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: June 30, 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
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NATIONAL PENN BANCSHARES, INC.
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(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
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(Address of principal executive offices) (Zip Code)
(610) 367-6001
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(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 August 7, 2000
Common Stock (no stated par value) (No.) 17,670,020 Shares
Page 1 of 16 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....................................... 13
Part II - Other Information.
---------------------------
Item 1. Legal Proceedings ................................ 14
Item 2. Changes in Securities............................. 14
Item 3. Defaults Upon Senior Securities................... 14
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K.................. 15
Signature........................................................... 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET June 30 Dec. 31
(Dollars in thousands, except per share data) 2000 1999
(Unaudited) (Note)
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $71,075 $62,953
Interest bearing deposits in banks 2,192 4,039
---------------- ----------------
Total cash and cash equivalents $73,267 66,992
Investment securities available for sale 534,844 516,027
Loans, less allowance for loan losses of $35,951 and
$34,139 in 2000 and 1999 respectively 1,571,550 1,536,404
Other assets 130,110 123,009
---------------- ----------------
Total Assets $2,309,771 2,242,432
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $244,550 $210,272
Interest bearing deposits
(Includes certificates of deposit $100,000 or greater:
2000 - $177,098; 1999 - $195,939) 1,356,606 1,382,982
---------------- ----------------
Total Deposits 1,601,156 1,593,254
Securities sold under repurchase agreements
and federal funds purchased 333,170 200,148
Short-term borrowings 6,022 12,448
Long-term obligations 158,067 223,077
Guaranteed preferred beneficial interests in
Company's subordinated debentures 40,250 40,250
Accrued interest and other liabilities 20,073 25,559
---------------- ----------------
Total Liabilities 2,158,738 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 - 17,665,609; 1999 - 17,736,699; net of shares
in Treasury: 2000 - 177,863; 1999 - 108,176 135,174 135,526
Retained earnings 33,618 26,739
Accumulated other comprehensive loss (13,705) (11,616)
Treasury stock at cost (4,054) (2,953)
---------------- ----------------
Total Shareholders' Equity 151,033 147,696
---------------- ----------------
Total Liabilities and Shareholders' Equity $2,309,771 $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
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30 June 30
------------------------------------------------------------
2000 1999 2000 1999
------------ -------------- -------------- ------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans including fees $35,247 $32,284 $70,328 $63,509
Deposits in banks 35 64 162 107
Federal funds sold 27 114 43 160
Trading account securities - - - 196
Investment securities 8,418 7,647 17,052 15,088
------------ -------------- -------------- ------------
Total interest income 43,727 40,109 87,585 79,060
------------ -------------- -------------- ------------
INTEREST EXPENSE
Deposits 15,572 13,929 31,252 27,233
Federal funds purchased, borrowed funds and
securities sold under repurchase agreements 7,934 6,010 14,720 12,096
------------ -------------- -------------- ------------
Total interest expense 23,506 19,939 45,972 39,329
------------ -------------- -------------- ------------
Net interest income 20,221 20,170 41,613 39,731
Provision for loan losses 1,500 1,415 3,000 2,830
------------ -------------- -------------- ------------
Net interest income after provision
for loan losses 18,721 18,755 38,613 36,901
------------ -------------- -------------- ------------
OTHER INCOME
Trust income 1,205 1,007 2,362 1,893
Service charges on deposit accounts 1,551 1,326 3,046 2,690
Net gains on sale of investment securities 38 211 160 213
Mortgage banking income 425 364 1,019 430
Trading revenue - - - (48)
Other 3,334 2,781 6,095 5,022
------------ -------------- -------------- ------------
Total other income 6,553 5,689 12,682 10,200
------------ -------------- -------------- ------------
OTHER EXPENSES
Salaries, wages and employee benefits 9,481 9,265 19,966 18,551
Net premises and equipment 2,503 2,370 5,207 4,694
Other operating 4,663 4,803 9,003 8,525
------------ -------------- -------------- ------------
Total other expenses 16,647 16,438 34,176 31,770
------------ -------------- -------------- ------------
Income before income taxes 8,627 8,006 17,119 15,331
Applicable income tax expense 1,565 1,506 3,203 2,815
------------ -------------- -------------- ------------
Net income $7,062 $6,500 $13,916 $12,516
============ ============== ============== ============
PER SHARE OF COMMON STOCK
Net income per share - basic $0.40 $0.36 $0.79 $0.70
Net income per share - diluted 0.40 0.36 0.78 0.69
Dividends paid in cash 0.20 0.19 0.40 0.37
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock other
----------------------------- Retained conprehensive Treasury Comprehensive
Shares Par Value earnings loss 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 - - 13,916 - - 13,916
Cash dividends declared - - (7,037) - -
Shares issued under stock-based
plans - - -
Other comprehensive income, net
of reclassification adjustment
and taxes - - - (2,089) - (2,089)
------------------------------------------------------------------------------------------
Total comprehensive income - - - - - $ 11,827
------------------------------------------------------------------------------------------
Effect of treasury stock transactions (71,090) (352) (1,101)
------------------------------------------------------------------------------------------
Balance at June 30, 2000 17,665,609 $ 135,174 $ 33,618 $ (13,705) $ (4,054)
June 30, 2000
--------------------------------------------
Before Tax Net of
tax (expense) tax
amount benefit amount
--------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during period (3,374) 1,181 (2,193)
Less: reclassification adjustment for gains realized in net income 160 (56) 104
--------------------------------------------
Other comprehensive income, net (3,214) 1,125 (2,089)
============================================
SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands)
Accumulated
Common Stock other
----------------------------- Retained conprehensive Treasury Comprehensive
Shares Par Value earnings loss stock income
------------------------------------------------------------------------------------------
Balance at December 31, 1998 16,989,622 114,294 34,927 9,553 -
Net income - - 12,516 - - 12,516
Cash dividends declared - - (7,527) - -
Shares issued under stock-based
plans 4,451 712 - - -
Other comprehensive income, net
of reclassification adjustment
and taxes - - - (9,372) - (9,372)
------------------------------------------------------------------------------------------
Total comprehensive income - - - - - $ 3,144
------------------------------------------------------------------------------------------
Balance at June 30, 1999 16,994,073 $ 115,006 $ 39,916 $ 181 $ -
June 30, 1999
--------------------------------------------
Before Tax Net of
tax (expense) tax
amount benefit amount
--------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during period (14,631) 5,121 (9,510)
Less: reclassification adjustment for gains realized in net income 213 (75) 138
--------------------------------------------
Other comprehensive income, net (14,418) 5,046 (9,372)
============================================
</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>
Six Months Ended June 30,
(Dollars in thousands)
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 13,916 $ 12,516
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 3,000 2,830
Depreciation and amortization 2,310 2,177
Net gains (losses) on sale of securities and mortgages 160 (1)
Trading-related assets -- 21,589
Mortgage loans originated for resale (1,408) (47,336)
Sale of mortgage loans originated for resale 1,408 47,336
Other (11,462) (355)
--------- ---------
Net cash provided by operating activities 7,924 38,756
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities - available for sale 19,156 15,303
Proceeds from maturities of investment securities - available for sale 13,634 34,316
Purchase of investment securities - available for sale (54,821) (56,627)
Proceeds from sales of loans -- --
Net increase in loans (38,146) (65,792)
Purchases of premises & equipment (2,470) (2,295)
--------- ---------
Net cash (used in) investing activities (62,647) (75,095)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in:
Deposits 7,902 72,570
Repurchase agreements, fed funds & short-term borrowings 126,596 (22,232)
Repayments of long-term borrowings (65,010) (541)
(Increase) decrease in treasury stock (1,101) --
Issuance of common stock under dividend reinvestment plan -- 712
Effect of treasury stock transactions (352) --
Cash dividends (7,037) (7,522)
--------- ---------
Net cash provided by financing activities 60,998 42,987
Net increase in cash and cash equivalents 6,275 6,648
Cash and cash equivalents at January 1 66,992 65,801
--------- ---------
Cash and cash equivalents at June 30 $ 73,267 $ 72,449
========= =========
</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 six-month period ended June 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
3. National Penn Bancshares, Inc. completed the acquisition of Panasia Bank on
July 11, 2000 at a price of $29.00 per share in cash, with an aggregate purchase
price for such shares and related costs totaling approximately $20 million. The
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price was allocated to assets acquired and liabilities
assumed based on the estimated fair market value as of the date of acquisition.
The excess consideration paid over the estimated fair market value of net assets
acquired in the amount of $12.2 million has been recorded as goodwill to be
amortized on the straight-line basis over 20 years. All financial information
presented will include results of Panasia Bank from July 11, 2000 forward.
Panasia Bank is a wholly-owned subsidiary of National Penn Bancshares, Inc.
4. National Penn Bancshares, Inc. entered into a definitive agreement on July
23, 2000 to acquire Community Independent Bank, Inc. in a transaction intended
to be accounted for under the pooling of interests method of accounting.
5. Per share data are based on the weighted average number of shares outstanding
of 17,675,203 and 17,832,876 for 2000 and 1999, respectively, and on the
weighted average number of diluted shares outstanding of 17,885,284 and
18,122,937 for 2000 and 1999, respectively, and are computed after giving
retroactive effect to a 5% stock dividend paid December 22, 1999.
6. On June 28, 2000, the Company's Board of Directors declared a cash dividend
of $.20 per share payable on August 17, 2000, to shareholders of record on July
31, 2000.
7. 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 $14,802,000 at June 30, 2000,
all of which are non-accrual loans. The allowance for loan loss associated with
these impaired loans was $1,255,000 at June 30, 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 $2.310 billion, an increase of $67.3 million
or 3.0% over the $2.242 billion at December 31, 1999. This increase is reflected
primarily in the loan category which increased $35.1 million and the investment
category which increased $18.8 million.
Total cash and cash equivalents decreased $6.3 million or 9.4% at June
30, 2000 when compared to December 31, 1999. The increase in cash and due from
banks of $8.1 million was partially offset by a decrease in interest bearing
deposits of $1.8 million.
Loans increased to $1.571 billion at June 30, 2000. The increase of
$35.1 million or 2.3% compared to December 31, 1999 was primarily the result of
the investment of deposits and securities sold under repurchase agreements.
Loans originated for immediate resale during the first six 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 second
quarter of 2000 versus .17% for the year 1999, and the ratio of non-performing
assets to total loans of 1.17% at June 30, 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 $18.8 million at June 30, 2000
compared to $14.6 million at December 31, 1999. Of these amounts, non-accrual
loans represented $14.8 million and $11.1 million at June 30, 2000 and December
31, 1999, respectively. Loans 90 days past due and still accruing interest were
$2.9 million and $2.7 million at June 30, 2000 and December 31, 1999,
respectively. Other real estate owned was $.4 million and $1.1 million at June
30, 2000 and December 31, 1999, respectively. The Company had no restructured
loans at June 30, 2000 or December 31, 1999. The allowance for loan losses to
non-performing assets was 191.2% and 234.3% at June 30, 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 $18.8
million or 3.6% to $534.8 million at June 30, 2000 when compared to December 31,
1999. The increase is due to investment purchases of $54.8 million, primarily in
mortgage-backed 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 $1.601 billion at
June 30, 2000 increased $7.9 million or .4% compared to December 31, 1999. The
increase in deposits during the first six months of 2000 was primarily in
non-interest bearing deposits which increased $34.3 million while
interest-bearing deposits decreased $26.4 million. Certificates of deposit in
excess of $100,000 decreased $18.8 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 the aggregate, these funds totaled $537.5 million at June 30, 2000, and
$475.9 million at December 31, 1999. The increase of $61.6 million is primarily
due to the increase in securities sold under repurchase agreements and federal
funds purchased of $133.0 million, which was partially offset due to the
repayment of short-term obligations of $6.4 million, and a decrease in long-term
obligations of $65.0 million.
Shareholders' equity increased $3.3 million through June 30, 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 six months of 2000 increased $.4 million or 6.8%
8
<PAGE>
compared to the cash dividends paid during the first six months of 1999.
Earnings retained during the first six months of 2000 were 48.2% compared to
47.1% during the first six months of 1999.
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 2000 was $7.1 million, 8.6%
more than the $6.5 million for the second quarter of 1999. For the first six
months, net income reached $13.9 million or 11.2% more than the $12.5 million
reported for the first six 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 for the second quarter
of 2000 and 1999 was $20.2 million. Net interest income increased $1.9 million
or 4.7% to $41.6 million during the second quarter of 2000 from $39.7 million in
1999. The increase in interest income for the first six months is a result of
increased loan income of $6.8 million and increased investment income of $2.0
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 six three
months of 2000 increased $6.6 million or 16.9% compared to the prior year's
first six 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 $.2 million for the six-month period ended June 30, 2000 compared to
the same period in 1999. The allowance for loan and lease losses of $35.9
million at June 30, 2000 and $34.1 million at December 31, 1999 as a percentage
of total loans was 2.2% for both time periods. The Company's net charge-offs of
$1.2 million and $2.4 million during the first six months of 2000 and 1999,
respectively. While net charge-offs are fifty percent less in 2000 compared to
1999, they are still within the historical range for the Company and continue to
be comparable to those of the Company's peers, as reported in the Bank Holding
Company Performance Report.
Other income increased $.9 million or 15.2% during the second quarter
of 2000, as a result of increased other income of $.6 million, increased service
charges on deposit accounts of $.2 million, increased trust income of $.2
million, which was partially offset by decreased gains on the sale of investment
securities of $.2 million. Year to date, other income increased $2.5 million or
24.3% as a result of increased other income of $1.1 million, increased mortgage
banking income of .6 million, increased trust income of $.5 million and
increased service charges on deposit accounts of $.4 million. Other expenses
increased $.2 million or 1.3% during the quarter ended June 30, 2000 and
increased $2.4 million or 7.6% for the six month period. Of this year-to-date
increase, salaries, wages and benefits increased $1.4 million or 7.6%, net
premises and equipment increased $.5 million or 10.9%, and other operating
expenses increased $.5 million or 5.6%.
Income before income taxes increased $.6 million or 7.8% in the second
quarter of 2000 compared to the same time period in 1999. In comparing the first
six months of 2000 to 1999, income before income taxes increased $1.8 million or
11.7%. Income taxes remained relatively unchanged for the quarter ended June 30,
2000 and increased $.4 million for the six month period. The Company's effective
tax rate is 18.7% and 18.4% for June 30, 2000 and June 30, 1999, respectively.
This is due to the Company invests in tax advantaged municipal securities and
bank owned life insurance.
9
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate balance between interest-earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Funding affecting
short-term liquidity, including deposits, repurchase agreements, fed funds
purchased, and short-term borrowings, increased $134.5 million from year-end
1999. Long-term borrowings decreased $65.0 million during the first six months
of 2000. These changes represent a shift from long-term borrowings to short-term
borrowings and a slower growth in deposits compared to loans.
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
June 30, 2000:
<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 $ 2,192 $ -- $ -- $ --
Investment securities 57,119 33,925 114,170 329,630
Loans and leases (1) 478,025 234,404 496,243 362,878
Other assets 15,979 -- -- 185,206
----------- ----------- ----------- -----------
553,315 268,329 610,413 877,714
----------- ----------- ----------- -----------
Liabilities and equity
Non-interest bearing deposits 244,550 -- -- --
Interest bearing deposits (2) 492,968 81,293 340,017 442,328
Borrowed funds 262,408 -- 77,500 157,351
Preferred securities -- -- -- 40,250
Other liabilities -- -- -- 20,073
Hedging instruments 70,000 -- (70,000) --
Shareholders' equity -- -- -- 151,033
----------- ----------- ----------- -----------
1,069,926 81,293 347,517 811,035
----------- ----------- ----------- -----------
Interest sensitivity gap (516,611) 187,036 262,896 66,679
----------- ----------- ----------- -----------
Cumulative interest rate
sensitivity gap ($ 516,611) ($ 329,575) ($ 66,679) $ --
=========== =========== =========== ===========
</TABLE>
(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 second 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.
10
<PAGE>
(2) Savings and NOW deposits are scheduled for repricing based on historical
deposit decay rate analyses, as well as historical moving averages of run-off
for the Company's deposits in these categories. While generally subject to
immediate withdrawal, management considers a portion of these accounts to be
core deposits having significantly longer effective maturities based upon the
Company's historical retention of such deposits in changing interest rate
environments. Specifically, 21.5% of these deposits are considered repriceable
within three months and 78.5% are considered repriceable in the over five years
category.
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 believes interest rate levels have the potential to rise
slightly in the second 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:
June 30, Dec. 31,
2000 1999
------- ------
CAPITAL PERFORMANCE
Return on average assets (annualized) 1.22% 1.26%
Return on average equity (annualized) 18.70 17.90
Earnings retained 48.20 51.00
11
<PAGE>
CAPITAL LEVELS
<TABLE>
<CAPTION>
Tier 1 Capital to Tier 1 Capital to Risk- Total Capital to Risk-
Average Assets Ratio Weighted Assets Ratio Weighted Assets Ratio
Jun. 31, Dec. 31, Jun. 31, Dec. 31, Jun. 31, Dec. 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company 8.73% 8.58% 11.42% 11.43% 12.68% 12.73%
National Penn Bank 7.00% 6.83% 9.21% 9.16% 10.47% 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 June 30,
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 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 July 11, 2000, the Company acquired Panasia Bank in a transaction
accounted for under the purchase method of accounting. Panasia Bank is
headquartered in Ft. Lee, New Jersey. Panasia has approximately $100 million in
assets. Panasia Bank is a wholly-owned subsidiary of National Penn Bancshares,
Inc.
On July 23, 2000, the Company entered into a definitive agreement to
acquire Community Independent Bank, Inc. in a transaction intended to be
accounted for as a pooling of interests. Community Independent Bank, Inc. is a
one-bank holding company headquartered in Bernville, Pennsylvania, operating
four community bank offices in Berks County. Community Independent Bank, Inc.
has approximately $110 million in assets. Subject to satisfaction of various
conditions, this transaction is expected to close during the first quarter of
2001.
On April 24, 2000, the Company opened a branch in Horsham, Montgomery
County. During the remainder of 2000, the Company anticipates opening two more
new branches, one in Berks County and one in Philadelphia.
This report contains forward-looking statements concerning earnings,
asset quality, and other future events. Actual results could differ materially
due to, among other things, the risks and uncertainties discussed herein and in
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.
12
<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 1999 annual report on
Form 10-K filed with the SEC.
13
<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.
------------------------------------------------------------
The 2000 annual meeting (the "Meeting") of the shareholders of National
Penn Bancshares, Inc. (the "Registrant") was held on April 25, 2000. Notice of
the Meeting was mailed to shareholders of record on or about March 27, 2000,
together with proxy solicitation materials prepared in accordance with Section
14(a) of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder.
The Meeting was held to elect four Class I directors to hold office for
three years from the date of election and until their successors are elected and
qualified.
There was no solicitation in opposition to the nominees of the Board of
Directors for election to the Board of Directors and all such nominees were
elected. The number of votes cast for or withheld, as well as the number of
abstentions and broker non-votes, for each of the nominees for election to the
Board of Directors were as follows:
Abstentions and
Nominee For Withheld Broker Non-votes
John H. Body 12,480,689 107,658 -0-
J. Ralph Borneman, Jr. 12,480,783 107,564 -0-
Kenneth A. Longacre 12,481,160 107,187 -0-
Robert E. Rigg 12,478,223 110,124 -0-
Item 5. Other Information.
--------------------------
As previously reported, on July 11, 2000 the Registrant acquired
Panasia Bank in a transaction accounted for as a "purchase", and on July 23,
2000 the Registrant entered into a definitive agreement to acquire Community
Independent Bank, Inc. in a transaction intended to be accounted for as a
"pooling of interests".
During second quarter 2000, the Registrant's banking subsidiary,
National Penn Bank (the "Bank"), opened a branch in Horsham (Montgomery County),
and relocated a branch of its National Asian Bank Division to a new site in
Cheltenham (Montgomery County). The Bank also closed a supermarket branch in
Perkasie (Bucks County), a branch in Doylestown (Bucks County), and a loan
production office in West Chester (Chester County).
14
<PAGE>
On June 28, 2000, the Registrant's Board of Directors declared a cash
dividend of $.20 per share to be paid on August 17, 2000 to shareholders of
record on July 31, 2000.
In June 2000, the Bank entered into an alliance with M&I First National
Leasing Corp. to provide Bank business customers with commercial leasing
services. In August 2000, the Bank entered into an alliance with Tucker Anthony
Incorporated, MidAtlantic Division, to provide municipal and industrial
development bonds as well as structured finance options to Bank customers.
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 June 30, 2000.
15
<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: August 10, 2000 By /s/ Wayne R. Weidner
------------------------------------
Wayne R. Weidner, President
Dated: August 10, 2000 By /s/ Gary L. Rhoads
------------------------------------
Gary L. Rhoads, Principal
Financial Officer
16
