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: March 31, 2000
--------------------------------
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: 000-10957
---------
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, PA 19512
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 367-6001
---------------------------------------
(Registrant's telephone number, including area code)
N/A
(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 May 8, 2000
----- --------------------------
Common Stock (no stated par value) (No.) 17,670,781 Shares
Page 1 of 14 pages
<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........................................... 12
Part II - Other Information.
- ---------------------------
Item 1. Legal Proceedings...................................... 13
Item 2. Changes in Securities.................................. 13
Item 3. Defaults Upon Senior Securities........................ 13
Item 4. Submission of Matters to a Vote of
Security Holders....................................... 13
Item 5. Other Information...................................... 13
Item 6. Exhibits and Reports on Form 8-K....................... 13
Signature................................................................. 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEET March 31 Dec. 31
(Dollars in thousands, except per share data) 2000 1999
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 64,574 $ 62,953
Interest bearing deposits in banks 1,987 4,039
----------- -----------
Total cash and cash equivalents 66,561 66,992
Investment securities available for sale 534,726 516,027
Loans, less allowance for loan losses of $35,069 and
$34,139 in 2000 and 1999 respectively 1,546,257 1,536,404
Other assets 128,439 123,009
----------- -----------
Total Assets 2,275,983 2,242,432
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 230,263 $ 210,272
Interest bearing deposits
(Includes certificates of deposit $100,000 or greater:
2000 - $190,873; 1999- $195,939) 1,390,324 1,382,982
----------- -----------
Total deposits 1,620,587 1,593,254
Securities sold under repurchase agreements
and federal funds purchased 258,958 200,148
Short-term borrowings 1,759 12,448
Long-term obligations 183,072 223,077
Guaranteed preferred beneficial interests in
Company's subordinated debentures 40,250 40,250
Accrued interest and other liabilities 23,718 25,559
----------- -----------
Total Liabilities 2,128,344 2,094,736
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
2000 - 17,684,942; 1999 - 17,736,699; net of shares
in Treasury: 2000 - 159,330; 1999 - 108,176 135,389 135,526
Retained earnings 30,086 26,739
Accumulated other comprehensive income (13,985) (11,616)
Treasury stock at cost (3,851) (2,953)
----------- -----------
Total Shareholders' Equity 147,639 147,696
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,275,983 $ 2,242,432
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Note: The Balance Sheet at Dec. 31, 1999 has been derived from the audited
financial statements at that date.
3
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months Ended
(Dollars in thousands, except per share data) March 31
--------------------------
2000 1999
-------- --------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 35,081 $ 31,225
Deposits in banks 127 43
Federal funds sold 16 46
Trading account securities -- 196
Investment securities 8,634 7,441
-------- --------
Total interest income 43,858 38,951
-------- --------
INTEREST EXPENSE
Deposits 15,680 13,304
Federal funds purchased, borrowed funds and
securities sold under repurchase agreements 6,786 6,086
-------- --------
Total interest expense 22,466 19,390
-------- --------
Net interest income 21,392 19,561
Provision for loan losses 1,500 1,415
-------- --------
Net interest income after provision
for loan losses 19,892 18,146
-------- --------
OTHER INCOME
Trust income 1,157 886
Service charges on deposit accounts 1,495 1,364
Net gains on sale of investment securities 122 2
Mortgage banking income 594 66
Trading revenue -- (48)
Other 2,761 2,241
-------- --------
Total other income 6,129 4,511
-------- --------
OTHER EXPENSES
Salaries, wages and employee benefits 10,485 9,286
Net premises and equipment 2,704 2,324
Other operating 4,340 3,722
-------- --------
Total other expenses 17,529 15,332
-------- --------
Income before income taxes 8,492 7,325
Applicable income tax expense 1,638 1,309
-------- --------
Net income $ 6,854 $ 6,016
======== ========
PER SHARE OF COMMON STOCK
Net income per share - basic $ 0.39 $ 0.34
Net income per share - diluted 0.38 0.33
Dividends paid in cash 0.20 0.18
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000
(Dollars in thousands)
Accumulated
other
Common Stock Retained conprehensive Treasury Comprehensive
Shares Par Value earnings income stock income
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 17,736,699 135,526 26,739 (11,616) (2,953)
Net income -- -- 6,854 -- -- 6,854
Cash dividends declared -- -- (3,507) -- --
Shares issued under stock-based
plans -- -- --
Other comprehensive income, net
of reclassification adjustment
and taxes -- -- -- (2,369) -- (2,369)
--------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- -- -- $4,485
--------------------------------------------------------------------------------------------
Effect of treasury stock transactions (51,757) (137) (898)
--------------------------------------------------------------------------------------------
Balance at March 31, 2000 17,684,942 $135,389 $30,086 $(13,985) $(3,851)
March 31, 2000
--------------------------------------------------
Before Tax Net of
tax (expense) tax
amount benefit amount
--------------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during period (3,767) 1,319 (2,448)
Less: reclassification adjustment for gains realized in net income 122 (43) 79
--------------------------------------------------
Other comprehensive income, net (3,645) 1,276 (2,369)
==================================================
THREE MONTHS ENDED MARCH 31, 1999
(Dollars in thousands)
Accumulated
other
Common Stock Retained conprehensive Treasury Comprehensive
Shares Par Value earnings income stock income
--------------------------------------------------------------------------------------------
Balance at December 31, 1998 16,989,622 114,294 34,927 9,553 --
Net income -- -- 6,016 -- -- 6,016
Cash dividends declared -- -- (4,111) -- --
Shares issued under stock-based
plans 4,983 271 -- -- --
Other comprehensive income, net
of reclassification adjustment
and taxes -- -- -- (919) -- (919)
--------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- -- -- $5,097
--------------------------------------------------------------------------------------------
Balance at March 31, 1999 16,994,605 $114,565 $36,832 $8,634 $ --
March 31, 1999
--------------------------------------------------
Before Tax Net of
tax (expense) tax
amount benefit amount
--------------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during period (1,416) 496 (920)
Less: reclassification adjustment for gains realized in net income 2 (1) 1
--------------------------------------------------
Other comprehensive income, net (1,414) 495 (919)
==================================================
</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>
Three Months Ended March 31,
(Dollars in thousands)
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $6,854 $6,016
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Provision for loan losses 1,500 1,415
Depreciation and amortization 510 462
Net gains (losses) on sale of securities and mortgages 67 (205)
Trading-related assets 0 15,031
Mortgage loans originated for resale (1,408) (59,494)
Sale of mortgage loans originated for resale 1,408 59,494
Other (5,913) 612
-------- --------
Net cash provided by (used in) operating activities 3,018 23,331
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities - available for sale 969 1,058
Proceeds from maturities of investment securities - available for sale 6,731 6,942
Purchase of investment securities - available for sale (30,044) (3,272)
Proceeds from sales of loans -- --
Net increase in loans (11,353) (6,379)
Purchases of premises & equipment (659) (414)
-------- --------
Net cash provided by (used in) investing activities (34,356) (2,065)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in:
Deposits 27,333 27,549
Repurchase agreements, fed funds & short-term borrowings 48,121 (42,153)
Long-term borrowings (40,005) (636)
(Increase) decrease in treasury stock (898) --
Issuance of common stock under dividend reinvestment plan -- 271
Effect of treasury stock transactions (137) --
Cash dividends (3,507) (4,111)
-------- --------
Net cash provided by (used in) financing activities 30,907 (19,080)
Net increase (decrease) in cash and cash equivalents (431) 2,186
Cash and cash equivalents at January 1 66,992 65,801
-------- --------
Cash and cash equivalents at March 31 $66,561 $67,987
======== ========
</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 consolidated 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, 1999.
2. The results of operations for the three-month period ended March 31, 2000 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 17,687,447 and 17,827,601 for 2000 and 1999, respectively, and on the
weighted average number of diluted shares outstanding of 17,903,246 and
18,139,877 for 2000 and 1999, respectively, and are computed after giving
retroactive effect to a 5% stock dividend paid December 22, 1999.
4. On March 22, 2000, the Company's Board of Directors declared a cash dividend
of $.20 per share payable on May 17, 2000, to shareholders of record on April
30, 2000.
5. On July 28, 1999, the Company's Board of Directors authorized the repurchase,
from time to time, of up to 850,000 shares of its common stock in the open
market or in negotiated transactions, depending upon market conditions and other
factors. No timetable has been set for the repurchases. Repurchased shares will
be used for general corporate purposes, including the Company's dividend
reinvestment plan, stock option plans, employee stock purchase plan, and other
stock-based benefit plans. As of March 31, 2000, a total of 386,270 shares have
been repurchased at an aggregate cost of $9,218,000.
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 $8,985,000 at March 31, 2000,
all of which are non-accrual loans. The allowance for loan loss associated with
these impaired loans was $1,958,000 at March 31, 2000. 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 $2.276 billion, an increase of $33.6 million
or 1.5% over the $2.242 billion at December 31, 1999. This increase is reflected
primarily in the investment category which increased $18.7 million and the loan
category which increased $9.9 million.
Total cash and cash equivalents decreased $.4 million or .6% at March
31, 2000 when compared to December 31, 1999. The increase in cash and due from
banks of $1.6 million was offset by a decrease in interest bearing deposits of
$2.0 million.
Loans increased to $1.546 billion at March 31, 2000. The increase of
$9.9 million or .6% compared to December 31, 1999 was primarily the result of
the investment of deposits and securities sold under repurchase agreement. Loans
originated for immediate resale during the first three months of 2000 amounted
to $1.4 million. The Company's credit quality is reflected by the annualized
ratio of net charge-offs to total loans of .14% through the first quarter of
2000 versus .17% for the year 1999, and the ratio of non-performing assets to
total loans of 1.24% at March 31, 2000 and .93% at December 31 1999.
Non-performing assets, including non-accruals, loans 90 days past due and still
accruing and other real estate owned, were $19.5 million at March 31, 2000
compared to $14.6 million at December 31, 1999. Of these amounts, non-accrual
loans represented $9.0 million and $11.1 million at March 31, 2000 and December
31, 1999, respectively. Loans 90 days past due and still accruing interest were
$10.1 million and $2.7 million at March 31, 2000 and December 31, 1999,
respectively. The increase in loans 90 days past due and still accruing interest
is primarily due to one significant credit that is fully collateralized. Other
real estate owned was $.4 million and $.8 million at March 31, 2000 and December
31, 1999, respectively. The Company had no restructured loans at March 31, 2000
or December 31, 1999. The allowance for loan losses to non-performing assets was
179.5% and 234.3% at March 31, 2000 and December 31, 1999, respectively. The
Company has no significant exposure to energy and agricultural-related loans.
Investments, the Company's secondary use of funds, increased $18.7
million or 3.6% to $534.7 million at March 31, 2000 when compared to December
31, 1999. The increase is due to investment purchases of $30.0 million,
primarily in municipal securities, which was partially offset by investment
calls and maturities and the amortization of mortgage-backed securities.
As the primary source of funds, aggregate deposits of $1.621 billion at
March 31, 2000 increased $27.3 million or 1.7% compared to December 31, 1999.
The increase in deposits during the first three months of 2000 was primarily in
non-interest bearing deposits which increased $20.0 million while interest
bearing deposits increased $7.3 million. Certificates of deposit in excess of
$100,000 decreased $5.1 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, long-term debt obligations, and subordinated debentures. In
aggregate, these funds totaled $484.0 million at March 31, 2000, and $475.9
million at December 31, 1999. The increase of $8.1 million is primarily due to
the increase in securities sold under repurchase agreements and federal funds
purchased of $58.8 million due to the repayment of short-term obligations of
$10.7 million, and a decrease in long-term obligations of $40.0 million.
Shareholders' equity remained relatively unchanged through March 31,
2000 due to an increase in earnings retained which was partially offset by a
decrease in the valuation adjustment for securities available for sale. Cash
dividends paid during the first three months of 2000 increased $.3 million or
9.5%
8
<PAGE>
compared to the cash dividends paid during the first three months of 1999.
Earnings retained during the first three months of 2000 were 48.4% compared to
46.3% during the first three months of 1999.
RESULTS OF OPERATIONS
For the first three months, net income reached $6.9 million, or 13.9%
more than the $6.0 million reported for the first three months of 1999. 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 $1.8 million
or 9.4% to $21.4 million during the first quarter of 2000 from $19.6 million in
1999. The increase in interest income is a result of increased loan income of
$3.9 million and increased investment income of $1.2 million due to 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 November 16, 1999 to
February 1, 2000, the prime rate was 8.50%. From February 2, 2000 to March 21,
2000, the prime rate was 8.75%. On March 22, 2000, the prime rate changed to
9.00%. Interest expense during the first three months of 2000 increased $3.1
million or 15.9% compared to the prior year's first three months. In addition to
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
increased $85 thousand for the three-month period ended March 31, 2000 compared
to the same period in 1999. The allowance for loan and lease losses of $35.6
million at March 31, 2000 and $34.1 million at December 31, 1999 as a percentage
of total loans was 2.3% and 2.2%, respectively. The Company's net charge-offs of
$.6 million and $.9 million during the first three months of 2000 and 1999,
respectively, continue to be comparable to those of the Company's peers, as
reported in the Bank Holding Company Performance Report.
Other income increased $1.6 million or 35.9% during the first quarter
of 2000 as a result of increased mortgage banking income of $.5 million, due to
higher mortgage volume, increased other income of $.5 million, increased trust
income of $.3 million, increased income on service charges on deposit accounts
of $.1 million, and increased gains on the sale of investment securities of $.1
million. Other expenses increased $2.2 million or 14.3% during the quarter ended
March 31, 2000. Of this year-to-date increase, salaries, wages and benefits
increased $1.2 million or 12.9%, other operating expenses increased $.6 million
or 16.6%, and net premises and equipment increase $.4 million or 16.4%.
Income before income taxes increased $1.1 million or 15.9% in the first
quarter of 2000 compared to the same time period in 1999. Income taxes increased
$.3 million for the quarter ended March 31, 2000. The Company's effective tax
rate is 19.2% and 17.8% for March 31, 2000 and March 31, 1999, respectively.
This is due to the Company's investment in tax advantaged municipal securities
and bank owned life insurance.
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, decreased $75.4 million from year-end
1999. Long-term borrowings decreased $40.0 during the first three months of
2000.
9
<PAGE>
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
March 31, 2000:
<TABLE>
<CAPTION>
Repricing Periods (1)
Three Months One Year
Within Three Through One Through Five Over
Months Year Years Five Years
-------------------------------------------------------------------
(In Thousands)
Assets
<S> <C> <C> <C> <C>
Interest bearing deposits
at banks $ 1,987 $ - - $ - - $ - -
Investment securities 18,804 47,208 121,363 347,351
Loans and leases (1) 460,312 229,179 504,442 352,324
Other assets 4,173 - - - - 188,840
--------- --------- --------- ---------
485,276 276,387 625,805 888,515
--------- --------- --------- ---------
Liabilities and equity
Non-interest bearing deposits 230,263 - - - - - -
Interest bearing deposits (2) 490,215 263,540 222,093 414,476
Borrowed funds 235,703 - - 107,500 100,586
Preferred securities - - - - - - 40,250
Other liabilities - - - - - - 23,718
Hedging instruments 70,000 (20,000) (50,000) - -
Shareholders' equity - - - - - - 147,639
--------- --------- --------- ---------
1,026,181 243,540 279,593 726,669
--------- --------- --------- ---------
Interest sensitivity gap (540,905) 32,847 346,212 161,846
--------- --------- --------- ---------
Cumulative interest rate
sensitivity gap ($540,905) ($508,058) ($161,846) $ - -
========= ========= ========= =========
<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 first calendar quarter of 2000. 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.
(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, 28.7% of these deposits are considered repriceable
within three months and 71.3% are considered repriceable in the over five years
category.
</FN>
</TABLE>
10
<PAGE>
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 interest rate levels will rise in the first
half of 2000, with no clear indication of sustainable rising or falling rates
thereafter. Given this assumption, the Company's asset/liability strategy for
2000 is to achieve a reduced negative gap position (interest-bearing liabilities
subject to repricing greater than interest-earning assets subject to repricing)
for periods up to a year. The impact of a rising 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:
March 31, Dec. 31,
2000 1999
-------- --------
CAPITAL PERFORMANCE
Return on average assets (annualized) 1.20% 1.26%
Return on average equity (annualized) 18.40 17.90
Earnings retained 48.40 51.00
<TABLE>
<CAPTION>
CAPITAL LEVELS
Tier 1 Capital to Tier 1 Capital to Risk- Total Capital to Risk-
Average Assets Ratio Weighted Assets Ratio Weighted Assets Ratio
Mar. 31, Dec. 31, Mar. 31, Dec. 31, Mar. 31, Dec. 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company 8.57% 8.58% 11.38% 11.43% 12.66% 12.73%
National Penn Bank 6.88% 6.83% 9.20% 9.16% 10.46% 10.42%
"Well Capitalized" institution 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
(under banking regulations)
</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 March 31,
2000, 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 4.0%. 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
11
<PAGE>
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
On February 14, 2000, the Company entered into an agreement to acquire
Panasia Bank, headquartered in Ft. Lee, New Jersey. Panasia has approximately
$100 million in assets. Subject to satisfaction of various conditions, this
transaction is expected to settle during the third quarter of 2000.
On March 27, 2000, the Company opened a branch in Springfield, Delaware
County, as part of its1st Main Line Division. During the remainder of 2000, the
Company anticipates opening three more new branches, one in Montgomery County,
one in Berks County and one in Philadelphia.
The following is a Year 2000 readiness statement.
As reported in previous filings, the Company assessed its state of
readiness for Year 2000, became knowledgeable concerning the risks of
non-compliance, implemented and carried out an action plan to achieve Year 2000
compliance, and developed contingency plans, all in an effort to successfully
deal with Year 2000 issues. The Company did not suffer any Year 2000 related
business interruptions on January 1, 2000 or on February 29, 2000, and has not
suffered any Year 2000 related problems since January 1, 2000. The Company does
not anticipate making any material expenditures for Year 2000 compliance
purposes in 2000 or that Year 2000 issues will have any material effect on the
Company in 2000 or thereafter.
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
1999, 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.
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 1999 annual report on
Form 10-K filed with the SEC.
12
<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 a Vote of Security Holders.
- ------------------------------------------------------------
None.
Item 5. Other Information.
- --------------------------
As previously reported in the Registrant's Annual Report on Form 10-K
for 1999, the Registrant, on February 14, 2000, entered into a definitive
agreement to acquire Panasia Bank ("Panasia"). On April 21, 2000, the Federal
Reserve Bank of Philadelphia approved the Registrant's application to acquire
Panasia. On April 10, 2000, the Registrant filed an application with the New
Jersey Department of Banking and Insurance (the "Department") for its approval
of the Panasia acquisition, which application is currently pending before the
Department. Subject to receipt of approval from the Department, approval by the
Panasia shareholders at a meeting to be held after receipt of the Department's
approval, and other customary closing conditions, the Registrant expects the
transaction to close in early July 2000.
During first quarter 2000, the Registrant's banking subsidiary,
National Penn Bank (the "Bank"), closed a supermarket branch in Reading (Berks
County), a branch in Wyndmoor (Montgomery County), a branch in Malvern (Chester
County), and a supermarket branch in Coopersburg (Lehigh County). The Bank
opened a branch in Springfield (Delaware County) in first quarter 2000.
During first quarter 2000, Penn 1st Financial Services, Inc., the
Bank's subsidiary engaged in the mortgage banking business, relocated its
principal office to 690 Stockton Drive, Eagleview Corporate Center, Suite 300,
Exton, Pennsylvania.
On March 22, 2000, the Registrant's Board of Directors declared a cash
dividend of $.20 per share to be paid on May 17, 2000 to shareholders of record
on April 30, 2000.
As previously reported, the Registrant's Board of Directors approved,
in July 1999, the repurchase of up to 850,000 shares of its common stock in the
open market or in negotiated transactions. As of March 31, 2000, a total of
386,270 shares have been repurchased at an aggregate cost of $9,218,000.
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. The Registrant did not file any Reports
on Form 8-K during the quarterly period ended March 31, 2000.
13
<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: May 12, 2000 By /s/ Wayne R. Weidner
----------------------
Wayne R. Weidner, President
Dated: May 12, 2000 By /s/ Gary L. Rhoads
--------------------
Gary L. Rhoads, Principal
Financial Officer
14
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