto
/s/ Garry D. Koch
-------------------------------
Garry D. Koch
AMENDATORY AGREEMENT
AMENDATORY AGREEMENT dated August 26, 1998, among NATIONAL PENN BANCSHARES,
INC., a Pennsylvania business corporation ("NPB"), NATIONAL PENN BANK, a
national banking association ("Bank"), and Gary L. Rhoads ("Executive").
BACKGROUND
1. NPB, Bank and Executive entered into a certain Executive Agreement dated
July 23, 1997 (the "Agreement").
2. NPB, Bank and Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, NPB, Bank and Executive agree as
follows:
1. Amendment. The final paragraph of Section 2 of the Agreement captioned
"Resignation of Executive" is hereby amended to delete the words "each and every
of the foregoing events" and to insert in lieu thereof the words "any of the
foregoing events".
2. Ratification. As amended hereby, the Agreement is hereby ratified,
confirmed and approved.
3. Governing Law. This Amendatory Agreement shall be governed by and
construed in accordance with the domestic internal law of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Amendatory
Agreement on the date first above written.
NATIONAL PENN BANCSHARES, INC.
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President
NATIONAL PENN BANK
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President & CEO
Witness: /s/ Pamela K. Koeshartanto
/s/ Gary L. Rhoads
-------------------------------
Gary L. Rhoads
AMENDATORY AGREEMENT
AMENDATORY AGREEMENT dated August 26, 1998, among NATIONAL PENN BANCSHARES,
INC., a Pennsylvania business corporation ("NPB"), NATIONAL PENN BANK, a
national banking association ("Bank"), and Sandra L. Spayd ("Executive").
BACKGROUND
1. NPB, Bank and Executive entered into a certain Executive Agreement dated
July 23, 1997 (the "Agreement").
2. NPB, Bank and Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, NPB, Bank and Executive agree as
follows:
1. Amendment. The final paragraph of Section 2 of the Agreement captioned
"Resignation of Executive" is hereby amended to delete the words "each and every
of the foregoing events" and to insert in lieu thereof the words "any of the
foregoing events".
2. Ratification. As amended hereby, the Agreement is hereby ratified,
confirmed and approved.
3. Governing Law. This Amendatory Agreement shall be governed by and
construed in accordance with the domestic internal law of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Amendatory
Agreement on the date first above written.
NATIONAL PENN BANCSHARES, INC.
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President
NATIONAL PENN BANK
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President & CEO
Witness: /s/ Pamela K. Koeshartanto
/s/ Sandra L. Spayd
-------------------------------
Sandra L. Spayd
AMENDATORY AGREEMENT
AMENDATORY AGREEMENT dated August 26, 1998, among NATIONAL PENN BANCSHARES,
INC., a Pennsylvania business corporation ("NPB"), NATIONAL PENN BANK, a
national banking association ("Bank"), and SHARON L. WEAVER ("Executive").
BACKGROUND
1. NPB, Bank and Executive entered into a certain Executive Agreement dated
July 23, 1997, as amended by an Amendatory Agreement dated September 24, 1997
(as amended, the "Agreement").
2. NPB, Bank and Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, NPB, Bank and Executive agree as
follows:
1. Amendment. The final paragraph of Section 2 of the Agreement captioned
"Resignation of Executive" is hereby amended to delete the words "each and every
of the foregoing events" and to insert in lieu thereof the words "any of the
foregoing events".
2. Ratification. As amended hereby, the Agreement is hereby ratified,
confirmed and approved.
3. Governing Law. This Amendatory Agreement shall be governed by and
construed in accordance with the domestic internal law of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Amendatory
Agreement on the date first above written.
NATIONAL PENN BANCSHARES, INC.
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President
NATIONAL PENN BANK
By: /s/ Wayne R. Weidner
-------------------------------
Name: Wayne R. Weidner
Title: President & CEO
Witness: /s/ Pamela K. Koeshartanto
/s/ Sharon L. Weaver
-------------------------------
Sharon L. Weaver
<TABLE> <S> <C>
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<NAME> NATIONAL PENN BANCSHARES, INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
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<FN>
<F1> A 5-for-4 stock split was paid on July 31, 1998. Prior Financial Data
Schedules have not been restated for the recapitalization.
</FN>
</TABLE>
