SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended December 31, 1999, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from ____________ to ____________.
Commission file number 000-10957
NATIONAL PENN BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2215075
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Philadelphia and Reading Avenues, Boyertown, Pennsylvania 19512
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 367-6001
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (without par value)
Preferred Stock Purchase Rights
Guarantee (9% Preferred Securities of NPB Capital Trust)
9% Junior Subordinated Debentures
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X]
The aggregate market value of common shares of the Registrant held by
nonaffiliates, based on the closing sale price as of March 10, 2000, was
$278,395,310.
As of March 10, 2000, the Registrant had 17,695,942 shares of Common
Stock outstanding.
Portions of the following documents are incorporated by reference: the
definitive Proxy Statement of the Registrant relating to the Registrant's Annual
Meeting of Shareholders to be held on April 25, 2000 -- Part III.
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NATIONAL PENN BANCSHARES, INC.
FORM 10-K
TABLE OF CONTENTS
Page
Part I
Item 1 Business....................................................... 1
Item 2. Properties..................................................... 22
Item 3. Legal Proceedings.............................................. 23
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 23
Item 4A. Executive Officers of the Registrant........................... 23
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters............................... 24
Item 6. Selected Financial Data........................................ 25
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................ 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 32
Item 8. Financial Statements and Supplementary Data.................... 33
Item 9. Disagreements on Accounting and Financial
Disclosure................................................ 63
Part III
Item 10. Directors and Executive Officers of the
Registrant................................................ 63
Item 11. Executive Compensation......................................... 63
Item 12. Security Ownership of Certain Beneficial
Owners and Management..................................... 63
Item 13. Certain Relationships and Related
Transactions.............................................. 63
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................................... 63
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PART I
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Item 1. BUSINESS.
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The Company
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National Penn Bancshares, Inc. (the "Company") is a Pennsylvania
business corporation and bank holding company headquartered at Philadelphia and
Reading Avenues, Boyertown, Pennsylvania 19512. The Company owns all of the
outstanding capital stock of National Penn Bank ("NPB"). The Company was
incorporated in January 1982. In addition, the Company has nine wholly-owned,
direct or indirect, nonbank subsidiaries engaged in activities related to the
business of banking and has, indirectly through one of such subsidiaries, an
equity investment in one other bank. At December 31, 1999, the Company and NPB
had 715 full- and part-time employees.
National Penn Bank
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NPB is a national bank chartered under the National Bank Act. Prior to
August 1, 1993, NPB's name was National Bank of Boyertown. On that date, the
bank's name was changed to National Penn Bank. National Penn Bank also operates
through its various banking divisions. NPB's banking divisions consist of (1)
the Chestnut Hill National Bank Division, established in December 1993 after the
Company's acquisition of Chestnut Hill National Bank, (2) the 1st Main Line Bank
Division, a de novo division established in April 1995, (3) the National Asian
Bank Division, a de novo division established in May 1998, and (4) the Elverson
National Bank Division, established in January 1999 after the Company's
acquisition of Elverson National Bank.
NPB is engaged in the commercial and retail banking business. NPB
provides checking and savings accounts, time deposits, personal, business,
residential mortgage, educational loans, interbank credit cards, and safe
deposit and night depository facilities.
Acquisition of Elverson National Bank
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On January 4, 1999, the Company acquired Elverson National Bank
("Elverson") by its merger with and into NPB. Elverson was a commercial bank
headquartered in Elverson, Chester County, Pennsylvania, with eight other
branches in Chester, Berks and Lancaster Counties, Pennsylvania. At December 31,
1998, Elverson had assets of $324,654,000, net loans of $184,299,000, deposits
of $265,241,000, and shareholders' equity of $28,318,000. The Company issued
3,821,564 shares of the Company's common stock in consummation of the
transaction. The transaction was accounted for under the "pooling of interests"
method of accounting. All financial information herein has been restated to
include the effects of Elverson.
Pending Acquisition of Panasia Bank
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On February 14, 2000, the Company entered into a definitive agreement
to acquire Panasia Bank ("Panasia"). Panasia is a commercial bank headquartered
in Ft Lee, New Jersey, with two other branches in Palisades Park and Closter,
New Jersey, and a loan production office in Flushing, Queens, New York. At
December 31, 1999, Panasia had assets of $100,100,000, net loans of $38,300,000,
deposits of $90,800,000, and shareholders' equity of $9,100,000. The Company
will pay $29 per share of Panasia common stock and the difference between $29
and the exercise price for each Panasia stock option outstanding for a total
cash purchase price of approximately $19,994,000. Subject to receipt of
regulatory approvals, approval by the Panasia shareholders and other customary
closing conditions, the Company expects the transaction to close in early July
2000. The transaction will be accounted for under the "purchase" method of
accounting.
Nonbank Subsidiaries
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The Company owns, directly, all of the outstanding capital stock of the
following nonbank subsidiaries:
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1. Investors Trust Company ("ITC") is a Pennsylvania-chartered trust
company. ITC opened for business on June 20, 1994.
2. National Penn Investment Company, a Delaware business corporation
("NPIC"), invests in and holds equity investments in other banks and bank
holding companies (as discussed below), other equity investments, government and
other debt securities, and other investment securities, as permitted by
applicable law and regulations.
3. National Penn Life Insurance Company, an Arizona insurance company,
was formed to reinsure credit life and accident and health insurance in
connection with loans made by NPB.
4. NPB New Jersey, Inc., a New Jersey business corporation, was formed
solely for the purpose of effecting the pending acquisition of Panasia Bank. See
"Pending Acquisition of Panasia Bank" above.
The Company owns, indirectly through NPB, all of the outstanding
capital stock of the following nonbank subsidiaries:
1. Link Financial Services, Inc., a Pennsylvania business corporation
("Link"), is licensed as an insurance agency by the Pennsylvania Insurance
Department. Link is also indirectly engaged in the title insurance business
through a joint venture with a title insurance agency. Link began operations in
April 1998.
2. Penn Securities, Inc., a Pennsylvania business corporation ("PSI"),
is a registered full service broker-dealer and investment advisory firm. PSI
began operations in October 1998. Prior to March 13, 2000, PSI was a direct
subsidiary of the Company.
3. Penn 1st Financial Services, Inc., a Pennsylvania business
corporation ("Penn 1st"), is engaged in the mortgage banking business. Penn 1st
began operations in September 1999 under the name "National Penn Mortgage
Company".
4. NPB Delaware, Inc., a Delaware business corporation ("NPB
Delaware"), invests in, holds and manages part of NPB's investment securities
portfolio, as permitted by applicable law and regulations. NPB Delaware began
operations in October 1999.
5. RBO Funding Inc., a Virginia corporation ("RBO"), is a subprime
lender and wholly-owned subsidiary of Penn 1st. The Company acquired RBO in
November 1999.
6. 1874 Financial Corp., a Pennsylvania business corporation
("1874"),is a commercial lending company specializing in the subprime commercial
lending business. 1874 began business in February 2000.
The Company also owns, indirectly through NPB, all of the outstanding
capital stock of 3 other nonbank subsidiaries, whose activities are limited
solely to holding certain real estate interests.
Other Bank Investments
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The Company owns, indirectly through NPIC, 20% of the outstanding
capital stock of Pennsylvania State Bank, a Pennsylvania bank headquartered in
Camp Hill, Pennsylvania. For financial reporting purposes, the Company accounts
for its investment in Pennsylvania State Bank using the "equity" method.
Supervision and Regulation
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Bank holding companies and banks operate in a highly-regulated
environment and are regularly examined by Federal and state regulatory
authorities. The following discussion concerns certain provisions of Federal and
state laws and certain regulations and the potential impact of such provisions
and regulations on the Company and its subsidiaries. To the extent that the
following information describes statutory or regulatory provisions, it is
qualified in its entirety by
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reference to the particular statutory or regulatory provisions themselves. A
change in applicable statutes, regulations or regulatory policy may have a
material effect on the business of the Company and its subsidiaries.
Bank Holding Company Regulation
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The Company is registered as a bank holding company and is subject to
the regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") under the Bank Holding Company Act of 1956 ("BHCA"). Bank
holding companies are required to file periodic reports with and are subject to
examination by the Federal Reserve. The Federal Reserve has issued regulations
under the BHCA that require a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. As a result, the
Federal Reserve, pursuant to such regulations, may require the Company to stand
ready to use its resources to provide adequate capital funds to NPB during
periods of financial stress or adversity.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined by regulations) with the terms of any capital restoration plan filed
by such subsidiary with its appropriate federal banking agency, up to specified
limits.
Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.
The BHCA prohibits the Company from acquiring direct or indirect
control of more than 5% of the outstanding shares of any class of voting stock
or substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve. Such
a transaction may also require approval of the Pennsylvania Department of
Banking. Pennsylvania law permits Pennsylvania bank holding companies to control
an unlimited number of banks.
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a nonbanking business unless
such business is determined by the Federal Reserve, by regulation or by order,
to be so "closely related to banking" as to be a "proper incident" thereto. The
BHCA does not place territorial restrictions on the activities of such
nonbanking-related businesses.
The Federal Reserve's regulations concerning permissible nonbanking
activities provide fourteen categories of functionally related activities that
are permissible nonbanking activities. These are:
(a) extending credit and servicing loans;
(b) certain activities related to extending credit;
(c) leasing personal or real property under certain conditions;
(d) operating nonbank depository institutions, including savings
associations;
(e) trust company functions;
(f) certain financial and investment advisory activities;
(g) certain agency transactional services for customer investments,
including securities brokerage activities;
(h) certain investment transactions as principal;
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(i) management consulting and counseling activities;
(j) certain support services, such as courier and printing services;
(k) certain insurance agency and underwriting activities;
(l) community development activities;
(m) issuance and sale of money orders, savings bonds, and traveler's
checks; and
(n) certain data processing services.
Depending on the circumstances, Federal Reserve approval may be
required before the Company or its nonbank subsidiaries may begin to engage in
any such activity and before any such business may be acquired.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") became
law. Among other things, the GLB Act amends the BHCA to permit qualifying bank
holding companies to engage in any type of financial activity. See
"Gramm-Leach-Bliley Act" herein.
Dividend Restrictions
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The Company is a legal entity separate and distinct from NPB and the
Company's direct and indirect nonbank subsidiaries. The Company's revenues (on a
parent Company only basis) result almost entirely from dividends paid to the
Company by its subsidiaries. The right of the Company, and consequently the
right of creditors and shareholders of the Company, to participate in any
distribution of the assets or earnings of any subsidiary through the payment of
such dividends or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary (including depositors, in the case of NPB), except
to the extent that claims of the Company in its capacity as a creditor may be
recognized.
Federal and state laws regulate the payment of dividends by the
Company's subsidiaries. See "Supervision and Regulation - Regulation of NPB"
herein.
Further, it is the policy of the Federal Reserve that bank holding
companies should pay dividends only out of current earnings. Federal banking
regulators also have the authority to prohibit banks and bank holding companies
from paying a dividend if they should deem such payment to be an unsafe or
unsound practice.
Capital Adequacy
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Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines. The required minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) is 8%. At least half (4%) of the total
capital is required to be "Tier 1 capital," consisting principally of common
shareholders' equity, noncumulative perpetual preferred stock (excluding auction
rate issues), a limited amount of cumulative perpetual preferred stock, and
minority interests in the equity accounts of consolidated subsidiaries, less
goodwill and, with certain limited exceptions, all other intangible assets. The
remainder may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance ("Tier 2 capital") and market risk capital, which includes
qualifying unsecured subordinated debt ("Tier 3 capital"). In addition to the
risk-based capital guidelines, the Federal Reserve requires a bank holding
company to maintain a minimum "leverage ratio." This requires a minimum level of
Tier 1 capital (as determined under the risk-based capital rules) to average
total consolidated assets of 3% for those bank holding companies that have the
highest regulatory examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 1% to 2% above the stated minimum. Further, the
Federal Reserve has indicated that it will consider a "tangible Tier 1 capital
leverage ratio" (deducting all intangibles) and other indicia of capital
strength in evaluating proposals for expansion or new activities. The Federal
Reserve has not advised the Company of any specific minimum leverage ratio
applicable to the Company.
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Pursuant to FDICIA, the federal banking agencies have specified, by
regulation, the levels at which an insured institution is considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." Under these regulations, an
institution is considered "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, a leverage ratio of 5% or greater, and is not subject to any order or
written directive to meet and maintain a specific capital level. The Company and
NPB, at December 31, 1999, each qualify as "well capitalized" under these
regulatory standards.
FDIC Insurance Assessments
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NPB is subject to FDIC deposit insurance assessments. These assessments
fund both the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations and are based on the risk
classification of the depository institutions. Under current FDIC practices, NPB
will not be required to pay deposit insurance assessments in 2000.
In 1996, the SAIF was recapitalized. In connection therewith, both
BIF-insured deposits and SAIF-insured deposits are now assessed to fund debt
service on the Federal government's FICO bond payments. In the fourth quarter of
1999, NPB's assessment rate was $.01184 per $100 of deposits for its BIF-insured
deposits and $.05920 per $100 of deposits for its SAIF-insured deposits.
Beginning in 2000, BIF-insured deposits and SAIF-insured deposits are to be
assessed at the same rate to fund remaining debt service on the FICO bonds. The
current rate is $.02080 per $100 of deposits. The FICO bonds mature in 2017.
Regulation of NPB
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The operations of NPB are subject to Federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System, and to banks whose deposits are insured
by the FDIC. NPB's operations are also subject to regulations of the Office of
the Comptroller of the Currency (the "OCC"), the Federal Reserve, and the FDIC.
The OCC, which has primary supervisory authority over NPB, regularly
examines banks in such areas as reserves, loans, investments, management
practices, and other aspects of operations. These examinations are designed for
the protection of NPB's depositors rather than the Company's shareholders. NPB
must furnish annual and quarterly reports to the OCC, which has the authority
under the Financial Institutions Supervisory Act to prevent a national bank from
engaging in an unsafe or unsound practice in conducting its business.
Federal and state banking laws and regulations govern, among other
things, the scope of a bank's business, the investments a bank may make, the
reserves against deposits a bank must maintain, the types and terms of loans a
bank may make and the collateral it may take, the activities of a bank with
respect to mergers and consolidations, and the establishment of branches.
Pennsylvania law permits statewide branching.
Under the National Bank Act, as amended, NPB is required to obtain the
prior approval of the OCC for the payment of dividends if the total of all
dividends declared by NPB in one year would exceed NPB's net profits (as defined
and interpreted by regulation) for the current year plus its retained net
profits (as defined and interpreted by regulation) for the two preceding years,
less any required transfers to surplus. In addition, NPB may only pay dividends
to the extent that its retained net profits (including the portion transferred
to surplus) exceed statutory bad debts (as defined by regulation). Under FDICIA,
any depository institution, including NPB, is prohibited from paying any
dividends, making other distributions or paying any management fees if, after
such payment, it would fail to satisfy its minimum capital requirements.
A subsidiary bank of a bank holding company, such as NPB, is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The Federal Reserve
Act and Federal Reserve regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to the principal shareholders of
its parent holding company,
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among others, and to related interests of such principal shareholders. In
addition, such legislation and regulations may affect the terms upon which any
person becoming a principal shareholder of a holding company may obtain credit
from banks with which the subsidiary bank maintains a correspondent
relationship.
NPB, and the banking industry in general, are affected by the monetary
and fiscal policies of government agencies, including the Federal Reserve.
Through open market securities transactions and changes in its discount rate and
reserve requirements, the Board of Governors of the Federal Reserve exerts
considerable influence over the cost and availability of funds for lending and
investment.
Competition
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The financial services industry in the Company's service area is
extremely competitive. The Company's competitors within its service area include
bank holding companies with resources substantially greater than those of the
Company. Many competitor financial institutions have legal lending limits
substantially higher than NPB's legal lending limit. In addition, NPB competes
with savings banks, savings and loan associations, credit unions, money market
and other mutual funds, mortgage companies, leasing companies, finance
companies, and other financial services companies that offer products and
services similar to those offered by NPB on competitive terms. The competitive
environment has intensified since adoption of Federal interstate banking
legislation in 1994. See "Interstate Banking Act" herein.
On November 12, 1999, the GLB Act became law. Among other things, the
GLB Act repeals the key provisions of the Glass Steagall Act to permit
commercial banks to affiliate with investment banks (securities firms), amends
the BHCA to permit qualifying bank holding companies to engage in any type of
financial activity, and permits subsidiaries of banks to engage in a broad range
of financial activities that are not permitted for banks themselves. Although
the long-range effects of the GLB Act cannot be predicted with reasonable
certainty, most probably it will further narrow the differences and intensify
competition between and among commercial banks, investment banks, insurance
firms and other financial services companies. See "Gramm-Leach-Bliley Act"
herein.
Interstate Banking Act
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The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
provides for nationwide interstate banking and branching:
(a) by permitting bank holding companies that are adequately
capitalized and adequately managed to acquire banks located in states outside
their home states regardless of whether such acquisitions are authorized under
the law of the host state;
(b) by permitting the interstate merger of banks, subject to the right
of individual states to "opt in" or "opt out" of this authority, actions that
could only be taken before June 1, 1997;
(c) by permitting banks to establish new branches on an interstate
basis provided that such action is specifically authorized by the law of the
host state;
(d) by permitting a bank to engage in certain agency relationships
(i.e., to receive deposits, renew time deposits, close loans (but not including
loan approvals or disbursements), service loans, and receive payments on loans
and other obligations) as agent for any bank or thrift affiliate, whether the
affiliate is located in the same state or a different state than the agent bank;
and
(e) by permitting foreign banks to establish, with approval of the
regulators in the United States, branches outside their "home" states to the
same extent that national or state banks located in the home state would be
authorized to do so.
One effect of this legislation is to permit the Company to acquire
banks and bank holding companies located in any state and to permit qualified
banking organizations located in any state to acquire banks and bank holding
companies located in Pennsylvania, irrespective of state law.
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The Pennsylvania Banking Code authorizes full interstate banking and
branching. It specifically authorizes interstate bank mergers and reciprocal
interstate branching into Pennsylvania by interstate banks and permits
Pennsylvania institutions to branch into other states with the prior approval of
the Pennsylvania Department of Banking.
Overall, this Federal and state legislation is having the effect of
increasing consolidation and competition and promoting geographic
diversification in the banking industry.
Gramm-Leach-Bliley Act
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On November 12, 1999, the GLB Act was passed into law. The GLB Act does
three fundamental things:
(a) The GLB Act repeals the key provisions of the Glass Steagall Act to
permit commercial banks to affiliate with investment banks (securities firms).
(b) The GLB Act amends the BHCA to permit qualifying bank holding
companies to engage in any type of financial activity.
(c) The GLB Act permits subsidiaries of banks to engage in a broad
range of financial activities that are not permitted for banks themselves.
The result is that banking companies will generally be able to offer a
wider range of financial products and services and will be more readily able to
combine with other types of financial companies, such as securities and
insurance companies.
The GLB Act creates a new kind of bank holding company called a
"financial holding company" (an "FHC"). An FHC is authorized to engage in any
activity that is "financial in nature or incidental to financial activities" and
any activity that the Federal Reserve determines is "complementary to financial
activities" and does not pose undue risks to the financial system. Among other
things, "financial in nature" activities include securities underwriting and
dealing, insurance underwriting and sales, and certain merchant banking
activities. A bank holding company qualifies to become an FHC if each of its
depository institution subsidiaries is "well capitalized," "well managed," and
CRA-rated "satisfactory" or better. A qualifying bank holding company becomes an
FHC by filing with the Federal Reserve an election to become an FHC. If an FHC
at any time fails to remain "well capitalized" or "well managed," the
consequences can be severe. Such an FHC must enter into a written agreement with
the Federal Reserve to restore compliance. If compliance is not restored within
180 days, the Federal Reserve can require the FHC to cease all its newly
authorized activities or even to divest itself of its depository institutions.
On the other hand, a failure to maintain a CRA rating of "satisfactory" will not
jeopardize any then existing newly authorized activities; rather, the FHC cannot
engage in any additional newly authorized activities until a "satisfactory" CRA
rating is restored.
In addition to activities currently permitted by law and regulation for
bank holding companies, an FHC may engage in virtually any other kind of
financial activity. Under limited circumstances, an FHC may even be authorized
to engage in certain non-financial activities. The most important newly
authorized activities are as follows:
(a) Securities underwriting and dealing;
(b) Insurance underwriting and sales;
(c) Merchant banking activities;
(d) Activities determined by the Federal Reserve to be "financial in
nature" and incidental activities; and
(e) "Complementary" financial activities, as determined by the
Federal Reserve.
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Bank holding companies that do not qualify or elect to become FHCs will
be limited in their activities to those currently permitted by law and
regulation. As of the date of this Report on Form 10-K, the Company has not
elected to become a FHC.
The GLB Act also authorizes national banks to create "financial
subsidiaries." This is in addition to the present authority of national banks to
create "operating subsidiaries". A "financial subsidiary" is a direct subsidiary
of a national bank that satisfies the same conditions as an FHC, plus certain
other conditions, and is approved in advance by the OCC. A "financial
subsidiary" can engage in most, but not all, of the newly authorized activities.
In addition, the GLB Act also provides significant new protections for
the privacy of customer information. These provisions apply to any company "the
business of which" is engaging in activities permitted for an FHC, even if it is
not itself an FHC. Basically, the GLB Act subjects a financial institution to
four new requirements regarding non-public information about a customer. The
financial institution must (1) adopt and disclose a privacy policy; (2) give
customers the right to "opt out" of disclosures to non-affiliated parties; (3)
not disclose any account information to third party marketers; and (4) follow
regulatory standards (to be adopted in the future) to protect the security and
confidentiality of customer information.
Although the long-range effects of the GLB Act cannot be predicted with
reasonable certainty, most probably it will further narrow the differences and
intensify competition between and among commercial banks, investment banks,
insurance firms and other financial service companies.
Interest Rate Swaps and Similar Instruments
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Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
requires that information about the amounts, nature, and terms of interest rate
swaps and similar instruments be disclosed. See Note 17 to the Company's
Consolidated Financial Statements included at Item 8 hereof. In 1999, the
interest rate swaps to which NPB was a party had the effect of increasing the
Company's net interest income by $986,000 over what would have been realized had
NPB not entered into the swap agreements. Should rates rise in 2000, the Company
may recognize lower net interest income for the year than would have been
recognized had NPB not entered into the interest rate swap agreements.
In 1999, the interest rate floor to which NPB is a party had no effect
on the Company's net interest income. Should rates fall in 2000 below a certain
point, the Company may recognize higher net interest income for the year than
would have been recognized had NPB not entered into the interest rate floor
agreement.
The Company uses interest rate swap and floor agreements for interest
rate risk management. No derivative financial instruments are held for trading
purposes. The contract or notional amounts of the swap and floor agreements do
not represent exposure to credit loss. Potential credit risk on these contracts
arises from the counterparty's inability to meet the terms of the agreement.
Management considers the credit risk of these agreements to be minimal and
manages this risk through routine review of the counterparty's financial
ratings.
Year 2000 Computer Matters
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The following is a Year 2000 Readiness Disclosure within the meaning of
the Year 2000 Information and Readiness Disclosure Act of 1998.
As previously reported, 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 and has not suffered any problems since that
date. 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.
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Forward-Looking Statements
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Certain statements in this Annual Report on Form 10-K for 1999 and in
other reports issued by the Company are forward-looking and are identified by
the use of forward-looking words or phrases such as "intended," "believes,"
"expects," "estimates", "anticipates," "forecasts," "is expected," and "is
anticipated." These forward-looking statements generally relate to the Company's
plans, expectations, goals, and projections, and include statements as to the
Company's anticipated future earnings, planned investments in new and modified
technology and branch locations, as well as Year 2000 computer compliance. These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties.
Risks and uncertainties could cause actual future results and
investments to differ materially from those contemplated in such forward-looking
statements. These risks and uncertainties include, without limitation, the
following:
(a) loan growth and/or loan margins may be less than expected, due to
competitive pressures in the financial services industry, changes in the
interest rate environment, or otherwise;
(b) general economic or business conditions, either nationally or in
the region in which the Company will be doing business, may be less favorable
than expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit;
(c) costs of the Company's planned training initiatives, product
development, branch expansion and new technology and operating systems may
exceed expectations;
(d) volatility in the Company's market area due to recent mergers may
have unanticipated consequences, such as customer turnover; and
(e) changes in the regulatory environment, securities markets, general
business conditions and inflation may be adverse.
These risks and uncertainties are all difficult to predict, and most
are beyond the control of the Company's management.
Readers are cautioned not to place undue reliance on the Company's
forward-looking statements, which speak only as of the date of this report. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
9
<PAGE>
<TABLE>
<CAPTION>
Average Balances, Average Rates, and Interest Rate Spread* (Dollars in Thousands)
- ---------------------------------------------------------
Year Ended December 31
------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ---------------------------- ----------------------------
Average -------- Average Average --------- Average Average --------- Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------- -------- -------- ---------- --------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest bearing deposits at banks $6,742 $239 3.53% $13,777 $544 3.95% $4,912 $249 5.07%
---------- -------- ---------- -------- ---------- --------
U.S. Treasury 36,715 2,419 6.59 42,740 2,884 6.75 71,584 4,858 6.79
U.S. Government agencies 186,520 12,120 6.50 185,637 12,152 6.55 131,426 8,960 6.82
State and municipal* 229,128 17,516 7.64 194,644 14,749 7.58 81,705 6,170 7.55
Other bonds and securities 85,434 5,422 6.35 41,931 2,562 6.11 21,525 1,286 5.97
---------- -------- ---------- -------- ---------- --------
Total investments 537,797 37,477 6.97 464,952 32,347 6.96 306,240 21,274 6.95
---------- -------- ---------- -------- ---------- --------
Federal funds sold 9,781 489 5.00 5,054 267 5.28 5,585 163 2.92
---------- -------- ---------- -------- ---------- --------
Trading account securities 6,836 196 2.87 10,670 851 7.98 - - -
---------- -------- ---------- -------- ---------- --------
Commercial loans and lease financing* 977,303 88,786 9.08 854,727 80,640 9.43 751,442 69,433 9.24
Installment loans 284,334 25,417 8.94 272,749 25,320 9.28 264,542 24,976 9.44
Mortgage loans 228,842 18,527 8.10 237,783 19,989 8.41 269,731 25,990 9.64
---------- -------- ---------- -------- ---------- --------
Total loans and leases 1,490,479 132,730 8.91 1,365,259 125,949 9.23 1,285,715 120,399 9.36
---------- -------- ---------- -------- ---------- --------
Total earning assets 2,051,635 $171,131 8.34% 1,859,712 $159,958 8.60% 1,602,452 $142,085 8.87%
-------- -------- --------
Allowance for loan and lease losses (32,071) (30,772) (27,741)
Non-interest earning assets 156,158 136,985 104,548
---------- ---------- ----------
Total assets $2,175,722 $1,965,925 $1,679,259
========== ========== ==========
INTEREST BEARING LIABILITIES:
Interest bearing deposits $1,306,931 $56,537 4.33% $1,190,760 $53,518 4.49% $1,096,594 $48,658 4.44%
Securities sold under repurchase
agreements and federal funds
purchased 158,669 7,165 4.52 133,380 6,108 4.58 106,131 5,228 4.93
Short-term borrowings 5,608 272 4.85 9,551 553 5.79 4,957 285 5.75
Long-term borrowings 310,707 18,779 6.04 267,531 16,428 6.14 138,958 8,838 6.36
---------- -------- ---------- -------- ---------- -------
Total interest bearing liabilities 1,781,915 $82,753 4.64% 1,601,222 $76,607 4.78% 1,346,640 $63,009 4.68%
Non-interest bearing deposits 220,777 193,652 173,146
Other non-interest bearing liabilities 19,910 18,636 18,065
---------- ---------- ----------
Total liabilities 2,022,602 1,813,510 1,537,851
Equity capital 153,120 152,415 141,408
---------- ---------- ----------
Total liabilities and equity capital $2,175,722 $1,965,925 $1,679,259
========== ========== ==========
INTEREST RATE SPREAD** $88,378 4.31% $88,351 4.48% $79,076 4.93%
======== ======== =======
<FN>
* Full taxable equivalent basis, using a 35% effective tax rate.
** Represents the difference between interest earned and interest paid,
divided by total earning assets. Loans outstanding, net of unearned
income, include nonaccruing loans. Fee income included.
</FN>
</TABLE>
10
<PAGE>
Interest Rate Sensitivity Analysis
- ----------------------------------
Information with respect to interest rate sensitivity of the Company's
assets and liabilities is included in the information under Management's
Discussion and Analysis at Item 7 hereof.
Investment Portfolio
- --------------------
A summary of securities available for sale and securities held to
maturity at December 31, 1999, 1998, and 1997 follows (in thousands).
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- ----------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------- ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and U.S.
Government agencies $103,092 $101,724 $105,537 $109,089 $108,985 $111,751
State and municipal 236,768 221,774 230,260 239,070 109,195 111,713
Mortgage-backed securities 136,684 133,927 126,329 127,369 106,970 108,381
Marketable equity securities
and other 57,354 58,602 46,230 47,513 18,312 23,380
------------ ----------- ------------ ----------- ----------- -----------
Totals $533,898 $516,027 $508,356 $523,041 $343,462 $355,225
============ =========== ============ =========== =========== ===========
1999 1998 1997
--------------------------- -------------------------- ----------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------- ------------ ------------ ------------ -------------- ------------
Securities held to maturity
U.S. Treasury and U.S.
Government agencies $ - $ - $ - $ - $4,637 $4,656
State and municipal - - - - 7,589 7,686
Mortgage-backed securities - - - - 2,931 2,928
Marketable equity securities
and other - - - - 1,082 1,091
------------ ----------- ------------ ----------- ----------- -----------
Totals $ - $ - $ - $ - $16,239 $16,361
============ =========== ============ =========== =========== ===========
</TABLE>
11
<PAGE>
Investment Securities Yield by Maturity
The maturity distribution and weighted average yield of the investment portfolio
of the Company at December 31, 1999, are presented in the following table.
Weighted average yields on tax-exempt obligations have been computed on a fully-
taxable equivalent basis assuming a tax rate of 35%. All average yields were
calculated on the book value of the related securities. Stocks and other
securities having no stated maturity have been included in the "After 10 Years"
category.
Securities Available for Sale Yield by Maturity at December 31, 1999
Securities available for sale at market value
(Dollars in thousands)
<TABLE>
<CAPTION>
After 1 But After 5 But
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
----------------- --------------- --------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
--------- ------- ------- ------ ------- ------ -------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $5,002 6.33% $44,042 6.78% $52,061 6.29% $619 6.24% $101,724 6.50%
State and municipal bonds 1,602 6.65% 16,580 7.27% 16,115 7.01% 187,477 7.97% 221,774 7.84%
Mortgage-backed securities 190 5.32% 12,386 6.58% 4,873 6.50% 116,478 6.77% 133,927 6.74%
Marketable equity securities
and other 2,074 6.07% 1,077 6.04% 973 6.17% 54,478 -% 58,602 0.43%
----------------- ----------------- ---------------- ----------------- -----------------
Total $8,868 6.31% $74,085 6.85% $74,022 6.46% $359,052 6.37% $516,027 6.45%
================= ================= ================ ================= =================
</TABLE>
12
<PAGE>
Loan Maturity and Interest Rate Sensitivity
- -------------------------------------------
Maturities and sensitivity to changes in interest rates in certain loan
categories in the Company's loan portfolio at December 31, 1999, are summarized
below:
Remaining Maturity* - At December 31, 1999
<TABLE>
<CAPTION>
After One
One Year Year to After
or Less Five Years Five Years Total
------------ ------------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Commercial and Industrial
Loans $123,966 $73,368 $55,658 $252,992
Real Estate Loans:
Construction and Land
Development 136,105 - - 136,105
----------- ------------ ----------- -----------
$260,071 $73,368 $55,658 $389,097
=========== ============ =========== ===========
<FN>
- ------------
* Demand loans, past-due loans, and overdrafts are reported in "One Year or
Less." Construction real estate loans are reported maturing in "One Year or
Less" because of their short-term maturity or index to Prime Rate. An
immaterial amount of loans have no stated schedule of repayments.
- ------------
</FN>
</TABLE>
Segregated in terms of sensitivity to changes in interest rates, the
foregoing loan balances at December 31, 1999, are summarized below:
After One Year After
to Five Years Five Years
----------------- ---------------
(In Thousands)
Predetermined Interest Rate $73,368 $55,658
Floating Interest Rate - -
----------- -----------
Total $73,368 $55,658
=========== ===========
Determinations of maturities included in the loan maturity table are
based upon contract terms. In situations where a "rollover" is appropriate, the
Company's policy in this regard is to evaluate the credit for collectability
consistent with the normal loan evaluation process. This policy is used
primarily in evaluating ongoing customers' use of their lines of credit that are
at floating interest rates. The Company's outstanding lines of credit to
customers are not material.
13
<PAGE>
Loan Portfolio
- --------------
The Company's loans are widely diversified by borrower, industry
group, and geographical area. The following summary shows the year-end
composition of the Company's loan portfolio for each year in the five-year
period ended December 31, 1999:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial and Industrial
Loans $252,992 $220,192 $179,967 $155,435 $116,715
Loans to Financial
Institutions - - 2,232 453 589
Real Estate Loans:
Construction and Land
Development 136,105 84,520 69,016 51,622 49,742
Residential 649,692 678,889 661,744 670,225 629,338
Other 472,447 404,865 374,281 335,391 285,904
Loans to Individuals 59,307 47,341 33,828 24,716 19,985
---------- ---------- ---------- ---------- ----------
Total $1,570,543 $1,435,807 $1,321,068 $1,237,842 $1,102,273
========== ========== ========== ========== ==========
</TABLE>
Risk Elements
- -------------
The Company's consolidated financial statements are prepared on the
accrual basis of accounting, including the recognition of interest income on the
loan portfolio.
In determining income from loans, including consumer and residential
mortgage loans, the Company generally adheres to the policy of not accruing
interest on a loan on which default of principal or interest has existed for a
period of 90 days or more. A loan past due 90 days or more remains on accrual
only if the loan is fully secured and in the process of collection. When a loan
reaches nonaccrual status, any interest accrued but unpaid on it, if payment is
considered questionable, is reversed and charged against current income.
Thereafter, until such time as the loan becomes current, interest is included in
income only to the extent it is received in cash.
Restructured loans are loans on which the interest rate has been
reduced because of a weakened financial position of the borrower. There were no
restructured loans at December 31, 1999, and an immaterial amount of such loans
at the end of prior years.
Nonaccrual loans, loans 90 days or more past due and still on accrual,
and restructured loans together constitute nonperforming loans. When other real
estate owned is included with nonperforming loans, the total is nonperforming
assets.
14
<PAGE>
The following table shows the balance at year-end and the effect on
interest income of nonperforming assets in the Company's loan portfolio, by
category, for each year in the five-year period ended December 31, 1999:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans $11,055 $11,581 $8,519 $9,493 $8,295
Loans Past Due 90 or
More Days as to
Interest or Principal 2,674 1,839 3,246 4,212 1,841
Restructured Loans - - - - -
Total Nonperforming Loans 13,729 13,420 11,765 13,705 10,136
Other Real Estate Owned 842 922 672 855 1,281
------- ------- ------- ------- -------
Total Nonperforming Assets $14,571 $14,342 $12,437 $14,560 $11,417
======= ======= ======= ======= =======
Gross Amount of Interest
That Would Have Been
Recorded at Original
Rate on Nonaccrual
and Restructured Loans $859 $940 $778 $1,040 $961
Interest Received From
Customers on Nonaccrual
and Restructured Loans 439 289 477 834 656
------- ------- ------- ------- -------
Net Impact on Interest
Income of Nonperforming
Loans $420 $651 $301 $206 $305
======= ======= ======= ======= =======
</TABLE>
At December 31, 1999, the Company had no foreign loans and no loan
concentrations exceeding 10% of total loans not disclosed in the table on page
14 hereof. "Loan concentrations" are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities that
would cause them to be similarly affected by economic or other conditions. Loans
recorded in the category of other real estate owned are valued at the lower of
book value of loans outstanding or fair market value.
At December 31, 1999, the Company was not aware of any potential
problem loans that are not otherwise included in the foregoing table. "Potential
problem loans" are loans where information about possible credit problems of
borrowers has caused management to have serious doubts about the borrowers'
ability to comply with present repayment terms.
At December 31, 1999, the Company had no loans that are considered
highly-leveraged transactions under applicable regulations. A "highly-leveraged
transaction" is a transaction for the purpose of the buyout, acquisition, or
recapitalization of a corporation, which involves new debt that doubles the
corporation's debt and results in a leverage ratio greater than 50%, produces a
leverage ratio greater than 75% where 25% or more results from the buyout,
acquisition, or recapitalization, or is designated as such by a syndication
agent or regulatory agency.
15
<PAGE>
Allowance for Possible Loan and Lease Losses
A detailed analysis of the Company's allowance for loan and lease losses for
the five years ended December 31, 1999, is shown below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $30,835 $28,467 $25,738 $23,038 $21,519
Charge-offs:
Commercial and Industrial Loans 1,770 1,549 1,625 482 676
Real Estate Loans:
Construction and Land
Development - - 14 - 366
Residential 1,341 679 1,280 1,338 969
Other 1,262 2,374 564 392 932
Loans to Individuals 784 599 398 452 872
------- ------- ------- ------- -------
Total Charge-offs $5,157 $5,201 $3,881 $2,664 $3,815
------- ------- ------- ------- -------
Recoveries:
Commercial and Industrial Loans 254 244 265 111 391
Real Estate Loans:
Construction and Land
Development 10 - - 131 148
Residential 555 650 296 186 513
Other 1,571 553 212 235 124
Loans to Individuals 111 162 274 201 258
------- ------- ------- ------- -------
Total Recoveries $2,501 $1,609 $1,047 $864 $1,434
------- ------- ------- ------- -------
Net Charge-offs $2,656 $3,592 $2,834 $1,800 $2,381
------- ------- ------- ------- -------
Provisions Charged to Expense 5,960 5,960 5,563 4,500 3,900
Balance at End of Year $34,139 $30,835 $28,467 $25,738 $23,038
======= ======= ======= ======= =======
Ratio of Net Charge-offs
During the Period to
Average Loans Outstanding
During the Period 0.18% 0.26% 0.22% 0.16% 0.23%
======= ======= ======= ======= =======
</TABLE>
The allowance for loan and lease losses is established through charges
to earnings in the form of a provision for loan and lease losses. Loans and
leases that are determined to be uncollectible are charged against the
allowance, and subsequent recoveries are credited to the allowance. Factors that
influence management's judgment in determining the amount of the provision for
loan and lease losses charged to operating expense include the following:
1. An ongoing review by management of the quality of the overall
loan and lease portfolio.
2. Management's continuing evaluation of potential problem and
nonperforming loans and leases.
3. Loan and lease classifications and evaluations as a result of
periodic examinations by federal supervisory authorities.
16
<PAGE>
4. Management's evaluation of prevailing and anticipated economic
conditions and their related effect on the existing loan and lease
portfolio.
5. Comments and recommendations by the Company's independent
accountants as a result of their regular examination of the Company's
financial statements.
It is management's practice to review the allowance for loan and lease
losses regularly to determine whether additional provision should be made after
considering the factors noted above. In 1999, the provision was unchanged due to
current loan quality, economic conditions, and net loan charge-offs in 1999.
The Company makes partial loan charge-offs when it determines that the
underlying collateral is not sufficient to cover a nonperforming loan. Loan loss
allowances are maintained at least in amounts sufficient to cover the estimated
future loss, if any. Partial charge-offs in 1999 totaled $1,488,000, or 29% of
the gross charge-off amount of $5,157,000, as compared to $2,677,000 or 51% of
the gross charge-off amount of $5,201,000 in 1998. Partial charge-offs
represented .1% and .2% of average total loans for 1999 and 1998, respectively.
(This space left intentionally left blank.)
17
<PAGE>
The year end 1999, 1998, 1997, 1996, and 1995 allocation of the
allowance for loan and lease losses, and the percent of loans in each category
to total loans, is illustrated in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan and Lease Losses (1)
---------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ----------------- ----------------- ----------------- ------------------
% Loan % Loan % Loan % Loan % Loan
Type to Type to Type to Type to Type to
Total Total Total Total Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ------- --------- ------- --------- ------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Industrial loans
and leases $5,878 16.1% $ 5,859 15.3% $ 3,245 13.6% $3,655 12.6% $ 2,880 10.6%
Loans to financial institutions - -% - -% - 0.2% - -% - 0.1%
Real estate loans:
Construction and land development 4,204 8.7% 2,528 5.9% 2,021 5.2% 1,647 4.2% 737 4.5%
Residential 4,119 41.3% 4,163 47.3% 5,836 50.0% 5,379 54.1% 5,184 57.1%
Other 10,916 30.1% 11,378 28.2% 7,942 28.4% 8,957 27.1% 7,418 25.9%
Loans to individuals 4,256 3.8% 3,268 3.3% 4,925 2.6% 2,600 2.0% 2,603 1.8%
Unallocated 4,766 N/A 3,639 N/A 4,498 N/A 3,500 N/A 4,216 N/A
--------- ------- -------- ------- ------- ------- ------- ------ ------- -------
$34,139 100.0% $30,835 100.0% $28,467 100.0% $25,738 100.0% $23,038 100.0%
========= ======= ======== ======= ======= ======= ======= ====== ======= =======
<FN>
(1) This allocation is made for analytical purposes. The total allowance is
available to absorb losses from any segment of the portfolio.
- ------------
</FN>
</TABLE>
The Company regards the allowance as a general allowance which is
available to absorb losses from all loans. The allocation of the allowance as
shown in the table should neither be interpreted as an indication of future
charge-offs, nor as an indication that charge- offs in future periods will occur
in these amounts or in these proportions.
18
<PAGE>
Historical Statistics
- ---------------------
The following table shows historical statistics of the Company relative
to the relationship among loans (net of unearned discount), net charge-offs, and
the allowance for possible loan and lease losses:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Average Total Loans $1,490,479 $1,365,259 $1,285,715 $1,143,689 $1,039,181
Total Loans at Year End 1,570,543 1,435,807 1,321,068 1,237,842 1,102,273
Net Charge-offs 2,656 3,592 2,834 1,800 2,381
Allowance for Possible
Loan and Lease Losses
at Year End 34,139 30,835 28,467 25,738 23,038
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Charge-offs to:
Average Total Loans 0.18% 0.26% 0.22% 0.16% 0.23%
Total Loans at Year End 0.17% 0.25% 0.21% 0.15% 0.22%
Allowance for Possible
Loan and Lease Losses 7.78% 11.65% 9.96% 6.99% 10.34%
Allowance for Possible
Loan and Lease Losses to:
Average Total Loans 2.29% 2.26% 2.21% 2.25% 2.22%
Total Loans at Year End 2.18% 2.15% 2.15% 2.08% 2.09%
</TABLE>
(This space left intentionally blank.)
19
<PAGE>
Deposit Structure
- -----------------
The following is a distribution of the average amount of, and the
average rate paid on, the Company's deposits for each year in the three-year
period ended December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1999 1998 1997
------------------------ --------------------------- -------------------------
(Dollars in Thousands)
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------------ --------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-
Bearing Demand
Deposits $220,777 -% $193,652 -% $173,146 -%
Savings Deposits 572,142 2.84% 489,762 2.66% 424,165 2.31%
Time Deposits 734,789 5.48% 700,998 5.75% 672,429 5.78%
----------- ------------ ------------
Total $1,527,708 3.70% $1,384,412 3.85% $1,269,740 3.83%
=========== ============ ============
</TABLE>
The aggregate amount of jumbo certificates of deposit, issued in the
amount of $100,000 or more was $195,939,000 in 1999, $145,049,000 in 1998, and
$127,823,000 in 1997.
The following is a breakdown, by maturities, of the Company's time
certificates of deposit of $100,000 or more as of December 31, 1999. The Company
has no other time deposits of $100,000 or more as of December 31, 1999.
Maturity Amount of Time Certificates of Deposit
---------- --------------------------------------
(In Thousands)
3 months or less $71,251
Over 3 through 6 months 69,162
Over 6 through 12 months 29,157
Over 12 months 26,369
-----------
Total $195,939
===========
Short-Term Borrowings
Information with respect to the Company's short-term borrowings is set
forth in Footnote 7 to the Company's Consolidated Financial Statements which are
included at Item 8 hereof, Financial Statements and Supplementary Data.
(This space left intentionally blank.)
20
<PAGE>
Financial Ratios
The following ratios for the Company are among those commonly used in
analyzing financial statements of financial services companies:
Year Ended December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
Earnings Ratios
Net Income on:
Average Earning Assets 1.34% 1.23% 1.34%
Average Total Assets 1.26 1.17 1.28
Average Shareholders' Equity 17.90 15.00 15.20
Net Operating Income Before
Securities and Mortgage
Transactions:
Average Earning Assets 1.37 1.14 12.34
Average Total Assets 1.28 1.07 1.18
Average Shareholders' Equity 18.17 13.85 13.98
Liquidity and Capital Ratios
Average Shareholders' Equity
to Average Earning Assets 7.46% 8.20% 8.82%
Average Shareholders' Equity
to Average Total Assets 7.04 7.75 8.41
Dividend Payout Ratio 48.97 44.29 41.28
Tier 1 Leverage Ratio 8.58 8.77 9.80
Tier 1 Risk-Based Ratio 11.43 12.21 13.44
Total Risk-Based Capital Ratio 12.73 13.51 14.83
(This space left intentionally blank.)
21
<PAGE>
The following table shows, on a taxable equivalent basis, the changes
in the Company's net interest income, by category, due to shifts in volume and
rate, for the years ended December 31, 1999 and 1998. The information is
presented on a taxable equivalent basis, using an effective rate of 35%.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1999 over 1998 (1) 1998 over 1997 (1)
--------------------------------- --------------------------------------
Increase (decrease) in: Volume Rate Total Volume Rate Total
--------- ---------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest bearing deposits
at banks ($278) ($27) ($305) $449 ($154) $295
Securities:
U.S. Treasury and
U. S. Government agencies (339) (158) (497) 1,727 (509) 1,218
State and municipal 2,613 154 2,767 8,529 50 8,579
Other bonds and securities 2,658 202 2,860 1,219 57 1,276
-------- --------- -------- --------- ----------- ----------
Total securities 4,932 198 5,130 11,475 (402) 11,073
-------- --------- -------- --------- ----------- ----------
Federal funds sold 250 (28) 222 (15) 119 104
Trading account securities (306) (349) (655) 851 - 851
Loans:
Commercial loans and
lease financing 11,565 (3,419) 8,146 9,544 1,663 11,207
Installment loans 1,075 (978) 97 775 (431) 344
Mortgage loans (752) (710) (1,462) (3,078) (2,923) (6,001)
-------- --------- -------- --------- ----------- ----------
Total loans 11,888 (5,107) 6,781 7,241 (1,691) 5,550
-------- --------- -------- --------- ----------- ----------
Total interest income $16,486 ($5,313) $11,173 $20,001 ($2,128) $17,873
======== ========= ======== ========= =========== ==========
Interest expense:
Interest bearing deposits 5,221 (2,202) 3,019 4,178 682 4,860
Borrowed funds:
Securities sold under
repurchase agreements and
federal funds purchased 1,158 (101) 1,057 1,342 (462) 880
Short-term borrowings (228) (53) (281) 264 4 268
Long-term borrowings 2,651 (300) 2,351 8,177 (587) 7,590
-------- --------- -------- --------- ----------- ----------
Total borrowed funds 3,581 (454) 3,127 9,783 (1,045) 8,738
-------- --------- -------- --------- ----------- ----------
Total interest expense $8,802 ($2,656) $6,146 $13,961 ($363) $13,598
======== ========= ======== ========= =========== ==========
Increase (decrease) in
net interest income $7,684 ($2,657) $5,027 $6,040 ($1,765) $4,275
======== ========= ======== ========= =========== ==========
- ------------
<FN>
(1) Variance not solely due to rate or volume is allocated to the volume
variance. The change in interest due to both rate and volume is allocated to
rate and volume changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
</FN>
</TABLE>
Item 2. PROPERTIES.
- -------------------
The Company does not own or lease any property. As of December 31,
1999, NPB owns 34 properties in fee and leases 41 other properties. The
properties owned in fee, at such date, were not subject to any major liens,
encumbrances, or collateral assignments.
The principal office of the Company and of NPB is owned in fee and is
located at Philadelphia and Reading Avenues, Boyertown, Pennsylvania 19512. The
principal office of NPB's Chestnut Hill National Bank Division is leased and is
located at 9 West Evergreen Avenue, Chestnut Hill, Philadelphia, Pennsylvania
19118. The principal
22
<PAGE>
office of NPB's 1st Main Line Bank Division is leased and is located at 528 East
Lancaster Avenue, St. Davids, Pennsylvania 19087. The principal office of NPB's
Elverson National Bank Division is owned in fee and is located at 83 West Main
Street, Elverson, Pennsylvania 19520. The principal office of NPB's National
Asian Bank Division is leased and is located at 1349 West Cheltenham Avenue,
Suite 101, Elkins Park, Pennsylvania 19027.
NPB presently has 60 branches located in the following Pennsylvania
counties: Berks, Bucks, Chester, Delaware, Lancaster, Lehigh, Montgomery,
Northampton, and Philadelphia.
In addition to its branches, NPB presently owns or leases 70 automated
teller machines located throughout the nine-county area, all of which are
located at bank branch locations, except for 26 that are ?free-standing? (not
located at a branch).
Item 3. LEGAL PROCEEDINGS.
- --------------------------
Various actions and proceedings are presently pending to which NPB is
a party. These actions and proceedings arise out of routine operations and, in
management's opinion, will have no material adverse effect on the consolidated
financial position of the Company and its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
- ----------------------------------------------
The principal executive officers of the Company, as of the date
hereof, are as follows:
<TABLE>
<CAPTION>
Principal Business Occupation
Name Age During the Past Five Years
- ---- --- --------------------------
<S> <C> <C>
Lawrence T. Jilk, Jr. 61 Chairman and Chief Executive Officer of the Company since
January 1990, and President of the Company from April 1988 to
April 1998. Also, Chairman of NPB.
Wayne R. Weidner 57 President of the Company since April 1998. Executive Vice President
of the Company from April 1990 to April 1998, and Treasurer of the
Company from 1983 to 1990. Also, Chief Executive Officer and
President of NPB.
Garry D. Koch 45 Executive Vice President of NPB since September 1997, and Senior
Vice President of NPB from 1992 to September 1997.
Glenn E. Moyer 49 Executive Vice President of NPB and President of the Elverson
Division since January 1999; President and Chief Executive Officer
of Elverson National Bank from March 1995 to January 1999.
Sharon L. Weaver 52 Executive Vice President of NPB since April 1998, and Senior Vice
President of NPB from 1991 to April 1998.
Sandra L. Spayd 56 Secretary of the Company, and Senior Vice President and Corporate
Secretary of NPB.
Gary L. Rhoads 45 Treasurer of the Company (Chief Financial Officer), and Executive
Vice President, Controller and Cashier of NPB.
</TABLE>
Executive officers of the Company are elected by the Board of
Directors and serve at the pleasure of the Board. Executive Officers of the Bank
are appointed by the Board of Directors of the Bank and serve until they resign,
retire, become disqualified, or are removed by such Board.
23
<PAGE>
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- MATTERS.
-----------------------------------------------------------------------
The Company's Common Stock currently trades on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol: "NPBC".
The following table reflects the high and low closing sales prices
reported for the Common Stock, and the cash dividends declared on the Common
Stock, for the periods indicated, after giving retroactive effect to a 5% stock
dividend paid on December 22, 1999 and a 5-for-4 stock split paid on July 31,
1998.
MARKET VALUE OF COMMON STOCK
1999
--------------------
High Low
------ -----
lst Quarter 25.95 21.19
2nd Quarter 24.29 20.48
3rd Quarter 26.19 20.24
4th Quarter 26.75 24.41
1998
--------------------
High Low
------ -----
lst Quarter 28.19 22.67
2nd Quarter 27.48 25.14
3rd Quarter 25.90 19.88
4th Quarter 31.90 19.35
CASH DIVIDENDS DECLARED ON COMMON STOCK
1999 1998
------ -----
lst Quarter $0.19 $0.14
2nd Quarter 0.19 0.15
3rd Quarter 0.19 0.15
4th Quarter 0.20 0.18
The Trust Preferred Securities of NPB Capital Trust are reported on
Nasdaq's National Market under the symbol "NPBCP". The Preferred dividend is 9%.
On November 15, 1999, the Company acquired RBO Funding, Inc. ("RBO"),
a subprime residential mortgage broker based in McLean, Virginia. In a merger
transaction in which RBO became a wholly-owned subsidiary of the Company, the
Company exchanged 62,913 shares of the Company's common stock for all of the
outstanding shares of stock of RBO, subject to certain indemnification
obligations of the two RBO shareholders. The 62,913 shares were offered and sold
solely to the two sole shareholders, who were founders, of RBO in exchange for
the transfer of their entire ownership interests in RBO in the merger. The
62,913 shares were offered and sold without registration under the Securities
Act of 1933, as amended (the "Securities Act"), in reliance on the exemption
afforded by Section 4(2) of the Securities Act and/or Rule 506 of Regulation D
promulgated under the Securities Act. In relying upon these exemptions, the
Company took into account the limited number of only two RBO shareholders; the
limitation of the Company's offering to these shareholders; the information
regarding the Company and the merger furnished to the RBO shareholders; the
representation of RBO and the two RBO shareholders by legal counsel in
connection with the transaction; and the representations and warranties made by
RBO and the two shareholders to the Company in connection with the transaction.
24
<PAGE>
Item 6. SELECTED FINANCIAL DATA.
- --------------------------------
<TABLE>
<CAPTION>
FIVE-YEAR STATISTICAL SUMMARY
(Dollars in thousands, except per share data)
Year Ended 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF CONDITION
Total assets $2,242,432 $2,121,248 $1,809,216 $1,604,566 $1,473,888
Total deposits 1,593,254 1,473,302 1,353,523 1,190,976 1,106,884
Loans and leases, net 1,536,404 1,404,972 1,292,601 1,212,104 1,079,235
Total investment securities 516,027 523,041 371,464 278,565 280,817
Total shareholders' equity 147,696 158,774 148,928 137,519 126,897
Book value per share* 8.33 8.90 8.30 7.66 7.09
Realized book value per share** 8.98 8.36 7.88 7.41 6.72
Percent shareholders' equity to assets 6.59% 7.48% 8.23% 8.57% 8.61%
Trust assets 834,585 674,729 543,345 411,916 401,532
EARNINGS
Total interest income $164,270 $154,081 $139,266 $124,671 $115,446
Total interest expense 82,753 76,607 63,009 53,914 51,410
---------- ---------- ---------- ---------- ----------
Net interest income 81,517 77,474 76,257 70,757 64,036
Provision for loan and lease losses 5,960 5,960 5,563 4,500 3,900
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan and lease losses 75,557 71,514 70,694 66,257 60,136
Other income 23,338 18,721 13,614 10,153 8,478
Other expenses 65,724 61,232 54,417 48,590 44,331
---------- ---------- ---------- ---------- ----------
Income before income taxes 33,171 29,003 29,891 27,820 24,283
Income taxes 5,762 6,085 8,344 8,531 7,279
---------- ---------- ---------- ---------- ----------
Net income $27,409 $22,918 $21,547 $19,289 $17,004
========== ========== ========== ========== ==========
Cash dividends paid $13,421 $10,151 $8,894 $7,413 $6,611
Return on average assets 1.26% 1.17% 1.28% 1.27% 1.21%
Return on average shareholders' equity 17.9% 15.0% 15.2% 14.8% 14.9%
Return on average realized shareholders' 18.2% 15.9% 15.6% 15.2% 14.9%
PER SHARE DATA*
Basic earnings $1.54 $1.28 $1.20 $1.08 $0.95
Diluted earnings 1.52 1.26 1.18 1.07 0.94
Dividends paid in cash 0.75 0.57 0.49 0.41 0.37
Dividends paid in stock 5% 5-for-4 4-for-3 5% 5%
stock stock
split split
SHAREHOLDERS AND STAFF
Average shares outstanding - basic * 17,792,492 17,836,656 17,970,695 17,940,083 17,819,109
Average shares outstanding - diluted* 18,074,809 18,198,377 18,277,412 18,085,076 18,068,771
Shareholders 3,110 3,208 3,202 3,102 3,133
Staff - Full-time equivalents 715 749 718 681 613
<FN>
* Restated to reflect the acquisition of Elverson National Bank, a 5% stock
dividend in 1999, a 5-for-4 stock split in 1998, a 4-for-3 stock split in
1997, and 5% stock dividends in 1996 and 1995.
** Excluding unrealized gain (loss) on investment securities available for
sale.
</FN>
</TABLE>
The unaudited quarterly results of the Company's operations in 1999 and
1998 are included in Footnote 21 to the Company's Consolidated Financial
Statements included herein at Item 8, Financial Statements and Supplementary
Data.
25
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- OF OPERATIONS.
-----------------------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and is intended to assist
in understanding and evaluating the major changes in the financial condition and
earnings results of operations of the Company with a primary focus on the
Company's performance.
As discussed below, in 1999 the Company acquired Elverson National Bank
in a transaction accounted for as a pooling of interests. Accordingly, the
Company's financial statements have been restated to reflect the acquisition.
FINANCIAL CONDITION
-------------------
During 1999 total assets increased to $2.242 billion, an increase of
$121.1 million or 5.7% over the $2.121 billion at year-end 1998. Total assets at
the end of 1998 increased $312.0 million or 17.2% over the $1.809 billion at
year-end 1997.
Total cash and cash equivalents increased $1.2 million or 1.8% in 1999
compared to 1998 versus an increase of $2.4 million or 3.8% in 1998 compared to
1997. The increase in 1999 is primarily due to cash and due from banks which was
partially offset by a decrease in interest bearing deposits in banks.
Net loans and leases increased to $1.536 billion during 1999, an
increase of $131.4 million or 9.4% compared to 1998. Net loans increased $112.4
million in 1998 or 8.7% compared to 1997. Loan growth in 1999 was primarily the
result of additional growth in the portfolio funded by the investment of
deposits, securities sold under repurchase agreements, and federal funds
purchased and long-term borrowings. Residential mortgages originated for
immediate resale during 1999 amounted to $50.4 million. The Company's credit
quality is reflected by the annualized ratio of net chargeoffs to total loans of
.17% for 1999 versus .25% for the year 1998, and the ratio of nonperforming
assets to total loans of .93% at December 31, 1999, compared to .99% at December
31, 1998. Nonperforming assets, including nonaccruals, loans 90 days past due,
restructured loans and other real estate owned, were $14.6 million at December
31, 1999, compared to $14.3 million at December 31, 1998. Of these amounts,
nonaccrual loans represented $11.1 million and $11.6 million at December 31,
1999, and December 31, 1998, respectively. Loans 90 days past due and still
accruing interest were $2.7 million and $1.8 million at December 31, 1999, and
December 31, 1998, respectively. Other real estate owned was $842,000 and
$922,000 at December 31, 1999, and December 31, 1998, respectively. The Company
had no restructured loans at December 31, 1999 or December 31, 1998. The
allowance for loan losses to nonperforming assets was 234.3% and 214.9% at
December 31, 1999, and December 31, 1998, respectively. As is evident from the
above amounts relative to nonperforming assets, there have been no significant
changes between December 31, 1999, and December 31, 1998. The Company has no
significant exposure to energy and agricultural-related loans.
Investments, which are the Company's secondary use of funds, decreased
$7.0 million or 1.3% to $516.0 million at year-end 1999. In 1998, the investment
portfolio reflected an increase of $151.6 million or 40.8% compared to 1997. The
decrease in 1999 was due to investment purchases of $180.9 million, primarily in
municipal securities, which were offset by calls and maturities of securities,
investment securities sales and payments on mortgage-backed securities.
Trading account securities decreased from $21.6 million to zero at
December 31, 1999 due to the sale of all these securities. The Company has
assessed its involvement in trading account activities and decided these
activities do not meet with its strategic goals.
As the primary source of funds, aggregate deposits of $1.593 billion
increased $120.0 million or 8.1% compared to 1998. Deposits of $1.473 billion
increased $119.8 million in 1998 or 8.8% compared to 1997. In addition to
deposits, growth in earning assets has been partially funded through purchased
funds and borrowings. These include securities sold under repurchase agreements,
federal funds purchased, short-term borrowings, long-term borrowings, and
subordinated debentures. In the aggregate, these funds totaled $475.9 million at
the end of 1999, a $8.3 million or 1.7%
26
<PAGE>
increase compared to 1998. The 1998 amount of borrowings and purchased funds of
$467.6 million represented an increase of $179.1 million or 62.1% compared to
1997. The increase in 1999 was due to an increase in short-term borrowings,
primarily securities sold under repurchase agreements and federal funds
purchased, of $40.6 million, which was partially offset by a decrease in
long-term borrowings of $25.6 million.
Shareholders' equity decreased by $11.1 million or 7.0% in 1999 to
$147.7 million. This decrease was principally due to a decrease in accumulated
other comprehensive income, as well as, purchases of treasury stock in
accordance with the Company's announced stock repurchase program. Cash dividends
paid in 1999 increased $3,269,000 or 32.2% compared to the cash dividends paid
in 1998 which increased $1,258,000 or 14.1% compared to cash dividends paid in
1997. Earnings retained in 1999 were 51.0% compared to 55.7% in 1998.
RESULTS OF OPERATIONS
---------------------
Net income for 1999 of $27.4 million was 19.6% more than the $22.9
million reported in 1998. The 1998 amount was 6.4% more than the $21.5 million
in 1997. On a per share basis, basic earnings were $1.54, $1.28, and $1.20 for
1999, 1998, and 1997, respectively. Diluted earnings per share were $1.52,
$1.26, and $1.18 for 1999, 1998, and 1997, respectively.
Net interest income is the difference between interest income on assets
and interest expense on liabilities. Net interest income increased $4.0 million
or 5.2% to $81.5 million in 1999 from the 1998 amount of $77.5 million. The
increase in interest income is a result of increased investment and loan income
due to growth in loan outstandings and higher rates on loans that were partially
offset by growth in deposits and higher rates on deposits and borrowings. The
Company's interest rate spread decreased from 4.48% in 1998 to 4.31% in 1999.
The primary reasons for this decrease include the increased investment in bank
owned life insurance from which the income is reported in other income but the
cost of funding the investment is included in interest expense, and the increase
in the investment portfolio utilizing incremental borrowings that result in a
spread that is narrower than historical spreads but ultimately provides
increased net interest income. Interest rate risk is a major concern in
forecasting the earnings potential. From November 18, 1998 to June 30, 1999, the
prime rate was 7.75%. From July 1, 1999 to August 24, 1999, the prime rate was
8.00%. From August 25, 1999 to November 15, 1999, the prime rate was 8.25%. On
November 16, 1999, the prime rate changed to 8.50%. From March 26, 1997 to
September 28, 1998, the prime rate was 8.50%. From September 29, 1998 to October
15, 1998, the prime rate was 8.25%. From October 16, 1998 to November 17, 1998,
the prime rate was 8.00%. On November 18, 1998, the prime rate changed to 7.75%.
Interest expense during 1999 increased $6.1 million or 8.0% compared to the
prior year due to higher interest rates on deposits and long-term borrowings.
Interest expense during 1998 increased $13.6 million or 21.6% compared to 1997.
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, marketing and branch overhead expenses. Such costs are
necessary for continued growth and to maintain and increase market share of
available deposits.
The provision for loan and lease losses is determined by periodic
reviews of loan quality, current economic conditions, loss experience and loan
growth. Based on these factors, the provision for loan and lease losses was
$5,960,000 for both the year ended December 31, 1999 and the year ended December
31, 1998. The provision for loan and lease losses was $5,563,000 for 1997. The
allowance for loan and lease losses of $34.1 million at year-end 1999 and $30.8
million at year-end 1998 as a percentage of total loans was 2.2% for 1999 and
2.1% for 1998. Net loan chargeoffs of $2,656,000, $3,592,000, and $2,834,000
during 1999, 1998, and 1997, respectively, continue to be comparable with those
of the Company's peers.
The increase in other income in 1999 compared to 1998 was $4,617,000 or
24.7% as a result of increased other service charges and fees of $2,393,000,
increased trading revenue of $1,316,000, an activity that was discontinued by
the end of 1999, increased mortgage banking income of $1,033,000, increased
trust income of $742,000, increased bank owned life insurance income of
$666,000, and increased service charges on deposit accounts of $491,000. These
gains were partially offset by a decrease in net gains on sale of investment
securities of $1,873,000 and a decrease in equity in undistributed net earnings
of affiliates of $151,000. The increase in other income in 1998 compared to 1997
was $5,107,000 or 37.5% as a result of increased other service charges and fees
of $2,057,000, increased bank owned life insurance of $1,604,000, increased
trading revenue of $739,000, increased trust income of $526,000, increased
service charges on deposit accounts of $239,000, and increased net gains on sale
of investment securities of $129,000. Sales of
27
<PAGE>
investment securities in 1999 and 1998 totaled $45.7 million and $55.4 million,
respectively. "Total other expenses" increased $4,492,000 or 7.3% in 1999 when
compared to 1998. By category, the Company's "salaries, wages and employee
benefits" increased $3,980,000, "net premises and equipment" increased $777,000,
and "other operating" decreased $265,000. "Total other expenses" increased
$6,815,000 or 12.5% in 1998 when compared to 1997. By category, the Company's
"other operating" increase $3,227,000, "salaries, wages and employee benefits"
increased $2,868,000, "net premises and equipment" increased $720,000. For 1999,
1998, and 1997, there are no individual items of other operating expenses that
exceed one percent of the aggregate of total interest income and other income,
with the exception of advertising and marketing related expenses.
Income before income taxes increased in 1999 by $4,168,000 or 14.4%
compared to 1998 when income before income taxes decreased by $888,000 or 2.9%
compared to 1997. Income taxes decreased $323,000 in 1999 compared to 1998 while
income taxes decreased $2,259,000 compared to 1997. The decreased income taxes
are the result of higher levels of tax advantaged investments.
LIQUIDITY AND INTEREST RATE SENSITIVITY
---------------------------------------
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate balance between interest earning
assets and interest bearing liabilities.
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. Funding affecting short-term liquidity, including deposits,
repurchase agreements, federal funds purchased, and short-term borrowings
increased $153.8 million during 1999. Long-term borrowings decreased $25.5
million during 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.
28
<PAGE>
The following table shows separately the interest rate sensitivity of
each category of interest earning assets and interest bearing liabilities at
December 31, 1999:
<TABLE>
<CAPTION>
Repricing Periods
-----------------------------------------------------
Three
Within Months One Year
Three Through One Through Over
Months Year Five Years Five Years
------------- -------------- ------------- ------------
Assets (In thousands)
<S> <C> <C> <C> <C>
Interest bearing deposits at banks $4,039 $ - $ - $ -
Investment securities 234 58,056 158,396 299,341
Loans and leases(1) 448,633 227,063 524,161 356,547
Other assets - - - 185,962
------------- -------------- ------------- ------------
452,906 285,119 682,557 821,850
------------- -------------- ------------- ------------
Liabilities and equity
Non-interest bearing deposits 210,272 - - -
Interest bearing deposits(2) 441,661 374,715 178,490 388,116
Borrowed funds 222,985 - 92,500 120,188
Preferred securities - - - 40,250
Other liabilities - - - 25,559
Hedging instruments 100,000 (50,000) (50,000) -
Shareholders' equity - - - 147,696
------------- -------------- ------------- ------------
947,918 324,715 220,990 721.809
------------- -------------- ------------- ------------
Interest sensitivity gap (522,012) (39,596) 461,567 100,041
------------- -------------- ------------- ------------
Cumulative interest rate
sensitivity gap ($522,012) ($561,608) ($100,041) $ -
============= ============== ============= ============
<FN>
- ------------
(1) Adjustable rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due. Fixed-rate loans are included in the period in which they are
scheduled to be repaid and are adjusted to take into account estimated
prepayments based upon assumptions estimating the prepayments in the
interest rate environment prevailing during the fourth calendar quarter of
1999. 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, 29.3% of these
deposits are considered repriceable within three months and 70.7% 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 interest rate environment and would decrease in a rising
interest rate environment. An interest rate gap table does not, however, present
a complete picture of the impact of interest rate changes on net interest
income. First, changes in the general level of interest rates do not affect all
categories of assets and liabilities equally or simultaneously. Second, assets
and liabilities which can contractually reprice within the same period may not,
in fact, reprice at the same time or to the same extent. Third, the table
represents a one-day
29
<PAGE>
position; variations occur daily as the Company adjusts its interest sensitivity
throughout the year. Fourth, assumptions must be made to construct such a table.
For example, non-interest bearing deposits are assigned a repricing interval of
within three months, although history indicates a significant amount of these
deposits will not move into interest bearing categories regardless of the
general level of interest rates. Finally, the repricing distribution of interest
sensitive assets may not be indicative of the liquidity of those assets.
Gap analysis is a useful measurement of asset and liability management;
however, it is difficult to predict the effect of changing interest rates based
solely on this measure. Therefore, the Company supplements gap analysis with the
calculation of the Economic Value of Equity. This report forecasts changes in
the Company's market value of portfolio equity ("MVPE") under alternative
interest rate environments. The MVPE is defined as the net present value of the
Company's existing assets, liabilities, and off-balance sheet instruments. The
calculated estimates of change in MVPE at December 31, 1999 are as follows:
MVPE
Change In Interest Rate Amount % Change
- -------------------------- ------------ ---------------
(In thousands)
+300 Basis Points $180,434 (40)%
+200 Basis Points 218,745 (28)
+100 Basis Points 259,704 (14)
Flat Rate 301,716 -
- -100 Basis Points 340,134 13
- -200 Basis Points 367,696 22
- -300 Basis Points 387,258 28
Management believes that the assumptions utilized in evaluating the
vulnerability of the Company's earnings and capital to changes in interest rates
approximate actual experience; however, the interest rate sensitivity of the
Company's assets and liabilities as well as the estimated effect of changes in
interest rates on MVPE could vary substantially if different assumptions are
used or actual experience differs from the experience on which the assumptions
were based.
In the event the Company should experience a mismatch in its desired
gap ranges or an excessive decline in its MVPE subsequent to an immediate and
sustained change in interest rate, it has a number of options which it could
utilize to remedy such mismatch. The Company could restructure its investment
portfolio through the sale or purchase of securities with more favorable
repricing attributes. It could also emphasize loan products with appropriate
maturities or repricing attributes, or it could attract deposits or obtain
borrowings with desired maturities.
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 for
the Company.
1999 1998 1997
------------- ------------- -------------
CAPITAL PERFORMANCE
Return on average assets 1.26 1.17 1.28
Return on average equity 17.90 15.00 15.20
Earnings retained 51.00 55.70 58.70
30
<PAGE>
CAPITAL LEVELS
<TABLE>
<CAPTION>
Tier 1 Capital to Total Capital to
Tier 1 Capital to Risk-Weighted Risk-Weighted
Average Assets Ratio Assets Ratio Assets Ratio
---------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company 8.58% 8.77% 11.43% 12.21% 12.73% 13.51%
National Penn Bank 6.83% 6.80% 9.16% 9.52% 10.42% 10.78%
"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 December 31,
1999, 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%. At December
31, 1999, the Company 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.
The Company does not presently have any commitments for significant
capital expenditures. The Company is not under any agreement with regulatory
authorities nor is it aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material effect
on liquidity, capital resources, or operations of the Company.
In July 1999, The Company's Board of Directors approved the repurchase
of up to 850,000 shares of its common stock to be used for the Company's
dividend reinvestment, stock option, employee stock purchase plans, and other
stock-based corporate plans. The stock repurchase plan authorizes the Company to
make repurchases from time to time in open market or privately negotiated
transactions. At December 31, 1999, the Company repurchased a total of 289,874
shares at an aggregate cost of $7,104,148. A prior stock repurchase program
ended in June 1998.
ACQUISITION OF ELVERSON NATIONAL BANK
-------------------------------------
On January 4, 1999, the Company acquired Elverson National Bank
("Elverson") by its merger with and into National Penn Bank, the Company's
banking subsidiary. Under the terms of the merger, each outstanding share of
Elverson stock was converted into 1.54219 shares of the Company's common stock,
resulting in issuance of 4,012,642 shares of the Company's common stock.
Outstanding options for Elverson stock were converted into options for 61,048
shares of the Company's common stock. Share information has been restated for a
5% stock dividend paid December 22, 1999. This transaction was accounted for
under the pooling of interests method of accounting, and accordingly all
historical information for the Company has been restated to include Elverson
historical financial information as if the combining companies had been
consolidated for all periods presented herein.
The Company anticipates that the Elverson acquisition will be accretive
to the Company's earnings in 2000.
FUTURE OUTLOOK
--------------
In 2000, the Company anticipates opening four new branches, one in its
1ST Main Line Bank Division, one in Montgomery County, one in Berks County, and
one in Philadelphia.
In 1999, National Penn Mortgage Company was incorporated as a
subsidiary of National Penn Bank, the Company's banking subsidiary. National
Penn Mortgage Company is a mortgage banking company and will provide traditional
mortgage services and nonconforming residential mortgages. In 2000, the Company
anticipates incurring implementation costs associated with National Penn
Mortgage Company, but does not expect these costs to have a material effect on
net income.
31
<PAGE>
In 1999, National Penn Mortgage Company acquired RBO Funding, Inc. in
McClean Virginia. RBO Funding, Inc. is expected to enhance the residential
mortgage services of National Penn Mortgage Company, particularly in the
sub-prime lending market. The Company anticipates incurring integration costs
associated with the acquisition of RBO Funding, Inc., but does not anticipate
these costs to have a material effect on 2000 earnings.
1874 Financial Corp. was incorporated at the end of 1999 as a
subsidiary of National Penn Bank. 1874 Financial Corp. will specialize in making
sub-prime business loans to small and mid-sized companies. Initial costs
associated with this initiative are not expected to have a material effect on
net income for the year 2000.
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 and has not suffered any problems
since that date. 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.
FORWARD-LOOKING STATEMENTS
--------------------------
The Company has projected that net income will increase in 2000 over
1999 net income. The Company has also discussed its Year 2000 compliance effort,
branch locations, as well as, recent investments in new companies in this
report. These, and any other statements preceded by, followed by or that include
the words "believes," "expects," "anticipates," "estimates," or similar
expressions are forward-looking statements.
Risks and uncertainties could cause actual future results and
investments to differ materially from those contemplated in such forward-looking
statements. These risks and uncertainties include, but are not limited to, the
following: (a) loan growth and/or loan margins may be less than expected, due to
competitive pressures in the banking industry and/or changes in the interest
rate environment; (b) general economic conditions in the Company's market area
may be less favorable than expected, resulting in, among other things, a
deterioration in credit quality; (c) costs of the Company's planned training
initiatives, product development, branch expansion and new technology and
operating systems, may exceed expectations; (d) volatility in the Company's
market area due to recent mergers may have unanticipated consequences, such as
customer turnover; and (e) changes in the regulatory environment, securities
markets, general business conditions, and inflation may be adverse. These risks
and uncertainties are all difficult to predict, and most are beyond the control
of the Company's management.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. The
Company undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------
Information with respect to quantitative and qualitative disclosures
about market risk is included in the information under Management's Discussion
and Analysis at Item 7 hereof.
32
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
- ----------------------------------------------------
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
-----------------------------------------------
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Cash and due from banks $ 62,953 $ 55,024
Interest bearing deposits in banks 4,039 10,777
----------- -----------
Total cash and cash equivalents 66,992 65,801
Trading account securities -- 21,589
Investment securities available for sale 516,027 523,041
Loans and leases, less allowance for loan and lease losses of $34,139
and $30,835 in 1999 and 1998, respectively 1,536,404 1,404,972
Premises and equipment, net 23,289 23,607
Accrued interest receivable 13,855 14,592
Bank owned life insurance 48,494 41,604
Investments, at equity 2,147 4,728
Other assets 35,224 21,314
----------- -----------
Total assets $ 2,242,432 $ 2,121,248
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing $ 210,272 $ 222,816
Interest-bearing 1,382,982 1,250,486
----------- -----------
Total deposits 1,593,254 1,473,302
Securities sold under repurchase agreements and federal funds purchased 200,148 159,586
Short-term borrowings 12,448 19,132
Long-term borrowings 223,077 248,627
Guaranteed preferred beneficial interests in Company's subordinated debentures 40,250 40,250
Accrued interest payable and other liabilities 25,559 21,577
----------- -----------
Total liabilities 2,094,736 1,962,474
----------- -----------
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 1999 - 17,736,699; 1998 - 17,839,103,
net of shares in Treasury: 1999 - 108,176; 1998 - 0 135,526 114,294
Retained earnings 26,739 34,927
Accumulated other comprehensive (loss) income (11,616) 9,553
Treasury stock, at cost (2,953) --
----------- -----------
Total shareholders' equity 147,696 158,774
----------- -----------
Total liabilities and shareholders' equity $ 2,242,432 $ 2,121,248
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 131,861 $ 125,152 $ 119,742
Investment securities
Taxable 19,961 17,598 15,104
Tax-exempt 11,524 9,669 4,008
Federal funds sold 489 267 163
Trading assets 196 851 --
Deposits in banks 239 544 249
--------- --------- ---------
Total interest income 164,270 154,081 139,266
--------- --------- ---------
INTEREST EXPENSE
Deposits 56,537 53,518 48,658
Securities sold under repurchase agreements, and federal funds purchased 7,165 6,108 5,228
Short-term borrowings 272 553 285
Long-term borrowings 18,779 16,428 8,838
--------- --------- ---------
Total interest expense 82,753 76,607 63,009
--------- --------- ---------
Net interest income 81,517 77,474 76,257
Provision for loan and lease losses 5,960 5,960 5,563
--------- --------- ---------
Net interest income after provision for loan and lease losses 75,557 71,514 70,694
--------- --------- ---------
OTHER INCOME
Trust income 4,006 3,264 2,738
Service charges on deposit accounts 5,757 5,266 5,027
Bank owned life insurance income 2,270 1,604 --
Other service charges and fees 8,104 5,711 3,654
Net gains on sale of investment securities 15 1,888 1,759
Mortgage banking income (loss) 953 (80) 14
Equity in undistributed net earnings of affiliates 178 329 422
Trading revenue 2,055 739 --
--------- --------- ---------
Total other income 23,338 18,721 13,614
--------- --------- ---------
OTHER EXPENSES
Salaries, wages and employee benefits 37,247 33,267 30,399
Net premises and equipment 10,404 9,627 8,907
Other operating 18,073 18,338 15,111
--------- --------- ---------
Total other expenses 65,724 61,232 54,417
--------- --------- ---------
Income before income taxes 33,171 29,003 29,891
Income taxes 5,762 6,085 8,344
--------- --------- ---------
Net income $ 27,409 $ 22,918 $ 21,547
========= ========= =========
PER SHARE OF COMMON STOCK
Basic earnings $ 1.54 $ 1.28 $ 1.20
Diluted earnings $ 1.52 $ 1.26 $ 1.18
Dividends paid in cash $ 0.75 $ 0.57 $ 0.49
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Retained comprehensive Treasury Comprehensive
Shares Par value capital earnings (loss) income stock income
------ --------- ------- -------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 17,107,631 $ 23,133 $ 97,762 $ 12,985 $ 4,465 $ (826)
Net income -- -- -- 21,547 -- -- $ 21,547
Cash dividends declared -- -- -- (9,200) -- --
Shares issued under stock-based
plans 46,116 2,487 939 (2,901) -- --
Other comprehensive income, net
of reclassification adjustment
and taxes -- -- -- -- 3,183 -- 3,183
---------
Total comprehensive income $ 24,730
=========
Effect of treasury stock transactions (73,419) -- (2,044) -- -- (2,602)
---------- -------- ------ -------- -------- -------
Balance at December 31, 1997 17,080,328 25,620 96,657 22,431 7,648 (3,428)
Net income -- -- -- 22,918 -- -- $ 22,918
Cash dividends declared -- -- -- (10,422) -- --
Shares issued under stock-based
plans 42,946 855 -- -- -- --
Other comprehensive income, net
of reclassification adjustment
and taxes -- -- -- -- 1,905 -- 1,905
---------
Total comprehensive income -- -- -- -- -- -- $ 24,823
=========
Conversion to no par value stock -- 95,490 (95,107) -- -- --
Effect of treasury stock transactions (133,652) (7,671) (1,550) -- -- 3,428
---------- -------- ------ -------- -------- -------
Balance at December 31, 1998 16,989,622 114,294 -- 34,927 9,553 --
Net income -- -- -- 27,409 -- -- $ 27,409
Cash dividends declared -- -- -- (14,478) -- --
5% stock dividend 850,577 21,119 -- (21,119) -- --
Shares issued under stock-based
plans 4,676 693 -- -- -- --
Other comprehensive (loss), net
of reclassification adjustment
and taxes -- -- -- -- (21,169) -- (21,169)
---------
Total comprehensive income -- -- -- -- -- -- $ 6,240
=========
Effect of treasury stock transactions (108,176) (580) -- -- -- (2,953)
---------- -------- ------ -------- -------- -------
Balance at December 31, 1999 17,736,699 $135,526 $ -- $ 26,739 $(11,616) $(2,953)
========== ======== ====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
35
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 27,409 $ 22,918 $ 21,547
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan and lease losses 5,960 5,960 5,563
Depreciation and amortization 4,655 4,283 4,018
Trading account securities 21,589 (21,589) --
Deferred income tax benefit (12,476) (609) (1,755)
Amortization of premiums and discounts on investment
securities, net 1,875 1,040 61
Investment securities gain, net (15) (1,888) (1,759)
Mortgage loans originated for resale (50,437) (70,586) (39,061)
Sale of mortgage loans originated for resale 50,870 71,195 39,468
Changes in assets and liabilities
(Increase) decrease in accrued interest receivable 737 (3,319) (2,468)
(Decrease) increase in accrued interest payable 3,018 185 2,595
Decrease (increase) in other assets (2,547) 122 (826)
Increase (decrease) in other liabilities (93) 2,888 (720)
--------- --------- ---------
Net cash provided by operating activities 50,545 10,600 26,663
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in term funds sold -- (15,000) --
Proceeds from sales of investment securities available for sale 45,661 55,435 16,238
Proceeds from maturities of investment securities held to maturity -- 7,206 6,712
Proceeds from maturities of investment securities available for sale 121,830 51,243 27,125
Purchase of investment securities available for sale (180,925) (264,219) (136,921)
Net increase in loans (137,392) (118,331) (86,060)
Proceeds from sales of foreclosed real estate -- 28 214
Purchases of premises and equipment (3,657) (2,101) (4,370)
Purchase of bank-owned life insurance (6,890) (21,604) (20,000)
--------- --------- ---------
Net cash used in investing activities (161,373) (307,343) (197,062)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in interest and non-interest
bearing demand deposits and savings accounts 20,018 126,975 51,759
Net (decrease) increase in certificates of deposit 99,934 (7,196) 110,788
Net increase (decrease) in securities sold under
agreements to repurchase and federal funds purchased 40,562 88,398 (90,659)
Net (decrease) increase in short-term borrowings (6,684) 12,647 (428)
Proceeds from long-term borrowings 50,100 105,000 130,350
Repayments of long-term borrowings (75,650) (11,982) (51,000)
Issuance of subordinated debentures -- -- 40,250
Issuance of common stock under dividend reinvestment and stock option plan 693 1,238 525
Effect of treasury stock transactions (3,533) (5,793) (4,646)
Cash dividends (13,421) (10,151) (8,894)
--------- --------- ---------
Net cash provided by financing activities 112,019 299,136 178,045
--------- --------- ---------
Net increase in cash and cash equivalents 1,191 2,393 7,646
Cash and cash equivalents at beginning of year 65,801 63,408 55,762
--------- --------- ---------
Cash and cash equivalents at end of year $ 66,992 $ 65,801 $ 63,408
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by National Penn Bancshares, Inc. (the
Company), and its wholly owned subsidiaries, National Penn Bank (the Bank),
Investors Trust Company (ITC), National Penn Investment Company, National
Penn Life Insurance Company, and Penn Securities, Inc., conform with
generally accepted accounting principles and with general practice within
the banking industry.
Penn Securities, Inc., is a registered broker dealer with the
Securities and Exchange Commission and is a member of the National
Association of Securities Dealers. Operations commenced in November 1998.
In May 1999, the Bank formed National Penn Mortgage Company. National
Penn Mortgage Company is a mortgage banking company and is engaged in the
activity of extending credit and servicing loans. In November 1999, National
Penn Mortgage Company acquired RBO Funding, Inc. in McClean, Virginia. RBO
Funding, Inc. enhances the Company's lending services in the residential
mortgage arena, particularly in the sub-prime market.
The Company, primarily through its Bank subsidiary, has been serving
residents and businesses of southeastern Pennsylvania since 1874. The Bank,
which has in excess of 60 branch locations, is a locally managed community
bank providing commercial banking products, primarily loans and deposits.
Trust services are provided through ITC. The Bank, ITC and Penn Securities
encounter vigorous competition for market share in the communities they
serve from bank holding companies, other community banks, thrift
institutions and other non-bank financial organizations, such as mutual fund
companies, insurance companies and brokerage companies.
The Company, the Bank, ITC and Penn Securities, Inc. are subject to
regulations of certain state and federal agencies. These regulatory agencies
periodically examine the Company and its subsidiaries for adherence to laws
and regulations. As a consequence, the cost of doing business may be
affected.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries on a consolidated basis.
Investments owned between 20% and 50% are accounted for using the equity
method. All material intercompany balances have been eliminated. As a result
of the merger with Elverson National Bank as more fully described in note 2
below, the financial statements have been restated to reflect the impact on
Elverson Bank.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the balance sheets, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The principal estimate that is susceptible to significant change in the
near term relates to the allowance for loan and lease losses. The evaluation
of the adequacy of the allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size of the different
loan portfolios, and takes into consideration current economic and market
conditions, the capability of specific borrowers to pay specific loan
obligations, as well as current loan collateral values. However, actual
losses on specific loans, which also are encompassed in the analysis, may
vary from estimated losses.
37
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In 1998, the Company adopted Statement of Financial Accounting
Statements (SFAS) No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 redefines how operating segments are
determined and requires disclosures of certain financial and descriptive
information about the Company's operating segments. Management has
determined the Company operates in one business segment, community banking.
INVESTMENT SECURITIES
Investments in securities are classified in one of two categories:
available for sale and trading. Investment securities which are held for
indefinite periods of time, which management intends to use as part of its
asset/liability strategy, or which may be sold in response to changes in
interest rates, changes in prepayment risk, increases in capital
requirements, or other similar factors are classified as available for sale
and are carried at fair value. Net unrealized gains and losses for such
securities, net of tax, are required to be recognized as a separate
component of shareholders' equity and excluded from determination of net
income. Gains or losses on disposition are based on the net proceeds and
cost of the securities sold, adjusted for amortization of premiums and
accretion of discounts, using the specific identification method. Debt and
equity securities held for resale are classified as trading account
securities and reported at fair value. Realized and unrealized gains or
losses are recorded in non-interest income as trading revenue.
The Company entered into interest rate swap and floor agreements to
manage its sensitivity to interest rate risk. For interest rate risk
management swap and floors agreements, interest income or interest expense
is accrued over the terms of the agreements and transaction fees are
deferred and amortized to interest income or expense over the terms of the
agreements. The fair value of interest rate swap and floor agreements used
for interest rate risk management are not recognized in the consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued 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. Subsequent to FAS No. 133, the
FASB issued SFAS No. 107 which amended the effective date of SFAS No. 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 as amended by SFAS No. 137 is not anticipated to
have a material impact on the Company's consolidated financial position or
results of operations.
38
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
LOANS AND LEASES, AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are stated at the amount
of unpaid principal, reduced by unearned income and an allowance for loan
and lease losses. Interest on loans is calculated based upon the principal
amount outstanding. The allowance for loan and lease losses is established
through a provision for loan and lease losses charged as an expense. Loans
and leases are charged against the allowance for loan and lease losses when
management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans and leases that may become
uncollectible based on evaluations of the collectibility of loans and
leases, and prior loan and lease loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
and lease portfolio, overall portfolio quality, review of specific problem
loans and leases, and current economic conditions that may affect the
borrower's ability to pay. Accrual of interest is stopped on a loan or lease
when management believes, after considering economic and business conditions
and collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful.
The Company accounts for its impaired loans in accordance with SFAS No.
114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS
No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures. This standard requires that a creditor measure
impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. Regardless of the measurement method, a creditor must measure
impairment based on the fair value of the collateral when the creditor
determines that foreclosure is probable. SFAS No. 114 excludes such
homogeneous loans as consumer and mortgage.
The Company accounts for its transfers and servicing financial assets in
accordance with SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, as amended by SFAS No.
127, Deferral of the Effective Date of Certain Provisions of SFAS No. 125.
This standard provides accounting guidance on transfers of financial assets,
servicing of financial assets, and extinguishment of liabilities.
PREMISES AND EQUIPMENT
Buildings, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization computed by the straight-line
method over the estimated useful lives of the assets.
CORE DEPOSIT INTANGIBLES
The Company has recognized approximately $776,000 of core deposit
intangibles, as a result of a branch acquisition in 1997, which are being
amortized on a straight-line basis over 15 years.
OTHER ASSETS
Financing costs related to the issuance of junior subordinated debentures
are being amortized over the life of the instruments and are included in
other assets.
39
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
PENSION PLAN
The Company follows the SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which revises employers'
disclosures about pension and other postretirement benefit plans.
Net pension expense consists of service cost, interest cost, return on
pension assets and amortization of unrecognized initial net assets. The
Company accrues pension costs as incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting for income taxes specified by SFAS No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates that will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The principal types of differences
between assets and liabilities for financial statement and tax return
purposes are allowance for loan and lease losses, deferred loan fees,
deferred compensation and securities available for sale.
EQUITY TRANSACTIONS
The Company accounts for stock options under SFAS No. 123, Accounting
for Stock-Based Compensation, which contains a fair value-based method for
valuing stock-based compensation that entities may use, which measures
compensation cost at the grant date based on the fair value of the award.
Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, the standard permits entities to continue
accounting for employee stock options and similar equity instruments under
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to
Employees. Entities that continue to account for stock options using APB
Opinion 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
in SFAS No. 123 had been applied. The Company's employee stock option plans
are accounted for under APB Opinion 25.
STATEMENTS OF CASH FLOWS
The Company considers cash and due from banks, interest bearing
deposits in banks and federal funds sold as cash equivalents for the
purposes of reporting cash flows. Cash paid for interest and taxes is as
follows (in thousands):
Year ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Interest $ 79,832 $ 74,918 $ 60,594
Taxes 7,323 8,288 10,713
LOAN FEES AND RELATED COSTS
The Company defers and amortizes certain origination and
commitment fees, and certain direct loan origination costs over the
contractual life of the related loans. This results in an adjustment of the
related loan's yield.
40
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
PROPERTY ACQUIRED THROUGH LOAN FORECLOSURE ACTIONS
Foreclosed property is recorded at the lower of cost or estimated
fair market value less costs of disposal. When property is acquired, the
excess, if any, of the loan balance over fair market value is charged to the
allowance for possible loan losses. Periodically thereafter, the asset is
reviewed for subsequent declines in the estimated fair market value.
Subsequent declines, if any, and holding costs, as well as gains and losses
on subsequent sale, are included in the consolidated statements of income.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted
average number of common shares outstanding during the year. All weighted
average, actual shares or per share information in the financial statements
have been adjusted retroactively for the effect of stock dividends and
splits.
The Company calculates earnings per share under the provisions of
SFAS No. 128, Earnings Per Share, which eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings
per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders
by the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
and converted into common stock.
ADVERTISING COSTS
It is the Company's policy to expense advertising costs in the period
in which they are incurred. Advertising expense for the years ended December
31, 1999, 1998 and 1997, was approximately $2,362,000, $2,707,000, and
$1,784,000, respectively.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This new standard establishes standards for
reporting comprehensive income, which includes net income as well as certain
other items, which results in a change to equity during the period. These
financial statements have been reclassified to reflect the provisions of
SFAS No. 130.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------- ---------------------------- -----------------------------
Before Tax Net of Before Tax Net of Before Tax Net of
tax (expense) tax tax (expense) tax tax (expense) tax
amount benefit amount amount benefit amount amount benefit amount
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses)
on securities
Unrealized holding (losses)
gains arising
during period $(32,540) $ 11,381 $(21,159) $ 4,819 $ (1,687) $ 3,132 $ 6,656 $ (2,330) $ 4,326
Less reclassification
adjustment for gains
realized in net income 15 (5) 10 1,888 (661) 1,227 1,759 (616) 1,143
-------- -------- -------- -------- -------- -------- -------- -------- --------
Other comprehensive
(loss) income, net $(32,555) $ 11,386 $(21,169) $ 2,931 $ (1,026) $ 1,905 $ 4,897 $ (1,714) $ 3,183
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
41
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
2. ACQUISITION
On February 14, 2000, the Company entered into a definitive agreement
to acquire Panasia Bank (Panasia). Consummation of the merger is conditional
upon regulatory and shareholder approval. Under terms of the agreement, each
share, including outstanding options, of Panasia will be purchased for $29
per share. As of December 31, 1999, there were 664,783 shares of Panasia
common stock issued and outstanding and 39,000 options issued and
outstanding. This transaction is anticipated to be accounted for under the
purchase method of accounting.
On January 4, 1999, the Company, through the Bank, completed a merger
with Elverson National Bank (Elverson). Under the terms of the merger, each
share of Elverson was converted into 1.54219 shares of the Company's common
stock, resulting in an issuance of 4,012,642 shares of the Company's common
stock. In addition, outstanding stock options to purchase Elverson common
stock were converted into stock options to purchase 61,048 shares of the
Company's common stock, with an exercise price of $12.36 to $14.99 per
share. This transaction was accounted for under the pooling of interests
method of accounting.
3. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of
the Company's investment securities at December 31, 1999 and 1998, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agencies $ 103,092 $ 716 $ 2,084 $ 101,724
State and municipal bonds 236,768 293 15,287 221,774
Mortgage-backed securities 136,684 311 3,068 133,927
Marketable equity securities and other 57,354 2,677 1,429 58,602
----------- ------------ ------------ -----------
Totals $ 533,898 $ 3,997 $ 21,868 $ 516,027
========== ============ =========== ==========
December 31, 1998
----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
----------- ------------ ------------ -----------
U.S. Treasury and U.S. Government
agencies $ 105,537 $ 3,625$ 73 $ 109,089
State and municipal bonds 230,260 9,050 240 239,070
Mortgage-backed securities 126,329 1,528 488 127,369
Marketable equity securities and other 46,230 3,452 2,169 47,513
----------- ------------ ------------ -----------
Totals $ 508,356 $ 17,655 $ 2,970 $ 523,041
========== =========== ============ ==========
</TABLE>
42
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. INVESTMENT SECURITIES - Continued
The amortized cost and fair value of investment securities available for
sale, by contractual maturity, at December 31, 1999 (in thousands), are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Fair
cost value
----------- -----------
Due in one year or less $ 6,785 $ 6,794
Due after one through five years 72,479 73,008
Due after five through ten years 75,358 73,049
Due after ten years 321,922 304,574
Marketable equity securities and other 57,354 58,602
----------- -----------
$ 533,898 $ 516,027
=========== ===========
Proceeds from the sales of investment securities during 1999, 1998 and
1997, were $45,661,000, $55,435,000 and $16,238,000, respectively. Gross
gains realized on those sales were $324,000, $1,890,000 and $1,788,000 in
1999, 1998 and 1997, respectively, gross losses were $339,000 in 1999 and
losses were not material in 1998 and 1997.
As of December 31, 1999 and 1998, investment securities with a book
value of $270,604,000 and $168,729,000, respectively, were pledged to secure
public deposits and for other purposes as provided by law.
As of December 31, 1999 and 1998, the Company did not have any investment
securities of any one issuer where the carrying value exceeded 10% of
shareholders' equity.
4. LOANS AND LEASES
Major classifications of loans and leases are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Commercial and industrial loans and leases $ 252,992 $ 220,192
Real estate loans
Construction and land development 136,105 84,520
Residential 649,692 678,889
Other 472,447 404,865
Loans to individuals 59,307 47,341
------------ ------------
1,570,543 1,435,807
Allowance for loan and lease losses (34,139) (30,835)
------------ ------------
Total loans and leases, net $ 1,536,404 $ 1,404,972
============ ============
</TABLE>
43
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
4. LOANS AND LEASES - Continued
Loans and leases on which the accrual of interest has been discontinued
or reduced amounted to approximately $11,055,000 and $11,581,000 at December
31, 1999 and 1998, respectively. If interest on these loans had been
accrued, interest income would have increased by approximately $420,000 and
$651,000 for 1999 and 1998, respectively. Loan balances past due 90 days or
more and still accruing interest, but which management expects will
eventually be paid in full, amounted to $2,673,000 and $1,839,000 at
December 31, 1999 and 1998, respectively.
The balance of impaired loans was $8,823,000 at December 31, 1999. The
Company has identified a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of
the loan agreement. The impaired loan balance included $8,823,000 of
non-accrual loans. The allowance for loan loss associated with the
$8,823,000 of impaired loans was $2,437,000 at December 31, 1999. The
average impaired loan balance was $8,854,000 during 1999 and the income
recognized on impaired loans during 1999 was $439,000. 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.
The balance of impaired loans was $8,157,000 at December 31, 1998. The
impaired loan balance included $8,157,000 of non-accrual loans. The
allowance for loan loss associated with the $8,157,000 of impaired loans was
$1,359,000 at December 31, 1998. The average impaired loan balance was
$6,828,000 and $4,816,000 in 1998 and 1997, respectively, and the income
recognized on impaired loans during 1998 and 1997 was $289,000 and $477,000,
respectively.
Changes in the allowance for loan and lease losses were as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year $ 30,835 $ 28,467 $ 25,738
Provision charged to operations 5,960 5,960 5,563
Loans and leases charged off (5,157) (5,201) (3,881)
Recoveries 2,501 1,609 1,047
------------ ------------ ------------
Balance, end of year $ 34,139 $ 30,835 $ 28,467
============ ============ ============
</TABLE>
44
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
5. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
Estimated ------------------------------
useful lives 1999 1998
--------------- ------------ ------------
<S> <C> <C> <C>
Land Indefinite $ 2,766 $ 3,025
Buildings 5 to 40 years 16,178 16,115
Equipment 3 to 10 years 25,115 21,847
Leasehold improvements 2 to 40 years 4,597 3,919
------------ ------------
48,656 44,906
Accumulated depreciation and amortization (25,367) (21,299)
------------ ------------
$ 23,289 $ 23,607
============ ============
</TABLE>
Depreciation and amortization expense amounted to $3,976,000,
$3,550,000 and $3,340,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
6. DEPOSITS
The aggregate amount of jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $195,939,000 and
$145,049,000 in 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of
deposit are as follows (in thousands):
2000 $ 625,025
2001 110,739
2002 34,548
2003 21,025
2004 14,632
Thereafter 4,159
-----------
$ 810,128
===========
7. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to
repurchase generally mature within 30 days from the date of the
transactions. Short-term borrowings consist of Treasury Tax and Loan Note
Options and various other borrowings which generally have maturities of less
than one year. The details of these categories are presented below (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Securities sold under repurchase agreements
and federal funds purchased
Balance at year-end $ 200,148 $ 159,586 $ 86,188
Average during the year 158,669 133,380 106,131
Maximum month-end balance 213,735 191,307 168,508
Weighted average rate during the year 4.52% 4.76% 5.15%
Rate at December 31 4.30% 4.37% 5.58%
</TABLE>
45
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. SHORT-TERM BORROWINGS - Continued
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Short-term borrowings
Balance at year-end $ 12,448 $ 19,132 $ 6,109
Average during the year 5,608 9,551 4,957
Maximum month-end balance 12,448 24,930 10,184
Weighted average rate during the year 4.85% 5.70% 5.67%
Rate at December 31 4.04% 5.26% 5.27%
</TABLE>
The weighted average rates paid in aggregate on these borrowed funds
for 1999, 1998 and 1997 were 4.53%, 4.82% and 5.17%, respectively.
8. LONG-TERM BORROWINGS
FHLB ADVANCES
At December 31, 1999, advances from the Federal Home Loan Bank (FHLB)
totaling $223,077,000 will mature within one to ten years and are reported
as long-term borrowings. The advances are collateralized by FHLB stock and
certain first mortgage loans and mortgage-backed securities. These advances
had a weighted average interest rate of 5.61%. Unused lines of credit at the
FHLB were $195,312,000 and $218,585,000 at December 31, 1999 and 1998,
respectively.
Outstanding borrowings mature as follows (in thousands):
2000 $ 35,000
2001 2,500
2002 65,000
2003 -
2004 -
Thereafter 120,577
----------
$ 223,077
==========
SUBORDINATED DEBENTURES
In 1997, the Company issued $41,500,000 of 9% junior subordinated
deferrable interest debentures (the debentures) to NPB Capital Trust (the
Trust), a Delaware business trust, in which the Company owns all of the
common equity. The debentures are the sole asset of the Trust. The Trust
issued $40,250,000 of preferred securities to investors. The Company's
obligations under the debentures and related documents, taken together,
constitute a fully and unconditional guarantee by the Company of the Trust's
obligations under the preferred securities. The preferred securities are
redeemable by the Company on or after June 20, 2002, or earlier in the event
the deduction of related interest for federal income taxes is prohibited,
treatment as Tier 1 capital is no longer permitted, or certain other
contingencies arise. The preferred securities must be redeemed upon maturity
of the debentures in 2027.
46
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. PENSION PLANS
The Company has a non-contributory defined benefit pension plan
covering substantially all employees. The Company-sponsored pension plan
provides retirement benefits under pension trust agreements and under
contracts with insurance companies. The benefits are based on years of
service and the employee's compensation during the highest five consecutive
years during the last 10 years of employment. The Company's policy is to
fund pension costs allowable for income tax purposes.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 9,945 $ 8,778
Service cost 812 724
Interest cost 639 587
Actual (gain) loss 146 (162)
Benefits paid (297) (245)
Effect of change in assumptions (996) 263
-------- --------
Benefits obligation at end of year 10,249 9,945
-------- --------
Change in plan assets
Fair value of plan assets at beginning of year 10,605 9,360
Actual return on plan assets 1,647 705
Employer contribution 880 785
Benefits paid (297) (245)
-------- --------
Fair value of plan assets at end of year 12,835 10,605
-------- --------
Funded status 2,586 660
Unrecognized net actuarial gain (1,840) (212)
Unrecognized prior service cost 182 248
-------- --------
Prepaid benefit cost $ 928 $ 696
======== ========
</TABLE>
Net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost $ 812 $ 724 $ 574
Interest cost on projected benefit obligation 639 587 512
Actual return on plan assets (1,647) (705) (1,542)
Net amortization and deferral 845 3 955
------- ------- -------
Net periodic pension cost $ 649 $ 609 $ 499
======= ======= =======
</TABLE>
47
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. PENSION PLANS - Continued
The assumed discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 6.75% and 4.50%, respectively, in 1999; 6.63% and
4.63%, respectively, in 1998; and 6.75% and 4.75%, respectively, in 1997.
The expected long-term rate of return on assets was 8.25% for 1999, 1998 and
1997.
The Company has a capital accumulation and salary reduction plan under
Section 401(k) of the Internal Revenue Code of 1986, as amended. Under the
plan, all employees are eligible to contribute from 3% to a maximum of 15%
of their annual salary, with the Company matching 50% of any contribution
between 3% and 7%. Matching contributions to the plan were $594,000,
$422,000 and $441,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
10. INCOME TAXES
The components of the income tax expense included in the consolidated
statements of income are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income tax expense
Current $ 6,321 $ 5,906 $ 7,755
Deferred federal benefit (1,090) (457) (752)
------- ------- -------
5,231 5,449 7,003
Additional paid-in capital from benefit
of stock options exercised 531 636 1,341
------- ------- -------
Applicable income tax expense $ 5,762 $ 6,085 $ 8,344
======= ======= =======
</TABLE>
The differences between applicable income tax expense and the amount
computed by applying the statutory federal income tax rate of 35% are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed tax expense at statutory rate $ 11,610 $ 10,152 $ 10,419
Decrease in taxes resulting from
Tax-exempt loan and investment income (5,388) (4,027) (1,787)
Other, net (460) (40) (288)
-------- -------- --------
Applicable income tax expense $ 5,762 $ 6,085 $ 8,344
======== ======== ========
</TABLE>
48
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
10. INCOME TAXES - Continued
Deferred tax assets and liabilities consist of the following (in
thousands):
1999 1998
------- -------
Deferred tax assets
Deferred loan fees $ 373 $ 491
Allowance for loan and lease loss 11,158 10,002
Deferred compensation 853 783
Loan sales valuation 54 120
Investment securities available for sale 6,254 --
------- -------
18,692 11,396
------- -------
Deferred tax liabilities
Pension 475 315
Partnership investments 326 273
Mark-to-market accounting -- 261
Investment securities available for sale -- 5,132
Rehab credit adjustment 44 44
------- -------
845 6,025
------- -------
Net deferred tax asset $17,847 $ 5,371
======= =======
11. SHAREHOLDERS' EQUITY
On October 27, 1999, the Company declared a 5% stock dividend to
shareholders of record on December 6, 1999, and payable on December 22,
1999.
On July 28, 1999, the Company approved a stock repurchase plan of 850,000
shares of its common stock. Repurchases can be from time to time and will be
used for general corporate purposes including the Company's dividend
reinvestment plan, stock options, and other stock based benefit plans. No
time limit has been set for the completion of this program. At December 31,
1999, the Company has repurchased 289,874 shares at a cost of $7,000,000.
On June 24, 1998, the Company declared a 5-for-4 stock split on its
common stock to shareholders of record on July 15, 1998, and payable on July
31, 1998, and amended its Articles of Incorporation whereby the number of
authorized shares was increased from 50,000,000 to 62,500,000, both with no
par value.
In April 1998, the Company amended its Articles of Incorporation whereby
the number of authorized common shares was increased from 26,666,667 shares
with a par value of $1.875 to 50,000,000 shares with no par value. The
additional paid-in capital account has been combined with common stock as
presented in the consolidated statement of changes in shareholders' equity
and comprehensive income.
In August 1997, the Company amended its Articles of Incorporation
whereby the number of authorized common shares was increased from 20,000,000
shares with a par value of $2.50 to 26,666,667 shares with a par value of
$1.875. In conjunction with this amendment, the Company declared a 4-for-3
stock split where 4 common shares of $1.875 par value stock were exchanged
for 3 common shares of $2.50 par value stock.
49
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
12. SHAREHOLDER RIGHTS PLAN
The Company adopted a Shareholder Rights Plan (the Rights Plan) in 1989
to protect shareholders from attempts to acquire control of the Company at
an inadequate price. Under the Rights Plan, the Company distributed a
dividend of one right to purchase a unit of preferred stock on each
outstanding common share of the Company. The rights are not currently
exercisable or transferable, and no separate certificates evidencing such
rights will be distributed, unless certain events occur. The rights were to
expire on August 22, 1999. On August 21, 1999, the Plan was amended to
extend the expiration date to August 22, 2009.
After the rights become exercisable, under certain circumstances, the
rights (other than rights held by a 19.9% beneficial owner or an "adverse
person") will entitle the holders to purchase either the Company's common
shares or the common shares of the potential acquirer at a substantially
reduced price.
The Company is generally entitled to redeem the rights at $0.001 per
right at any time until the 10th business day following a public
announcement that a 19.9% position has been acquired. Rights are not
redeemable following an "adverse person" determination.
The Rights Plan was not adopted in response to any specific effort to
acquire control of the Company. The issuance of rights had no dilutive
effect, did not affect the Company's reported earnings per share, and was
not taxable to the Company or its shareholders.
13. EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS
No. 128 is as follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Year ended December 31, 1999
-----------------------------------
Income Shares Per share
(numerator) (denominator) amount
----------- ------------ -------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders $27,409 17,792 $ 1.54
Effect of dilutive securities
Options -- 283 (0.02)
------- ------- --------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $27,409 18,075 $ 1.52
======= ======= ========
</TABLE>
Options to purchase 775,378 shares of common stock at $24.94 to $29.52
per share were outstanding during 1999. They were not included in the
computation of diluted earnings per share because the option exercise price
was greater than the average market price.
50
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
13. EARNINGS PER SHARE - Continued
<TABLE>
<CAPTION>
Year ended December 31, 1998
-----------------------------------------
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- -------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders $22,918 17,837 $ 1.28
Effect of dilutive securities
Options -- 361 (0.02)
------- ------- --------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $22,918 18,198 $ 1.26
======= ======= ========
</TABLE>
Options to purchase 240,260 shares of common stock at $29.52 per share
were outstanding during 1998. They were not included in the computation of
diluted earnings per share because the option exercise price was greater
than the average market price.
<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------------------
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- -------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders $21,547 17,971 $ 1.20
Effect of dilutive securities
Options -- 306 (0.02)
------- ------- --------
Diluted earnings per share
Net income available to common stockholders
plus assumed conversions $21,547 18,277 $ 1.18
======= ======= ========
</TABLE>
Options to purchase 249,395 shares of common stock at $24.50 per share
were outstanding during 1997. They were not included in the computation of
diluted earnings per share because the option exercise price was greater
than the average market price.
51
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENT LIABILITIES
LEASE COMMITMENTS
Future minimum payments under non-cancellable operating leases are due
as follows (in thousands):
Year ending December 31,
2000 $ 1,873
2001 1,445
2002 1,212
2003 897
2004 536
Thereafter 1,157
----------
$ 7,120
==========
The total rental expense was approximately $2,706,000, $2,028,000 and
$2,016,000 in 1999, 1998 and 1997, respectively.
OTHER
In the normal course of business, the Company, the Bank and ITC have been
named as defendants in several lawsuits. Although the ultimate outcome of
these suits cannot be ascertained at this time, it is the opinion of
management that the resolution of such suits will not have a material
adverse effect on the financial position or results of operations of the
Company.
15. STOCK OPTIONS
The Company has an employee stock option plan for certain key
employees accounted for under APB Opinion 25 and related interpretations. A
total of 2,346,698 shares of common stock were made available for options
granted through February 24, 1997. The options granted under this plan are
subject to a vesting schedule commencing at two years and expire ten years
and one month from the date of issue. There are 758,990 outstanding options
at December 31, 1999.
The Company maintains an Officers' and Key Employees' Stock Compensation
Plan as a replacement for the Stock Option Plan upon expiration of its
10-year term. A total of 1,312,500 shares of common stock have been made
available for options or restricted stock to be granted through December 17,
2006. The options granted under this plan will vest over a five-year period,
in 20% increments on each successive anniversary of the date of grant. There
are 935,645 outstanding options at December 31, 1999.
In addition, the Company has a non-employee director stock option plan.
Under this plan, a total of 289,404 shares of common stock have been made
available for options to be granted through January 3, 2004. The options
granted under this plan fully vest after two years and expire ten years from
the date of issue. There are 81,015 outstanding options at December 31,
1999.
52
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
15. STOCK OPTIONS - Continued
Under all plans, the option price per share is equivalent to 100% of
the fair market value on the date the options were granted as determined
pursuant to the plan. Accordingly, no compensation cost has been recognized
for the plans. The number of shares available for granting totaled 940,872
at December 31, 1998 and 685,990 at December 31, 1999.
Had compensation cost for the plans been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS
No. 123, the Company's net income and earnings per share of common stock
would have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income As reported $ 27,409 $ 22,918 $ 21,547
Pro forma 26,323 21,804 21,162
Earnings per share of common stock - basic As reported 1.54 1.28 1.20
Pro forma 1.48 1.22 1.18
Earnings per share of common stock - diluted As reported 1.52 1.26 1.18
Pro forma 1.46 1.20 1.16
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions used for grants in 1999, 1998 and 1997, respectively:
dividend yield of 3.23%, 2.71% and 2.55%; expected volatility of 17.0%,
24.4% and 31.5%; risk-free interest rates for each plan of 6.50% and 4.79%
for 1999 and 4.68% and 5.74% for 1998 and 6.43% and 5.89% for 1997; and
expected lives of 6.23 years and 8.98 years for each plan in 1999, 6.23
years and 8.98 years for each plan in 1998, 6.95 years and 9.17 years for
each plan in 1997.
A summary of the status of the Company's fixed option plans as of
December 31, is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------- ------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,705,729 $ 17.97 1,575,138 $ 15.71 1,658,855 $ 13.31
Granted 278,654 25.36 278,421 27.79 273,959 23.53
Exercised (158,656) 11.95 (144,704) 12.22 (311,375) 9.91
Forfeited -- -- (3,126) 16.30 (46,301) 15.05
----------- ---------- ----------
Outstanding, end of year 1,825,727 $ 19.63 1,705,729 $ 17.97 1,575,138 $ 15.71
=========== ========== ==========
Options exercisable at year-end 868,214 732,792 580,973
=========== ========== ==========
Weighted average fair value of
options granted during the year $ 6.26 $ 7.44 $ 8.67
========= =========== ===========
</TABLE>
53
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
15. STOCK OPTIONS - Continued
The following table summarizes information about nonqualified options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------------------------- ------------------------------
Weighted
Number average Number
outstanding at remaining Weighted outstanding at Weighted
Range of December 31, contractual average December 31, average
exercise prices 1999 life (years) exercise price 1999 exercise price
--------------- ---- ------------ -------------- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 5.90 - 8.86 34,055 1.5 $ 7.43 34,055 $ 7.43
8.87 - 11.81 91,643 2.8 9.52 91,643 9.52
11.82 - 14.76 491,328 5.2 14.11 319,089 13.93
14.77 - 17.71 244,262 7.1 15.20 77,359 15.18
17.72 - 20.67 189,061 3.8 19.15 189,061 19.15
23.63 - 26.57 535,117 8.8 24.94 108,958 24.47
26.58 - 29.52 240,261 9.0 29.52 48,049 29.52
----------- ----------
1,825,727 868,214
========== ===========
</TABLE>
16. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants commercial and residential loans to customers
throughout southeastern Pennsylvania. Although the Company has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the economic sector.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit, standby letters of credit, interest rate
swaps, and interest rate floor. Those instruments involve, to varying
degrees, elements of credit, interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Company
has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of these instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. For interest rate swaps and floors, the
contract or notional amounts do not represent exposure to credit loss. The
Company controls the credit risk of its interest rate swap agreements
through credit approvals, limits and monitoring procedures.
54
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - Continued
Unless otherwise noted, the Company does not require collateral or
other security to support financial instruments with credit risk. The
contract or notional amounts as of December 31, 1999 and 1998, are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk
Commitments to extend credit $ 472,099 $ 361,865
Standby letters of credit 24,297 14,058
Financial instruments whose notional or contract amounts
exceed the amount of credit risk
Interest rate swap agreements 100,000 100,000
Interest rate floor 50,000 50,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation. Collateral held varies
but may include personal or commercial real estate, accounts receivable,
inventory and equipment.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The extent of collateral held for those commitments at December
31, 1999, varies up to 100%; the average amount collateralized is 91%.
Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange of
the underlying principal amounts. The Company uses swaps as part of its
asset and liability management process with the objective of hedging the
relationship between money market deposits that are used to fund prime rate
loans. Past experience has shown that as the prime interest rate changes,
rates on money market deposits do not change with the same volatility. The
interest rate swaps have the effect of converting the rates on money market
deposit accounts to a more market-driven floating rate typical of prime in
order for the Company to recognize a more even interest rate spread on this
business segment. This strategy will cause the Company to recognize, in a
rising rate environment, a lower overall interest rate spread than it
otherwise would have without the swaps in effect. Likewise, in a falling
rate environment, the Company will recognize a larger interest rate spread
than it otherwise would have without the swaps in effect. In 1999, the
interest rate swaps had the effect of increasing the Company's net interest
income by $986,000 over what would have been realized had the Company not
entered into the swap agreements.
An interest rate floor is a contract that protects the holder against
a decline in interest rates below a certain point. The primary risk
associated with interest rate floors is exposure to current and possible
future movements in interest rates.
55
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of the estimated fair value of an entity's assets and
liabilities considered to be financial instruments. For the bank, as for
most financial institutions, the majority of its assets and liabilities are
considered to be financial instruments as defined in SFAS No. 107. However,
many of such instruments lack an available trading market as characterized
by a willing buyer and willing seller engaging in an exchange transaction.
Also, it is the Company's general practice and intent to hold its financial
instruments to maturity and to not engage in trading or sales activities.
Therefore, the Company had to use significant estimations and present value
calculations to prepare this disclosure.
Changes in assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the
wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
Fair values have been estimated using data that management considered the
best available and estimation methodologies deemed suitable for the
pertinent category of financial instrument. The estimation methodologies,
resulting fair values and recorded carrying amounts at December 31, 1999 and
1998, were as follows (in thousands):
Fair value of loans and deposits with floating interest rates is
generally presumed to approximate the recorded carrying amounts.
Financial instruments actively traded in a secondary market have been
valued using quoted available market prices.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------- -----------------------------
Carrying Estimated fair Carrying Estimated fair
amount value amount value
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 66,992 $ 66,992 $ 65,801 $ 65,801
Trading account securities - - 21,589 21,589
Investment securities available for sale 516,027 516,027 523,041 523,041
</TABLE>
Fair value of financial instruments with stated maturities has been
estimated using present value cash flow, discounted at a rate approximating
current market for similar assets and liabilities.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------- -----------------------------
Carrying Estimated fair Carrying Estimated fair
amount value amount value
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Deposits with stated maturities $ 810,128 $ 814,391 $ 871,075 $ 879,194
Short-term borrowings 212,596 212,596 178,718 178,718
Long-term borrowings 223,077 213,403 248,627 248,627
Subordinated debentures 40,250 38,640 40,250 43,873
</TABLE>
Fair value of financial instrument liabilities with no stated
maturities has been estimated to equal the carrying amount (the amount
payable on demand), totaling $783,126,000 for 1999 and $602,227,000 for
1998.
56
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
18. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
The fair value of the net loan portfolio has been estimated using
present value cash flow, discounted at the treasury rate adjusted for
non-interest operating costs and giving consideration to estimated
prepayment risk and credit loss factors.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------- ----------------------------
Carrying Estimated fair Carrying Estimated fair
amount value amount value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loans $ 1,536,404 $ 1,559,240 $ 1,404,972 $ 1,463,172
</TABLE>
There is no material difference between the carrying amount and
estimated fair value of off-balance sheet items which total $646,396,000 and
$478,544,000 at year-end 1999 and 1998, respectively, which are primarily
comprised of interest rate swap agreements and unfunded loan commitments
which are generally priced at market at the time of funding.
The Company's remaining assets and liabilities are not considered
financial instruments.
19. REGULATORY MATTERS
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of those balances for the year
ended December 31, 1999, was approximately $7,927,000.
Dividends are paid by the Company from its assets which are mainly
provided by dividends from the Bank. However, certain restrictions exist
regarding the ability of the Bank to transfer funds to the Company in the
form of cash dividends, loans or advances. Under the restrictions in 2000,
the Bank, without prior approval of bank regulators, can declare dividends
to the Company totaling $26,765,000 plus additional amounts equal to the net
earnings of the Bank for the period January 1, 2000, through the date of
declaration less dividends previously paid in 2000.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possible
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require the Bank and the Company to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets, and of Tier 1 capital
to average assets. Management believes, as of December 31, 1999, that the
Bank and Company meet all capital adequacy requirements to which they are
subject.
57
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
19. REGULATORY MATTERS - Continued
As of December 31, 1999, the Bank met all regulatory requirements for
classification as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, core risk-based and core leverage ratios
as set forth in the table. There are no conditions or events that management
believes have changed the institution's category.
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total capital (to risk-weighted
assets)
National Penn Bancshares, Inc. $ 215,760 12.73% $ 135,600 8.00% $ - - %
National Penn Bank 172,044 10.42 132,140 8.00 165,175 10.00
Tier I capital (to risk-weighted
assets)
National Penn Bancshares, Inc. 193,822 11.43 67,800 4.00 - -
National Penn Bank 151,231 9.16 66,070 4.00 99,105 6.00
Tier I capital (to average assets)
National Penn Bancshares, Inc. 193,822 8.58 90,367 4.00 - -
National Penn Bank 151,231 6.83 88,546 4.00 110,682 5.00
As of December 31, 1998
Total capital (to risk-weighted
assets)
National Penn Bancshares, Inc. $ 202,703 13.51% $ 120,066 8.00% $ - - %
National Penn Bank 158,307 10.78 117,442 8.00 146,802 10.00
Tier I capital (to risk-weighted
assets)
National Penn Bancshares, Inc. 183,245 12.21 60,033 4.00 - -
National Penn Bank 139,803 9.52 58,721 4.00 88,081 6.00
Tier I capital (to average assets)
National Penn Bancshares, Inc. 183,245 8.77 83,604 4.00 - -
National Penn Bank 139,803 6.80 82,234 4.00 102,792 5.00
</TABLE>
58
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
20. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The following is a summary of selected financial information of
National Penn Bancshares, Inc., parent company only (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Assets
Cash $ 1,261 $ --
Investment in Bank subsidiary, at equity 144,573 154,733
Investment in other subsidiaries, at equity 45,815 46,841
Other assets 1,154 1,253
-------- --------
$192,803 $202,827
======== ========
Liabilities and shareholders' equity
Guaranteed preferred beneficial interests in Company's
subordinated debentures $ 41,495 $ 41,495
Other liabilities 3,612 2,558
Shareholders' equity 147,696 158,774
-------- --------
$192,803 $202,827
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income
Equity in undistributed net earnings of subsidiaries $ 14,607 $ 8,407 $ 13,361
Dividends from subsidiary 15,198 16,939 9,204
Interest and other income 168 121 766
-------- -------- --------
29,973 25,467 23,331
Expense
Interest on subordinated debentures 3,735 3,735 2,272
Other operating expenses 118 121 60
-------- -------- --------
3,853 3,856 2,332
Income before income tax benefit 26,120 21,611 20,999
Income tax benefit (1,289) (1,307) (548)
-------- -------- --------
Net income $ 27,409 $ 22,918 $ 21,547
======== ======== ========
</TABLE>
59
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
20. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 27,409 $ 22,918 $ 21,547
Equity in undistributed net earnings of subsidiaries (14,607) (8,407) (13,361)
(Increase) decrease in other assets 99 7 (1,240)
(Decrease) increase in other liabilities 1,056 2,491 (79)
-------- -------- --------
Net cash provided by operating activities 13,957 17,009 6,867
-------- -------- --------
Cash flows from investing activities
Additional investment in subsidiaries, at equity 4,631 (1,688) (35,035)
-------- -------- --------
Net cash used in investing activities 4,631 (1,688) (35,035)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of long-term debt -- -- 41,495
Proceeds from issuance of stock 693 855 525
Effect of treasury stock transactions (3,542) (5,793) (4,646)
Cash dividends (14,478) (10,422) (9,200)
-------- -------- --------
Net cash provided by (used in) financing activities (17,327) (15,360) 28,174
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,261 (39) 6
Cash and cash equivalents at beginning of year -- 39 33
-------- -------- --------
Cash and cash equivalents at end of year $ 1,261 $ -- $ 39
======== ======== ========
</TABLE>
21. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the
Company, which, in the opinion of management, reflects all adjustments
(comprising only normal recurring accruals) necessary for a fair
presentation. Net income per share of common stock has been restated to
retroactively reflect certain stock dividends.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------
1999 Dec. 31 Sept. 30 June 30 March 31
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 43,322 $ 41,888 $ 40,109 $ 38,951
======== ======== ======== ========
Net interest income $ 20,997 $ 20,789 $ 20,170 $ 19,561
======== ======== ======== ========
Provision for loan and lease losses $ 1,715 $ 1,415 $ 1,415 $ 1,415
======== ======== ======== ========
Net gains (losses) on sale of investment
securities $ (198) $ -- $ 211 $ 2
======== ======== ======== ========
Income before income taxes $ 8,685 $ 9,155 $ 8,006 $ 7,325
======== ======== ======== ========
Net income $ 7,683 $ 7,210 $ 6,500 $ 6,016
======== ======== ======== ========
Earnings per share of common stock - basic $ 0.43 $ 0.40 $ 0.37 $ 0.34
======== ======== ======== ========
Earnings per share of common stock - diluted $ 0.43 $ 0.40 $ 0.36 $ 0.33
======== ======== ======== ========
</TABLE>
60
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
21. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED) - Continued
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------
1998 Dec. 31 Sept. 30 June 30 March 31
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $39,968 $39,281 $38,182 $36,650
======= ======= ======= =======
Net interest income $19,785 $19,463 $19,139 $19,087
======= ======= ======= =======
Provision for loan and lease losses $ 1,865 $ 1,365 $ 1,330 $ 1,400
======= ======= ======= =======
Net gains (losses) on sale of investment
securities $ 1,060 $ 64 $ 153 $ 611
======= ======= ======= =======
Income before income taxes $ 6,059 $ 7,920 $ 7,247 $ 7,777
======= ======= ======= =======
Net income $ 5,275 $ 6,210 $ 5,689 $ 5,744
======= ======= ======= =======
Earnings per share of common stock - basic $ 0.30 $ 0.35 $ 0.31 $ 0.32
======= ======= ======= =======
Earnings per share of common stock - diluted $ 0.29 $ 0.34 $ 0.31 $ 0.32
======= ======= ======= =======
</TABLE>
61
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
National Penn Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of
National Penn Bancshares, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Penn Bancshares, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
January 17, 2000 (except for note 2, as
to which the date is
February 14, 2000)
62
<PAGE>
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
- --------------------------------------------------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
The information relating to executive officers of the Company is
included under Item 4A in Part I hereof. The information required by this item
relating to directors of the Company and compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by reference to pages 2,
3, 4, 5, 6 and 15 of the Company's definitive Proxy Statement to be used in
connection with the Company's 2000 Annual Meeting of Shareholders (the "Proxy
Statement").
Item 11. EXECUTIVE COMPENSATION.
- --------------------------------
The information required by this item is incorporated herein by
reference to pages 6 through 14 of the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by
reference to pages 3, 4, 5 and 15 of the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to page 14 of the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a) 1. Financial Statements.
--------------------
The following consolidated financial statements are included in
Part II, Item 8 hereof:
National Penn Bancshares, Inc., and Subsidiaries.
Consolidated Balance Sheets.
Consolidated Statements of Income.
Consolidated Statement of Changes in Shareholders' Equity.
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
-----------------------------
Financial statement schedules are omitted because the
required information is either not applicable, not
required, or is shown in the respective financial
statements or in the notes thereto.
63
<PAGE>
3. Exhibits.
--------
2.1 Amended Agreement and Plan of Merger dated as of July 21, 1998,
between National Penn Bancshares, Inc., National Penn Bank, and
Elverson National Bank. (Incorporated by reference to Exhibit
2.1 to the Company's Registration Statement No. 333-65841 on
Form S-4 as filed on October 16, 1998.)
2.2 Agreement dated February 14, 2000, between National Penn
Bancshares, Inc. and Panasia Bank, including exhibits.
3.1 Articles of Incorporation, as amended, of National Penn
Bancshares, Inc. (Incorporated by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998.)
3.2 Bylaws, as amended, of National Penn Bancshares, Inc.
10.1 National Penn Bancshares, Inc. Amended and Restated Dividend
Reinvestment Plan. (Incorporated by reference to Exhibit 99.1 to
the Company's Registration Statement No. 333-887549 on Form S-3
as filed on September 22, 1999.)
10.2 National Penn Bancshares, Inc. Pension Plan.* (Incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.)
10.3 Amendment No. 1 to National Penn Bancshares, Inc. Pension Plan.*
(Incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992.)
10.4 Amendment 1999-1 to the National Penn Bancshares, Inc. Pension
Plan.*
10.5 Amendment 2000-1 to the National Penn Bancshares, Inc. Pension
Plan.*
10.6 National Penn Bancshares, Inc. Capital Accumulation Plan
(Amended and Restated Effective January 1, 1997).* (Incorporated
by reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1999.)
10.7 Amendment No. 2 to National Penn Bancshares, Inc. Capital
Accumulation Plan (Amended and Restated Effective January 1,
1997).*
10.8 National Penn Bancshares, Inc. Amended and Restated Executive
Incentive Plan.*
10.9 National Penn Bancshares, Inc. Executive Incentive
Plan/Schedules.*
10.10 National Penn Bancshares, Inc. Amended and Restated Stock Option
Plan.* (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-87654 on Form S-8 as
filed on December 22, 1995.)
10.11 National Penn Bancshares, Inc. Officers' and Key Employees'
Stock Compensation Plan.* (Incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.)
10.12 National Penn Bancshares, Inc. Directors' Fee Plan.*
(Incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.13 National Penn Bancshares, Inc. Non-Employee Directors' Stock
Option Plan.* (Incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
64
<PAGE>
10.14 National Penn Bancshares, Inc. Amended and Restated Employee
Stock Purchase Plan.* (Incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.)
10.15 National Penn Bancshares, Inc. Elverson Substitute Stock Option
Plan.* (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 333-71391 on Form S-8 as
filed on January 29, 1999.)
10.16 Executive Supplemental Benefit Agreement dated December 27,
1989, among National Penn Bancshares, Inc., National Bank of
Boyertown, and Lawrence T. Jilk, Jr.* (Incorporated by reference
to Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
10.17 Amendatory Agreement dated February 23, 1994, among National
Penn Bancshares, Inc., National Penn Bank, and Lawrence T. Jilk,
Jr.* (Incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.)
10.18 Amendatory Agreement dated August 26, 1998, among National Penn
Bancshares, Inc., National Penn Bank, and Lawrence T. Jilk, Jr.*
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998.)
10.19 Executive Supplemental Benefit Agreement dated December 27,
1989, among National Penn Bancshares, Inc., National Bank of
Boyertown, and Wayne R. Weidner.* (Incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
10.20 Amendatory Agreement dated February 23, 1994, among National
Penn Bancshares, Inc., National Penn Bank, and Wayne R.
Weidner.* (Incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.21 Amendatory Agreement dated August 26, 1998, among National Penn
Bancshares, Inc., National Penn Bank, and Wayne R. Weidner.*
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998.)
10.22 Executive Agreement dated July 23, 1997, among National Penn
Bancshares, Inc., National Penn Bank, and Gary L. Rhoads.*
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997.)
10.23 Amendatory Agreement dated August 26, 1998, among National Penn
Bancshares, Inc., National Penn Bank, and Gary L. Rhoads.*
(Incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998.)
10.24 Executive Agreement dated July 23, 1997, among National Penn
Bancshares, Inc., National Penn Bank, and Sandra L. Spayd.*
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997.)
10.25 Amendatory Agreement dated August 26, 1998, among National Penn
Bancshares, Inc., National Penn Bank, and Sandra L. Spayd.*
(Incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998.)
10.26 Executive Agreement dated September 24, 1997, among National
Penn Bancshares, Inc., National Penn Bank, and Garry D. Koch.*
(Incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997.)
65
<PAGE>
10.27 Amendatory Agreement dated August 26, 1998, among National Penn
Bancshares, Inc., National Penn Bank, and Garry D. Koch.*
(Incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998.)
10.28 Executive Agreement dated as of July 23, 1997, among National
Penn Bancshares, Inc., National Penn Bank, and Sharon L.
Weaver.* (Incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
10.29 Amendatory Agreement dated September 24, 1997, among National
Penn Bancshares, Inc., National Penn Bank, and Sharon L.
Weaver.* (Incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
10.30 Amendatory Agreement dated August 26, 1998, among National Penn
Bancshares, Inc., National Penn Bank, and Sharon L. Weaver.*
(Incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998.)
10.31 Executive Agreement dated as of January 4, 1999, among National
Penn Bancshares, Inc., National Penn Bank, and Glenn E. Moyer.*
(Incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998.)
10.32 Stock Purchase Agreement dated April 20, 1989, between National
Penn Bancshares, Inc. and Pennsylvania State Bank. (Incorporated
by reference to Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.33 Stock Purchase Warrant dated July 3, 1989, issued to National
Penn Investment Company by Pennsylvania State Bank.
(Incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.)
10.34 Rights Agreement dated August 23, 1989, between National Penn
Bancshares, Inc. and National Bank of Boyertown, as Rights
Agent. (Incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement No. 33-87654 on Form S-8 as
filed on December 22, 1994.)
10.35 Amendment to Rights Agreement dated as of August 21, 1999,
between National Penn Bancshares, Inc. and National Bank of
Boyertown, as Rights Agent (including as Exhibit "A" thereto,
the Rights Agreement dated as of August 23, 1989, between
National Penn Bancshares, Inc. and National Bank of Boyertown,
as Rights Agent). (Incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K, dated August 21, 1999,
as filed on August 26, 1999.)
21 Subsidiaries of the Registrant.
23 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
99 Forward-Looking Statements.
* Denotes a compensatory plan or arrangement.
(b) Reports on Form 8-K.
-------------------
The Registrant did not file any Report on Form 8-K during the fourth
quarter 1999.
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL PENN BANCSHARES, INC.
(Registrant)
March 22, 2000 By /s/ Lawrence T. Jilk, Jr.
-------------------------
Lawrence T. Jilk, Jr.
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated:
Signatures Title
/s/ John H. Body Director March 22, 2000
- ------------------------------
John H. Body
/s/ J. Ralph Borneman, Jr. Director March 22, 2000
- ------------------------------
J. Ralph Borneman, Jr.
/s/ Frederick H. Gaige Director March 22, 2000
- ------------------------------
Frederick H. Gaige
/s/ John J. Jacobs Director March 22, 2000
- -------------------------------
John W. Jacobs
/s/ Lawrence T. Jilk, Jr. Director, Chairman and Chief March 22, 2000
- ------------------------------ Executive Officer (Principal
Lawrence T. Jilk, Jr. Executive Officer)
/s/ Patricia L. Langiotti Director March 22, 2000
- ------------------------------
Patricia L. Langiotti
/s/ Kenneth A. Longacre Director March 22, 2000
- ------------------------------
Kenneth A. Longacre
67
<PAGE>
/s/ Robert E. Rigg Director March 22, 2000
- ------------------------------
Robert E. Rigg
/s/ C. Robert Roth Director March 22, 2000
- ------------------------------
C. Robert Roth
/s/ Harold C. Wegman, D.D.S. Director March 22, 2000
- ------------------------------
Harold C. Wegman, D.D.S.
/s/ Wayne R. Weidner Director and March 22, 2000
- ------------------------------ President
Wayne R. Weidner
/s/ Gary L. Rhoads Treasurer (Principal Financial March 22, 2000
- ------------------------------ and Accounting Officer)
Gary L. Rhoads
68
AGREEMENT
THIS AGREEMENT, dated February 14, 2000 ("Agreement"), is made between
NATIONAL PENN BANCSHARES, INC., a Pennsylvania corporation ("NPB"), and PANASIA
BANK, a New Jersey state bank ("Panasia").
BACKGROUND
1. NPB has formed NPB New Jersey, Inc., a New Jersey corporation
("NPB/NJ"), and organized it as a wholly-owned subsidiary of NPB.
2. NPB and Panasia desire for NPB/NJ to acquire Panasia as a wholly-owned
subsidiary of NPB/NJ, in accordance with the applicable laws of the State of New
Jersey and a Plan of Acquisition being executed concurrently by NPB/NJ and
Panasia (the "Plan") in the form attached hereto as Exhibit 1 (the
"Acquisition").
3. As a condition and inducement to NPB to enter into this Agreement, the
directors and certain officers of Panasia are concurrently executing a Letter
Agreement in the form attached hereto as Exhibit 2.
4. Also as a condition and inducement to NPB to enter into this Agreement,
Panasia is concurrently granting to NPB an option to acquire up to 24.9% of
Panasia's common stock (the "Panasia/NPB Option") pursuant to a Stock Option
Agreement which is concurrently being executed between Panasia and NPB, in the
form attached hereto as Exhibit 3.
5. NPB and Panasia desire to provide the terms and conditions governing the
transactions contemplated herein.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
GENERAL
1.01 Definitions. As used in this Agreement, the following terms shall have
the indicated meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
<PAGE>
Acquisition means the acquisition by NPB/NJ of Panasia as a wholly-owned
subsidiary of NPB/NJ, contemplated by this Agreement.
Affiliate means, with respect to any corporation, any person that directly,
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such corporation and, without limiting the
generality of the foregoing, includes any executive officer, director or 10%
equity owner of such corporation.
Agreement means this Agreement, including any amendment or supplement
hereto.
Applications means the applications for regulatory approval which are
required by the transactions contemplated hereby.
Closing Date means the date agreed to by the parties as soon as practicable
after the last condition precedent provided in this Agreement (other than those
conditions which are to be fulfilled at the Closing) has been fulfilled or
waived.
CRA means the Community Reinvestment Act of 1977, as amended, and the rules
and regulations promulgated from time to time thereunder.
Dissenting Panasia Shares has the meaning given to that term in the Plan.
Effective Date means the date upon which the Plan shall be filed in the
NJDBI in accordance with the applicable laws of the State of New Jersey, and
shall be the same as the Closing Date or as soon thereafter as is practicable.
Environmental Law means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any Regulatory
Authority relating to (a) the protection, preservation or restoration of the
environment, including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource, and/or (b) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
2
<PAGE>
Exchange Act means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated from time to time thereunder.
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Federal Reserve Board.
IRC means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service.
Knowledge of Panasia means the actual knowledge of Panasia's officers and
directors.
Knowledge of NPB means the actual knowledge of NPB's officers and
directors.
Material Adverse Effect means a material adverse effect on (a) the
business, financial condition or results of operations of Panasia (when such
term is used in Article 2 hereof) or NPB on a consolidated basis (when such term
is used in Article 3 hereof) other than, in each case, any change, circumstance
or effect relating to (1) the economy or financial markets in general, or (2)
the banking industry and not specifically related to Panasia or NPB, or (b) the
ability of such party to consummate the transactions contemplated by this
Agreement.
NAB Division has the meaning given to that term in Section 4.07(c)(6)(i) of
this Agreement.
NASD means the National Association of Securities Dealers, Inc.
NJDBI means the Department of Banking and Insurance of the State of New
Jersey.
NP Bank means National Penn Bank, a national banking association, all the
outstanding capital stock of which is owned by NPB.
NPB means National Penn Bancshares, Inc., a Pennsylvania corporation.
NPB Common Stock means the shares of common stock, without par value, of
NPB.
NPB Financials means (a) the audited consolidated financial statements of
NPB as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998, and (b) the unaudited interim consolidated
financial statements of NPB for each
3
<PAGE>
calendar quarter after December 31, 1998, including the quarter ending September
30, 1999.
NPB/NJ means NPB New Jersey, Inc., a New Jersey corporation, all the
outstanding capital stock of which is owned by NPB.
OCC means the Office of the Comptroller of the Currency.
Panasia means Panasia Bank, a New Jersey state bank.
Panasia Benefit Plans has the meaning given to that term in Section 2.12 of
this Agreement.
Panasia Common Stock has the meaning given to that term in Section 2.02(a)
of this Agreement.
Panasia Disclosure Schedule means, collectively, the disclosure schedules
delivered by Panasia to NPB at or prior to the execution and delivery of this
Agreement.
Panasia Financials means (a) the audited financial statements of Panasia as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, and (b) the unaudited interim financial statements of
Panasia for each calendar quarter after December 31, 1998, including the quarter
ending September 30, 1999.
Panasia Proxy Statement means the proxy statement, together with any
supplements thereto, to be sent to holders of Panasia Common Stock in connection
with the transactions contemplated by this Agreement.
Panasia Stock Option Plans means the stock option plans maintained by
Panasia immediately prior to the Effective Date.
Panasia Stock Option has the meaning given to that term in Section
1.02(b)(4) of this Agreement.
Panasia Stockholders Meeting means the meeting of the holders of Panasia
Common Stock concerning the Acquisition pursuant to the Panasia Proxy Statement.
Panasia/NYM Board has the meaning given to that term in Section
4.07(c)(6)(ii) of this Agreement.
Panasia/NPB Option means the option granted to NPB to acquire certain
shares of Panasia Common Stock referred to in the Background of this Agreement.
Panasia/Phila. Board has the meaning given to that term in Section
4.07(c)(6)(ii) of this Agreement.
4
<PAGE>
Plan has the meaning given to that term in the Background of this
Agreement. The Plan constitutes a "plan of acquisition" within the meaning of
N.J. Stat.ss.17:9A-357.
Regulatory Agreement has the meaning given to that term in Sections 2.11
and 3.08 of this Agreement.
Regulatory Authority means any agency or department of any federal, state
or local government or of any self-regulatory organization, including without
limitation the SEC, the FDIC, the FRB, the OCC, the NASD, the NJDBI, and the
respective staffs thereof.
Rights means warrants, options, rights, convertible securities and other
capital stock equivalents which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Subsidiary means any corporation, 50% or more of the capital stock of which
is owned, either directly or indirectly, by another entity, except any
corporation the stock of which is held in the ordinary course of the lending
activities of a bank.
1.02 The Acquisition.
(a) Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") will take place on the Closing Date in Boyertown, Pennsylvania,
at a time to be agreed upon by NPB and Panasia; provided, in any case, that all
conditions to closing set forth in Article V of this Agreement (other than the
delivery of certificates, instruments and documents to be delivered at the
Closing) have been satisfied or waived at or prior to the Closing Date.
(b) The Acquisition. Subject to the terms and conditions of this Agreement
and in accordance with the applicable laws of the State of New Jersey and this
Agreement and the Plan:
(1) Filing of Plan. On or before the Effective Date, NPB and Panasia
shall cause the Plan, after approval by the stockholders of Panasia in
accordance with the applicable laws of the State of New Jersey, and accompanied
by certification of the President of Panasia of such stockholder approval, to be
filed in the NJDBI on the Closing Date.
(2) Issuance of Panasia Common Stock. On the Effective Date, Panasia
shall issue to NPB/NJ 1,000 shares of Panasia Common Stock and become a
wholly-owned subsidiary of NPB/NJ.
(3) Conversion of Panasia Common Stock. On the Effective Date, except
for shares issuable to NPB/NJ and for
5
<PAGE>
Dissenting Panasia Shares and treasury stock which shall be governed by the
provisions of the Plan with respect thereto, each share of Panasia Common Stock
issued and outstanding immediately prior to the Effective Date shall, by reason
of the Acquisition and without any action on the part of the holder thereof,
cease to be outstanding and be converted into the right to receive Twenty-Nine
Dollars ($29.00) in cash.
(4) Conversion of Panasia Stock Options. On the Effective Date, each
option to purchase one or more shares of Panasia Common Stock issued by Panasia
and outstanding on the Effective Date, whether or not such option is exercisable
on the Effective Date (each a "Panasia Stock Option"), shall, by reason of the
Acquisition and without any action on the part of the holder thereof, cease to
be outstanding and be converted into the right to receive in cash an amount
equal to the difference between Twenty- Nine Dollars ($29.00) and the per share
exercise price of the Panasia Stock Option multiplied by the number of shares of
Panasia Common Stock covered by that option.
(5) Payment Procedures. As soon as practicable after the Effective
Date, NPB shall cause a duly appointed agent ("Agent") to make payment of the
cash consideration provided for in this Agreement and the Plan to each person
entitled thereto, upon surrender to the Agent of the certificates which
immediately prior to the Effective Date represented outstanding shares of
Panasia Common Stock held by such person, together with a duly executed letter
of transmittal (which the Agent shall mail as soon as practicable after the
Effective Date to each holder of record of any such certificate). Neither NPB
nor NPB/NJ shall be obligated to deliver or cause to be delivered the
consideration to which any person would otherwise be entitled under this
Agreement and the Plan until such person surrenders for exchange, as provided in
the Plan, the certificates which immediately prior to the Effective Date
represented outstanding shares of Panasia Common Stock held by such person or,
in lieu thereof, delivers to the Agent such affidavit of loss, indemnity
agreement and/or bond as may be reasonably required in each case by NPB. Until
surrendered as contemplated herein and in the Plan, each certificate which
immediately prior to the Effective Date represented any shares of Panasia Common
Stock shall, at and after the Effective Date, represent only the right to
receive, upon such surrender, the cash consideration provided for herein and in
the Plan. In no event shall the holder of any shares of Panasia Common Stock be
entitled to receive interest on any of the funds to be received pursuant to the
Acquisition.
(c) Incorporation of Plan. The Plan is hereby incorporated by reference
into this Agreement as though such Plan were set forth in full herein.
6
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF Panasia
Panasia hereby represents and warrants to NPB as follows:
2.01 Organization.
(a) Panasia is a bank duly organized and validly existing under the laws of
the State of New Jersey. Panasia has the corporate power to carry on its
business and operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. Panasia is duly
licensed, registered or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing, registration
or qualification necessary, except where the failure to be so licensed,
registered or qualified will not have a Material Adverse Effect, and all such
licenses, registrations and qualifications are in full force and effect in all
material respects.
(b) Panasia is a commercial bank the deposits of which are insured by the
Bank Insurance Fund of the FDIC to the extent provided in the Federal Deposit
Insurance Act.
(c) Except as described on Panasia Disclosure Schedule 2.01(c), Panasia has
no Subsidiaries. Such Subsidiaries are only engaged in the businesses described
on Panasia Disclosure Schedule 2.01(c), which businesses are collectively
immaterial to Panasia.
(d) The minute book of Panasia accurately records, in all material
respects, all material corporate actions of its stockholders and board of
directors, including committees, in each case in accordance with normal business
practice of Panasia.
(e) Panasia has delivered to NPB true and correct copies of the certificate
of incorporation and bylaws of Panasia, each as in effect on the date hereof.
2.02 Capitalization.
(a) The authorized capital stock of Panasia consists of 1,000,000 shares of
common stock, par value $5 per share ("Panasia Common Stock"), of which at the
date hereof 664,783 shares are validly issued and outstanding, fully paid and
nonassessable and free of pre-emptive rights, and 43,376 shares are held as
treasury stock. Panasia has not issued nor is Panasia bound by any subscription,
option, warrant, call, commitment, agreement or other Right of any character
relating to the purchase, sale, or issuance of, or right to receive dividends or
other distributions on, any shares of Panasia Common Stock or any other security
of Panasia or
7
<PAGE>
any securities representing the right to vote, purchase or otherwise receive any
shares of Panasia Common Stock or any other security of Panasia, except for (1)
Panasia Stock Options for 39,000 shares of Panasia Common Stock issued and
outstanding under the Panasia Stock Option Plans, (2) the Panasia/NPB Option,
and (3) this Agreement and the Plan.
(b) Panasia owns all of the capital stock of the Panasia Subsidiaries, free
and clear of any lien or encumbrance. Except for Panasia's Subsidiaries, Panasia
does not possess, directly or indirectly, any material equity interest in any
corporation, except for equity interests in Panasia's investment portfolio,
equity interests held by Panasia in a fiduciary capacity, and equity interests
held in connection with Panasia's commercial loan activities.
2.03 Authority; No Violation.
(a) Panasia has full corporate power and authority to execute and deliver
this Agreement and the Plan and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the Plan by Panasia and
the consummation by Panasia of the Acquisition have been duly and validly
approved by the Board of Directors of Panasia and, except for approval by the
stockholders of Panasia as required by the applicable laws of the State of New
Jersey, no other corporate proceedings on the part of Panasia are necessary to
consummate the Acquisition. This Agreement and the Plan have been duly and
validly executed and delivered by Panasia and, subject to approval by the
stockholders of Panasia and subject to the required approvals of Regulatory
Authorities described in Section 3.03 hereof, constitute the valid and binding
obligations of Panasia, enforceable against Panasia in accordance with their
respective terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity.
(b) (1) Except as described on Panasia Disclosure Schedule 2.03(b), the
execution and delivery of this Agreement and the Plan by Panasia, (2) subject to
receipt of approvals from the Panasia stockholders and the Regulatory
Authorities referred to in Section 3.03 hereof and Panasia's, NPB/NJ's and NPB's
compliance with any conditions contained therein, the consummation of the
Acquisition, and (3) compliance by Panasia with any of the terms or provisions
hereof, do not and will not: (i) conflict with or result in a breach of any
provision of the certificate of incorporation or bylaws of Panasia; (ii) violate
any statute, rule, regulation, judgment, order, writ, decree or injunction
applicable to Panasia or any of its properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, or
8
<PAGE>
acceleration of, the performance required by, or result in a right of
termination or acceleration or the creation of any lien, security interest,
charge or other encumbrance upon any of the properties or assets of Panasia
under, any of the terms or conditions of any note, bond, mortgage, indenture,
license, lease, agreement, commitment or other instrument or obligation to which
Panasia is a party, or by which it or any of its properties or assets may be
bound or affected, excluding from clauses (ii) and (iii) hereof, any items
which, in the aggregate, would not have a Material Adverse Effect.
2.04 Consents. Except as described on Panasia Disclosure Schedule 2.04, no
consents or approvals of, or filings or registrations with, any public body or
authority are necessary, and no consents or approvals of any third parties are
necessary, in connection with the execution and delivery of this Agreement or
the Plan by Panasia or, subject to the consents, approvals, filings and
registrations from or with the Regulatory Authorities referred to in Section
3.03 hereof and compliance with any conditions contained therein and subject to
the approval of this Agreement and the Plan by the stockholders of Panasia, the
consummation by Panasia of the Acquisition.
2.05 Financial Statements.
(a) Panasia has delivered to NPB the Panasia Financials, except those
pertaining to quarterly periods commencing after September 30, 1999, which it
will deliver to NPB within 45 days after the end of the respective quarter. The
delivered Panasia Financials fairly present, in all material respects, the
financial position, results of operations and cash flows of Panasia as of and
for the periods ended on the dates thereof, in accordance with FFIEC Call Report
Instructions, except in each case as noted therein and, in the case of interim
period financial statements, subject to normal year-end adjustments and
footnotes thereto.
(b) To the Knowledge of Panasia, Panasia did not have any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not fully reflected or reserved against in the balance sheets included
in the Panasia Financials at the date of such balance sheets which would have
been required to be reflected therein in accordance with generally accepted
accounting principles consistently applied or disclosed in a footnote thereto,
except for liabilities and obligations which were incurred in the ordinary
course of business consistent with past practice, and except for liabilities and
obligations which are within the subject matter of a specific representation and
warranty herein or which otherwise have not had a Material Adverse Effect.
2.06 No Material Adverse Change. Panasia has not suffered any adverse
change in its assets, business, financial condition or results of operations
since September 30, 1999, which change has
9
<PAGE>
had a Material Adverse Effect, it being understood that the expenses incurred by
Panasia in connection with this Agreement and the Acquisition, including,
without limitation, the engagement of legal and financial advisors, shall not
constitute a Material Adverse Effect.
2.07 Taxes.
(a) Panasia has filed, and will file, in correct form all federal, state
and local tax returns required to be filed by or with respect to Panasia on or
prior to the Closing Date except to the extent that any failure to file or any
inaccuracies would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid or will pay, or made or will make, provisions for
the payment of all federal, state and local taxes which are shown on such
returns to be due for the periods covered thereby from Panasia to any applicable
taxing authority, on or prior to the Closing Date other than taxes which (1) are
not delinquent or are being contested in good faith, (2) have not been finally
determined, or (3) the failure to pay would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) To the Knowledge of Panasia, there are no material disputes pending, or
claims asserted in writing, for taxes or assessments upon Panasia, nor has
Panasia been requested in writing to give any currently effective waivers
extending the statutory period of limitation applicable to any federal, state,
county or local income tax return for any period.
(c) Proper and accurate amounts have been withheld by Panasia from its
employees for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws, except
where failure to do so is not reasonably likely to have a Material Adverse
Effect.
2.08 Contracts.
(a) Except as described on Panasia Disclosure Schedule 2.08(a) or 2.12,
Panasia is not a party to or subject to: (1) any employment, consulting,
severance, "change-in-control" or termination contract or arrangement with any
officer, director, employee, independent contractor, agent or other person,
except for "at will" arrangements; (2) any plan, arrangement or contract
providing for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar arrangements for or with any officer,
director, employee, independent contractor, agent or other person; (3) any
collective bargaining agreement with any labor union relating to employees of
Panasia; (4) except in the ordinary course of business, any material instrument
evidencing or related to indebtedness for borrowed money, whether directly or
indirectly, by way of purchase money obligation, conditional sale, lease
purchase, guaranty or otherwise, in respect of which Panasia
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is an obligor to any person, or which contains financial covenants or other
restrictions, other than those relating to the payment of principal and interest
when due, which would be applicable on or after the Closing Date; (5) any
contract, other than this Agreement, which restricts or prohibits Panasia from
engaging in any type of business permissible under applicable law; or (6) except
in the ordinary course of business, any lease for real property.
(b) All the contracts, plans, arrangements and instruments listed on
Panasia Disclosure Schedule 2.08(a) are in full force and effect on the date
hereof, and neither Panasia nor, to the Knowledge of Panasia, any other party to
any such contract, plan, arrangement or instrument, has breached any provision
of, or is in default under any term of, any such contract, plan, arrangement or
instrument the breach of which or default under which will have a Material
Adverse Effect, and no party to any such contract, plan, arrangement or
instrument will have the right to terminate any or all of the provisions thereof
as a result of the transactions contemplated by this Agreement, the termination
of which will have a Material Adverse Effect. Except as otherwise described on
Panasia Disclosure Schedule 2.08(a) or 2.12, no plan, employment agreement,
termination agreement or similar agreement or arrangement to which Panasia is a
party or under which Panasia may be bound (1) contains provisions which permit
an employee or an independent contractor to terminate it without cause and
continue to accrue future benefits thereunder; (2) provides for acceleration in
the vesting of benefits thereunder upon the occurrence of a change in ownership
or control or merger or other acquisition of Panasia; or (3) requires Panasia to
provide a benefit in the form of Panasia Common Stock or determined by reference
to the value of Panasia Common Stock.
2.09 Ownership of Property; Insurance Coverage.
(a) Panasia has, and will have as to property acquired after the date
hereof, good, and as to real property, marketable, title to all material assets
and properties owned by Panasia, whether real or personal, tangible or
intangible, including securities, assets and properties reflected in the balance
sheets contained in the Panasia Financials or acquired subsequent thereto
(except to the extent that such securities are held in any fiduciary or agency
capacity and except to the extent that such assets and properties have been
disposed of for fair value, in the ordinary course of business, or have been
disposed of as obsolete since the date of such balance sheets), subject to no
encumbrances, liens, mortgages, security interests or pledges, except (1)
statutory liens for amounts not yet delinquent or which are being contested in
good faith, (2) liens for current taxes not yet due and payable, (3) such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent, and (4) dispositions and encumbrances, liens,
mortgages and security
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interests for adequate consideration in the ordinary course of business. Panasia
has the right under leases of material properties used by Panasia in the conduct
of its business to occupy and use all such properties in all material respects
as presently occupied and used by it.
(b) With respect to all agreements pursuant to which Panasia has purchased
securities subject to an agreement to resell, if any, Panasia has a valid,
perfected first lien or security interest in the securities or other collateral
securing the repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby, except to the extent that any
failure to obtain such a lien or maintain such collateral would not,
individually or in the aggregate, have a Material Adverse Effect.
(c) Panasia currently maintains insurance in amounts considered by Panasia
to be reasonable for its operations, and such insurance is similar in scope and
coverage in all material respects to that maintained by other businesses
similarly situated. Panasia has not received notice from any insurance carrier
that (1) such insurance will be cancelled or that coverage thereunder will be
reduced or eliminated, or (2) premium costs with respect to such insurance will
be substantially increased except to the extent such cancellation, reduction,
elimination or increase would not have a Material Adverse Effect.
(d) Panasia currently maintains such fidelity bonds and errors and
omissions insurance as may be customary or required under applicable laws or
regulations.
2.10 Legal Proceedings. Except as described on Panasia Disclosure Schedule
2.10, Panasia is not a party to any, and there are no pending or, to the
Knowledge of Panasia, threatened, legal, administrative, arbitration or other
proceedings, claims, actions, customer complaints, or governmental
investigations or inquiries of any nature (1) against Panasia, (2) to which the
assets of Panasia are subject, (3) challenging the validity or propriety of any
of the transactions contemplated by this Agreement, or (4) which could
materially adversely affect the ability of Panasia to perform its obligations
under this Agreement, except for any proceedings, claims, actions,
investigations, or inquiries referred to in clauses (1) or (2) which,
individually or in the aggregate, will not have a Material Adverse Effect.
2.11 Compliance with Applicable Law.
(a) Panasia holds all licenses, franchises, permits and authorizations
necessary for the lawful conduct of its businesses under, and has complied in
all material respects with, applicable laws, statutes, orders, rules or
regulations of any Regulatory Authority relating to it, other than where such
failure to hold or
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such noncompliance will neither result in a limitation in any material respect
on the conduct of its businesses nor otherwise have a Material Adverse Effect.
(b) Panasia has filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that it was
required to file with any Regulatory Authority, and has filed all other reports
and statements required to be filed by it, including without limitation any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, any state or any Regulatory Authority, and has
paid all fees and assessments due and payable in connection therewith, except
where the failure to file such report, registration or statement or to pay such
fees and assessments, either individually or in the aggregate, will not have a
Material Adverse Effect.
(c) No Regulatory Authority has initiated any proceeding or, to the
Knowledge of Panasia, investigation into the business or operations of Panasia,
except where any such proceedings or investigations will not, individually or in
the aggregate, have a Material Adverse Effect, or such proceedings or
investigations have been terminated or otherwise resolved.
(d) Panasia has not received any notification or communication from any
Regulatory Authority (1) asserting that Panasia has not complied with any of the
statutes, regulations or ordinances which such Regulatory Authority enforces,
unless such assertion has been waived, withdrawn or otherwise resolved; (2)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to Panasia; (3) requiring or threatening to
require Panasia, or indicating that Panasia may be required, to enter into a
cease and desist order, agreement or memorandum of understanding or any other
agreement restricting or limiting, or purporting to restrict or limit, in any
manner the operations of Panasia; or (4) directing, restricting or limiting, or
purporting to direct, restrict or limit, in any manner the operations of Panasia
(any such notice, communication, memorandum, agreement or order described in
this sentence herein referred to as a "Regulatory Agreement"), in each case
except as would not have a Material Adverse Effect. Panasia has not received,
consented to, or entered into any Regulatory Agreement which would have,
individually or in the aggregate, a Material Adverse Effect.
(e) To the Knowledge of Panasia, there is no unresolved violation,
criticism, or exception by any Regulatory Authority with respect to any
Regulatory Agreement which if resolved in a manner adverse to Panasia would have
a Material Adverse Effect.
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(f) There is no injunction, order, judgment or decree imposed upon Panasia
or the assets of Panasia which has had, or, to the Knowledge of Panasia, will
have, a Material Adverse Effect.
2.12 ERISA.
(a) Panasia has delivered to NPB true and complete copies of any employee
pension benefit plans within the meaning of ERISA Section 3(2), profit sharing
plans, stock purchase plans, deferred compensation and supplemental income
plans, supplemental executive retirement plans, annual incentive plans, group
insurance plans, and all other employee welfare benefit plans within the meaning
of ERISA Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans) and all other material
employee benefit plans, policies, agreements and arrangements, all of which are
set forth on Panasia Disclosure Schedule 2.12, currently maintained or
contributed to for the benefit of the employees or former employees (including
retired employees) and any beneficiaries thereof or directors or former
directors of Panasia (the "Panasia Benefit Plans"), together with (1) the most
recent actuarial (if any) and financial reports relating to those Panasia
Benefit Plans which constitute "qualified plans" under IRC Section 401(a), (2)
the most recent Form 5500 (if any) relating to such Panasia Benefit Plans filed
by them, respectively, with the IRS, and (3) the most recent IRS determination
letter which pertain to any such Panasia Benefit Plans. Neither Panasia nor any
pension plan (within the meaning of ERISA Section 3(2)) maintained by Panasia
has incurred any liability to the Pension Benefit Guaranty Corporation or to the
IRS with respect to any pension plan qualified under IRC Section 401(a), except
liabilities to the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any reportable event
under ERISA Section 4043(b) (with respect to which the 30 day notice requirement
has not been waived) occurred with respect to any such pension plan. Panasia has
not incurred any liability under ERISA Section 4201 for a complete or partial
withdrawal from a multi-employer plan. Each Panasia Benefit Plan has been
maintained, operated and administered in compliance in all respects with its
terms and related documents or agreements and the applicable provisions of all
laws, including ERISA and the IRC, except where any such non-compliance would
not have a Material Adverse Effect. As of the date hereof, Panasia is not aware
of any existing or contemplated audit of its employee benefit plans by the IRS
or the U.S. Department of Labor.
(b) With respect to any services which Panasia may provide as a sponsor,
fiduciary, trustee or otherwise for any plan, program, or assignment subject to
ERISA (other than any Panasia Benefit Plan), Panasia (1) has correctly computed
all contributions, payments or other amounts for which it is responsible, (2)
has not engaged in any prohibited transactions (as defined in ERISA Section 406
for which an exemption does not exist), and (3) has not
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incurred any liability to any beneficiary or sponsor of any ERISA plan as a
result of any negligence in the performance of its duties except where any such
action or inaction would not have a Material Adverse Effect.
2.13 Brokers, Finders and Financial Advisors. Except as described on
Panasia Disclosure Schedule 2.13, neither Panasia nor any of its officers,
directors, employees, independent contractors or agents, has employed any
broker, finder, investment banker or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with the
transactions contemplated by this Agreement. Panasia Disclosure Schedule 2.13
includes a copy of Panasia's engagement letter with its financial advisor.
Panasia has received an oral opinion from its financial advisor to the effect
that, as of the date hereof, the consideration to be received by Panasia
stockholders is fair, from a financial point of view, to such stockholders.
2.14 Environmental Matters.
(a) To the Knowledge of Panasia, neither Panasia nor any property owned or
operated by Panasia has been or is in violation of or liable under any
Environmental Law, except for such violations or liabilities that, individually
or in the aggregate, would not have a Material Adverse Effect. There are no
actions, suits or proceedings, or demands, claims or written notices, including
without limitation written notices, demand letters or written requests for
information from any Regulatory Authority, instituted or pending, or to the
Knowledge of Panasia, threatened, or any investigation pending, relating to the
liability of Panasia with respect to any property owned or operated by Panasia
under any Environmental Law, except as to any such actions or other matters
which will not result in a Material Adverse Effect.
(b) Except as set forth on Panasia Disclosure Schedule 2.14, to the
Knowledge of Panasia, no property, now or formerly owned or operated by Panasia
or on which Panasia holds or held a mortgage or other security interest or has
foreclosed or taken a deed in lieu, has been listed or proposed for listing on
the National Priority List under the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, on the Comprehensive
Environmental Response Compensation and Liabilities Information System, or any
similar state list, or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against
Panasia for response costs, remedial work, investigation, damage to natural
resources or for personal injury or property damage claim, including, but not
limited to, claims under CERCLA, any of which would have a Material Adverse
Effect.
2.15 Business of Panasia. Since September 30, 1999, Panasia has not, in any
material respect, (a) increased the wages,
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salaries, compensation, pension or other employee benefits payable to any
executive officer, employee or director except as is permitted in Section
4.01(d), (b) eliminated employee benefits, (c) deferred routine maintenance of
real property or leased premises, (d) eliminated a reserve where the liability
related to such reserve has remained, (e) failed to depreciate capital assets in
accordance with past practice or to eliminate capital assets which are no longer
used in the businesses of Panasia, or (f) had extraordinary reduction or
deferral of ordinary or necessary expenses.
2.16 CRA Compliance. Panasia is in material compliance with the applicable
provisions of the CRA and, as of the date hereof, Panasia has received a CRA
rating of "satisfactory" or better from the FDIC. To the Knowledge of Panasia,
there is no fact or circumstance or set of facts or circumstances which would
cause Panasia to fail to comply with such provisions in a manner which would
have a Material Adverse Effect.
2.17 Allowance for Loan Losses. The allowance for loan losses shown, and to
be shown, on the balance sheets contained in the Panasia Financials have been,
and will be, established in accordance with generally accepted accounting
principles and all applicable regulatory criteria.
2.18 Information to be Supplied. The information supplied by Panasia for
inclusion in the Panasia Proxy Statement will not, as of the date the Panasia
Proxy Statement is mailed to stockholders of Panasia and up to and including the
date of the Panasia Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances in which they were
made, not misleading. The information supplied by Panasia for inclusion in the
Applications will, at the time such documents are filed with any Regulatory
Authority and up to and including the dates of any required regulatory approvals
or consents, as it may be amended by subsequent filings, be accurate in all
material respects.
2.19 Related Party Transactions. Except as disclosed on Panasia Disclosure
Schedule 2.19, or as is disclosed in the footnotes to the Panasia Financials, as
of the date hereof, Panasia is not a party to any transaction (including any
loan or other credit accommodation but excluding deposits in the ordinary course
of business) with any Affiliate of Panasia; and all such transactions were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons (as
defined in Section 13(d) of the Exchange Act, and the rules and regulations
thereunder), except with respect to variations in such terms as would not,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth on Panasia Disclosure Schedule
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2.19, as of the date hereof, no loan or credit accommodation to any Affiliate of
Panasia is presently in default or, during the three- year period prior to the
date of this Agreement, has been in material default or has been restructured,
modified or extended in any manner which would have a Material Adverse Effect.
To the Knowledge of Panasia, as of the date hereof, principal and interest with
respect to any such loan or other credit accommodation will be paid when due and
the loan grade classification accorded such loan or credit accommodation is
appropriate.
2.20 Loans. Each loan reflected as an asset in the Panasia Financials (a)
is evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and correct, and (b) to the extent secured, has been secured by
valid liens and security interests which have been perfected, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect.
2.21 Year 2000 Compliance. Panasia is in compliance in all material
respects with the Year 2000 compliance guidelines established by the FDIC and
the safety and soundness and other guidelines for Year 2000 business risk issued
from time to time by the Federal Financial Institutions Examination Council.
Panasia has received a rating of "satisfactory" or better from the FDIC in its
most recent Year 2000 examination. To the Knowledge of Panasia, there is no fact
or circumstance or set of facts or circumstances which would cause Panasia to
fail to comply with such provisions in a manner which would have a Material
Adverse Effect. All software, hardware, embedded microchips and other processing
capabilities utilized by and material to the operations of Panasia are able to
interpret, process, manage and manipulate data involving all calendar dates
correctly, including single century formulas and multi-century formulas, all
leap years, and all dates on or after January 1, 2000, including February 29,
2000. Panasia's computer systems function correctly for purposes of date and
time calculations.
2.22 Quality of Representations. No representation made by Panasia in this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements made, in the light of the
circumstances in which they were made, not misleading in any material respect.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NPB
NPB hereby represents and warrants to Panasia as follows:
3.01 Organization.
(a) NPB is a corporation duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. NPB is a bank
holding company duly registered under the Bank Holding Company Act of 1956, as
amended. NPB has the corporate power to carry on its businesses and operations
as now being conducted and to own and operate the properties and assets now
owned and being operated by it. NPB is duly licensed, registered or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing, registration or qualification necessary, except
where the failure to be so licensed, registered or qualified will not have a
Material Adverse Effect, and all such licenses, registrations and qualifications
are in full force and effect in all material respects.
(b) NPB/NJ is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of New Jersey.
3.02 Authority; No Violation.
(a) NPB has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. NPB/NJ has
full corporate power and authority to execute and deliver the Plan and to
consummate the Acquisition. The execution and delivery of this Agreement by NPB
and the consummation by NPB of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of NPB, and no other
corporate proceedings on the part of NPB are necessary to consummate the
transactions contemplated hereby. The execution and delivery of the Plan by
NPB/NJ and the consummation by NPB/NJ of the Acquisition have been duly and
validly approved by the Board of Directors of NPB/NJ, and no other corporate
proceedings on the part of NPB/NJ are necessary to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by NPB and, subject to receipt of the required approvals
of Regulatory Authorities described in Section 3.03 hereof, constitutes the
valid and binding obligation of NPB, enforceable against NPB in accordance with
its terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity. The Plan, upon its execution and delivery by
NPB/NJ concurrently with the
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execution and delivery of this Agreement, will, subject to receipt of the
required approvals of Regulatory Authorities described in Section 3.03 hereof,
constitute the valid and binding obligation of NPB/NJ, enforceable against
NPB/NJ in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity.
(b) (1) The execution and delivery of this Agreement by NPB, (2) the
execution and delivery of the Plan by NPB/NJ, (3) subject to receipt of
approvals from the Regulatory Authorities referred to in Section 3.03 hereof and
NPB's, NPB/NJ's and Panasia's compliance with any conditions contained therein,
the consummation of the Acquisition, and (4) compliance by NPB or NPB/NJ with
any of the terms or provisions hereof, does not and will not: (i) conflict with
or result in a breach of any provision of the respective articles or certificate
of incorporation or bylaws of NPB or NPB/NJ; (ii) violate any statute, rule,
regulation, judgment, order, writ, decree or injunction applicable to NPB or
NPB/NJ or any of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, or acceleration of the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of NPB or NPB/NJ under, any of the terms or conditions of
any note, bond, mortgage, indenture, license, lease, agreement, commitment or
other instrument or obligation to which NPB or NPB/NJ is a party, or by which
they or any of their respective properties or assets may be bound or affected,
excluding from clauses (ii) and (iii) any such items which, in the aggregate,
would not have a Material Adverse Effect.
3.03 Consents. Except for consents and approvals of, or filings with, the
FRB and the NJDBI, no consents or approvals of, or filings or registrations
with, any public body or authority are necessary in connection with the
execution and delivery of this Agreement by NPB or the Plan by NPB/NJ or the
consummation of the Acquisition. To the Knowledge of NPB, there are no facts or
circumstances which would prohibit NPB from obtaining the approvals required
hereunder.
3.04 Financial Statements.
(a) NPB has delivered to Panasia the NPB Financials, except those
pertaining to quarterly periods commencing after September 30, 1999, which it
will deliver to ENB within 45 days after the end of the respective quarter. The
delivered NPB Financials fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of NPB as
of and for the periods ended on the dates thereof, in accordance with
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generally accepted accounting principles consistently applied, except in each
case as noted therein and, in the case of interim period financial statements,
subject to normal year-end adjustments and footnotes thereto.
(b) To the Knowledge of NPB, NPB did not have any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not fully reflected or reserved against in the balance sheets included
in the NPB Financials at the date of such balance sheets which would have been
required to be reflected therein in accordance with generally accepted
accounting principles consistently applied or disclosed in a footnote thereto,
except for liabilities and obligations which were incurred in the ordinary
course of business consistent with past practice, and except for liabilities and
obligations which are within the subject matter of a specific representation and
warranty herein or which otherwise have not had a Material Adverse Effect.
3.05 No Material Adverse Change. NPB has not suffered any adverse change in
its assets, business, financial condition or results of operations since
September 30, 1999, which change has had a Material Adverse Effect.
3.06 Financing. At the Effective Date, NPB will have available, and will
provide to NPB/NJ, cash sufficient for NPB/NJ to pay the amounts required to be
paid to Panasia stockholders and holders of Panasia Stock Options, pursuant to
this Agreement and the Plan, upon consummation of the Acquisition.
3.07 Legal Proceedings. Neither NPB nor any NPB Subsidiary is a party to
any, and there are no pending or, to the Knowledge of NPB, threatened, legal,
administrative, arbitration or other proceedings, claims, actions, customer
complaints, or governmental investigations or inquiries of any nature (a)
against NPB or any NPB Subsidiary, (b) to which the assets of NPB or any NPB
Subsidiary are subject, (c) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (d) which could materially
adversely affect the ability of NPB to perform its obligations under this
Agreement, except for any proceedings, claims, actions, investigations, or
inquiries referred to in clauses (a) or (b) which, individually or in the
aggregate, will not have a Material Adverse Effect.
3.08 Compliance with Applicable Law.
(a) NPB and its Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any Regulatory Authority relating to
them, other than where such failure to hold or such noncompliance will neither
result in a limitation in any material respect on the conduct of
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their respective businesses nor otherwise have a Material Adverse Effect.
(b) NPB and its Subsidiaries have filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file with any Regulatory Authority, and have
filed all other reports and statements required to be filed by them, including
without limitation any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state or any Regulatory
Authority, and have paid all fees and assessments due and payable in connection
therewith, except where the failure to file such report, registration or
statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect.
(c) No Regulatory Authority has initiated any proceeding or, to the
Knowledge of NPB, investigation into the businesses or operations of NPB or any
of its Subsidiaries, except where any such proceedings or investigations will
not, individually or in the aggregate, have a Material Adverse Effect, or such
proceedings or investigations have been terminated or otherwise resolved.
(d) Neither NPB nor any NPB Subsidiary has received any notification or
communication from any Regulatory Authority (1) asserting that NPB or any NPB
Subsidiary has not complied with any of the statutes, regulations or ordinances
which such Regulatory Authority enforces, unless such assertion has been waived,
withdrawn or otherwise resolved; (2) threatening to revoke any license,
franchise, permit or governmental authorization which is material to NPB or any
NPB Subsidiary; (3) requiring or threatening to require NPB or any NPB
Subsidiary or indicating that NPB or any NPB Subsidiary may be required, to
enter into a cease and desist order, agreement or memorandum of understanding or
any other agreement restricting or limiting, or purporting to restrict or limit,
in any manner the operations of NPB or any NPB Subsidiary; or (4) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of NPB or any NPB Subsidiary (any such notice,
communication, memorandum, agreement or order described in this sentence herein
referred to as a "Regulatory Agreement") in each case except as would not have a
Material Adverse Effect. Neither NPB nor any NPB Subsidiary has received,
consented to, or entered into any Regulatory Agreement which would have,
individually or in the aggregate, a Material Adverse Effect.
(e) To the Knowledge of NPB, there is no unresolved violation, criticism,
or exception by any Regulatory Authority with respect to any Regulatory
Agreement which if resolved in a manner adverse to NPB would have a Material
Adverse Effect.
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(f) There is no injunction, order, judgment or decree imposed upon NPB or
any NPB Subsidiary or the assets of NPB or any NPB Subsidiary which has had, or,
to the Knowledge of NPB, will have, a Material Adverse Effect.
3.09 CRA Compliance. NP Bank is in compliance in all material respects with
the applicable provisions of the CRA, and, as of the date hereof, NP Bank has
received a CRA rating of "satisfactory" or better from the OCC. To the Knowledge
of NPB, there is no fact or circumstance or set of facts or circumstances which
would cause NP Bank to fail to comply with such provisions in a manner which
would have a Material Adverse Effect.
3.10 Information to be Supplied. The information supplied by NPB for
inclusion in the Panasia Proxy Statement will not, as of the date the Panasia
Proxy Statement is mailed to stockholders of Panasia and up to and including the
date of the Panasia Stockholders Meeting to which such Panasia Proxy Statement
relates, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances in which they were made, not misleading. The
information supplied by NPB for inclusion in the Applications will, at the time
such documents are filed with any Regulatory Authority and up to and including
the dates of any required regulatory approvals or consents, as it may be amended
by subsequent filings, be accurate in all material respects.
3.11 Year 2000 Compliance. NPB and its Subsidiaries are in compliance in
all material respects with the Year 2000 compliance guidelines established by
the OCC and the safety and soundness and other guidelines for Year 2000 business
risk issued from time to time by the Federal Financial Institutions Examination
Council. NP Bank received a rating of "satisfactory" or better from the OCC in
its most recent Year 2000 examination. To the Knowledge of NPB, there is no fact
or circumstance or set of facts or circumstances which would cause NPB to fail
to comply with such provisions in a manner which would have a Material Adverse
Effect. All software, hardware, embedded microchips and other processing
capabilities utilized by and material to the operations of NPB and its
Subsidiaries are able to interpret, process, manage and manipulate data
involving all calendar dates correctly, including single century formulas and
multi-century formulas, all leap years, and all dates on or after January 1,
2000, including February 29, 2000. NPB's and its Subsidiaries' computer systems
function correctly for purposes of date and time calculations.
3.12 Securities Documents. NPB has delivered to Panasia copies of its (a)
annual reports on SEC Form 10-K for the years ended December 31, 1998 and 1997,
(b) quarterly reports on SEC Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999, and September 30, 1999, and all other reports filed with the SEC
since January 1, 1999, and (c) proxy materials used in connection with
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its meetings of shareholders held in 1999 and 1998. Such reports and proxy
materials complied, in all material respects, and any future SEC reports,
filings, and proxy materials will comply, in all material respects, with the
rules and regulations of the SEC to the extent applicable thereto, and all such
SEC reports, filings and proxy materials did not and will not, at the times of
such filings, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading.
3.13 Quality of Representations. No representation made by NPB in this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements made, in the light of the
circumstances in which they were made, not misleading in any material respect.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Conduct of Panasia's Business. Through the Closing Date, Panasia shall
in all material respects conduct its businesses and engage in transactions only
in the ordinary course and consistent with past practice, except as otherwise
required by this Agreement or with the written consent of NPB. Panasia shall use
its reasonable good faith efforts to preserve its business organization intact,
maintain good relationships with employees, and preserve the good will of
customers of Panasia and others with whom business relationships exist. Through
the Closing Date, except as otherwise consented to in writing by NPB (such
consent shall not be unreasonably withheld) or as permitted by this Agreement,
Panasia shall not:
(a) change any provision of its certificate of incorporation or bylaws;
(b) change the number of authorized or issued shares of its capital stock,
repurchase any shares of capital stock, or issue or grant any option, warrant,
call, commitment, subscription, Right or agreement of any character relating to
its authorized or issued capital stock or any securities convertible into shares
of capital stock, or declare, set aside or pay any dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any
shares of Panasia capital stock, except that Panasia may issue up to an
aggregate of 39,000 shares of Panasia Common Stock upon the valid exercise of
any Panasia Stock Options issued and outstanding on the date hereof;
(c) grant any severance or termination pay, other than pursuant to policies
or agreements of Panasia in effect on the date
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hereof, to, or enter into or amend any employment, consulting, severance,
"change-in-control" or termination contract or arrangement with, any officer,
director, employee, independent contractor, agent or other person associated
with Panasia;
(d) except for (i) routine periodic pay increases, merit pay increases and
pay-raises in connection with promotions, all in accordance with past practice,
and (ii) retention bonuses granted to Panasia employees in an aggregate amount
not exceeding $35,000 (payment of which shall be conditioned on the recipient
remaining a Panasia employee through the Closing Date, and thereafter, through
the earlier of the date of conversion of Panasia's operating system to that of
NP Bank or the date 90 days after Closing), increase the rate of compensation
of, or pay any bonus to, any director, officer, employee, independent
contractor, agent or other person associated with Panasia; or grant job
promotions other than in accordance with past practice;
(e) merge or consolidate Panasia with any other corporation; sell or lease
all or any substantial portion of the assets or businesses of Panasia; make any
acquisition of all or any substantial portion of the business or assets of any
other person, firm, association, corporation or business organization; relocate
or surrender its certificate of authority to maintain, or file an application
for the relocation of, any existing branch office; or file an application for a
certificate of authority to establish a new branch office;
(f) sell or otherwise dispose of any material asset of Panasia, other than
in the ordinary course of business, consistent with past practice; subject any
asset of Panasia to a lien, pledge, security interest or other encumbrance,
other than in the ordinary course of business consistent with past practice;
modify in any material manner the manner in which Panasia has heretofore
conducted its business or enter into any new line of business; incur any
indebtedness for borrowed money, except in the ordinary course of business,
consistent with past practice;
(g) take any action which would result in any of the conditions set forth
in Article V hereof not being satisfied;
(h) change any method, practice or principle of accounting, except as
required by changes in generally accepted accounting principles concurred in by
its independent certified public accountants; or change any assumption
underlying, or any method of calculation of, depreciation of any type of asset
or establishment of any reserve;
(i) waive, release, grant or transfer any rights of material value or
modify or change in any material respect any existing agreement to which Panasia
is a party, other than in the ordinary course of business, consistent with past
practice;
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(j) implement any pension, retirement, profit sharing, bonus, welfare
benefit or similar plan or arrangement that was not in effect on the date of
this Agreement, or amend any existing plan or arrangement except as required by
law;
(k) amend or otherwise modify the underwriting and other lending guidelines
and policies of Panasia in effect as of the date hereof or otherwise fail to
conduct its lending activities in the ordinary course of business consistent
with past practice;
(l) enter into, renew, extend or modify any other transaction with any
Affiliate, other than deposit and loan transactions in the ordinary course of
business and which are in compliance with the requirements of applicable laws
and regulations, except as to any transaction disclosed on Panasia Disclosure
Schedule 2.19;
(m) enter into any interest rate swap, floor or cap or similar commitment,
agreement or arrangement;
(n) take any action that would give rise to a right of payment to any
individual under any employment agreement except in the ordinary course of
business consistent with past practice;
(o) purchase any security for its investment portfolio (1) rated less than
"AAA" by either Standard & Poor's Corporation or Moody's Investor Services,
Inc., or (2) with a remaining maturity more than five (5) years;
(p) make any capital expenditure of $50,000 or more; or undertake or enter
into any lease, contract or other commitment for its account, other than in the
ordinary course of business, involving an unbudgeted expenditure by Panasia of
more than $25,000, or extending beyond twelve (12) months from the date hereof;
or
(r) agree to do any of the foregoing.
4.02 Access; Confidentiality.
(a) Through the Closing Date, Panasia shall afford to NPB, including its
authorized agents and representatives, reasonable access to its properties,
assets, books and records and personnel, at reasonable hours and after
reasonable notice; and the officers of Panasia shall furnish NPB, including its
authorized agents and representatives, with such financial and operating data
and other information with respect to the businesses, properties, assets, books
and records and personnel as NPB, or its authorized agents and representatives,
shall from time to time reasonably request.
(b) NPB agrees that it, and its authorized agents and representatives, will
conduct such investigation and discussions hereunder in a confidential manner
and otherwise in a manner so as
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not to interfere unreasonably with Panasia's normal operations and customer and
employee relationships. Panasia shall not be required to provide access to or
disclose information where such access or disclosure would violate or prejudice
the rights of customers, jeopardize attorney-client privilege or similar
privilege with respect to such information or contravene any law, rule,
regulation, decree, order, fiduciary duty or agreement entered into prior to the
date hereof.
(c) All information furnished to NPB by Panasia in connection with the
transactions contemplated by this Agreement, whether prior to the date of this
Agreement or subsequent hereto, shall be held in confidence to the extent
required by, and in accordance with, the confidentiality agreement dated
December 27, 1999 between NPB and Panasia (the "Confidentiality Agreement").
4.03 Regulatory Matters. Through the Closing Date:
(a) NPB and Panasia shall cooperate with one another in the preparation of
the Panasia Proxy Statement and all Applications and the making of all filings
for, and shall use their reasonable best efforts to obtain, as promptly as
practicable, all necessary permits, consents, approvals, waivers and
authorizations of all Regulatory Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement. Each of NPB and
Panasia shall give the other reasonable time to review any Application to be
filed by it prior to the filing of such Application with the relevant Regulatory
Authority, and each shall consult one another with respect to the substance and
status of such filings.
(b) Panasia and NPB shall each promptly furnish the other with copies of
written communications to, or received by them from, any Regulatory Authority in
respect of the transactions contemplated hereby.
(c) Panasia and NPB shall cooperate with each other in the foregoing
matters and shall furnish the other with all information concerning itself as
may be necessary or advisable in connection with any Application or filing,
including the Panasia Proxy Statement and any report filed with the SEC, made by
or on behalf of such party to or with any Regulatory Authority in connection
with the transactions contemplated by this Agreement, and in each such case,
such information shall be accurate and complete in all material respects. In
connection therewith, Panasia and NPB shall use their reasonable good faith
efforts to provide each other certificates and other documents reasonably
requested by the other.
4.04 Taking of Necessary Actions. Through the Closing Date, in addition to
the specific agreements contained herein, each party hereto shall use reasonable
best efforts to take, or in the case of NPB, cause to be taken by each of its
Subsidiaries, all actions,
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and to do, or in the case of NPB, cause to be done by each of its Subsidiaries,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this Agreement
including, if necessary, appealing any adverse ruling in respect of any
Application.
4.05 No Solicitation. Panasia shall not, nor shall it authorize or permit
any of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it to,
initiate, solicit, encourage (including by way of furnishing information), or
take any other action to facilitate, any inquiries or the making of any proposal
which constitutes any Acquisition Proposal (as defined herein), or enter into or
maintain or continue discussions or negotiate with any person in furtherance of
an Acquisition Proposal, or agree to or endorse any Acquisition Proposal, and
Panasia shall (unless it believes such notification would violate the Panasia
Board of Directors' fiduciary duties) notify NPB as promptly as practicable, in
reasonable detail, as to any inquiries and proposals which it or any of its
representatives or agents may receive; provided, however, that, notwithstanding
anything to the contrary contained in this Agreement, (1) Panasia may furnish or
cause to be furnished confidential and non-public information concerning Panasia
and its businesses, properties or assets to a third party, (2) Panasia may
engage in discussions or negotiations with a third party, (3) following receipt
of an Acquisition Proposal, Panasia may take and disclose to its stockholders a
position with respect to such Acquisition Proposal, and/or (4) following receipt
of an Acquisition Proposal, the Panasia Board of Directors may withdraw or
modify its recommendation of the Acquisition, but in respect of the foregoing
clause (4) only to the extent that the Panasia Board of Directors shall conclude
in good faith after consultation with its legal counsel and financial advisors,
and based upon the written advice of its legal counsel, that failure to do so
would result in a breach of their fiduciary duties to Panasia's stockholders. As
used herein, the term "Acquisition Proposal" means the public announcement of a
bona fide proposal (including a written communication that is or becomes the
subject of public disclosure) for: (x) any merger, consolidation or acquisition
of all or substantially all the assets or liabilities of Panasia or any other
business combination involving Panasia; or (y) a transaction involving the
transfer of beneficial ownership of securities representing, or the right to
acquire beneficial ownership or to vote securities representing, 10% or more of
the then outstanding shares of Panasia Common Stock.
4.06 Update of Panasia Disclosure Schedule. Through the Closing Date,
Panasia shall update the Panasia Disclosure Schedule as promptly as practicable
after the occurrence of any event which, if such event had occurred prior to the
date hereof, would have been disclosed on such schedule.
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4.07 Other Undertakings by NPB and Panasia.
(a) Undertakings of NPB and Panasia.
(1) Filings and Approvals. NPB and Panasia shall cooperate with each
other in the preparation and filing, as soon as practicable, of (i) the
Applications, (ii) the Panasia Proxy Statement, and (iii) all other documents
necessary to obtain any other approvals and consents required to effect
consummation of the transactions contemplated by this Agreement.
(2) Public Announcements. NPB and Panasia shall agree upon the form
and substance of any press release related to this Agreement and the
transactions contemplated hereby, but nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which its counsel deems necessary under applicable law.
(b) Undertakings of Panasia.
(1) Stockholder Approval. Panasia shall submit this Agreement and the
Plan to its stockholders for approval at the Panasia Stockholders Meeting, with
the recommendation of Panasia's Board of Directors to such stockholders to
approve such agreements. The Panasia Stockholders Meeting may, in Panasia's sole
discretion, be held after all consents of any Regulatory Authorities have been
obtained. If any such consent has not been obtained prior to the date
established in the Panasia Proxy Statement for such meeting, such meeting may be
postponed or adjourned at the sole discretion of Panasia. The Panasia
Stockholders Meeting shall be held not later than 45 days after all consents of
Regulatory Authorities have been received and all other conditions have been
satisfied or waived (other than those conditions which are to be fulfilled at
the Closing).
(2) Phase I Environmental Audit. Panasia shall permit NPB, if NPB
elects to do so, at its own cost and expense, to cause a "phase I environmental
audit" to be performed at any physical location owned or occupied by Panasia.
(3) Delivery of Financial Statements. Panasia shall deliver to NPB, as
soon as practicable after the end of each month and after the end of each
calendar quarter prior to the Effective Date, commencing with the month ended
January 31, 2000, an unaudited balance sheet as of such date and related
unaudited statements of income and cash flows for the periods then ended, which
financial statements shall fairly present, in all material respects, Panasia's
financial condition, results of operations and cash flows for the periods then
ended in accordance with generally accepted accounting principles, except as
noted therein and subject to year-end audit adjustments and footnotes.
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(4) Reserves and Acquisition-Related Costs. On or before the Effective
Date, establish such additional accruals and reserves as may be necessary to
conform Panasia's accounting reserve practices and methods (including credit
loss practices and methods) to those of NPB and otherwise to reflect
Acquisition- related expenses and costs incurred by Panasia (including
professional fees and expenses), in each case on a mutually satisfactory basis
and in accordance with generally accepted accounting principles and any
applicable regulatory requirements, provided, however, that Panasia shall not be
required to take such actions until such time as NPB shall acknowledge in
writing that all conditions to NPB's and Panasia's respective obligations to
consummate the Acquisition (and NPB's and Panasia's respective rights to
terminate this Agreement for any reason) have been waived or satisfied, and that
in all circumstances Panasia shall take such actions at such time as shall be
mutually agreed to by NPB and Panasia but not later than immediately prior to
the time the Acquisition becomes effective. No action taken by Panasia in
accordance with this Section 4.07(b)(4) shall constitute or be deemed to be a
breach or violation of any representation, warranty, covenant, condition or
other provision of this Agreement, and NPB agrees to indemnify Panasia's
officers, directors and agents with respect to such adjustments.
(5) Maintenance of Insurance. Panasia shall maintain insurance in such
amounts as Panasia, as the insured, believes are reasonable to cover such risks
as are customary in relation to the character and location of its properties and
the nature of its businesses.
(6) Maintenance of Books and Records. Panasia shall maintain books of
account and records on a basis consistent with past practice.
(7) Taxes. Panasia shall file all federal, state, and local tax
returns required to be filed by it on or before the date such returns are due,
including any extensions, and pay all taxes shown to be due on such returns on
or before the dates such payments are due, except those being contested in good
faith.
(8) Outside Service Bureau Contracts. Subject to any applicable legal
requirements, through the Effective Date, Panasia shall (i) cooperate with NPB,
in the interest of an orderly, cost- effective consolidation of operations, in
the termination of any contract or arrangement Panasia may have with an outside
service bureau or other vendor of services, and (ii) substitute a contract or
arrangement between NPB or NP Bank (as NPB shall elect) and Panasia for the
provision of similar services to Panasia on terms and conditions mutually
acceptable to Panasia and NPB.
(9) In-House Operations. Subject to any applicable legal requirements,
through the Effective Date, Panasia shall (i)
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cooperate with NPB, in the interest of an orderly, cost-effective consolidation
of operations, in the termination of any in-house back office, support,
processing or other operational activities of Panasia, and (ii) substitute a
contract or arrangement between NPB or NP Bank (as NPB shall select) and Panasia
for the provision of similar services to Panasia on terms and conditions
mutually acceptable to Panasia and NPB.
(c) Undertakings of NPB.
(1) Delivery of SEC Documents. NPB shall deliver to Panasia copies of
all reports filed with the SEC under the Exchange Act promptly upon the filing
thereof.
(2) Employees, Severance Policy. NPB will endeavor to continue the
employment of all current employees of Panasia in positions that will contribute
to the successful performance of the combined organization. Where there is a
coincidence of responsibilities, NPB will try to reassign the affected
individual to a needed position that utilizes the skills and abilities of the
individual. If that is impracticable or if NPB elects to eliminate a position,
NPB will make severance payments to the displaced employee as set forth herein.
NPB will also make severance payments to an employee who declines a position
that requires re- location more than 25 miles from his current place of
employment. If a Panasia employee accepts a position that requires relocation of
more than 25 miles from his current place of employment, NPB will reimburse him
for documented relocation expenses, up to a maximum of $5,000. Subject to the
following minimum and maximum benefits, NPB will grant an eligible employee one
week of severance pay (at his then current pay rate) for each year of an
employee's service with Panasia prior to the employment termination date. The
minimum benefit shall be four weeks' salary for full-time employees, which will
be pro-rated for part-time employees. The maximum severance benefit will be
seven weeks' salary. All employees of Panasia on the date hereof will be
eligible for these severance benefits, except that no employee of Panasia who
shall receive any payments or benefits pursuant to any "change in control"
agreement or similar plan or right shall be eligible for any severance benefits.
Persons eligible for relocation or severance benefits will remain eligible for
such benefits in the event of any relocation or termination of employment other
than for "cause" within three months of the Effective Date. Any person whose
employment with NPB is terminated by NPB without "cause" after three months from
the Effective Date shall receive such severance benefit from NPB as is provided
for in NPB's general severance policy for such terminations (with full credit
being given for each year of service with Panasia). For purposes of this Section
4.07(c)(2), "cause" shall mean the employer's good faith reasonable belief that
the employee committed fraud, theft, embezzlement, falsified corporate records,
disseminated confidential information concerning customers, NPB, any NPB
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Subsidiary or any of its or their employees, had documented unsatisfactory job
performance under NPB's dismissal policy, or violated NPB's Code of Conduct. The
foregoing definition of "cause" is the definition of "cause" used by NPB and its
Subsidiaries in the ordinary course of its business.
(3) Employee Benefits. The employee benefits provided to former
employees of Panasia after the Effective Date shall be, in the aggregate, at
least as favorable as the employee benefits provided by Panasia to its employees
prior to the Effective Date. Subject to the foregoing, after the Effective Date,
NPB or any NPB Subsidiary may discontinue, amend or convert to an NPB or an NPB
Subsidiary plan any particular benefit or welfare plan of Panasia, subject to
such plan's provisions and applicable law.
(4) Panasia Board of Directors. On the Effective Date, NPB and NPB/NJ
shall take all necessary corporate action to cause the following persons to
serve as directors of Panasia as of the Effective Date: (i) three persons
selected by Panasia's Board of Directors, subject to approval by NPB (which
approval will not be unreasonably withheld) (collectively, the "Panasia
Designees"); (ii) three persons selected by NPB, in its discretion, from among
the senior officers of NPB or NP Bank; and three persons selected by NPB, in its
discretion, from among the members of NP Bank's National Asian Bank Divisional
Board of Directors. NPB and NPB/NJ shall also take all necessary corporate
action to re-elect each Panasia Designee as a Panasia director for each of the
three years following the Effective Date, if such person is in office as a
Panasia director on the annual election dates. Panasia Designees who are not
employees of Panasia shall receive annual director compensation equal to the
annual director compensation paid by Panasia as of the date hereof.
(5) Panasia Charter. For three years following the Effective Date, NPB
and NPB/NJ shall cause Panasia to maintain a bank charter separate from that of
NP Bank or any other NPB Subsidiary, provided, however, that this shall not
prohibit NPB, in its discretion, from causing the charter of Panasia to be
converted from a state to a national bank charter.
(6) Combination With National Asian Bank Division.
(i) Upon consummation of the Acquisition and subject to
compliance with all applicable legal requirements, including approval of
Regulatory Authorities, NPB intends to cause NP Bank's National Asian Bank
Division (the "NAB Division") to be combined with Panasia (the "NAB/Panasia
Combination"). The NAB Division presently consists of two branch banking offices
located at 1349 West Cheltenham Avenue, Elkins Park, Montgomery County,
Pennsylvania, and 600-636 Washington Avenue, Philadelphia, Pennsylvania, and
related assets, loans and deposits. Upon completion of the NAB/Panasia
Combination, it is NPB's intent to
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utilize Panasia in the expansion of NPB's branch banking system into
geographical areas with high Asian population not presently served by Panasia or
NAB, either by the opening of de novo branches or by the acquisition of deposits
and assets.
(ii) Upon consummation of the NAB/Panasia Combination, NPB
intends to cause Panasia to establish a Panasia (New York Metro) Division and a
related Division Board (the "Panasia/NYM Board") and a Panasia (Philadelphia)
Division and a related Division Board (the "Panasia/Phila. Board"). The
Panasia/NYM Board shall consist of the members of Panasia's Board of Directors
at the Effective Date, NPB or NP Bank senior officers selected by NPB, and such
other persons as the Panasia/NYM Board shall select from time to time. NPB
anticipates that the Panasia/NYM Board and the Panasia/Phila. Board will each
emphasize sales, marketing and expansion. Panasia's current non-employee
directors who become members of the Panasia/NYM Board shall receive compensation
equal to $250 per meeting attended.
(iii) Upon consummation of the NAB/Panasia Combination, NPB
intends to cause Panasia to make one or more public offerings of shares of its
common stock. Such offerings may be made in conjunction with Panasia's expansion
of its business into new geographical areas with substantial Korean-Asian
population such as the Washington, D.C. area. NPB intends, in any such offering,
to permit persons who are then Panasia directors, members of the Panasia/NYM
Board or the Panasia/Phila. Board, or Panasia employees, to purchase shares of
Panasia stock at a five percent (5%) discount from the price offered to the
general public. If Panasia shall set a maximum number of shares that may be
purchased by any single purchaser in any such offering, that limit shall apply
to all purchasers, including any persons eligible for the purchase price
discount. Further, it is not NPB's intent to offer the discount if Panasia's
underwriter or financial advisor shall advise that doing so will adversely
affect the success of the offering.
(7) Limitation of Liability, Insurance.
(i) NPB shall cause Panasia to keep in effect the provision in
its certificate of incorporation providing for exculpation of director and
officer liability, which provision shall not be amended except as required by
applicable law.
(ii) NPB shall (and Panasia shall cooperate and assist prior to
the Effective Date in these efforts), at no expense to the beneficiaries, (1)
maintain directors' and officers' liability insurance ("D&O Insurance") for the
directors and officers of Panasia (each, an "Insured Party") with respect to
matters occurring at or prior to the Effective Date, issued by a carrier or
carriers assigned a claims-paying ability rating by A.M. Best & Co. of "A
(Excellent)" or higher, or (2) obtain coverage for
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actions or omissions or alleged actions or omissions occurring at or prior to
the Effective Date (including the transactions contemplated by this Agreement)
for the Insured Parties under the directors' and officers' liability insurance
policy currently maintained by NPB, in either case, providing at least the same
coverage as the D&O Insurance currently maintained by Panasia and containing
terms and conditions which are no less favorable to the beneficiaries, for a
period of at least six (6) years from the Effective Date; provided, that NPB
shall not be obligated to make premium payments for such six-year period in
respect of the D&O Insurance which exceed, for the portion related to Panasia's
directors and officers, 150 percent of the annual premium payments ($16,214 at
the date hereof) of Panasia's current policy in effect as of the date of this
Agreement (the "Maximum Amount"). If the amount of the premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, NPB
shall use its reasonable best efforts to maintain the most advantageous policies
of directors' and officers' liability insurance obtainable for a premium equal
to the Maximum Amount.
(iii) If any claim is made against present or former directors or
officers of Panasia, neither NPB nor Panasia shall do anything that would
forfeit, jeopardize, restrict or limit the insurance coverage available for that
claim until the final disposition thereof.
(iv) If NPB or any of its successors or assigns shall consolidate
with or merge into any other person and shall not be the continuing or surviving
person of such consolidation or merger or shall transfer all or substantially
all of its assets to any person, then and in each case, proper provision shall
be made so that the successors and assigns of NPB shall assume the obligations
set forth in this Section 4.07(c)(7).
(v) The provisions of this Section 4.07(c)(7) are intended to be
for the benefit of and shall be enforceable by, each Insured Party, his or her
heirs and representatives.
(vi) NPB shall pay all expenses, including reasonable attorneys'
fees, that may be incurred by any Insured Party in enforcing the obligations
provided for in this Section 4.07(c)(7).
ARTICLE V
CONDITIONS
5.01 Conditions to Panasia's Obligations under this Agreement. The
obligations of Panasia hereunder shall be subject to satisfaction at or prior to
the Closing Date of each of the
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following conditions, unless waived by Panasia pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, NPB and NPB/NJ to authorize the execution, delivery and performance of
this Agreement and the Plan and the consummation of the Acquisition, shall have
been duly and validly taken by NPB and NPB/NJ; and Panasia shall have received
certified copies of the resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of NPB and NPB/NJ required
by this Agreement to be performed by NPB or NPB/NJ at or prior to the Closing
Date shall have been duly performed and complied with in all material respects;
and the representations and warranties of NPB set forth in this Agreement shall
be true and correct in all material respects, as of the date of this Agreement,
and as of the Closing Date as though made on and as of the Closing Date, except
as to any representation or warranty which specifically relates to an earlier
date and except as to any representation or warranty to the extent the breach of
such representation or warranty does not have a Material Adverse Effect.
(c) Approvals of Regulatory Authorities. Panasia and NPB shall have
obtained all requisite approvals and consents of Regulatory Authorities, and the
statutory waiting period or periods relating thereto for the Acquisition shall
have expired; provided, however, that no such approval or consent shall have
imposed any condition or requirement (other than conditions or requirements
previously disclosed) which would so materially and adversely impact the
economic or business benefits to Panasia or NPB of the transactions contemplated
by this Agreement that, had such condition or requirement been known, such party
would not, in its reasonable judgment, have entered into this Agreement.
(d) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated by this Agreement.
(e) Officer's Certificate. NPB shall have delivered to Panasia a
certificate, dated the Closing Date and signed, without personal liability, by
its Chairman or President, to the effect that the conditions set forth in
subsections (a) through (d) of this Section 5.01 have been satisfied.
(f) Approval by Panasia's Stockholders. This Agreement and the Plan shall
have been approved by the stockholders of Panasia by such vote as is required
under the applicable laws of the State of New Jersey and by the certificate of
incorporation and bylaws of Panasia.
34
<PAGE>
(g) Employment Agreements. NPB shall have delivered to Panasia its written
approval of Panasia's execution and delivery of the employment agreements with
Moon S. Yang and Young Jai Lee in the forms attached hereto as Exhibits 4 and 5,
respectively.
5.02 Conditions to NPB's Obligations under this Agreement. The obligations
of NPB hereunder shall be subject to satisfaction at or prior to the Closing
Date of each of the following conditions, unless waived by NPB pursuant to
Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, Panasia to authorize the execution, delivery and performance of this
Agreement and the Plan and the consummation of the Acquisition, shall have been
duly and validly taken by Panasia; and NPB shall have received certified copies
of the resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of Panasia required by this
Agreement to be performed by Panasia at or prior to the Closing Date shall have
been duly performed and complied with in all material respects; and the
representations and warranties of Panasia set forth in this Agreement shall be
true and correct in all material respects, as of the date of this Agreement, and
as of the Closing Date as though made on and as of the Closing Date, except as
to any representation or warranty which specifically relates to an earlier date
and except as to any representation or warranty to the extent the breach of such
representation or warranty does not have a Material Adverse Effect.
(c) Approvals of Regulatory Authorities. Panasia and NPB shall have
obtained all requisite approvals and consents of Regulatory Authorities, and the
statutory waiting period or periods relating thereto for the Acquisition shall
have expired; provided, however, that no such approval or consent shall have
imposed any condition or requirement (other than conditions or requirements
previously disclosed) which would so materially and adversely impact the
economic or business benefits to NPB or Panasia of the transactions contemplated
by this Agreement that, had such condition or requirement been known, such party
would not, in its reasonable judgment, have entered into this Agreement.
(d) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated by this Agreement.
(e) Officer's Certificate. Panasia shall have delivered to NPB a
certificate, dated the Closing Date and signed, without personal liability, by
its Chairman or President, to the effect that the conditions set forth in
subsections (a) through (d) of this Section 5.02 have been satisfied.
35
<PAGE>
(f) Approval by Panasia's Stockholders. This Agreement and the Plan shall
have been approved by the stockholders of Panasia by such vote as is required
under the applicable laws of the State of New Jersey and by the certificate of
incorporation and bylaws of Panasia.
(g) Phase I Environmental Audit Results. The results of any Phase I
environmental audit conducted pursuant to Section 4.07(b)(2) hereof shall not
result in a Material Adverse Effect on Panasia.
(h) Other Documents. NPB shall have received such other certificates,
documents or instruments from Panasia or its officers or others as NPB shall
have reasonably requested in connection with accounting or income tax treatment
of the Acquisition, or related securities law compliance.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
6.01 Termination. This Agreement may be terminated on or at any time prior
to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By NPB or Panasia:
(1) If there shall have been any breach of any representation,
warranty or obligation of the other party hereto (subject to the same standards
as set forth in Sections 5.01(b) or 5.02(b), as the case may be) and such breach
can not be, or shall not have been, remedied within 30 days after receipt by
such party of written notice specifying the nature of such breach and requesting
that it be remedied;
(2) If the Closing Date shall not have occurred prior to September 30,
2000 (except that if the Closing Date shall not have occurred by such date
because of a breach of this Agreement by a party hereto, such breaching party
shall not be entitled to terminate this Agreement in accordance with this
provision);
(3) If any Regulatory Authority whose approval or consent is required
for consummation of the Acquisition shall issue a definitive written denial of
such approval or consent and the time period for appeals and requests for
reconsideration has run; or
(4) If the stockholder vote contemplated by this Agreement is not
obtained at the Panasia Stockholders Meeting.
36
<PAGE>
6.02 Effect of Termination. If this Agreement is terminated pursuant to
Section 6.01 hereof or otherwise, this Agreement shall forthwith become void,
other than Sections 4.02(c) and 7.01 hereof which shall remain in full force and
effect, and there shall be no further liability on the part of NPB or Panasia to
the other, except for any liability of NPB or Panasia under such sections of
this Agreement and except for any liability arising out of a willful breach of
this Agreement giving rise to such termination.
ARTICLE VII
MISCELLANEOUS
7.01 Expenses. Each party hereto shall bear and pay all costs and expenses
incurred by it in connection with the transactions contemplated hereby,
including fees and expenses of its own financial consultants, accountants and
counsel.
7.02 Non-Survival of Representations and Warranties; Disclosure Schedules.
All representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants shall terminate on the Closing Date.
7.03 Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the Closing Date, the parties may (a) amend this Agreement, (b)
extend the time for the performance of any of the obligations or other acts of
either party hereto, (c) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (d)
to the extent permitted by law, waive compliance with any of the agreements or
conditions contained in Articles IV and V hereof or otherwise. This Agreement
may not be amended except by an instrument in writing signed, by authorized
officers, on behalf of the parties hereto. Any agreement on the part of a party
hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed by a duly authorized officer on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
7.04 Entire Agreement. This Agreement, including the documents referred to
herein or delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior arrangements and understandings between the parties, both
written and oral, with respect to its subject matter other than the
Confidentiality Agreement. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and its successors; provided, however, that
nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other
37
<PAGE>
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities, and provided, further, that any Insured Party may
enforce Section 4.07(c)(7).
7.05 No Assignment. Neither party hereto may assign any of its rights or
obligations hereunder to any other person, without the prior written consent of
the other party hereto.
7.06 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given upon delivery if delivered personally, two
business days after mailing if mailed by prepaid registered or certified mail,
return receipt requested, or upon confirmation of good transmission if sent by
telecopy, addressed as follows:
(a) If to NPB or Bank, to:
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
P.O.Box 547
Boyertown, Pennsylvania 19512-0547
Attention: Lawrence T. Jilk, Jr.,
Chairman and CEO
Telecopy No.: 610-369-6236
with a copy to:
H. Anderson Ellsworth
Jay W. Waldman
Ellsworth, Carlton & Waldman, P.C.
1105 Berkshire Boulevard
Suite 320
Wyomissing, Pennsylvania 19610
Telecopy No.: 610-371-9510
(b) If to Panasia, to:
Panasia Bank
183 Main Street
Fort Lee, New Jersey 07024
Attention: Moon S. Yang,
President and CEO
Telecopy No.: 201-947-7560
38
<PAGE>
with a copy to:
Robert A. Schwartz
Jamieson, Moore, Peskin & Spicer
177 Madison Avenue
Morristown, New Jersey 07960
Telecopy No.: 973-984-9549
7.07 Panasia Disclosure Schedule. Information contained on the Panasia
Disclosure Schedule shall be deemed to cover the express disclosure requirement
contained in a representation or warranty of this Agreement and any other
representation or warranty of this Agreement of Panasia where it is readily
apparent it applies to such provision. The mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty shall not be
deemed an admission by Panasia that such item
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
39
<PAGE>
represents a material exception or fact, event or circumstance or that such item
is or could result in a Material Adverse Effect.
7.08 Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
7.09 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.10 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
7.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic internal law of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
NATIONAL PENN BANCSHARES, INC.
(Corporate Seal) By:/s/ Lawrence T. Jilk, Jr.
-------------------------
Lawrence T. Jilk, Jr.,
Chairman
Attest:/s/ Sandra L. Spayd
-------------------
Sandra L. Spayd,
Secretary
PANASIA BANK
(Corporate Seal) By:/s/ Moon S. Yang
----------------
Moon S. Yang,
President
Attest:/s/ Young Lee
-------------
Name:
Title: Secretary & EVP
40
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 10th day of February, 2000, before me, a notary public for this
state and county, personally came LAWRENCE T. JILK, JR., as chairman, and SANDRA
L. SPAYD, as secretary, of NATIONAL PENN BANCSHARES, INC., and each, in his/her
capacity, acknowledged this instrument to be the act and deed of the corporation
and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
/s/ Deborah M. Johnson
----------------------
(Seal of Notary) Notary Public
My commission expires 07/14/2001
----------
STATE OF NEW JERSEY :
:ss.
COUNTY OF BERGEN :
------------------
On this 14th day of February, 2000, before me, a notary public for this
state and county, personally came MOON S. YANG, as president, and YOUNG LEE , as
secretary , of PANASIA BANK, and each, in his/her capacity, acknowledged this
instrument to be the act and deed of the bank and the seal affixed to it to be
its seal.
WITNESS my official seal and signature this day and year.
/s/ Joseph S. Kozay, Jr.
------------------------
(Seal of Notary) Notary Public
My commission expires 01/08/04
--------
41
<PAGE>
PANASIA BANK DISCLOSURE SCHEDULES
All Panasia Bank disclosure schedules are omitted because none contain
information which is material to an investment decision. These disclosure
schedules relate to the following sections of the Agreement:
2.01(C) Subsidiaries.
2.03(B) Authority; No Violation.
2.04 Consents.
2.08(A) Contracts.
2.10 Legal Proceedings.
2.12 ERISA.
2.13 Brokers, Finders and Financial Advisors.
2.19 Related Party Transactions.
The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.
<PAGE>
EXHIBIT 1
PLAN OF ACQUISITION
THIS PLAN OF ACQUISITION ("Plan") dated February 14, 2000, is between
NPB NEW JERSEY, INC., a New Jersey corporation ("NPB/NJ"), and PANASIA BANK, a
New Jersey state bank ("Panasia").
BACKGROUND
1. NPB/NJ is a wholly-owned subsidiary of National Penn Bancshares,
Inc., a Pennsylvania corporation ("NPB"). The authorized capital stock of NPB/NJ
consists of 1,000 shares of common stock, $1 par value per share, of which at
the date hereof 100 shares are issued and outstanding and owned by NPB.
2. The authorized capital stock of Panasia consists of 1,000,000 shares
of common stock, par value $5 per share ("Panasia Common Stock"), of which at
the date hereof 664,783 shares are issued and outstanding. At the date hereof,
there are options issued and outstanding providing the holders thereof with the
right to purchase 39,000 shares of Panasia Common Stock ("Panasia Stock
Options").
3. The respective Boards of Directors of NPB/NJ and Panasia deem the
acquisition by NPB/NJ of Panasia, pursuant to the terms and conditions set forth
or referred to herein, to be desirable and in the best interests of the
respective companies and their respective shareholders.
4. The respective Boards of Directors of NPB/NJ and Panasia have
adopted resolutions approving this Plan. This Plan constitutes a "plan of
acquisition" within the meaning of the New Jersey Banking Act of 1948, N.J.
Stat.ss.17:9A-357.
5. The respective Boards of Directors of NPB and Panasia have adopted
resolutions approving an Agreement dated February 14, 2000 between NPB and
Panasia (the "Agreement"), and NPB and Panasia have executed the Agreement. The
Agreement provides for the acquisition by NPB/NJ of Panasia as a wholly-owned
subsidiary of NPB/NJ, as provided for herein. This Plan is being executed by
NPB/NJ and Panasia pursuant to the Agreement.
AGREEMENT
In consideration of the premises and of the mutual covenants and
agreements herein contained, and in accordance with the applicable laws of the
State of New Jersey, NPB/NJ and Panasia, intending to be legally bound hereby,
agree:
1
<PAGE>
ARTICLE I
ACQUIRING CORPORATION
The name and address of the acquiring corporation is NPB New Jersey,
Inc., c/o Jamieson, Moore, Peskin & Spicer, 177 Madison Avenue, Morristown, New
Jersey 07960.
ARTICLE II
PARTICIPATING BANK
The name and address of the participating bank is Panasia Bank, 183
Main Street, Fort Lee, New Jersey 07024.
ARTICLE III
BOARD OF DIRECTORS OF ACQUIRING CORPORATION
The names and addresses of the members of the board of directors of the
acquiring corporation (NPB/NJ) are:
Name Address
Lawrence T. Jilk, Jr. 128 Indian Lane
Boyertown, PA 19512
Wayne R. Weidner Lupine Lane
Box 131
Oley, PA 19547
Algot F. Thorell, Jr. 7322 Bryan Street
Philadelphia, PA 19119
Edward Shin 8200 Gladston Road
Wyndmoor, PA 19038
ARTICLE IV
SHARES OF OTHER BANKS
The acquiring corporation (NPB/NJ) does not own any shares of capital
stock of any other bank.
2
<PAGE>
ARTICLE V
TERMS AND CONDITIONS OF THE ACQUISITION
5.1 Issuance of Panasia Common Stock. On the Effective Date, Panasia
shall issue to NPB/NJ 1,000 shares of Panasia Common Stock and become a
wholly-owned subsidiary of NPB/NJ.
5.2 Conversion of Panasia Common Stock.
(a) Subject to Section 5.2(b) and (c) hereof with respect to treasury
stock and dissenting shares of Panasia Common Stock, each share of Panasia
Common Stock issued and outstanding immediately prior to the Effective Date,
shall, on the Effective Date, by reason of the Acquisition and without any
action on the part of the holder thereof, cease to be outstanding and be
converted into the right to receive Twenty-Nine Dollars ($29.00) in cash.
(b) Each share of Panasia Common Stock issued and held in the treasury
of Panasia as of the Effective Date, if any, shall be cancelled, and no cash,
stock or other property shall be delivered in exchange therefor.
(c) If there are holders of Panasia Common Stock who dissent from the
Acquisition and exercise and perfect the right to obtain valuation of and
payment for their shares ("Dissenting Panasia Shares") pursuant to the New
Jersey Banking Act of 1948, N.J. Stat. ss.17:9A-360 et seq., the following
provisions will govern payments to be made in respect of Dissenting Panasia
Shares:
(i) All payments in respect of Dissenting Panasia Shares, if
any, will be made by Panasia.
(ii) Dissenting Panasia Shares, if any, will be deemed to have
been retired and cancelled immediately prior to the Acquisition, with the effect
that no conversion thereof will occur pursuant to Section 5.2(a) hereof.
5.3 Panasia Stock Options. On the Effective Date, each option to
purchase one or more shares of Panasia Common Stock issued by Panasia and
outstanding on the Effective Date, whether or not such option is exercisable on
the Effective Date (each a "Panasia Stock Option"), shall, by virtue of the
Acquisition, cease to be outstanding and be converted into the right to receive
in cash an amount equal to the difference between Twenty-Nine Dollars ($29.00)
and the per share exercise price of the Panasia Stock Option multiplied by the
number of shares of Panasia Common Stock covered by that option.
5.4 Panasia Stock Certificates. From and after the Effective Date, each
certificate which immediately prior thereto represented any shares of Panasia
Common Stock subject to Section 5.2(a) hereof
3
<PAGE>
shall represent only the right to receive, upon surrender of such certificate
for payment as provided in the Agreement, the cash consideration provided for
herein. In no event shall the holder of any shares of Panasia Common Stock be
entitled to receive interest on any of the funds to be received pursuant to the
Acquisition.
ARTICLE VI
EFFECTIVE DATE OF THE ACQUISITION
Subject to Article VII hereof, after approval of this Plan by the
stockholders of Panasia in accordance with the applicable laws of the State of
New Jersey, Panasia and NPB/NJ shall cause this Plan, accompanied by
certification of such stockholder approval by the President of Panasia, to be
filed in the Department of Banking and Insurance of the State of New Jersey (the
"NJDBI"). Thereupon, the Acquisition shall be effective (the "Effective Date").
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of NPB/NJ and Panasia to effect the Acquisition shall
be subject to satisfaction, unless duly waived by the party permitted to do so,
of the conditions precedent set forth in the Agreement.
ARTICLE VIII
TERMINATION
This Plan shall terminate automatically upon any termination of the
Agreement in accordance with its terms; provided, however, that any such
termination of this Plan shall not relieve any party hereto from liability on
account of a breach by such party of any of the terms hereof or thereof.
ARTICLE IX
AMENDMENT
This Plan may be amended at any time prior to consummation of the
Acquisition, but only by an instrument in writing signed by duly authorized
officers on behalf of the parties hereto.
4
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Each party, by a written instrument signed by
a duly authorized officer, may extend the time for the performance of any of the
obligations or other acts of the other party hereto and may waive compliance
with any of the covenants, or performance of any of the obligations, of the
other party contained in this Plan.
10.2 Notices. Any notice or other communication required or permitted
under this Plan shall be given, and shall be effective, in accordance with the
provisions of Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles herein are intended
for convenience of reference only and are not intended to be part of, or to
affect the meaning or interpretation of, this Plan.
10.4 Counterparts. For the convenience of the parties hereto, this Plan
may be executed in several counterparts, each of which shall be deemed the
original, but all of which together shall constitute one and the same
instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
5
<PAGE>
10.5 Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, NPB New Jersey, Inc. and Panasia Bank have caused
this Plan to be executed by their duly authorized officers and their corporate
seals to be hereunto affixed as of the date first written above.
NPB NEW JERSEY, INC.
(Corporate Seal) By:/s/ Lawrence T. Jilk, Jr.
-------------------------
Lawrence T. Jilk, Jr.,
President and Chief
Executive Officer
Attest:/s/ Sandra L. Spayd
-------------------
Sandra L. Spayd,
Secretary
PANASIA BANK
(Corporate Seal) By:/s/ Moon S. Yang
----------------
Moon S. Yang,
President and Chief
Executive Officer
Attest:/s/ Young Lee
----------------
Name:
Title: Secretary & EVP
6
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 10th day of February, 2000, before me, a notary public for this
state and county, personally came LAWRENCE T. JILK, JR., as president, and
SANDRA L. SPAYD, as secretary, of NPB NEW JERSEY, INC., and each, in his/her
capacity, acknowledged this instrument to be the act and deed of the corporation
and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
/s/ Deborah M. Johnson
(Seal of Notary) Notary Public
My commission expires 07/14/2001
STATE OF NEW JERSEY :
:ss.
COUNTY OF BERGEN :
On this 14th day of February, 2000, before me, a notary public for this
state and county, personally came MOON S. YANG, as president, and YOUNG LEE , as
secretary , of PANASIA BANK, and each, in his/her capacity, acknowledged this
instrument to be the act and deed of the bank and the seal affixed to it to be
its seal.
WITNESS my official seal and signature this day and year.
/s/Joseph S. Kozay, Jr.
(Seal of Notary) Notary Public
My commission expires 01/08/04
7
<PAGE>
EXHIBIT 2
February 14, 2000
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
Boyertown, Pennsylvania 19512
Ladies and Gentlemen:
National Penn Bancshares, Inc. ("NPB") and Panasia Bank ("Panasia") are
considering execution of an Agreement dated February 14, 2000 (the "Agreement").
Pursuant to the proposed Agreement, and subject to the terms and
conditions set forth therein:
(a) A wholly-owned subsidiary of NPB will acquire Panasia pursuant to a
"plan of acquisition" under New Jersey law;
(b) stockholders of Panasia will receive $29 in cash in exchange for
each share of Panasia common stock owned on the closing date; and
(c) holders of options to acquire shares of common stock of Panasia
that remain outstanding on the closing date will receive cash in an amount equal
to the difference between $29 and the per share exercise price of their stock
options multiplied by the number of shares covered by their options (the
foregoing, collectively, the "Acquisition").
NPB has required as a condition to its execution and delivery to
Panasia of the Agreement, that the undersigned, being a director of Panasia,
execute and deliver to NPB this Letter Agreement.
The undersigned, in order to induce NPB to execute the Agreement, and
intending to be legally bound hereby, irrevocably agrees and represents as
follows:
1. The undersigned agrees to vote or cause to be voted for approval of
the Acquisition all shares of Panasia common stock over which the undersigned
exercises sole voting power.
2. Through the closing of the Acquisition, the undersigned agrees not
to offer, sell, transfer or otherwise dispose of, or to permit the offer, sale,
transfer or other disposition of, any shares of Panasia common stock over which
the undersigned exercises sole voting power without your prior consent, which
will not be unreasonably withheld.
3. The undersigned has sole voting power over the number of shares of
Panasia common stock, and holds stock options for the number of shares of
Panasia common stock, if any, set forth below
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 2
opposite the signature line for the undersigned. NPB recognizes that with
respect to any such shares which have been pledged to a third party, the
undersigned will not be able to control the voting or disposition of such shares
in the event of a default.
4. The undersigned hereby waives the right to assert dissenters rights
under the New Jersey Banking Act of 1948, N.J. Stat.ss.17:9A-360 et seq., and
any other applicable law or regulation.
5. The undersigned agrees that Panasia shall not be bound by any
attempted sale of any shares of Panasia common stock in violation of the terms
of this Letter Agreement, and Panasia's transfer agent shall be given
appropriate stop transfer orders and shall not be required to register any such
attempted sale.
6. The undersigned agrees, if he is a holder of options to acquire to
shares of Panasia common stock that remain outstanding as of the closing of the
Acquisition, to accept in exchange for cancellation of such options an amount of
cash equal to the difference between $29 and the per share exercise price of
such options multiplied by the number of shares of Panasia common stock covered
by such options.
7. The undersigned represents that he has the capacity to enter into
this Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
The parties hereto acknowledge that this Letter Agreement is being
executed by the undersigned in his capacity solely as a stockholder of Panasia,
and not in any other capacity (including as a director of Panasia), and nothing
herein contained shall derogate from the undersigned's ability to act in such
other capacity, including the exercise of fiduciary duty, even if in conflict
with the foregoing.
This Letter Agreement shall be effective upon acceptance by NPB.
This Letter Agreement shall terminate concurrently with, and
automatically upon, any termination of the Agreement in accordance with its
terms, except that any such termination shall be without
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 3
prejudice to NPB's rights arising out of any willful breach or any covenant or
representation contained herein.
Number of Shares, Very truly yours,
and Shares Subject
to Stock Options,
Held:
578 Shares
5,000 Options /s/ Paul W. Choi
--------------------
Name: Paul W. Choi
Accepted:
- --------
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
--------------------------
Lawrence T. Jilk, Jr.
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 3
prejudice to NPB's rights arising out of any willful breach or any covenant or
representation contained herein.
Number of Shares Very truly yours,
Held:
35,095 Shares /s/ Morris Goldfarb
---------------------
Name: Morris Goldfarb
Accepted:
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
--------------------------
Lawrence T. Jilk, Jr.
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 3
prejudice to NPB's rights arising out of any willful breach or any covenant or
representation contained herein.
Number of Shares, Very truly yours,
and Shares Subject
to Stock Options,
Held:
2,893 Shares
5,000 Options /s/ Jerome L. Robinson
------------------------
Name: Jerome L. Robinson
Accepted:
- --------
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
--------------------------
Lawrence T. Jilk, Jr.
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 3
prejudice to NPB's rights arising out of any willful breach or any covenant or
representation contained herein.
Number of Shares, Very truly yours,
and Shares Subject
to Stock Options,
Held:
5,512 Shares
8,000 Options /s/ Young Jai Lee
-------------------
Name: Young Jai Lee
Accepted:
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
--------------------------
Lawrence T. Jilk, Jr.
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 3
prejudice to NPB's rights arising out of any willful breach or any covenant or
representation contained herein.
Number of Shares, Very truly yours,
and Shares Subject
to Stock Options,
Held:
32,152 Shares
10,000 Options /s/ Moon S. Yang
------------------
Name: Moon S. Yang
Accepted:
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
--------------------------
Lawrence T. Jilk, Jr.
<PAGE>
National Penn Bancshares, Inc.
February 14, 2000
Page 3
prejudice to NPB's rights arising out of any willful breach or any covenant or
representation contained herein.
Number of Shares, Very truly yours,
and Shares Subject
to Stock Options,
Held:
21,000 Shares
5,000 Options /s/ Jin Hyoung Seo
--------------------
Name: Jin Hyoung Seo
Accepted:
NATIONAL PENN BANCSHARES, INC.
By: /s/ Lawrence T. Jilk, Jr.
--------------------------
Lawrence T. Jilk, Jr.
<PAGE>
EXHIBIT 3
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated February 14,
2000, is between NATIONAL PENN BANCSHARES, INC., a Pennsylvania corporation
("NPB"), and PANASIA BANK, a New Jersey state bank ("Panasia").
BACKGROUND
1. NPB has formed NPB New Jersey, Inc., a New Jersey corporation
("NPB/NJ"), and organized it as a wholly-owned subsidiary of NPB.
2. NPB and Panasia desire to enter into an Agreement dated February 14,
2000 (the "Agreement"), providing, among other things, for the acquisition by
NPB/NJ of Panasia as a wholly-owned subsidiary of NPB/NJ (the "Acquisition").
3. As a condition and inducement to NPB to enter into the Agreement,
Panasia is granting to NPB an option to purchase up to that number of shares of
common stock, par value $5 per share (the "Common Stock"), of Panasia as shall
equal 24.9% of shares of Common Stock of Panasia issued and outstanding as of
the date hereof, on the terms and conditions hereinafter set forth.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and representations herein contained, the parties,
intending to be legally bound hereby, agree as follows:
1. Grant of Option. Panasia hereby grants to NPB, on the terms and
conditions set forth herein, the option to purchase (the "Option") up to 165,531
shares of Common Stock of Panasia (as adjusted as set forth herein, the "Option
Shares") at a price per share (as adjusted as set forth herein, the "Option
Price") equal to Twenty Three Dollars ($23.00), provided, however, that in no
event shall the number of Option Shares for which the Option is exercisable
exceed 24.9% of the issued and outstanding shares of Panasia Common Stock
without giving effect to any shares subject to or issued pursuant to the Option.
2. Exercise of Option.
(a) Provided that (i) NPB shall not be, on the date of exercise, in
material breach of the agreements or covenants contained in the Agreement or
this Stock Option Agreement; and (ii) no preliminary or permanent injunction or
other order against the delivery of shares covered by the Option issued by any
court of
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competent jurisdiction in the United States shall be in effect on the date of
exercise, upon or after the occurrence of a Triggering Event (defined below) NPB
may exercise the Option, in whole or in part, at any time or one or more times,
from time to time; provided that the Option shall terminate and be of no further
force and effect upon the earliest to occur of (A) the Effective Date of the
Acquisition, as provided in the Agreement; (B) termination of the Agreement in
accordance with the terms thereof prior to the occurrence of a Triggering Event
or a Preliminary Triggering Event (defined below), other than a termination of
the Agreement pursuant to Section 6.01(b)(1), unless in the case of termination
by Panasia pursuant to Section 6.01(b)(1), such termination is as a result of a
willful breach of the Agreement by NPB (such a termination is hereinafter
referred to as a "Default Termination"); (C) 18 months after the termination of
the Agreement by NPB or Panasia pursuant to a Default Termination; and (D) 18
months after termination of the Agreement (other than pursuant to a Default
Termination) following the occurrence of a Triggering Event or a Preliminary
Triggering Event; and provided, further, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable securities
and banking laws. The rights set forth in Section 3 hereof shall terminate when
the right to exercise the Option terminates (other than as a result of a
complete exercise of the Option) as set forth above.
(b) As used herein, the term "Triggering Event" means the occurrence of
either of the following events:
(i) a person or group (as those terms are defined or used in Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder), other than NPB or an affiliate of
NPB, acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 25% or more of the then outstanding shares of Common Stock; or
(ii) a person or group, other than NPB or an affiliate of NPB, enters
into an agreement or letter of intent or memorandum of understanding with
Panasia pursuant to which such person or group or any affiliate of such person
or group would (A) merge or consolidate, or enter into any similar transaction,
with Panasia; (B) acquire all or substantially all of the assets or liabilities
of Panasia; or (C) acquire beneficial ownership of securities representing, or
the right to acquire beneficial ownership or to vote securities representing,
25% or more of the then outstanding shares of Common Stock, or Panasia shall
have authorized, recommended or publicly proposed, or publicly announced an
intention to authorize, recommend or propose, such an agreement or letter of
intent or memorandum of understanding.
(c) As used herein, the term "Preliminary Triggering Event" means the
occurrence of any of the following events:
2
<PAGE>
(i) a person or group (as those terms are defined or used in Section
13(d) of the Exchange Act and the rules and regulations thereunder), other than
NPB or an affiliate of NPB, acquires beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of 10% or more of the then outstanding shares
of Common Stock;
(ii) a person or group, other than NPB or an affiliate of NPB,
publicly announces a bona fide proposal (including a written communication that
is or becomes the subject of public disclosure) for (A) any merger,
consolidation or acquisition of all or substantially all the assets or
liabilities of Panasia, or any business combination involving Panasia; or (B) a
transaction involving the transfer of beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities
representing, 10% or more of the then outstanding shares of Common Stock
(collectively, a "Proposal"), and thereafter, if such Proposal has not been
Publicly Withdrawn (defined below) at least 30 days prior to the meeting of
stockholders of Panasia called to vote on the Acquisition, Panasia's
stockholders fail to approve the Acquisition by the vote required by applicable
law at the meeting of stockholders called for such purpose or such meeting has
been cancelled;
(iii) the Board of Directors of Panasia shall (A) fail to recommend
the Acquisition; (B) recommend a Proposal; or (C) have withdrawn or modified in
a manner adverse to NPB the recommendation of the Board of Directors of Panasia
with respect to the Agreement and thereafter Panasia's stockholders fail to
approve the Acquisition by the vote required by applicable law at the meeting of
stockholders called for such purpose or such meeting is not scheduled or has
been cancelled; or
(iv) a person or group, other than NPB or an affiliate of NPB, makes a
bona fide Proposal and thereafter, but before such Proposal has been Publicly
Withdrawn, Panasia shall have breached any representation, warranty, covenant or
obligation contained in the Agreement and such breach would entitle NPB to
terminate the Agreement under Section 6.01(b)(1) of the Agreement (without
regard to the cure period provided for therein unless such cure is promptly
effected without jeopardizing consummation of the Acquisition pursuant to the
Agreement).
If more than one of the transactions giving rise to a Triggering Event or a
Preliminary Triggering Event under this Section 2 is undertaken or effected,
then all such transactions shall give rise only to one Triggering Event or
Preliminary Triggering Event, as applicable, which Triggering Event or
Preliminary Triggering Event shall be deemed continuing for all purposes
hereunder until all such transactions are abandoned.
3
<PAGE>
For purposes of this Section 2, "Publicly Withdrawn" shall mean an
unconditional bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or in acquiring
any controlling influence over Panasia or in soliciting or inducing any other
person (other than NPB or an affiliate of NPB) to do so.
Notwithstanding the foregoing, the obligation of Panasia to issue Option
Shares upon exercise of the Option shall be deferred (but shall not terminate):
(i) until the receipt of all required governmental or regulatory approvals or
consents necessary for Panasia to issue the Option Shares or NPB to exercise the
Option, or until the expiration or termination of any waiting period required by
law, or (ii) so long as any injunction or other order, decree or ruling issued
by any federal or state court of competent jurisdiction is in effect which
prohibits the sale or delivery of the Option Shares, and, in each case,
notwithstanding any other provision, the Option shall not expire or otherwise
terminate.
Panasia shall notify NPB promptly in writing of the occurrence of any
Triggering Event or Preliminary Triggering Event known to it, it being
understood that the giving of such notice by Panasia shall not be a condition to
the right of NPB to exercise the Option. Panasia will not take any action which
would have the effect of preventing or disabling Panasia from delivering the
Option Shares to NPB upon exercise of the Option or otherwise performing its
obligations under this Stock Option Agreement, except to the extent required by
applicable securities and banking laws and regulations. In the event NPB wishes
to exercise the Option, NPB shall send a written notice to Panasia (the date of
which is hereinafter referred to as the "Notice Date") specifying the total
number of Option Shares it wishes to purchase and a place and date between two
and ten business days inclusive from the Notice Date for the closing of such a
purchase (a "Closing"); provided, however, that a Closing shall not occur prior
to two days after the later of receipt of any necessary regulatory approvals or
the expiration of any legally required notice or waiting period, if any.
3. Repurchase of Option by Panasia.
(a) Subject to the last sentence of Section 2(a) and to the second sentence
of Section 3(b), at the request of NPB at any time commencing upon the first
occurrence of a Repurchase Event (defined below) and ending 18 months
immediately thereafter, Panasia shall repurchase from NPB (x) the Option and (y)
all shares of Common Stock purchased by NPB pursuant hereto with respect to
which NPB then has beneficial ownership. The date on which NPB exercises its
rights under this Section 3 is referred to as the "Request Date". Such
repurchase shall be at an aggregate price (the "Section 3 Repurchase
Consideration") equal to the sum of:
4
<PAGE>
(i) the aggregate Option Price paid by NPB for any shares of Common
Stock acquired pursuant to the Option with respect to which NPB then has
beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (defined below)
for each share of Common Stock over (y) the Option Price (subject to adjustment
pursuant to Section 6), multiplied by the number of shares of Common Stock with
respect to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the Option
Price (subject to adjustment pursuant to Section 6) paid (or, in the case of
Option Shares with respect to which the Option has been exercised, but the
Closing has not occurred, payable) by NPB for each share of Common Stock with
respect to which the Option has been exercised and with respect to which NPB
then has beneficial ownership, multiplied by the number of such shares.
(b) If NPB exercises its rights under this Section 3, Panasia shall, within
ten (10) business days after the Request Date, pay the Section 3 Repurchase
Consideration to NPB in immediately available funds, and contemporaneously with
such payment, NPB shall surrender to Panasia the Option and the certificate
evidencing the shares of Common Stock purchased under the Option with respect to
which NPB then has beneficial ownership, and NPB shall warrant that it has sole
record and beneficial ownership of such shares, and that the same are then free
and clear of all liens, claims, charges and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to or
approval of any banking agency or department of any federal or state government,
including without limitation the Federal Deposit Insurance Corporation, the
Federal Reserve Board, the New Jersey Department of Banking and Insurance or the
respective staffs thereof (each, a "Regulatory Authority"), is required in
connection with the payment of all or any portion of the Section 3 Repurchase
Consideration, NPB shall have the ongoing option to revoke its request for
repurchase pursuant to Section 3, in whole or in part, or to require that
Panasia deliver from time to time that portion of the Section 3 Repurchase
Consideration that it is not then so prohibited from paying and promptly file
the required notice or application for approval and expeditiously process the
same (and each party shall cooperate with the other in the filing of any such
notice or application and the obtaining of any such approval), in which case the
ten (10) business day period of time that would otherwise run pursuant to the
preceding sentence for the payment of the portion of the Section 3 Repurchase
Consideration shall run instead from the date on which, as the case may be, any
required notification period has expired or been terminated or such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If any Regulatory Authority disapproves of any part of Panasia's
proposed repurchase pursuant to this Section 3, Panasia shall promptly give
notice of such fact to NPB.
5
<PAGE>
If any Regulatory Authority prohibits the repurchase pursuant to this Section 3,
Panasia shall promptly give notice of such fact to NPB. If any Regulatory
Authority prohibits the repurchase in part but not in whole, then NPB shall have
the right (i) to revoke the repurchase request or (ii) to the extent permitted
by such Regulatory Authority, determine whether the repurchase should apply to
the Option and/or Option Shares and to what extent to each, and NPB shall
thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Request Date less the sum of
the number of shares covered by the Option in respect of which payment has been
made pursuant to Section 3(a)(ii) and the number of shares covered by the
portion of the Option (if any) that has been repurchased. NPB shall notify
Panasia of its determination under the preceding sentence within five (5)
business days of receipt of notice of disapproval of the repurchase.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Common Stock paid for any such
share by the person or group described in Section 3(d)(i); (ii) the price per
share of Common Stock received by a holder of Common Stock in connection with
any merger or other business combination transaction described in Section
3(d)(ii), (iii) or (iv); or (iii) the highest "bid" price per share of Common
Stock quoted in the over-the-counter market during the 40 business days
preceding the Request Date; provided, however, that in the event of a sale of
less than all of Panasia's assets, the Applicable Price shall be the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Panasia as determined by a nationally recognized investment
banking firm selected by NPB, divided by the number of shares of Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of clauses (i) or (ii) shall be other than in
cash, the value of such consideration shall be determined in good faith by an
independent nationally-recognized investment banking firm selected by NPB and
reasonably acceptable to Panasia, which determination shall be conclusive for
all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person or
group (as those terms are defined or used in Section 13(d) of the Exchange Act
and the rules and regulations thereunder), other than NPB or an affiliate of
NPB, acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of, or the right to acquire beneficial ownership of, 25% or more
of the then-outstanding shares of Common Stock; (ii) Panasia shall have merged
or consolidated with any person, other than NPB or an affiliate of NPB, and
shall not be the surviving or continuing corporation of such merger or
consolidation; (iii) any person, other than NPB or an affiliate of NPB, shall
have merged into Panasia and Panasia shall be the surviving corporation, but, in
connection with such merger, the then-outstanding shares of
6
<PAGE>
Common Stock have been changed into or exchanged for stock or other securities
of Panasia or any other person or cash or any other property or the outstanding
shares of Common Stock immediately prior to such merger shall after such merger
represent less than 50% of the outstanding shares and share equivalents of the
surviving corporation; or (iv) Panasia shall have sold or otherwise transferred
more than 25% of its consolidated assets to any person, other than NPB or an
affiliate of NPB.
4. Payment and Delivery of Certificates. At any Closing hereunder, (a) NPB
will make payment to Panasia of the aggregate price for the Option Shares so
purchased by wire transfer of immediately available funds to an account
designated by Panasia; (b) Panasia will deliver to NPB a stock certificate or
certificates representing the number of Option Shares so purchased, registered
in the name of NPB or its designee, in such denominations as were specified by
NPB in its notice of exercise; and (c) NPB will pay any transfer or other taxes
required by reason of the issuance of the Option Shares so purchased.
5. Public Offering Rights. Upon or after the occurrence of a Triggering
Event and upon receipt of a written request from NPB, Panasia shall prepare as
soon as practicable an offering circular in accordance with the Statement of
Policy adopted by the Federal Deposit Insurance Corporation on August 13, 1996
on any successor policy statement or regulation, covering the Option and such
number of Option Shares as NPB shall specify in its request, provided that NPB
shall in no event have the right to have more than one such offering circular
prepared, and provided further that Panasia shall not be required to prepare any
such offering circular in connection with any proposed sale with respect to
which counsel to Panasia delivers to Panasia and to NPB its opinion to the
effect that no such offering circular is required under applicable laws and
regulations with respect to such sale or disposition; provided further, however,
that Panasia may delay preparation of any offering circular for Option Shares
for a period not exceeding 90 days in the event that Panasia shall in good faith
determine that any such offering would adversely affect an offering or
contemplated offering of securities by Panasia. NPB shall provide all
information reasonably requested by Panasia for inclusion in any offering
circular to be prepared hereunder. In connection with any such offering
circular, Panasia shall use its reasonable best efforts to cause to be delivered
to NPB such certificates, opinions, accountant's letters and other documents as
NPB shall reasonably request and as are customarily provided in connection with
a securities offering. Panasia shall provide to NPB such number of copies of the
final offering circular and any amendments and supplements thereto as NPB may
reasonably request.
All reasonable expenses incurred by Panasia in complying with the
provisions of this Section 5, including without limitation reasonable printing
expenses, reasonable fees and disbursements of
7
<PAGE>
counsel for Panasia and blue sky fees and expenses, shall be paid by Panasia.
Underwriting discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to NPB and any other expenses
incurred by NPB in connection with such offering shall be borne by NPB. In
connection with such offering, Panasia shall indemnify and hold NPB harmless
against any losses, claims, damages or liabilities, joint or several, to which
NPB may become subject, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
offering circular or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and Panasia will reimburse NPB for any legal or other expense
reasonably incurred by NPB in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that Panasia
will not be liable in any case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such offering circular
or such amendment or supplement thereto in reliance upon and in conformity with
written information furnished by or on behalf of NPB specifically for use in the
preparation of such offering circular or such amendment or supplement thereto.
NPB will indemnify and hold harmless Panasia to the same extent as set forth in
the immediately preceding sentence but only with reference to written
information furnished by or on behalf of NPB for use in the preparation of such
offering circular or such amendment or supplement thereto; and NPB will
reimburse Panasia for any legal or other expense reasonably incurred by Panasia
in connection with investigating or defending any such loss, claim, damage,
liability or action. Notwithstanding the foregoing, no indemnifying party shall
be liable for any settlement effected without its prior written consent.
6. Adjustment Upon Changes in Capitalization. In the event of any change in
the Common Stock by reason of stock dividends, split-ups, recapitalizations,
combinations, conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be appropriately
adjusted.
7. Filings and Consents. Each of NPB and Panasia will use its reasonable
best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Stock Option Agreement.
8
<PAGE>
8. Representations and Warranties of Panasia. Panasia hereby represents and
warrants to NPB as follows:
(a) Due Authorization. Panasia has full corporate power and authority to
execute, deliver and perform this Stock Option Agreement and all corporate
action necessary for execution, delivery and performance of this Stock Option
Agreement has been duly taken by Panasia. This Stock Option Agreement
constitutes a legal, valid and binding obligation of Panasia, enforceable
against Panasia in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of equity.
(b) Authorized Shares. Panasia has taken all necessary corporate action to
authorize and reserve for issuance all shares of Common Stock that may be issued
pursuant to any exercise of the Option.
9. Representations and Warranties of NPB. NPB hereby represents and
warrants to Panasia that NPB has full corporate power and authority to execute,
deliver and perform this Stock Option Agreement and all corporate action
necessary for execution, delivery and performance of this Stock Option Agreement
has been duly taken by NPB. This Stock Option Agreement constitutes a legal,
valid and binding obligation of NPB, enforceable against NPB in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.
10. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Stock Option Agreement and that the
obligations of the parties hereto shall be specifically enforceable.
11. Entire Agreement. This Stock Option Agreement and the Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof.
12. Assignment or Transfer. NPB may not sell, assign or otherwise transfer
its rights and obligations hereunder, in whole or in part, to any person or
group of persons other than to an NPB subsidiary. NPB represents that it is
acquiring the Option for NPB's own account and not with a view to, or for sale
in connection with, any distribution of the Option or the Option Shares.
13. Amendment of Stock Option Agreement. By mutual consent of the parties
hereto, this Stock Option Agreement may be amended in writing at any time, for
the purpose of facilitating performance
9
<PAGE>
hereunder or to comply with any applicable regulation of any governmental
authority or any applicable order of any court or for any other purpose.
14. Validity. The invalidity or unenforceability of any provision of this
Stock Option Agreement shall not affect the validity or enforceability of any
other provisions of this Stock Option Agreement, which shall remain in full
force and effect.
15. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given upon delivery if delivered personally, two
business days after mailing if mailed by prepaid registered or certified mail,
return receipt requested, or upon confirmation of good transmission if sent by
telecopy, addressed as follows:
(a) If to NPB, to:
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
P.O. Box 547
Boyertown, Pennsylvania 19512-0547
Attention: Lawrence T. Jilk, Jr.
Chairman and CEO
Telecopy No.: 610-369-6236
with a copy to:
H. Anderson Ellsworth
Jay W. Waldman
Ellsworth, Carlton & Waldman, P.C.
1105 Berkshire Boulevard
Suite 320
Wyomissing, Pennsylvania 19610
Telecopy No.: 610-371-9510
(b) If to Panasia, to:
Panasia Bank
183 Main Street
Fort Lee, New Jersey 07024
Attention: Moon S. Yang,
President and CEO
Telecopy No.: 201-947-7560
10
<PAGE>
with a copy to:
Robert A. Schwartz
Jamieson, Moore, Peskin & Spicer
177 Madison Avenue
Morristown, New Jersey 07960
Telecopy No.: 973-984-9549
16. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the domestic internal law (but not the law of
conflicts of law) of the Commonwealth of Pennsylvania.
17. Captions. The captions in this Stock Option Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
18. Waivers and Extensions. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Stock Option
Agreement.
19. Parties in Interest. This Stock Option Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, nothing in this Stock
Option Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Stock Option Agreement.
20. Counterparts. This Stock Option Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
21. Expenses. Except as otherwise provided herein, all costs and expenses
incurred by the parties hereto in connection with the transactions contemplated
by this Stock Option Agreement or the Option shall be paid by the party
incurring such cost or expense.
22. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Option
Agreement to be executed by their duly authorized officers
11
<PAGE>
and have caused their corporate seal to be affixed hereunto and to be duly
attested, all as of the day and year first above written.
NATIONAL PENN BANCSHARES, INC.
(Corporate Seal) By:/s/ Lawrence T. Jilk, Jr.
-------------------------
Lawrence T. Jilk, Jr.,
Chairman
Attest:/s/ Sandra L. Spayd
-------------------
Sandra L. Spayd,
Secretary
PANASIA BANK
(Corporate Seal) By:/s/ Moon S. Yang
----------------
Moon S. Yang,
President
Attest:/s/ Young Lee
-------------
Name:
Title: EVP & Secretary
12
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 10th day of February, 2000, before me, a notary public for this
state and county, personally came LAWRENCE T. JILK, JR., as chairman, and SANDRA
L. SPAYD, as secretary, of NATIONAL PENN BANCSHARES, INC., and each, in his/her
capacity, acknowledged this instrument to be the act and deed of the corporation
and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
/s/ Deborah M. Johnson
----------------------
(Seal of Notary) Notary Public
My commission expires 07/14/2001
-----------
STATE OF NEW JERSEY :
:ss.
COUNTY OF BERGEN :
------------------
On this 14th day of February, 2000, before me, a notary public for this
state and county, personally came MOON S. YANG, as president, and YOUNG LEE , as
secretary , of PANASIA BANK, and each, in his/her capacity, acknowledged this
instrument to be the act and deed of the bank and the seal affixed to it to be
its seal.
WITNESS my official seal and signature this day and year.
/s/ Joseph S. Kozay, Jr.
------------------------
(Seal of Notary) Notary Public
My commission expires 01/08/04
---------
13
<PAGE>
EXHIBIT 4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") dated ___________, 2000, between PANASIA
BANK, a New Jersey state bank ("Bank"), and MOON S. YANG ("Officer").
BACKGROUND
Bank desires to employ Officer in its commercial banking business, on the
terms and conditions set forth herein, and Officer is willing to provide such
services, on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, Bank and Officer agree as follows:
1. Position, Duties. During the term of this Agreement, Bank will employ
Officer as Bank's Chairman of the Board. Officer accepts such employment, with
such powers and duties as may from time to time be determined by Bank's Board of
Directors or the Executive Committee of the Board. Officer will report directly
to the Chairman of the Executive Committee.
Officer's primary responsibility will be to manage the transition of Bank
into the financial services organization of Bank's parent company, National Penn
Bancshares, Inc. ("NPB"), including introducing Bank and NPB and its
subsidiaries and affiliates, and their respective products and services, to
Bank's customers and to Officer's personal contacts in the New York metropolitan
area. In addition, Officer will develop a marketing strategy and have management
oversight responsibility for expanding Bank's business into the New York
metropolitan area and other geographic areas as determined by the Board of
Directors of Bank. Except as provided in Section 5(f), Officer will assist the
Board of Directors of Bank with the management of the resultant expansion.
Except as provided in Section 5(f), Officer will devote substantially all
his time and attention to, and will use his best energies and abilities in the
performance of, his duties and responsibilities as prescribed in this Section 1,
and will not engage in consulting work or any trade or business for his own
account of for or on behalf of any other person, firm or corporation; provided,
however, that Officer may own at any time, either directly or indirectly, up to
4.99% of the stock of any public company that may be a competitor of Bank, NPB
or any of NPB's subsidiaries and affiliates. Officer will be entitled to
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reasonable vacation and sick leave in accordance with Bank policy, as the same
may be revised from time to time.
2. Compensation.
(a) For all services to be provided by Officer pursuant to Section 1 from
the date of this Agreement through ____________, 2001 [First anniversary of date
of Agreement], Bank will pay Officer a base salary of One Hundred Sixty-Eight
Thousand One Hundred Thirty-Seven Dollars ($168,137.00) per year.
(b) For all services to be provided by Officer pursuant to Section 1 from
______________, 2001 through ____________, 2002 [Second anniversary of date of
Agreement], Bank will pay Officer a base salary of One Hundred Seventy-Four
Thousand Eight Hundred Sixty-Two Dollars ($174,862.00) per year.
(c) For all services to be provided by Officer pursuant to Section 1 from
______________, 2002 through ____________, 2003 [Third anniversary of date of
Agreement], Bank will pay Officer a base salary of One Hundred Eighty-One
Thousand Eight Hundred Fifty- Six Dollars ($181,856.00) per year.
(d) Bank will pay all such salary to Officer in approximately equal
installments during each year on the customary salary payment dates of Bank,
subject to applicable income tax withholding, deductions required by law, and
other deductions authorized by Officer.
3. Health Insurance, Benefit Plans, Stock Option Plans, etc. In addition to
the compensation payable to Officer pursuant to Section 2, Bank shall permit
Officer, during the term of this Agreement, to participate in all health
insurance and benefit plans, group insurance, pension plans, or other plan or
plans providing benefits applicable generally to employees of Bank which are
presently in force or which may hereafter be adopted by Bank. During the term of
this Agreement, to the extent that NPB grants stock options in any year to
senior management pursuant to NPB's 1997 Officers' and Key Employees' Stock
Compensation Plan or any successor or similar stock compensation plan, NPB shall
grant Officer options for a minimum of Three Thousand (3,000) shares of NPB
common stock in such year.
4. Bonuses, Other Benefits.
(a) As additional compensation for services provided hereunder from the
date hereof through _________, 2001 [First anniversary of date of Agreement],
Bank will pay Officer a cash bonus of Nineteen Thousand Five Hundred Forty-Four
Dollars ($19,544.00).
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(b) As additional compensation for services provided hereunder from
__________, 2001 through __________, 2002 [Second anniversary of date of
Agreement], Bank will pay Officer a cash bonus of Nineteen Thousand Seven
Hundred Forty-Five Dollars ($19,745.00).
(c) As additional compensation for services provided hereunder from
__________, 2002 through ___________, 2003 [Third anniversary of date of
Agreement], Bank will pay Officer a cash bonus of Nineteen Thousand Nine Hundred
Fifty-Six Dollars ($19,956.00).
(d) Bank will pay the foregoing cash bonuses to Officer within 30 days
after the end of the respective year, subject to applicable income tax
withholding, deductions required by law, and other deductions authorized by
Officer.
(e) As additional compensation for services provided hereunder, Officer
shall be eligible, during the term of this Agreement, to participate in any
bonus plan covering the officers of Bank which is presently in force or which
the Bank may hereafter adopt, and to receive any bonus that may be awarded to
him thereunder. Such additional compensation shall be determined in the sole
discretion of Bank's Board of Directors and shall be based upon the successful
integration of Bank into NPB's financial services organization and the growth of
assets and new product sales of Bank based upon introductions made by Officer.
(f) As additional compensation for services provided hereunder, Bank will,
during the term of this Agreement:
(i) Pay for, or reimburse Officer for, 100% of Officer's reasonable
business expenses, upon receipt of appropriate documentation therefor; and
(ii) Pay Officer a Five Hundred Fifty Dollar ($550.00) per month car
allowance.
(g) Officer shall not be entitled to any additional compensation for
services provided as a director of Bank.
5. Term.
(a) Except as otherwise set forth herein, this Agreement shall have a term
of three years beginning on the date hereof.
(b) Bank may terminate Officer's employment at any time if Officer shall be
"disabled" for a period of 180 consecutive days. As used herein, "disability"
means that, because of injury or sickness, Officer cannot perform each of the
material duties of his regular occupation. If Bank terminates Officer's
employment because of his "disability" for a period of 180 consecutive days:
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(i) this Agreement shall remain in effect for the remainder of its
three-year term; and
(ii) Bank shall continue to pay Officer the compensation set forth in
Section 2 for the remainder of the term of this Agreement, at the times set
forth in Section 2, and the bonuses set forth in Section 4, at the times set
forth in Section 4 (but not the stock options set forth in Section 3).
(c) If Officer's employment is terminated because of Officer's death:
(i) this Agreement shall terminate at that time; and
(ii) within 30 days of the date of death, Bank shall pay Officer's
heirs or personal representatives, in one lump sum, an amount equal to the total
amount of compensation remaining to be paid to Officer pursuant to Section 2 and
the bonuses remaining to be paid to Officer pursuant to Section 4 through what
would have been the remaining term of the Agreement but for its termination
under subparagraph (i) above.
(d) Officer may at any time terminate his employment with Bank. In such
event:
(i) this Agreement shall terminate at that time; and
(ii) Bank shall not be obligated to pay Officer any further
compensation pursuant to Section 2, any further options pursuant to Section 3,
or any further bonuses pursuant to Section 4, except for Section 2 compensation,
if any, accrued and unpaid through the date of termination.
(e) Bank may terminate Officer's employment at any time for "cause". As
used herein, "cause" means Bank's good faith reasonable belief that Officer (1)
committed fraud, theft, or embezzlement, (2) falsified corporate records, (3)
disseminated confidential information concerning customers, Bank, NPB or any of
its other subsidiaries or affiliates, or any of their employees, (4) had
documented unsatisfactory job performance under NPB's corporate dismissal
policy, (5) violated NPB's Code of Conduct, or (6) failed to perform his
material duties hereunder or to otherwise comply with and observe the material
covenants and agreements made by him herein. If Bank terminates Officer's
employment for "cause":
(i) Bank shall give Officer a written notice of termination effective
on the date specified by Bank in said notice, which notice shall contain a full
statement of the facts and reasons for such termination;
(ii) this Agreement shall terminate at such time; and
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(iii) Bank shall not be obligated to pay Officer any further
compensation pursuant to Section 2, any further options pursuant to Section 3,
or any further bonuses pursuant to Section 4, except for Section 2 compensation,
if any, accrued and unpaid through the date of termination.
(f) Notwithstanding Sections 1 or 5(a), on _______________, 2002 [One day
after second anniversary of date of Agreement], Officer may resign as Bank's
Chairman of the Board and reduce the amount of time and attention that Officer
devotes to the performance of his duties and responsibilities as prescribed in
Section 1. If Officer resigns as Chairman of the Board pursuant to this Section
5(f):
(i) this Agreement shall remain in effect for the remainder of its
three-year term; and
(ii) Bank shall continue to pay Officer the compensation set forth in
Section 2, at the times set forth in Section 2, and the benefits set forth in
Section 3 (but not the stock options set forth in Section 3), and one-half of
the bonus set forth in Section 4(c), at the time set forth in Section 4,
provided that:
(A) At the discretion of Bank, Officer continues to serve as a
director of Bank;
(B) Officer attends at least 75% of all meetings of the Bank's
Board of Directors held thereafter; and
(C) Officer consults with management of Bank, and assists with
the development of new business for Bank, at least twenty (20) hours per week,
thereafter.
6. Non-competition. During the term of this Agreement, Officer shall not,
directly or indirectly, acting alone or in conjunction with others:
(a) Engage as a director, officer, employee, partner, shareholder, or in
any other capacity, in any business in competition with Bank in the counties
where Bank's business is then being conducted, any contiguous or bi-contiguous
counties and in the New York metropolitan area;
(b) Request any customers of Bank to curtail or cancel their business with
Bank;
(c) Solicit, canvass or accept any business or transaction for any other
person, firm or corporation which is similar to the business of Bank;
(d) Induce, or attempt to influence, any employee of Bank to terminate
employment with Bank or to enter into any employment or
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other business relationship with any other person (including Officer), firm or
corporation; or
(e) Act or conduct himself in any manner which he shall have reason to
believe is inimical or contrary to the best interests of Bank.
As used herein, "business" means any banking or other financial services
which Bank, NPB or any of NPB's subsidiaries or affiliates, including third
party vendors, provides to customers of Bank.
Officer recognizes that immediate and irreparable damage will result to
Bank and NPB if Officer breaches any of the terms and conditions of this Section
6 and, accordingly, Officer hereby consents to the entry by any court of
competent jurisdiction of an injunction against him to restrain any such breach,
in addition to any other remedies or claims for money damages which Bank or NPB
may seek. Officer represents and warrants that his experience and capabilities
are such that he can obtain employment in business without breaching the terms
and conditions of this Section 6, and the enforcement thereof by injunction or
otherwise will not prevent him from earning a livelihood.
7. Non-disclosure. During the term of this Agreement and thereafter for a
period of five years, Officer shall not, directly or indirectly, acting alone or
in conjunction with others, disclose to any person, firm or corporation any of
the following information which is not otherwise in the public domain: any trade
secret, any details of organization or business affairs, any names of past or
present customers, or any other confidential information, of Bank, NPB, or of
any of NPB's other subsidiaries or affiliates.
Officer recognizes that immediate and irreparable damage will result to
Bank and NPB if Officer breaches any of the terms and conditions of this Section
7 and, accordingly, Officer hereby consents to the entry by any court of
competent jurisdiction of an injunction against him to restrain any such breach,
in addition to any other remedies or claims for money damages which Bank or NPB
may seek.
8. Change in Control.
(a) If, during the term of this Agreement, (1) a "Change in Control" (as
defined in Section 8(d)) shall occur, and (2) thereafter, at any time, there
shall be:
(i) an involuntary termination of Officer's employment (other than for
"cause");
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(ii) any reduction in Officer's title, responsibilities or authority,
including such title, responsibilities or authority as such may be increased
from time to time;
(iii) any reduction in Officer's annual base salary in effect
immediately prior to a Change in Control, or any failure to provide Officer with
benefits at least as favorable as those enjoyed by Officer under any of the
pension, life insurance, medical, health and accident, disability or other
employee plans of Bank or NPB in which Officer participated immediately prior to
a Change in Control, or the taking of any action that would materially reduce
any of such compensation or benefits in effect at the time of the Change in
Control;
(iv) any reassignment of Officer beyond a sixty (60) minute commute by
automobile from Fort Lee, New Jersey; or
(v) any requirement that Officer travel in performance of his duties
on behalf of Bank or NPB for a greater period of time during any year than was
required of Officer during the year preceding the year in which the Change in
Control occurred;
then, at the option of Officer, exercisable by Officer within one hundred eighty
(180) days of the occurrence of any of the foregoing events, Officer may resign
from employment by delivering a notice in writing to Bank, in which case Bank
shall pay Officer, in one lump sum, within 30 days of Officer's delivery of such
notice, an amount equal to the total amount of compensation remaining to be paid
to Officer pursuant to Section 2 and the bonuses remaining to be paid to Officer
pursuant to Section 4 through the remaining original term of this Agreement.
(b) Notwithstanding the foregoing or any other provision of this Agreement
to the contrary, in no event shall any payment to Officer pursuant to Section
8(a) be greater than an amount equal to an amount ("X") determined pursuant to
the following formula:
X = (2.99A - B) x (1 + C)D.
For purposes of the foregoing formula:
A = Officer's "Base Amount" (as defined in subsection
8(e)) (determined pursuant to Internal Revenue Code
("Code") Section 280G(b)(3)(A)) on the date of the
Change in Control;
B = The present value of all other amounts which qualify
as parachute payments under Code Section 280G(b)(2)(A)
or (B) (without regard to the provisions of Code
Section 280G(b)(2)(A)(ii)), such present value to be
determined pursuant to the provisions of Code Section
280G;
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C = 120% times 0.5 times the lowest of the semiannual
applicable federal rates (determined pursuant to Code
Section 1274(d)) in effect on the date of the Change in
Control; and
D = The number of whole semiannual periods plus any
fraction of a semiannual period from the date of the
Change in Control to the date of termination of the
Officer's employment.
If the foregoing provision results in a reduction of the payment to be made to
Officer, then Officer may determine the allocation of the reduction among his
various termination benefits (i.e., cash or non-cash).
(c) Officer shall not be required to mitigate the amount of any payment
provided for in Section 8(a) by seeking other employment or otherwise. The
amount of any payment or benefit provided for in Section 8(a) shall not be
reduced by any compensation earned by Officer as the result of employment by
another employer or by reason of Officer's receipt of, or right to receive, any
retirement or other benefits after the date of termination of employment or
otherwise, except as otherwise provided therein.
(d) As used herein, "Change in Control" means:
(i) an acquisition by any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")) of "beneficial ownership" (within the meaning of Rule 13d-3
under the Exchange Act) of securities of Bank or NPB representing 24.99% or more
of the combined voting power of Bank's or NPB's securities then outstanding;
(ii) a merger, consolidation or other reorganization of Bank;
(iii) a merger, consolidation or other reorganization of NPB, except
where shareholders of NPB, immediately prior to consummation of any such
transaction, continue to hold at least a majority of the voting power of the
outstanding voting securities of the legal entity resulting from or existing
after any such transaction and a majority of the members of the Board of
Directors of the legal entity resulting from or existing after any such
transaction are former members of NPB's Board of Directors;
(iv) a sale, exchange, transfer or other disposition of substantially
all of the assets of Bank to another entity;
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(v) a sale, exchange, transfer or other disposition of substantially
all of the assets of NPB to another entity, or a corporate division involving
NPB; or
(vi) a contested proxy solicitation of the shareholders of NPB which
results in the contesting party obtaining the ability to cast 25% or more of the
votes entitled to be cast in an election of directors of NPB.
Notwithstanding the foregoing, the following shall not constitute a "Change in
Control" for purposes of this Section 8:
(i) NPB's failure to continue to own, directly or indirectly, a
majority of the outstanding capital stock of Bank as the result of one or more
public offerings by Bank of shares of its capital stock; or
(ii) NPB's causing the assets, liabilities and business of the
National Asian Bank Division of NPB's wholly-owned banking subsidiary, National
Penn Bank, to be transferred to Bank, by a purchase and assumption transaction
or otherwise.
(e) As used herein, "Base Amount" means Officer's average annualized
taxable compensation for the five (5) years prior to the year in which a Change
in Control occurs, determined in accordance with the provisions of Code Section
280G and regulations promulgated thereunder.
9. Assignment; Benefits.
(a) The benefits of this Agreement are and shall be personal to Officer,
and except as otherwise expressly provided herein, none thereof shall inure to
the benefit of his heirs, personal representatives, or assigns. The obligations
and duties of Officer hereunder shall be personal and not assignable or
delegable by him in any manner whatsoever.
(b) This Agreement shall be binding upon and inure to the benefit of Bank
and it shall be assignable by Bank to any bank, corporation or other entity
which may acquire Bank's business or all or substantially all of the assets of
Bank, or with or into which Bank may be merged. Bank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of Bank or NPB to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that Bank would be required to perform it if no such succession
had taken place. Failure to obtain such assumption and agreement prior to the
effectiveness of any such succession shall constitute a breach of this Agreement
and the provisions of Section 8 of this Agreement shall apply. As used in
Section 8 of this Agreement, "Bank" or "NPB" shall mean Bank or NPB as defined
previously and any
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successor to the business and/or assets of Bank or NPB as aforesaid which
assumes and agrees to perform this Agreement by operation of law or otherwise.
10. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given upon delivery if delivered personally or two
business days after mailing if mailed by prepaid, registered or certified mail,
return receipt requested, addressed as follows:
If to Bank, to:
Algot F. Thorell, Jr.
President and Chief Executive Officer
Panasia Bank
183 Main Street
Fort Lee, NJ 07024
If to Officer, to:
Moon S. Yang
====================
11. Entire Agreement, Amendment. This Agreement is intended by the parties
to constitute and does constitute the entire agreement between Bank and Officer
with respect to the employment of Officer by Bank. This Agreement supersedes any
and all prior agreements, understandings, negotiations and discussions of the
parties, whether oral or written. This Agreement may be amended, modified,
waived, discharged or terminated only by an instrument in writing signed by
Officer or an authorized officer of Bank, as the case may be, against whom or
which enforcement of the amendment, modification, waiver, discharge or
termination is sought.
12. Survival. Any termination of this Agreement shall not affect the
provisions of Section 7, which shall survive such termination in accordance with
its terms.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic internal law of the State of New Jersey.
14. Interpretation of Provisions. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
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15. Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first above written.
PANASIA BANK
By:_____________________________
Name:
Title:
Witness:______________________ _____________________________
Moon S. Yang
Intending to be legally bound, the undersigned hereby guarantees the due
performance by Bank of its duties and obligations under this Agreement.
NATIONAL PENN BANCSHARES, INC.
By:_____________________________
Name:
Title:
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EXHIBIT 5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") dated ___________, 2000, between PANASIA
BANK, a New Jersey state bank ("Bank"), and YOUNG JAI LEE ("Officer").
BACKGROUND
Bank desires to employ Officer in its commercial banking business, on the
terms and conditions set forth herein, and Officer is willing to provide such
services, on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and each intending to be legally bound, Bank and Officer agree as follows:
1. Position, Duties. During the term of this Agreement, Bank will employ
Officer as an Executive Vice President and as Bank's Chief Administration
Officer. Officer accepts such employment, with such powers and duties as may
from time to time be determined by Bank's Board of Directors or Bank's President
and Chief Executive Officer or by the Board of Directors of Bank's parent
company, National Penn Bancshares, Inc. ("NPB"). Officer's primary
responsibilities will include managing Bank's transition into NPB's data
processing system and being actively involved in marketing Bank's and NPB's and
its subsidiaries' and affiliates' products and services. In addition, Officer
will be responsible for management oversight between Bank branch and operation
personnel and NPB's and its subsidiaries' and affiliates' administration.
Officer will devote substantially all his time and attention to, and will
use his best energies and abilities in the performance of, his duties and
responsibilities as prescribed in this Section 1, and will not engage in
consulting work or any trade or business for his own account of for or on behalf
of any other person, firm or corporation; provided, however, that Officer may
own at any time, either directly or indirectly, up to 4.99% of the stock of any
public company that may be a competitor of Bank, NPB or any of NPB's
subsidiaries and affiliates. Officer will be entitled to reasonable vacation and
sick leave in accordance with Bank policy, as the same may be revised from time
to time.
2. Compensation.
(a) For all services to be provided by Officer pursuant to Section 1 from
the date of this Agreement through ____________, 2001 [First anniversary of date
of Agreement], Bank will pay
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Officer a base salary of One Hundred Ten Thousand Two Hundred Forty Dollars
($110,240.00) per year.
(b) For all services to be provided by Officer pursuant to Section 1 from
______________, 2001 through ____________, 2002 [Second anniversary of date of
Agreement], Bank will pay Officer a base salary of One Hundred Fourteen Thousand
Six Hundred Fifty Dollars ($114,650.00) per year.
(c) For all services to be provided by Officer pursuant to Section 1 from
______________, 2002 through ____________, 2003 [Third anniversary of date of
Agreement], Bank will pay Officer a base salary of One Hundred Nineteen Thousand
Two Hundred Thirty-Six Dollars ($119,236.00) per year.
(d) Bank will pay all such salary to Officer in approximately equal
installments during each year on the customary salary payment dates of Bank,
subject to applicable income tax withholding, deductions required by law, and
other deductions authorized by Officer.
3. Health Insurance, Benefit Plans, Stock Option Plans, etc. In addition to
the compensation payable to Officer pursuant to Section 2, Bank shall permit
Officer, during the term of this Agreement, to participate in all health
insurance and benefit plans, group insurance, pension plans, or other plan or
plans providing benefits applicable generally to employees of Bank which are
presently in force or which may hereafter be adopted by Bank. During the term of
this Agreement, to the extent that NPB grants stock options in any year to
senior management pursuant to NPB's 1997 Officers' and Key Employees Stock
Compensation Plan or any successor or similar stock compensation plan, NPB shall
grant Officer options for a minimum of One Thousand (1,000) shares of NPB common
stock in such year.
4. Bonuses, Other Benefits.
(a) As additional compensation for services provided hereunder from the
date of this Agreement through _________, 2001 [First anniversary of date of
Agreement], Bank will pay Officer a cash bonus of Eleven Thousand One Hundred
Two Dollars ($11,102.00).
(b) As additional compensation for services provided hereunder from
__________, 2001 through __________, 2002 [Second anniversary of date of
Agreement], Bank will pay Officer a cash bonus of Eleven Thousand One Hundred
Forty-Seven Dollars ($11,147.00).
(c) As additional compensation for services provided hereunder from
__________, 2002 through ___________, 2003 [Third anniversary of date of
Agreement], Bank will pay Officer a cash
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bonus of Eleven Thousand One Hundred Ninety-Two Dollars ($11,192.00).
(d) Bank will pay the foregoing cash bonuses to Officer within 30 days
after the end of the respective year, subject to applicable income tax
withholding, deductions required by law, and other deductions authorized by
Officer.
(e) As additional compensation for services provided hereunder, Officer
shall be eligible, during the term of this Agreement, to participate in any
bonus plan covering the officers of Bank which is presently in force or which
the Bank may hereafter adopt, and to receive any bonus that may be awarded to
him thereunder. Such additional compensation shall be determined in the sole
discretion of Bank's Board of Directors and shall be based upon the successful
integration of Bank into NPB's financial services organization and the growth of
assets and new product sales of Bank based upon introductions made by Officer.
(f) As additional compensation for services provided hereunder, Bank will,
during the term of this Agreement:
(i) Pay for, or reimburse Officer for, 100% of Officer's reasonable
business expenses, upon receipt of appropriate documentation therefor; and
(ii) Pay Officer a Five Hundred Dollar ($500.00) per month car
allowance.
5. Term.
(a) This Agreement shall be for a term of three years beginning on the date
hereof, subject to earlier termination of Officer's employment because of
default by either party or Officer's "disability" for a period of 180
consecutive days. As used herein, "disability" means that, because of injury or
sickness, Officer cannot perform each of the material duties of his regular
occupation.
(b) Officer may at any time terminate his employment with Bank. In such
event:
(i) this Agreement shall terminate at that time; and
(ii) Bank shall not be obligated to pay Officer any further
compensation pursuant to Section 2, any further options pursuant to Section 3,
or any further bonuses pursuant to Section 4, except for Section 2 compensation,
if any, accrued and unpaid through the date of termination.
(c) Bank may terminate Officer's employment at any time for "cause". As
used herein, "cause" means Bank's good faith
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reasonable belief that Officer (1) committed fraud, theft, or embezzlement, (2)
falsified corporate records, (3) disseminated confidential information
concerning customers, Bank, NPB or any of its other subsidiaries or affiliates,
or any of their employees, (4) had documented unsatisfactory job performance
under NPB's corporate dismissal policy, (5) violated NPB's Code of Conduct, or
(6) failed to perform his material duties hereunder or to otherwise comply with
and observe the material covenants and agreements made by him herein. If Bank
terminates Officer's employment for "cause":
(i) Bank shall give Officer a written notice of termination effective
on the date specified by Bank in said notice, which notice shall contain a full
statement of the facts and reasons for such termination;
(ii) this Agreement shall terminate at such time; and
(iii) Bank shall not be obligated to pay Officer any further
compensation pursuant to Section 2, any further options pursuant to Section 3,
or any further bonuses pursuant to Section 4, except for Section 2 compensation,
if any, accrued and unpaid through the date of termination.
6. Non-competition. During the term of this Agreement, Officer shall not,
directly or indirectly, acting alone or in conjunction with others:
(a) Engage as a director, officer, employee, partner, shareholder, or in
any other capacity, in any business in competition with Bank in the counties
where Bank's business is then being conducted, any contiguous or bi-contiguous
counties and in the New York metropolitan area;
(b) Request any customers of Bank to curtail or cancel their business with
Bank;
(c) Solicit, canvass or accept any business or transaction for any other
person, firm or corporation or business similar to the business of Bank;
(d) Induce, or attempt to influence, any employee of Bank to terminate
employment with Bank or to enter into any employment or other business
relationship with any other person (including Officer), firm or corporation; or
(e) Act or conduct himself in any manner which he shall have reason to
believe is inimical or contrary to the best interests of Bank.
As used herein, "business" means any banking or other financial services
which Bank, NPB or any of NPB's subsidiaries or
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affiliates, including third party vendors, provides to customers of Bank.
Officer recognizes that immediate and irreparable damage will result to
Bank and NPB if Officer breaches any of the terms and conditions of this Section
6 and, accordingly, Officer hereby consents to the entry by any court of
competent jurisdiction of an injunction against him to restrain any such breach,
in addition to any other remedies or claims for money damages which Bank or NPB
may seek. Officer represents and warrants that his experience and capabilities
are such that he can obtain employment in business without breaching the terms
and conditions of this Section 6, and the enforcement thereof by injunction or
otherwise will not prevent him from earning a livelihood.
7. Non-disclosure. During the term of this Agreement and thereafter for a
period of five years, Officer shall not, directly or indirectly, acting alone or
in conjunction with others, disclose to any person, firm or corporation any of
the following information which is not otherwise in the public domain: any trade
secret, any details of organization or business affairs, any names of past or
present customers or any other confidential information, of Bank, NPB or any of
NPB's other subsidiaries or affiliates.
Officer recognizes that immediate and irreparable damage will result to
Bank and NPB if Officer breaches any of the terms and conditions of this Section
7 and, accordingly, Officer hereby consents to the entry by any court of
competent jurisdiction of an injunction against him to restrain any such breach,
in addition to any other remedies or claims for money damages which Bank or NPB
may seek.
8. Change in Control.
(a) If, during the term of this Agreement, (1) a "Change in Control" (as
defined in Section 8(d)) shall occur, and (2) thereafter, at any time, there
shall be:
(i) an involuntary termination of Officer's employment (other than for
"cause");
(ii) any reduction in Officer's title, responsibilities or authority,
including such title, responsibilities or authority as such may be increased
from time to time;
(iii) any reduction in Officer's annual base salary in effect
immediately prior to a Change in Control, or any failure to provide Officer with
benefits at least as favorable as those enjoyed by Officer under any of the
pension, life insurance, medical, health and accident, disability or other
employee plans of Bank or NPB in which Officer participated immediately prior to
a Change in Control, or the taking of any action that would
5
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materially reduce any of such compensation or benefits in effect at the time of
the Change in Control;
(iv) any reassignment of Officer beyond a sixty (60) minute commute by
automobile from Fort Lee, New Jersey; or
(v) any requirement that Officer travel in performance of his duties
on behalf of Bank or NPB for a greater period of time during any year than was
required of Officer during the year preceding the year in which the Change in
Control occurred;
then, at the option of Officer, exercisable by Officer within one hundred eighty
(180) days of the occurrence of any of the foregoing events, Officer may resign
from employment by delivering a notice in writing to Bank, in which case Bank
shall pay Officer, in one lump sum, within 30 days of Officer's delivery of such
notice, an amount equal to the total amount of compensation remaining to be paid
to Officer pursuant to Section 2 and the bonuses remaining to be paid to Officer
pursuant to Section 4 through the remaining original term of this Agreement.
(b) Notwithstanding the foregoing or any other provision of this Agreement
to the contrary, in no event shall any payment to Officer pursuant to Section
8(a) be greater than an amount equal to an amount ("X") determined pursuant to
the following formula:
X = (2.99A - B) x (1 + C)D.
For purposes of the foregoing formula:
A = Officer's "Base Amount" (as defined in subsection
8(e)) (determined pursuant to Internal Revenue Code
("Code") Section 280G(b)(3)(A)) on the date of the
Change in Control;
B = The present value of all other amounts which qualify
as parachute payments under Code Section 280G(b)(2)(A)
or (B) (without regard to the provisions of Code
Section 280G(b)(2)(A)(ii)), such present value to be
determined pursuant to the provisions of Code Section
280G;
C = 120% times 0.5 times the lowest of the semiannual
applicable federal rates (determined pursuant to Code
Section 1274(d)) in effect on the date of the Change in
Control; and
D = The number of whole semiannual periods plus any
fraction of a semiannual period from the date of the
Change in Control to the date of termination of the
Officer's employment.
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If the foregoing provision results in a reduction of the payment to be made to
Officer, then Officer may determine the allocation of the reduction among his
various termination benefits (i.e., cash or non-cash).
(c) Officer shall not be required to mitigate the amount of any payment
provided for in Section 8(a) by seeking other employment or otherwise. The
amount of any payment or benefit provided for in Section 8(a) shall not be
reduced by any compensation earned by Officer as the result of employment by
another employer or by reason of Officer's receipt of, or right to receive, any
retirement or other benefits after the date of termination of employment or
otherwise, except as otherwise provided therein.
(d) As used herein, "Change in Control" means:
(i) an acquisition by any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")) of "beneficial ownership" (within the meaning of Rule 13d-3
under the Exchange Act) of securities of Bank or NPB representing 24.99% or more
of the combined voting power of Bank's or NPB's securities then outstanding;
(ii) a merger, consolidation or other reorganization of Bank;
(iii) a merger, consolidation or other reorganization of NPB, except
where shareholders of NPB, immediately prior to consummation of any such
transaction, continue to hold at least a majority of the voting power of the
outstanding voting securities of the legal entity resulting from or existing
after any such transaction and a majority of the members of the Board of
Directors of the legal entity resulting from or existing after any such
transaction are former members of NPB's Board of Directors;
(iv) a sale, exchange, transfer or other disposition of substantially
all of the assets of Bank to another entity;
(v) a sale, exchange, transfer or other disposition of substantially
all of the assets of NPB to another entity, or a corporate division involving
NPB; or
(vi) a contested proxy solicitation of the shareholders of NPB which
results in the contesting party obtaining the ability to cast 25% or more of the
votes entitled to be cast in an election of directors of NPB.
Notwithstanding the foregoing, the following shall not constitute a "Change in
Control" for purposes of this Section 8:
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(i) NPB's failure to continue to own, directly or indirectly, a
majority of the outstanding capital stock of Bank as the result of one or more
public offerings by Bank of shares of its capital stock; or
(ii) NPB's causing the assets, liabilities and business of the
National Asian Bank Division of NPB's wholly-owned banking subsidiary, National
Penn Bank, to be transferred to Bank, by a purchase and assumption transaction
or otherwise.
(e) As used herein, "Base Amount" means Officer's average annualized
taxable compensation for the five (5) years prior to the year in which a Change
in Control occurs, determined in accordance with the provisions of Code Section
280G and regulations promulgated thereunder.
9. Assignment; Benefits.
(a) The benefits of this Agreement are and shall be personal to Officer,
and except as otherwise expressly provided herein, none thereof shall inure to
the benefit of his heirs, personal representatives, or assigns. The obligations
and duties of Officer hereunder shall be personal and not assignable or
delegable by him in any manner whatsoever.
(b) This Agreement shall be binding upon and inure to the benefit of Bank
and it shall be assignable by Bank to any bank, corporation or other entity
which may acquire Bank's business or all or substantially all of the assets of
Bank, or with or into which Bank may be merged. Bank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of Bank or NPB to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that Bank would be required to perform it if no such succession
had taken place. Failure to obtain such assumption and agreement prior to the
effectiveness of any such succession shall constitute a breach of this Agreement
and the provisions of Section 8 of this Agreement shall apply. As used in
Section 8 of this Agreement, "Bank" or "NPB" shall mean Bank or NPB as defined
previously and any successor to the business and/or assets of Bank or NPB as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
10. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given upon delivery if delivered personally or two
business days after mailing if mailed by prepaid, registered or certified mail,
return receipt requested, addressed as follows:
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If to Bank, to:
Algot F. Thorell, Jr.
President and Chief Executive Officer
Panasia Bank
183 Main Street
Fort Lee, NJ 07024
If to Officer, to:
Young Jai Lee
====================
11. Entire Agreement, Amendment. This Agreement is intended by the parties
to constitute and does constitute the entire agreement between Bank and Officer
with respect to the employment of Officer by Bank. This Agreement supersedes any
and all prior agreements, understandings, negotiations and discussions of the
parties, whether oral or written. This Agreement may be amended, modified,
waived, discharged or terminated only by an instrument in writing signed by
Officer or an authorized officer of Bank, as the case may be, against whom or
which enforcement of the amendment, modification, waiver, discharge or
termination is sought.
12. Survival. Any termination of this Agreement shall not affect the
provisions of Section 7, which shall survive such termination in accordance with
its terms.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic internal law of the State of New Jersey.
14. Interpretation of Provisions. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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15. Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first above written.
PANASIA BANK
By:_____________________________
Name:
Title:
Witness:______________________ _____________________________
Young Jai Lee
Intending to be legally bound, the undersigned hereby guarantees the due
performance by Bank of its duties and obligations under this Agreement.
NATIONAL PENN BANCSHARES, INC.
By:_____________________________
Name:
Title:
10
Exhibit 3.2
BYLAWS
NATIONAL PENN BANCSHARES, INC.
(A Pennsylvania Business Corporation)
ARTICLE I
Meetings of Shareholders
Section 1.01. Place of Meeting. Meetings of shareholders of the Corporation
shall be held at such place, within the Commonwealth of Pennsylvania or
elsewhere, as may be fixed by the Board of Directors. If no place is so fixed,
they shall be held at the office of the Corporation at Boyertown, Pennsylvania.
Section 1.02. Annual Meeting. The annual meeting of shareholders for the
election of directors whose terms are expiring and the transaction of any other
business which may be brought properly before the meeting shall be held on such
date and at such time as the Board of Directors shall determine from time to
time. If for any reason such meeting is not held at the time fixed therefor,
such election may be held at a subsequent meeting called for that purpose.
Section 1.03. Special Meetings. Special meetings of the shareholders may be
called at any time by the Board of Directors or the Chief Executive Officer or
by any other person or persons authorized by statute. Such meetings shall be
held on such date and time as may be fixed by the Board of Directors or the
Secretary or, in the absence of such designation, as fixed by the person or
persons calling the meeting.
Section 1.04. Notice of Meetings. Notice of all annual meetings of
shareholders shall be given by the Secretary. Written notice of the date, place,
and time of all meetings of shareholders, and of the general nature of the
business to be transacted at special meetings, shall be mailed to each
shareholder of record entitled to vote at the meeting at least ten days prior to
the day named for the meeting, unless a greater period of notice is by law
required in a particular case.
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Section 1.05. Organization. At every meeting of the shareholders, the
Chairman of the Board or, if there is no such Chairman or if he is absent, the
senior present Vice Chairman of the Board or, if there is no such Vice Chairman
or if he is absent, the President or, in his absence, the senior present Vice
President or, in his absence, a chairman chosen by the shareholders, shall act
as chairman, and the Secretary or, in his absence, a person appointed by the
Chairman, shall act as secretary.
Section 1.06. Quorum; Action by Shareholders. The presence, in person or by
proxy, of the shareholders entitled to cast a majority of the votes which all
shareholders are entitled to cast on a particular matter shall constitute a
quorum for the purpose of considering such matter. Unless otherwise provided
herein, or in the Articles of Incorporation or by law, any action to be taken by
vote of the shareholders shall be authorized upon receiving the affirmative vote
of a majority of the votes cast by all shareholders entitled to vote thereon
and, if any shareholders are entitled to vote thereon as a class, upon receiving
the affirmative vote of a majority of the votes cast by the shareholders
entitled to vote as a class.
Section 1.07. Procedure for Nomination of Candidates for Director.
Nominations for election to the Board of Directors may be made by the Board of
Directors and by any holder of any outstanding shares of the Corporation
entitled to vote for the election of directors. Nominations, other than those
made by the Board of Directors, shall be made in writing and shall be delivered
or mailed to the Corporation at its principal office not less than 14 days prior
to any meeting of shareholders called for the election of directors whose terms
expire at such meeting and shall contain the same information to the extent
known to the notifying shareholder as that required to be stated by the
Corporation in its proxy statement for the nominees of the Board of Directors;
provided, however, that if less than 21 days' notice of the meeting is given to
shareholders, such notice of nomination shall be mailed or delivered to the
Corporation not later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Nominations not made in
accordance with this section in his discretion, be disregarded by the
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chairman of the meeting, and upon his instructions, the vote tellers may
disregard all votes cast for each such nominee.
Section 1.08. Financial Statements. Financial statements shall be sent to
shareholders annually as prescribed by law, but such statements need not be
examined by a certified public accountant or by a firm thereof.
ARTICLE II
Directors
Section 2.01. Number and Term of Office. There shall be such number of
directors who shall be divided into such classes and who shall be elected to
serve for such terms of office as is provided in the Articles of Incorporation.
Section 2.02. Vacancies. Vacancies on the Board of Directors, should they
occur for whatever reason, including vacancies resulting from death,
resignation, retirement, disqualification, or an increase in the number of
directors, shall be filled by a majority vote of the remaining directors though
less than a quorum. Each director elected by the Board of Directors pursuant to
this Section 2.02 shall hold such office for a term expiring at the annual
meeting of shareholders at which the term of the class to which he has been
elected expires and until his successor is elected and qualified.
Section 2.03. Resignations. Any director may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary. Any
such resignation shall take effect at the time of the receipt of such notice or
at any later time specified therein. Unless otherwise specified therein, the
acceptance of a resignation shall not be necessary to make it effective.
Section 2.04. Annual Meeting. Immediately after each annual election of
directors, the Board of Directors shall meet for the purpose of organization,
election of officers, and the
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transaction of other business at the place where such election of directors was
held. Notice of such meeting need not be given. In the absence of a quorum at
said meeting, the same may be held at any other time and place which shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 2.05. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as shall be designated from time to time by
resolution of the Board. Notice of such meetings need not be given.
Section 2.06. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, if any, a Vice Chairman
of the Board, if any, the President or one-third or more of the directors in
office. Notice of the date, time, place, and general nature of the business to
be transacted at each special meeting shall be given by telephone, telegram,
letter or in person, unless such notice is waived, by or at the direction of the
person or persons authorized to call such meeting, to each director, at least
forty-eight hours in advance of the meeting.
Section 2.07. Organization. Every meeting of the Board of Directors shall
be presided over by the Chairman of the Board or, if there is no such Chairman
or if he is absent, the senior present Vice Chairman of the Board or, if there
is no such Vice Chairman or if he is absent, the President or, in his absence, a
chairman chosen by a majority of the directors present. The Secretary or, in his
absence, a person appointed by the Chairman, shall act as secretary.
Section 2.08. Quorum; Action by Board. Except to the extent that a greater
number is required by law, a majority of all of the directors in office shall
constitute a quorum for the transaction of business at any meeting, and the acts
of a majority of the directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors.
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Section 2.09. Participation in Meetings. One or more directors may
participate in a meeting of the Board of Directors or a committee of the Board
of Directors by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other.
Section 2.10. Compensation. Fees and expenses payable for services as a
director or member of a committee of the Board of Directors shall be in such
amounts as shall be determined by the Board of Directors, except that no person
who receives a salary from the Corporation as an officer or employee thereof
shall receive any compensation as a director or a member of a committee of the
Board of Directors.
Section 2.11. Directors and Emergency Officers Succession. In the event of
an emergency resulting from warlike damage or an attack on the United States or
any nuclear disaster of sufficient severity to prevent the conduct and
management of the affairs and business of the Corporation under the direction of
its directors and officers as contemplated by these Bylaws, the officers and
employees of the Corporation shall continue to conduct the affairs of the
Corporation under such guidance from the directors as may be available, subject
to conformance with any governmental directives during the emergency.
The officers shall have authority to execute and carry into effect any and
all of the actions, duties, and powers which may be authorized by governmental
directives for operations during emergencies, including the power to curtail,
limit, suspend, or resume any operation of the Corporation and change the
location of any office of the Corporation.
The officers at the time of such emergency shall have the broadest powers
to perform any and all acts which may be necessary for the purposes set forth in
the preceding paragraphs, including power to employ additional officers and
employees, to purchase and acquire or contract for the use of any services, real
estate, equipment, and other supplies, materials, and resources as they may deem
necessary or appropriate for the continued conduct of the operations of the
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Corporation on such terms and conditions as to them shall seem desirable, and to
obligate the Corporation to pay the expenses thereof.
In order to provide for automatic succession of authority among the officer
personnel of the Corporation in such an emergency, the priorities of seniority
and succession of authority may be established and delegated to and among the
officers of the Corporation by resolution of the Board of Directors. The officer
in authority under the terms of the resolution shall have the power to assign
and reassign functions and duties among any of the other officers of the
Corporation.
Any authority granted to such officers herein shall be subject to the
authority otherwise vested in the Board of Directors, but shall not be deemed to
be restricted in any way by the inability on the part of the Board of Directors
to act.
Section 2.12. Age Qualification and Mandatory Retirement of Directors. No
person who has attained the age of sixty (60) years and is not then a director
shall be qualified for nomination or for election to the Board of Directors. No
person who has attained the age of seventy (70) years and was not a director on
April 27, 1983, shall be qualified for nomination or election to the Board of
Directors. No person who has attained the age of seventy-two (72) years shall be
qualified for nomination or for election to the Board of Directors.
No person who was a director on April 27, 1983, shall be qualified to serve
as a director from and after the date of the annual meeting of shareholders that
comes after his seventy-second birthday, and no person who was not a director on
April 27, 1983, shall be qualified to serve as a director from and after the
date of the annual meeting of shareholders that comes after his seventieth
birthday. Accordingly, a director, upon attaining such age, shall retire from
the Board of Directors effective on the date of the annual meeting of
shareholders that comes after the date upon which he attains such age. The
failure of any director to retire as provided in this section shall constitute
proper cause for the Board of Directors to declare vacant the office of such
director.
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Section 2.13. Director Emeritus. A director who is ineligible for
reelection to the Board because of age shall be eligible to serve as Director
Emeritus. Such a Director may be named by the Board annually at its
reorganization meeting, but may not serve more than three consecutive terms. A
Director Emeritus shall have the privilege of attending all meetings of the
Board and shall have the opportunity of sharing his experience with the Board,
but shall have none of the responsibilities of a member of the Board, and shall
have no vote on matters put before the Board.
The terms "Director," "Board," or "Board of Directors" where used in these
Bylaws shall not be deemed to apply to or to include a Director Emeritus.
ARTICLE III
Committees
Section 3.01. Executive Committee. There shall be an Executive Committee
consisting of such directors as shall from time to time be appointed by the
Board of Directors on the recommendation of the Chief Executive Officer. The
Board of Directors shall designate the Chairman of the Executive Committee. The
Executive Committee shall meet on call of the Chairman of the Executive
Committee, the Chairman of the Board, any Vice Chairman of the Board, or the
President. During the intervals between the meetings of the Board of Directors,
the Executive Committee shall possess and may exercise all the powers of the
Board of Directors in the management of the business and affairs of the
Corporation conferred by the Bylaws or otherwise, including, without limiting
the generality of the foregoing, the power to review and act upon Corporation
matters involving employee compensation, donations, insurance, pension and
profit sharing, and long-range planning. Except to the extent that a greater
number is required by law, a majority of all of the members of the Executive
Committee in office shall constitute a quorum for the transaction of business at
any meeting, and the acts of a majority of the members present at a meeting at
which a quorum is present shall be the acts of the Executive Committee. The
Executive Committee shall keep a record of its proceedings and report its
actions to the next following meeting of the Board of Directors.
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Section 3.02. Audit Committee. There shall be an Audit Committee which
shall consist entirely of outside Directors to be appointed annually by the
Board of Directors on the recommendation of the Chief Executive Officer. The
object of the Audit Committee shall be to give additional assurance of the
integrity of the financial information used by the management of the Corporation
and by the Board in making decisions, and the integrity of the financial
information used by the management of the Corporation and by the Board in making
decisions, and the integrity of the financial information distributed to the
shareholders and the public at large. The Audit Committee shall review the
internal audit controls of the Corporation and shall have the authority to cause
and supervise such examinations and audits to be made by public accountants of
the books and affairs of the Corporation and subsidiary companies as it, in its
discretion, deems advisable. The Audit Committee also shall review audit
policies, oversee internal audits, review external audits, and review any
examination reports. Members of management of the Corporation, or any of its
subsidiary companies, whether or not directors of the Corporation, may be
invited by the Audit Committee to attend meetings thereof.
Section 3.03. Other Committees. The Board of Directors may, at any time and
from time to time, appoint such other standing or special committees to perform
such duties and make such investigations and reports as the Board of Directors
shall by resolution determine. Such committees shall determine their own
organization and times and places of meeting, unless otherwise directed by such
resolution.
ARTICLE IV
Officers
Section 4.01. Officers. The officers of the Corporation shall be a
President, a Secretary, a Treasurer, and may include a Chairman of the Board,
one or more Vice Chairmen of the Board, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
as the Board of Directors may from time to time determine.
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Section 4.02. Qualifications. The officers shall be natural persons of full
age.
Section 4.03. Election and Term of Office. The officers of the Corporation
shall be elected by the Board of Directors and shall serve at the pleasure of
the Board of Directors.
Section 4.04. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary. Any
such resignation shall take effect at the time of the receipt of such notice or
at any later time specified therein. Unless otherwise specified therein, the
acceptance of a resignation shall not be necessary to make it effective.
Section 4.05. Chairman of the Board. The Board of Directors may elect one
of its members to be Chairman of the Board. He shall preside at all meetings of
the Board of Directors. He shall also have such other powers and duties as may
be conferred upon or assigned to him by the Board of Directors, as well as any
other powers specifically conferred upon him by these Bylaws.
Section 4.06. Vice Chairman of the Board. The Board of Directors may elect
one or more of its members to be a Vice Chairman of the Board. In the absence of
the Chairman, the senior present Vice Chairman shall preside at meetings of the
Board of Directors. Each Vice Chairman shall have such other powers and duties
as may be conferred upon or assigned to him by the Board of Directors.
Section 4.07. President. The President shall, in the absence of the
Chairman and the Vice Chairmen, or if no Chairman or Vice Chairmen have been
elected, preside at any meeting of the Board of Directors. The President shall
have and may exercise any and all other powers and duties pertaining by law,
regulation, or practice to the office of President, or imposed by these Bylaws.
He shall have such other powers and duties as may be conferred upon or assigned
to him by the Board of Directors.
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Section 4.08. Chief Executive Officer. The Board of Directors may designate
the Chairman of the Board, and Vice Chairman of the Board or the President as
Chief Executive Officer. The Chief Executive Officer shall have general
supervision over the business and operations of the Corporation, subject,
however, to the control of the Board of Directors. He, or such persons as shall
be designated by him, shall sign, execute, acknowledge, verify, deliver, and
accept, in the name of the Corporation, deeds, mortgages, bonds, contracts, and
other instruments authorized by the Board of Directors, except in cases where
the signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation; and, in general, he
shall have general executive powers as well as such other powers and duties as
may be conferred upon or assigned to him by the Board of Directors.
Section 4.09. Vice Presidents. The Board of Directors may elect one or more
Executive Vice Presidents and may elect or appoint one or more Senior Vice
Presidents and Vice Presidents. Each such person shall have such powers and
duties as may be conferred upon or assigned to him by the Board of Directors or
the Chief Executive Officer.
Section 4.10. Secretary. The Secretary shall attend to the giving of all
notices required by these Bylaws to be given. He shall keep accurate minutes of
meetings of the Board of Directors and shall serve as Secretary to all
shareholder meetings. He shall be custodian of the corporate seal, records,
documents, and papers of the Corporation including election returns and
proceedings of shareholder meetings. He shall provide for the keeping of proper
records of all transactions of the Corporation assigned to him, from time to
time, by the Board of Directors or the Chief Executive Officer, and he shall
have all other powers and duties pertaining by law, regulation, or practice, to
the office of Secretary, or imposed by these Bylaws, or as may from time to time
be conferred upon or assigned to him by the Board of Directors or the Chief
Executive Officer.
Section 4.11. Assistant Secretaries. In the absence or disability of the
Secretary or when so directed by the Secretary, any Assistant Secretary may
perform all the duties of the Secretary, and,
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when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Secretary. The Assistant Secretaries shall perform such
other duties as from time to time may be conferred upon or assigned to them
respectively by the Board of Directors, the Chief Executive Officer, or the
Secretary.
Section 4.12. The Treasurer. The Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of its funds and securities; he shall have full authority to receive and
give receipts for all money due and payable to the Corporation, to endorse
checks, drafts, and warrants in its name and on its behalf, and to give full
discharge for the same; he shall deposit all funds of the Corporation, except
such as may be required for current use, in such banks or other places of
deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be conferred upon or assigned to him
by the Board of Directors or the Chief Executive Officer.
Section 4.13. Assistant Treasurers. In the absence or disability of the
Treasurer or when so directed by the Treasurer, any Assistant Treasurer may
perform all the duties of the Treasurer, and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such other duties as from time to time may be
conferred upon or assigned to them respectively by the Board of Directors, the
Chief Executive Officer, or the Treasurer.
Section 4.14. Compensation of Officers and Others. The compensation of all
officers shall be fixed from time to time by the Board of Directors, or any
committee or officer authorized by the Board of Directors so to do.
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ARTICLE V
Limitation of Directors' Liability; Indemnification
Section 5.01. To the fullest extent permitted by the Directors' Liability
Act (42 Pa. C.S. ss.8361 et seq.) and the Business Corporation Law of the
Commonwealth of Pennsylvania, a director of the Corporation shall not be
personally liable to the Corporation, its shareholders, or others for monetary
damages for any action taken or any failure to take any action unless the
director has breached or failed to perform the duties of his or her office, as
set forth in the Directors' Liability Act, and such breach or failure
constitutes self-dealing, willful misconduct, or recklessness. The provisions of
this Article Fifth shall not apply with respect to the responsibility or
liability of a director under any criminal statute or the liability of a
director for the payment of taxes pursuant to local, state, or federal law.
Section 5.02. (a) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative by reason of the fact that such person is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), amounts paid in settlement, judgments, and
fines actually and reasonably incurred by such person in connection with such
action, suit, or proceeding; provided, however, that no indemnification shall be
made in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
(b) Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit, or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit, or proceeding, upon receipt of an
undertaking by or on behalf of the director, officer, employee, or agent to
repay such amount if it shall be ultimately determined that he or she is not
entitled to be indemnified by the Corporation as authorized in this Article
Fifth.
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<PAGE>
(c) The indemnification and advancement of expenses provided by this
Article Fifth shall not be deemed exclusive of any other right to which persons
seeking indemnification and advancement of expenses may be entitled under any
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to actions in such persons' official capacity and as to their actions in
another capacity while holding office, and shall continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
(d) The Corporation may purchase and maintain insurance on behalf of any
person, may enter into contracts of indemnification with any person, may create
a fund of any nature (which may, but need not be, under the control of a
trustee) for the benefit of any person, and may otherwise secure in any manner
its obligations with respect to indemnification and advancement of expenses,
whether arising under this Article Fifth or otherwise, to or for the benefit of
any person, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this Article Fifth.
Section 5.03. The limitation of liability provided in Section 5.01 of this
Article Fifth and the right to indemnification provided in Section 5.02 of this
Article Fifth shall apply to any action or any failure to take any action
occurring on or after January 27, 1987.
Section 5.04. Notwithstanding anything herein contained to the contrary,
this Article Fifth may not be amended or repealed and a provision inconsistent
herewith may not be adopted, except by the affirmative vote of 80% of the
members of the entire Board of Directors or by the affirmative vote of
shareholders of the Corporation entitled to cast at least 80% of the votes which
all shareholders of the Corporation are then entitled to cast, except that if
the Business Corporation Law or the Directors' Liability Act is amended or any
other statute is enacted so as to decrease the exposure of directors to
liability or to increase the indemnification rights available to directors,
officers, or others, then this Article Fifth and any other provision of these
Bylaws inconsistent with
-13-
<PAGE>
such decreased exposure or increased indemnification rights shall be amended,
automatically and without further action on the part of shareholders or
directors, to reflect such decreased exposure or to include such increased
indemnification rights, unless such legislation expressly requires otherwise.
Any repeal or modification of this Article Fifth by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation or any
right to indemnification from the Corporation with respect to any action or any
failure to take any action occurring prior to the time of such repeal or
modification.
Section 5.05. If, for any reason, any provision of this Article Fifth shall
be held invalid, such invalidity shall not affect any other provision not held
so invalid, and each such other provision shall, to the full extent consistent
with law, continue in full force and effect. If any provision of this Article
Fifth shall be held invalid in part, such invalidity shall in no way affect the
remainder of such provision, and the remainder of such provision, together with
all other provisions of this Article Fifth shall, to the full extent consistent
with law, continue in full force and effect.
Section 5.06. Article Fifth (as in effect on the day prior to the day on
which this new Article Fifth is approved by the shareholders of the
Corporation), and all provisions of the Bylaws of the Corporation insofar as
they are inconsistent with this Article Fifth, are hereby repealed, except that
with respect to acts or omissions occurring prior to January 27, 1987, such
former Article Fifth and such other provisions of the Bylaws of the Corporation
shall remain in full force and effect.
ARTICLE VI
Share Certificates; Transfer
Section 6.01. Share Certificates. Share certificates shall be signed by the
manual, facsimile, printed, or engraved signatures of the Chairman of the Board
or a Vice Chairman of the Board or the President or a Vice President and the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer
of the Corporation, but one of such signatures shall be a manual
-14
<PAGE>
signature unless the certificates are signed by a transfer agent or a registrar,
and shall be sealed with the corporate seal, which may be a facsimile, engraved,
or printed seal. In case any officer who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the officer had not ceased to be such at
the date of its issue.
Section 6.02. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the books of the Corporation by the owner thereof or by
his attorney thereunto authorized, upon surrender of the share certificates to
the Secretary or a transfer agent of the Corporation accompanied by a duly
executed power of attorney.
Section 6.03. Transfer Agent and Registrar; Regulations. The Corporation
may, if and whenever the Board of Directors so determines, maintain one or more
transfer offices or designate one or more transfer agents, where or by which the
shares of the Corporation shall be transferable, and also maintain one or more
registry offices or designate one or more registrars where or by which the
shares shall be registered; and no certificates for shares of the Corporation in
respect of which a registrar shall have been designated shall be valid unless
countersigned and registered by such registrar. The Board of Directors may also
make such additional rules and regulations as it may deem expedient concerning
the issue, transfer, and registration of share certificates.
Section 6.04. Lost, Destroyed, and Mutilated Certificates. The Board of
Directors, by standing resolution or by resolutions with respect to particular
cases, may authorize the issue of new share certificates in lieu of share
certificates lost, destroyed, or mutilated, upon such terms and conditions,
including the posting of an open-penalty bond, as the Board of Directors may
direct.
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<PAGE>
ARTICLE VII
Miscellaneous Provisions
Section 7.01. Notice of Meetings. Any notice required to be given by the
Corporation to any shareholder, director, or committee member may be (i)
delivered personally, (ii) mailed by first class United States mail, postage
prepaid, addressed to the shareholder's, director's, or committee member's
address appearing on the books of the Corporation, or supplied by him to the
Corporation for the purpose of notice, or (iii) telegraphed or transmitted by a
similar mode of communication to the address identified in clause (ii) above. If
notice is sent by mail less than ten days prior to any shareholders',
directors', or committee meeting, notice shall be deemed to have been given to
the person entitled thereto twenty-four hours after deposit in the United States
mail; otherwise, notice shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or when deposited with
a telegraph or other transmitting office for transmission to such person. Any
shareholder, director, or committee member may waive notice of any meeting
before or after the meeting, and his attendance at a meeting shall constitute a
waiver of notice of such meeting, unless he announces at the meeting that he is
attending solely for the purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 7.02. Amendments. Bylaws may be adopted, amended, or repealed by
the Board of Directors in the manner provided in Section 2.08 or by the
shareholders in the manner provided in Section 1.06.
- ----------
Bylaws effective October 1, 1982
Amended April 11, 1984 - Sections 2.01; 2.02
Amended April 9, 1986 - Sections 2.02; 2.12; 3.01; 3.02
Amended April 21, 1987 - Article 5
Amended April 24, 1996 - Section 2.13
Amended March 26, 1997 - Section 1.06
Amended February 23, 2000 - Section 1.04
-16-
AMENDMENT 1999-1
TO THE
NATIONAL PENN BANCSHARES, INC. PENSION PLAN
As authorized by Section 10.1 of the National Penn Bancshares, Inc. Pension Plan
("Plan") as amended and restated effective January 1, 1989, the employer,
National Penn Banchares, Inc., hereby amends the Plan in the following manner:
FIRST: Article I is amended to clarify the coverage of employees of National
Penn Mortgage Co. as to whether such individuals will be members of the covered
class of employees. As amended, the definition of "Covered Class" in Article I
shall contain additional provisions that shall read as follows:
(a) Any individual who performs one Hour of Service as an Employee of
National Penn Mortgage Co. (or who following a break in service is reemployed as
an employee of National Penn Mortgage Co. and performs one Hour of Service) on
or after June 1, 1999 shall not be in the Covered Class.
(b) Any individual who first performs one Hour of Service as an Employee of
National Penn Bancshares, Inc. (or who following a break in service is
reemployed as an Employee of National Penn Bancshares, Inc. and performs one
Hour of Service) on or after June 1, 1999 and who is subsequently transferred to
the employment of National Penn Mortgage Co. shall not be in the Covered Class
as of the date of transfer.
(c) Any individual who is a Participant in the Plan on or before May 31,
2000, who first performs one Hour of Service as an Employee of National Penn
Bancshares, Inc. (or who following a break in service is reemployed as an
Employee of National Penn Bancshares, Inc. and performs one Hour of Service) on
or before May 31, 1999, and who is then transferred to the employment of
National Penn Mortgage Co. on or before May 31, 2000 shall continue to be in the
Covered Class and shall continue to accrue benefits under the terms of the Plan.
(d) Any individual who is a Participant in the Plan on or before May 31,
2000, who first performs one Hour of Service as an Employee of National Penn
Bancshares, Inc. ( or who following a break in service is reemployed as an
Employee of National Penn Banchares, Inc. and performs one Hour of Service) on
or before May 31, 1999, and who is then transferred to the employment of
National Penn Mortgage Co. on or before June 1, 2000 shall cease to be in the
Covered Class and shall cease to accrue benefits under the terms of the Plan.
The Accrued Benefit of such a Participant shall be calculated as provided in
Section 5.6.
SECOND: This amendment is made effective as of January 1, 2000.
THIRD: All other provisions of the Plan remain in full force and effect.
Executed this 23rd day of February, 2000 by the duly authorized agent of
National Penn Bancshares, Inc.
/s/ Sandra Spayd
Title: Corporate Secretary
EXHIBIT 10.5
Amendment 2000-1
to the
National Penn Bancshares, Inc. Pension Plan
As authorized by Section 10.1 of the National Penn Bancshares, Inc. Pension Plan
("Plan") as amended and restated effective January 1, 1989, the employer,
National Penn Bancshares, Inc., hereby amends the Plan in the following manner:
FIRST: Article I is amended to clarify the coverage of employees of Panasian
Bank as to whether such individuals will be members of the covered class of
employees. As amended, the definition of "Covered Class" in Article I shall
contain additional provisions that shall read as follows:
(a) Any individual who is an Employee of Panasian Bank shall not be in the
Covered Class, except as described in Sections (b) and (c) below.
(b) Any individual who is a Participant in the Plan on or before December
31, 2000, who first performs one Hour of Service as an Employee of National Penn
Bancshares, Inc. (or who following a break-in-service is reemployed as an
Employee of National Penn Bancshares, Inc. and performs one Hour of Service) on
or before December 31, 1999, and who is then transferred to the employment of
Panasian Bank on or before December 31, 2000 shall continue to be in the Covered
Class and shall continue to accrue benefits under the terms of the Plan.
(c) Any individual who is a Participant in the Plan on or before December
31, 2000, who first performs one Hour of Service as an Employee of National Penn
Bancshares, Inc. (or who following a break-in-service is reemployed as an
Employee of National Penn Bancshares, Inc. and performs one Hour of Service) on
or before December 31, 1999, and who is then transferred to the employment of
Panasian Bank on or after January 1, 2001 shall cease to be in the Covered Class
and shall cease to accrue benefits under the terms of the Plan. The Accrued
Benefit of such a Participant shall be calculated as provided in Section 5.6.
SECOND: This amendment is made effective as of date of execution.
THIRD: All other provisions of the Plan remain in full force and effect.
Executed this 23rd day of February, 2000, by the duly authorized agent of
National Penn Bancshares, Inc.
/s/ Sandra L. Spayd
Title: Corporate Secretary
NATIONAL PENN BANCSHARES, INC.
CAPITAL. ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
Amendment No. 2
National Penn Bancshares, Inc. (the "Company"), adopted the National Penn
Bancshares, Inc. Capital Accumulation Plan, which Plan was last amended and
completely restated effective January 1, 1997.
The Company hereby further amends the Plan as hereinafter set forth.
1. The first sentence of subsection 4(a) is amended effective January 1,
2000 to delete the words "even multiple of 1.0%" and insert the word
"percentage" in place thereof.
2. Subsection 4(d)(i) is amended effective January 1, 1999 to add a
sentence at the end thereof to read as hereinafter set forth.
"Notwithstanding the foregoing, with respect to a Member who is an
Employee on the last day of the Plan Year the amount of the Participating
Company contribution shall be adjusted to the extent necessary so that the
contribution amount is the amount which would have been contributed if the
Member's salary reduction contributions for the Plan Year were made as an equal
percentage of Compensation throughout the portion of the Plan Year the Member
was eligible (if such results in a greater matching contribution)."
Executed this 31st day of December, 1999.
----
Attest: NATIONAL PENN BANCSHARES, INC.
/s/ Sandra L. Spayd
- ---------------------------- By: /s/ Wayne R. Weidner
Secretary ---------------------------
(corporate seal)
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted by Board of Directors
December 26, 1984
Plan Document
As Amended By Board Dec. 16, 1998
Replaces previous Plan of Feb. 20, 1991
Amended Schedule B as approved by
Board on May 10, 1999
<PAGE>
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
AMENDMENT AND RESTATEMENT - 1998
The National Penn Bancshares, Inc. Executive Incentive Plan is hereby
amended and restated in its entirety as follows:
Since formation, National Penn Bancshares, Inc. ("NPB"), as a holding
company for National Penn Bank (the "Bank"), has maintained in effect the
executive incentive plan originally adopted by the Bank on July 26, 1978. NPB
now desires to formalize the terms of the plan in a written document as set
forth herein.
The National Penn Bancshares, Inc. Executive Incentive Plan (the "Plan") is
an unfunded deferred compensation arrangement for selected employees. The
purpose of the Plan is to motivate executives to meet and exceed established
financial goals and to promote a superior level of performance relative to
competitive banking institutions. Through payment of incentive compensation
beyond a salary, the Plan provides reward for meeting and exceeding the
established financial goals as well as recognition of individual achievements
for certain employees.
1. Definitions. The following terms have the meanings specified below,
unless the context in which they are used otherwise requires:
(a) "Affiliate" means any corporation which is included within a
"controlled group of corporations" including NPB, as determined under Section
1563 of the Internal Revenue Code of 1986, as amended.
(b) "C.E.O." means the Chief Executive Officer of NPB.
(c) "Change in Control or Ownership" means:
(i) an acquisition by any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act of 1934) of
"beneficial ownership" (within the meaning of Rule 13d-3 under such Act) of
securities of NPB representing 24.99% or more of the combined voting power of
NPB's securities then outstanding;
(ii) a merger, consolidation or other reorganization of Bank,
except where the resulting entity is controlled, directly or indirectly, by NPB;
(iii) a merger, consolidation or other reorganization of NPB,
except where shareholders of NPB immediately prior to consummation of any such
transaction continue to hold at least a majority of the voting power of the
outstanding
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<PAGE>
voting securities of the legal entity resulting from or existing after any
transaction and a majority of the members of the Board of Directors of the legal
entity resulting from or existing after any such transaction are former members
of NPB's Board of Directors;
(iv) a sale, exchange, transfer or other disposition of
substantially all of the assets of the Employer to another entity, except to an
entity controlled, directly or indirectly, by NPB;
(v) a sale, exchange, transfer or other disposition of
substantially all of the assets of NPB to another entity, or a corporate
division involving NPB; or
(vi) a contested proxy solicitation of the shareholders of NPB
that results in the contesting party obtaining the ability to cast 25% or more
of the votes entitled to be cast in an election of directors of NPB.
(d) "Committee" means the Compensation Committee of the Board of
Directors of NPB.
(e) "Employer" means NPB or the Affiliate which employs the
Participant.
(f) "Fund" means the pool of funds generated, based on the formula
established by the Committee, to be distributed to Plan Participants.
(g) "Mandatory Deferral" means twenty-five percent (25%) of the award
received by a Type A or Type B Participant under this Plan.
(h) "Participant" means an eligible officer or employee of NPB or an
Affiliate who is designated by the C.E.O. and approved by the Committee for
participation in the Plan for the relevant Plan Year, or a person who was such
at the time of his retirement, death, disability or resignation and who retains,
or whose beneficiaries obtain, benefits under the Plan in accordance with its
terms.
(i) "Plan Year" means the calendar year.
(j) "Tax Deferral" means that portion of the award received by a Type
A or Type B Participant under the Plan which the Participant elects, pursuant to
Schedule C attached hereto and made a part hereof, to receive as a deferred
payment.
2
<PAGE>
2. Plan Participation.
(a) To be eligible for an award under this Plan, a Participant must be
in the active full-time service of NPB or an Affiliate at the close of the Plan
Year.
(b) Effective January 1, 1985, prior to January 31 of each Plan Year,
the Chairman and CEO shall recommend to the Committee, in writing, those
employees who are eligible to participate in the Plan for such Plan Year. The
Committee shall meet as soon as practicable thereafter and act upon the
recommendations of the Chairman and C.E.O. Those employees approved by the
Committee shall be entitled to participate in the Plan for such Plan Year.
(c) At the Committee's discretion, the Committee may act upon the
recommendation of the Chairman and C.E.O. with respect to participation of an
employee whose employment with NPB or an Affiliate commences after January 1 but
prior to July 1 of a Plan Year. Upon approval by the Committee, such Participant
may participate in the Plan based on his or her earnings for such Plan Year.
(d) Each year, the Committee shall classify the Participants into Type
A, Type B or Type C, as specified on Schedule A attached to this plan document,
and shall specify different award formulae for each category. The Committee also
shall specify the method by which the amount to be allocated for the benefit of
each Participant from the Fund shall be determined. Participants, as classified
into Type A, Type B or Type C, each year will be listed on Schedule A attached
to this plan document. This schedule will be revised each year, as appropriate.
(e) At the Committee's discretion, the Committee may act upon the
recommendation of the Chairman and C.E.O. with respect to participation by a
Participant whose classification changes among Type A, Type B or Type C after
January 1 but prior to July 1 of a Plan Year. Upon approval by the Committee,
such Participant may participate in the Plan in the new classification based on
his or her earnings for such Plan Year.
3. Performance Goals.
(a) Effective January 1, 1985, performance goals and appropriate
financial thresholds shall be established each Plan Year by the Committee prior
to January 31 of that Plan Year. The established goals shall relate to the
financial performance of NPB or an Affiliate or unit thereof.
(b) Each year, the performance goals for the year will be shown on
Schedule B attached to this plan document. This schedule shall be revised each
year, as appropriate.
3
<PAGE>
(c) An award to a Participant may be conditioned on the performance of
such Participant, as determined by the Committee.
4. Calculation of Awards.
If both the internal and external performance goals set forth in
Schedule B are met, the Fund shall be distributed among Participants as follows:
(a) 50% of the Fund shall be allocated to the Type A Participants and
shall be divided equally between the Chairman and C.E.O. and President of NPB;
provided, however, that the amount distributed to any individual shall not
exceed 50% of such individual's base salary. To the extent that any amount
allocated to the Type A Participants is not distributed to them, such amount
shall be added to the amount to be allocated to and divided among the Type B and
Type C Participants as provided in subparagraph (2) below.
(b) 50% of the Fund shall be allocated to and divided among the Type B
and Type C Participants; provided, however, that no Type B Participant shall
receive an award in excess of 35% of base salary and no Type C Participant shall
receive an award in excess of 25% of base salary.
5. Distribution of Awards.
(a) (i) The Committee shall cause an aggregate account to be
established on the Employer's books for all of the Type A and Type B
Participants (the "Mandatory Deferral Account") and shall credit annually the
Mandatory Deferral Account with an amount equal to the Mandatory Deferral of all
Type A and Type B Participants. The Mandatory Deferral Account shall be
credited, as of the last day of each calendar quarter, with interest calculated
at the rate paid on the Investors Trust Company Money Market account for such
quarter.
(ii) The human resources department of the Employer shall
maintain individual accounts which shall reflect the share of each Participant
in the Mandatory Deferral Account (each referred to as an "Individual Mandatory
Deferral Account"). Interest credited to the Mandatory Deferral Account shall be
allocated among the Participants in the respective proportions that the balance
in each Participant's Individual Mandatory Deferral Account bears to the total
balance in the Mandatory Deferral Account on the date that such interest is
credited.
(iii) The human resources department of the Employer shall
maintain records which shall reflect the amounts in each Participant's
Individual Mandatory Deferral Account attributable to each Plan Year, i.e., for
each Plan Year for which a Participant receives an award, such records shall
show the amount of such award plus the interest earned thereon through the
4
<PAGE>
most recent date interest was credited thereon (for each Plan Year, such amount
is referred to herein as the "Plan Year Balance"). The sum of all Plan Year
Balances shall equal the total balance in a Participant's Individual Mandatory
Deferral Account.
(iv) If, at the end of the fifth Plan Year following the Plan
Year for which a particular award was made to a Participant, such Participant is
still employed by NPB or an Affiliate or has retired at age 60 or later or has
died on or before the last day of such Plan Year, such Participant's Individual
Mandatory Deferral Account shall be credited by the Employer with an additional
amount equal to the Plan Year Balance relating to the Plan Year of five years
before (the "Matching Contribution").
(v) For purposes of this subparagraph 5(a), a Participant shall
be deemed to be still employed by NPB or an Affiliate as of the last day of any
Plan Year on which a balance exists in such Participant's Individual Mandatory
Deferral Account if such Participant is no longer then performing services on
behalf of NPB or such Affiliate as a result of such Participant's disability.
(b) (i) Type A and Type B Participants may elect to have the payment
of all or a portion of the balance of their awards deferred, i.e., the Tax
Deferral amount. Effective January 1, 1985, such election shall be made before
the beginning of the relevant Plan Year or, in the case of a new employee or a
newly classified Type A or Type B Participant, prior to his or her commencement
of employment or new classification as a Type A or Type B Participant, and shall
be in the form of Schedule C attached to this plan document. The aggregate
amount of the Tax Deferral for the Type A and Type B Participants shall be
credited to an account on the Employer's books (the "Tax Deferral Account"). The
Tax Deferral Account shall be credited, as of the last day of each calendar
quarter, with interest calculated at the rate paid on the Investors Trust
Company Money Market account for such quarter.
(ii) The human resources department of the Employer shall
maintain individual accounts which shall reflect the share of each Participant
in the Tax Deferral Account (each referred to as an "Individual Tax Deferral
Account"). Interest credited to the Tax Deferral Account shall be allocated
among the Participants in the respective proportions that the balance in each
Participant's Individual Tax Deferral Account bears to the total balance in the
Tax Deferral Account on the date that such interest is credited.
(c) Awards to Type A and Type B Participants not deferred pursuant to
Subparagraph (b) above and all awards to Type C Participants shall be payable in
cash as soon as practicable after the close of the Plan Year.
5
<PAGE>
(d) In the event of a Participant's death prior to receipt of his or
her award earned hereunder (including amounts allocated to such Participant's
Individual Mandatory Deferral Account and Individual Tax Deferral Account), the
award shall be paid, within thirty (30) days of the last day of the calendar
quarter during which the Participant's death occurred, to the Participant's
designated beneficiary under the Employer's group life insurance plan or, in the
absence of a valid designation, to the Participant's estate.
6. Manner of Payment of Mandatory and Tax Deferral Amounts.
(a) Prior to the end of the fifth Plan Year following the Plan Year
for which an award was made to a Type A or Type B Participant, such Participant
may elect to have the balance on the last day of such fifth Plan Year in such
Participant's Individual Mandatory Deferral Account, after the addition of the
Matching Contribution (in the aggregate, the "Total Balance"), transferred and
credited to such Participant's Individual Tax Deferral Account, if any, for
distribution in accordance with the Participant's irrevocable election pursuant
to Schedule C. Such an election shall be in the form of Schedule D attached to
this plan document. If the Participant does not elect to transfer the Total
Balance to the Participant's Individual Tax Deferral Account, or if the
Participant does not have an Individual Tax Deferral Account, the Total Balance
shall be paid in cash to the Participant as soon as practicable after the close
of the Plan Year.
(b) The amount credited to a Participant's Individual Tax Deferral
Account, including amounts transferred pursuant to subparagraph (a) immediately
above, shall be paid to such Participant in one lump sum or in annual
installments. The actual manner of distribution will be in accordance with the
Participant's irrevocable election, the form of which is attached hereto as
Schedule C; provided, however, that if the Participant selects a distribution in
annual installments, such installment will be paid in a manner which complies
with any applicable rules, regulations or laws.
7. Funding.
(a) Deferred award obligations under the Plan shall be paid from the
general assets of NPB or an Affiliate.
(b) NPB, or an Affiliate, in its sole discretion, may earmark assets
or other means to meet the deferred award obligations provided under the Plan.
Any assets which may be earmarked to meet NPB's or an Affiliate's deferred award
obligations provided under the Plan shall continue for all purposes to be part
of the general funds of NPB or an Affiliate and no person other than NPB or the
Affiliate shall by virtue of the provisions of the Plan have any interest in
such assets. To
6
<PAGE>
the extent a Participant or his beneficiary acquires a right to receive deferred
award payments from NPB or an Affiliate under the Plan, such right shall be no
greater than the right of any unsecured general creditor of NPB or an Affiliate.
(c) Nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust of any
kind, or a fiduciary relationship between NPB or an Affiliate and a Participant
or any other person.
8. Plan Administration.
(a) The Committee shall, with respect to the Plan, have full power and
authority to construe, interpret and manage, control and administer the Plan,
and to pass and decide upon cases in conformity with the objectives of the Plan
under such rules as the Board of Directors of NPB may establish.
(b) Any decision made or action taken by the Board of Directors of NPB
or the Committee arising out of, or in connection with the administration,
interpretation, and effect of the Plan shall be at their absolute discretion and
shall be conclusive and binding on all parties.
(c) The members of the Committee and the members of the Board of
Directors of NPB shall not be liable for any act or action, whether of omission
or commission, made in connection with the interpretation and administration of
the Plan and which results in a loss, damage, expense or depreciation, except
when due to their own gross negligence or willful misconduct.
9. Amendment and Termination.
NPB reserves the right to amend the Plan from time to time and to
terminate the Plan at any time. All amendments, including any amendment to
terminate the Plan, shall be adopted by the Board of Directors of NPB. The
Committee will give prompt written notice to each Participant of any amendment
or termination of the Plan.
10. Change in Control or Ownership.
(a) Subject to the further terms and provisions of this Paragraph 10,
the Plan shall automatically terminate on the date that a Change in Control or
Ownership shall occur, without necessity of any action by the Board of Directors
of NPB.
(b) If a Change in Control or Ownership shall occur, each
Participant's Individual Mandatory Deferral Account shall be credited, as of the
day immediately preceding the date on which such Change in Control or Ownership
occurred, with additional amounts as follows: An amount equal to each Plan Year
Balance shall be credited by the Employer to such Participant's Individual
7
<PAGE>
Mandatory Deferral Account (such additional amounts are referred to herein as
"Change in Control Matching Contributions").
(c) If a Change in Control or Ownership shall occur, the Employer
shall pay each Participant a cash amount equal to the total amounts credited, as
of the date such Change in Control or Ownership occurred, to (i) such
Participant's Individual Mandatory Deferral Account (including all Change in
Control Matching Contributions made pursuant to subparagraph (b) hereof) and
(ii) such Participant's Individual Tax Deferral Account, if any. The Employer
shall pay such total amounts to the Participants within thirty (30) days of the
termination of the Plan (as provided in subparagraph (a) hereof).
11. Effective Date.
The initial effective date of the Plan shall be January 1, 1984.
12. Miscellaneous Provisions.
(a) The Plan does not constitute a contract of employment, and
participation in the Plan shall not give any Participant the right to be
retained in the service of NPB or an Affiliate or any right or claim to a
benefit under the Plan unless such right or claim has specifically accrued under
the terms of this plan document.
(b) NPB or an Affiliate reserves the right to withhold from any
deferred award payments payable hereunder, any amounts required to be withheld
under the federal income tax laws.
(c) The captions of the several paragraphs and subparagraphs of this
Plan are inserted for convenience of reference only and shall not be considered
in the construction hereof.
(d) Whenever any word is used herein in the singular form, it shall be
construed as though it were used in the plural form, as the context requires,
and vice versa.
(e) A masculine, feminine or neuter pronoun, whenever used herein,
shall be construed to include all genders as the context requires.
(f) This plan document may be executed in any number of counterparts,
each of which shall be deemed one and the same instrument which may be
sufficiently evidenced by any one counterpart.
(g) Except to the extent pre-empted by federal law, this plan document
shall be construed, administered and enforced in accordance with the domestic
internal law of the Commonwealth of Pennsylvania.
8
<PAGE>
(THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
9
<PAGE>
SCHEDULE A
Participants for the ____ Plan Year consist of Types A, B, and C as defined
in the Plan document.
It is anticipated that the following named persons will meet the
eligibility requirements for participation as of December 31, ____. It is
expected that there could be additional individuals whose eligibility could be
determined later in the year, who would be named a participant as of December
31, ____.
Named participants are classified accordingly:
CLASS A (2 persons) (name and grade level)
[CHAIRMAN AND C.E.O.]
[PRESIDENT]
CLASS B (__ persons) (name and grade level)
[INSERT NAMES AND GRADE LEVELS]
CLASS C (__ persons) (name and grade level)
[INSERT NAMES AND GRADE LEVELS]
10
<PAGE>
SCHEDULE B
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
____ PERFORMANCE GOALS
[SUBJECT TO CHANGE]
Awards pursuant to the Plan will not be made unless the internal and
external performance goals set forth below are met.
INTERNAL PERFORMANCE GOALS FOR THE ____ PLAN YEAR
The diluted per share operating income of NPBC for ____ must exceed the diluted
per share operating income for _____.
EXTERNAL PERFORMANCE GOALS FOR THE_______ PLAN YEAR
The net operating income of NPB before securities transactions on realized
return on average common equity for ____ must exceed the average of the net
operating income before securities transactions on realized return on average
common equity for ____ for the banks or bank holding companies in the peer group
set forth on Schedule B-2 A.
Internal Performance Goals amended 5/10/99
11
<PAGE>
SCHEDULE B-1
PAY OUT FORMULA
1. Obtaining an operating return on average equity
triggers an incentive pay out as follows:
100% of peer group $0
100.1% of peer group .___% of average assets
130% of peer group .___% of average assets
Interpolation is required between 100.1% and 130%.
2. Obtaining #1 in return on equity triggers an added
pay out of $______.
12
<PAGE>
SCHEDULE B-2
The ____ banking companies which form the peer group are:
[INSERT PEER GROUP]
13
<PAGE>
SCHEDULE C
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
DEFERRAL ELECTION LETTER
TO THE COMMITTEE:
In accordance with the National Penn Bancshares, Inc. Executive Incentive
Plan, as amended and restated in 1998, I hereby request to defer receipt of that
portion of any award earned by me (to the extent provided in Paragraph 2 below)
for services rendered as an eligible Participant in the Plan during the calendar
year specified below and eligible to be received in cash. This election shall be
governed by all of the provisions of the Plan.
1. This request shall be effective beginning with calendar year ____.
2. This voluntary deferral request shall apply to ________________% of my
award.
3. My deferred award and the interest thereon shall become payable on the
January 1 next following the date I retire or otherwise cease to be
employed by NPB or an Affiliate of NPB.
4. I irrevocably elect that, when payable, my deferred award and the
interest thereon shall be paid to me as indicated below:
( ) In one lump sum.
( ) In a series of five annual installments.
( ) In a series of ten annual installments.
I agree that such terms and conditions shall be binding upon my
beneficiaries, distributees, and personal representatives. Unless noted below,
my beneficiaries shall be the same as designated for my group life insurance.
14
<PAGE>
- ------------------------- --------------------------------
Date Signature of Participant
Approved By:
- ------------------------- --------------------------------
Date Signature of the Chairman of the
Committee
- -------------------------------------------------------------------------------
Name of Participant
15
<PAGE>
SCHEDULE D
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
TRANSFER ELECTION LETTER
TO THE COMMITTEE:
In accordance with the National Penn Bancshares, Inc. Executive Incentive
Plan, as amended and restated in 1998, I hereby request to transfer the balance
in the Individual Mandatory Deferral Account established in my name for the
award earned by me for services rendered as an eligible Participant in the Plan
during the calendar year specified below, eligible to be received in cash, to
the Individual Tax Deferral Account established in my name for the award earned
by me for services rendered as an eligible Participant in the Plan. This
election shall be governed by all of the provisions of the Plan.
1. This request shall be for the Individual Mandatory Deferral
Account established in my name for the award earned by me for
calendar year ____.
2. Payment of the award transferred and deferred pursuant hereto
shall be in accordance with the election made for the Tax
Deferral amount voluntarily deferred pursuant to deferral
election letter dated _________.
- ------------------------------ ------------------------------
Date Signature of Participant
Approved By:
- ------------------------------ ------------------------------
Date Signature of Chairman of the
Committee
16
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted by Board of Directors
December 26, 1984
PLAN YEAR 2000
As Amended By Board Dec. 16, 1998
Replaces previous Plan of Feb. 20, 1991
Amended Schedule B as approved by
Board on May 10, 1999
<PAGE>
SCHEDULE A
Participants for the 2000 Plan Year consist of Types A, B, and C as defined
in the Plan document.
It is anticipated that the following named persons will meet the
eligibility requirements for participation as of December 31, 2000. It is
expected that there could be additional individuals whose eligibility could be
determined later in the year, who would be named a participant as of December
31, 2000.
Named participants are classified accordingly:
CLASS A (2 persons) (name and grade level)
Lawrence T. Jilk, Jr. 999
Wayne R. Weidner 999
CLASS B (27 persons) (name and grade level)
Bruce G. Kilroy 999 Todd Alderfer 111
Garry D. Koch 999 Brian Appleton 111
Frederick C. Peters II 999 Nancy R. Corson 111
Glenn Moyer 999 Lloyd Reichenbach 111
Kathy B. Schauer 999 Michael L. Wummer 111
Algot F. Thorell, Jr. 999
Joseph C. Walter, Jr. 999 Carol Franklin 110
Sharon L. Weaver 999 Sandra Hoffman 110
Tarrie Miller 110
Ronald L. Bashore 113 Larry A. Rush 110
Timothy A. Day 113 Sandra L. Spayd 110
Scott Gruber 113
Michael R. Reinhard 113 Dennis Moyer 109
Bruce L. Ressler 113
Gary L. Rhoads 113
Joseph C. Walker 113
Jack Mikus 112
<PAGE>
CLASS C (27 persons) (name and grade level)
Earl Houseknecht 110 Michelle Debkowski 107
P. Robert Keeley 110 Rich Gentile 107
Ed Shin 110 Eugene Guinther 107
Linda S. Stark 110 Dick Haddock 107
Robert Latshaw 107
Lew Freeman 109 John Tucker 107
Robin Hitchcock 109 Donna Wentzel 107
Hugh (Skip) Marshall 109
Clarence Martindell 109 Marcia (Borowski) Stark 106
Cindy Rankin 109 Frank Gehringer 106
Dan Tempesco 109 Steve Kunkel 106
Sandra Massaro 106
Richard Sutton 108 Janice McCracken 106
Teresa Steuer 106
Mary Lou Dietz 105
Sharon McMichael 105
Patricia Angstadt 104
<PAGE>
OLD PAGE - was amended 5/10/99 see next page for correct Schedule B SCHEDULE B
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
1999 PERFORMANCE GOALS
Awards pursuant to the Plan will not be made unless the internal and
external performance goals set forth below are met.
INTERNAL PERFORMANCE GOALS FOR THE 1999 PLAN YEAR
The net operating income of NPB before securities transactions for 1999 must
exceed the net operating income of NPB before securities transactions for 1998.
EXTERNAL PERFORMANCE GOALS FOR THE 1999 PLAN YEAR
The net operating income of NPB before securities transactions on realized
return on average common equity for 1999 must exceed the average of the net
operating income before securities transactions on realized return on average
common equity for 1999 for the banks or bank holding companies in the peer group
set forth on Schedule B-2 A.
<PAGE>
SCHEDULE B
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
2000 PERFORMANCE GOALS
Awards pursuant to the Plan will not be made unless the internal and
external performance goals set forth below are met.
INTERNAL PERFORMANCE GOALS FOR THE 2000 PLAN YEAR
The diluted per share operating income of NPBC for 2000 must exceed the diluted
per share operating income for 1999.
EXTERNAL PERFORMANCE GOALS FOR THE 2000 PLAN YEAR
The net operating income of NPB before securities transactions on realized
return on average common equity for 2000 must exceed the average of the net
operating income before securities transactions on realized return on average
common equity for 2000 for the banks or bank holding companies in the peer group
set forth on Schedule B-2 A.
Internal Peformance Goals amended 5/10/99
<PAGE>
SCHEDULE B-1
PAY OUT FORMULA
1. Obtaining an operating return on average equity
triggers an incentive pay out as follows:
100% of peer group $0
100.1% of peer group .031% of average assets
130% of peer group .11% of average assets
Interpolation is required between 100.1% and 130%.
2. Obtaining #1 in return on equity triggers an added
pay out of $25,000.
<PAGE>
SCHEDULE B-2
There is a change in the peer group from last year. The list of the ten
banking companies which form the peer group are:
Univest (Souderton)
Fulton Financial Corp.
Susquehanna Bancshares
Harleysville National Corp.
Keystone Financial
S & T Bancorp
BT Financial Corporation
Omega Financial Corp.
F.N.B. Corporation (Hermitage, PA)
First Commonwealth Financial Corp. (Indiana, PA)
National Penn Bancshares, Inc.
Plan Year 2000, as of December 1999
<PAGE>
SCHEDULE C
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
DEFERRAL ELECTION LETTER
TO THE COMMITTEE:
In accordance with National Penn Bancshares, Inc., Executive Incentive
Plan, effective January 1, 1984, I hereby request to defer receipt of that
portion of any award earned by me (to the extent provided in Paragraph 2 below)
for services rendered as an eligible Participant in the Plan during the calendar
year specified below and eligible to be received in cash. This election shall be
governed by all of the provisions of the Plan.
1. This request shall be effective beginning with calendar year 2000.
2. This voluntary deferral request shall apply to ____________% of my
award.
3. My deferred award and the interest thereon shall become payable on the
January 1 next following the date I retire or otherwise cease to be
employed by NPB or an Affiliate of NPB.
<PAGE>
4. I irrevocably elect that, when payable, my deferred award and the
interest thereon shall be paid to me as indicated below:
( ) In one lump sum.
( ) In a series of five annual installments.
( ) In a series of ten annual installments.
I agree that such terms and conditions shall be binding upon my
beneficiaries, distributees, and personal representatives. Unless noted below,
my beneficiaries shall be the same as designated for my group life insurance.
- ------------------------- --------------------------------
Date Signature of Participant
Approved By:
- ------------------------- --------------------------------
Date Signature of the Chairman of the Committee
- -------------------------
Name of Participant
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
- ---- -----------------------------
Investors Trust Company Pennsylvania
National Penn Bank United States of America
Penn Securities, Inc. Pennsylvania
Link Financial Services, Inc. Pennsylvania
Penn 1st Financial Services, Inc. Pennsylvania
RBO Funding, Inc. Virginia
1874 Financial Corp. Pennsylvania
NPB Delaware, Inc. Delaware
Blue Rock Realty Corp. II Pennsylvania
Blue Rock Realty Corp. III Pennsylvania
Blue Rock Realty Corp. IV Pennsylvania
National Penn Investment Company Delaware
National Penn Life Insurance Company Arizona
NPB New Jersey, Inc. New Jersey
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 17, 2000 (except for note 2, as to which
the date is February 14, 2000), accompanying the consolidated financial
statements included in the 1999 Annual Report of National Penn Bancshares, Inc.
and Subsidiaries on Form 10-K for the year ended December 31, 1999. We hereby
consent to the incorporation by reference of said report in the Registration
Statements of National Penn Bancshares, Inc. on Form S-3 (File No. 333-87549,
effective September 22, 1999; File No.333-04729, effective May 30, 1996; File
No. 33-86094, effective November 7, 1994; File No. 33-47067 effective, April 29,
1992; and File No. 33-02567, effective January 8, 1986), and on Form S-8 (File
No. 333-71391, effective January 29, 1999; File No. 333-27101, File No.
333-27103, and File No. 333-27059, effective May 14, 1997; File No. 33-91630,
effective April 27, 1995; File No. 33-87654, effective December 22, 1994; File
No.33-15696, effective July 9, 1987).
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000700733
<NAME> NATIONAL PENN BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 62,953
<INT-BEARING-DEPOSITS> 4,039
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 516,027
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 516,027
<LOANS> 1,570,543
<ALLOWANCE> 34,139
<TOTAL-ASSETS> 2,242,432
<DEPOSITS> 1,593,254
<SHORT-TERM> 212,596
<LIABILITIES-OTHER> 25,559
<LONG-TERM> 263,327
0
0
<COMMON> 135,526
<OTHER-SE> 12,170
<TOTAL-LIABILITIES-AND-EQUITY> 2,242,432
<INTEREST-LOAN> 131,861
<INTEREST-INVEST> 31,485
<INTEREST-OTHER> 924
<INTEREST-TOTAL> 164,270
<INTEREST-DEPOSIT> 56,537
<INTEREST-EXPENSE> 82,753
<INTEREST-INCOME-NET> 81,517
<LOAN-LOSSES> 5,960
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 65,724
<INCOME-PRETAX> 33,171
<INCOME-PRE-EXTRAORDINARY> 27,409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,409
<EPS-BASIC> 1.54
<EPS-DILUTED> 1.52
<YIELD-ACTUAL> 5.47
<LOANS-NON> 11,055
<LOANS-PAST> 2,674
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 30,835
<CHARGE-OFFS> 5,157
<RECOVERIES> 2,501
<ALLOWANCE-CLOSE> 34,139
<ALLOWANCE-DOMESTIC> 29,097
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,042
</TABLE>
Exhibit 99
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K for 1999 and in
other reports issued by the Company are forward-looking and are identified by
the use of forward-looking words or phrases such as "intended," "believes,"
"expects," "estimates", "anticipates," "forecasts," "is expected," and "is
anticipated." These forward-looking statements generally relate to the Company's
plans, expectations, goals, and projections, and include statements as to the
Company's anticipated future earnings, planned investments in new and modified
technology and branch locations, as well as Year 2000 computer compliance. These
forward- looking statements are subject to numerous assumptions, risks and
uncertainties.
Risks and uncertainties could cause actual future results and
investments to differ materially from those contemplated in such forward-looking
statements. These risks and uncertainties include, without limitation, the
following:
(a) loan growth and/or loan margins may be less than expected, due to
competitive pressures in the financial services industry, changes in the
interest rate environment, or otherwise;
(b) general economic or business conditions, either nationally or in
the region in which the Company will be doing business, may be less favorable
than expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit;
(c) costs of the Company's planned training initiatives, product
development, branch expansion and new technology and operating systems may
exceed expectations;
(d) volatility in the Company's market area due to recent mergers may
have unanticipated consequences, such as customer turnover; and
(e) changes in the regulatory environment, securities markets, general
business conditions and inflation may be adverse.
These risks and uncertainties are all difficult to predict, and most
are beyond the control of the Company's management.
Readers are cautioned not to place undue reliance on the Company's
forward- looking statements, which speak only as of the date of this report. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
