Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NPBC > SEC Filings for NPBC > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for NATIONAL PENN BANCSHARES INC | Request a Trial to NEW EDGAR Online Pro



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to assist in understanding and evaluating the major changes in the earnings performance and financial condition of the Company as of and for the three months ended March 31, 2013, with a primary focus on an analysis of operating results. Current performance does not guarantee, and may not be indicative of similar performance in the future. The Company's consolidated financial statements included in this Report are unaudited, and as such, are subject to year-end examination.

Statement Regarding Non-GAAP Financial Measures:

This Report contains supplemental financial information determined by methods other than in accordance with Accounting Principles Generally Accepted in the United States of America ("GAAP"). National Penn's management uses these non-GAAP measures in its analysis of National Penn's performance. These measures should not be considered a substitute for GAAP basis measures nor should they be viewed as a substitute for operating results determined in accordance with GAAP. Management believes the presentation of the following non-GAAP financial measures, which exclude the impact of the specified items, provides useful supplemental information that is essential to a proper understanding of the financial results of National Penn.

          Tangible common equity excludes goodwill and intangible assets and
           preferred equity. Banking and financial institution regulators also
           exclude goodwill and intangible assets from shareholders' equity when
           assessing the capital adequacy of a financial institution. Tangible
           common equity provides a method to assess the Company's tangible
           capital trends.

          Tangible book value expresses tangible common equity on a per-share
           basis. Tangible book value provides a method to assess the level of
           tangible net assets on a per-share basis.

          Adjusted net income and return on assets exclude the effects of
           certain gains and losses, adjusted for taxes when applicable. Adjusted
           net income and returns provide methods to assess earnings performance
           by excluding items management believes are not comparable among the
           periods presented.

          Efficiency ratio expresses operating expenses as a percentage of
           fully-taxable equivalent net interest income plus non-interest income.
           Operating expenses exclude items from non-interest expense that
           management believes are not comparable among the periods presented.
           Non-interest income is adjusted to also exclude items that management
           believes are not comparable among the periods presented. Efficiency
           ratio is used as a method for management to assess its operating
           expense level and to compare to financial institutions of varying

Management believes the use of non-GAAP measures will help readers compare National Penn's current results to those of prior periods as presented in the accompanying discussion.


The accounting and reporting policies of the Company conform to GAAP and predominant practice within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results:

allowance for loan losses;

goodwill and other intangible assets;

income taxes; and

other-than-temporary impairment.

There have been no material changes in the Company's critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to the Company's most recent Annual Report on Form 10-K.

Table of Contents

Business and Industry

National Penn Bancshares, Inc. is a Pennsylvania business corporation and a registered bank holding company headquartered in Boyertown, Pennsylvania. National Penn operates as an independent community banking company that offers a diversified range of financial products principally through its bank subsidiary, National Penn Bank, as well as an array of investment, insurance and employee benefit services through its non-bank subsidiaries. National Penn's financial services affiliates consist of National Penn Wealth Management, N.A., including its National Penn Investors Trust Company division; National Penn Capital Advisors, Inc.; Institutional Advisors, LLC; and National Penn Insurance Services Group, Inc., including its Higgins Insurance and Caruso Benefits divisions.

The Company's primary business is accepting deposits from customers through its retail branch offices, and investing those deposits, together with funds generated from operations and borrowings, in loans, including commercial business loans, commercial real estate loans, residential mortgages, home equity loans, other consumer loans, and investment securities. The Company's strategic plan provides for it to operate within growth markets focusing on diversification of revenue sources and increased market penetration in growing geographic areas.

At March 31, 2013, National Penn Bank operated 119 retail branch offices, 118 located in Pennsylvania and one in Maryland.

The Company's results of operations are affected by five major elements: (1) net interest income, or the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowed funds; (2) the provision for loan losses, or the amount added to the allowance for loan losses to provide reserves for inherent losses on loans and leases; (3) non-interest income, which is made up primarily of banking fees, wealth management income, insurance income, fair value measurements, gains and losses from the sale of securities, and other transactions; (4) non-interest expense, which consists primarily of salaries, employee benefits and other operating expenses; and (5) income taxes. Results of operations are also significantly affected by general economic and competitive conditions, as well as changes in market interest rates, government policies and actions of regulatory authorities.

Table of Contents

                                                            Three Months Ended
(dollars in thousands, except per share    March 31,           December 31,           March 31,
data)                                        2013                  2012                  2012
Total interest income                    $    72,595          $     77,174          $     81,414
Total interest expense                        10,971                13,739                17,596
Net interest income                           61,624                63,435                63,818
Provision for loan losses                      1,500                 2,000                 2,000
Net interest income after provision for
loan losses                                   60,124                61,435                61,818
Net gains (losses) from fair value
changes of subordinated debentures             2,111                  (253 )               1,645
Net gains on investment securities                25                     4                     -
Other non-interest income                     23,441                24,755                22,596
Loss on debt extinguishment                   64,888                     -                     -
Other non-interest expense                    52,434                52,262                52,440
Income (loss) before income taxes            (31,621 )              33,679                33,619
Income tax expense (benefit)                 (14,217 )               8,535                 8,317
Net income (loss)                        $   (17,404 )        $     25,144          $     25,302

Basic earnings per share                 $     (0.12 )        $       0.17          $       0.17
Diluted earnings per share                     (0.12 )                0.17                  0.17
Dividends per share                                -   (2  )          0.20   (2  )          0.05

Net interest margin                             3.49 %                3.46 %                3.55 %
Efficiency ratio (1)                           58.61 %               56.40 %               57.47 %
Return on average assets                          NM                  1.19 %                1.21 %

Asset Quality Metrics
Allowance / total loans                         2.04 %                2.12 %                2.33 %
Non-performing loans / total loans              1.02 %                1.03 %                1.28 %
Delinquent loans / total loans                  0.46 %                0.46 %                0.46 %
Allowance / non-performing loans                 199 %                 206 %                 183 %
Annualized net charge-offs / average
loans                                           0.41 %                0.35 %                0.56 %

(1) Refer to the Statement Regarding Non-GAAP Financial Measures at the beginning of Part I, Item 2.
(2) The 1st quarter of 2013 cash dividend of $0.10 per share was declared and paid in the 4th quarter of 2012. "NM" - Denotes a value displayed is not meaningful.

Table of Contents

For the three months ended March 31, 2013, the Company recorded a net loss of $17.4 million, or $(0.12) per diluted share, compared to net income of $25.3 million, or $0.17 per diluted share, in the comparable prior year period. The loss resulted from a $64.9 million ($42.2 million after tax) charge from the extinguishment of $400 million of previously restructured FHLB advances. Additionally, during the first quarter of 2013, the Company redeemed $65.2 million of 7.85%, fixed-rate subordinated debentures. This transaction produced a $2.1 million ($1.4 million after-tax) gain because these instruments were previously accounted for at fair value and the Company had a call at par. These strategic initiatives were undertaken for asset/liability, interest rate risk, and capital management purposes and reduced diluted earnings per share by $(0.28), net for the quarter ended March 31, 2013.

The strategic initiatives referred to in the preceding paragraph affected the comparability of results between periods and, therefore, were excluded from the Company's evaluation of operating results for the three months ended March 31, 2013, as disclosed in the following discussion of adjusted net income and adjusted return on average assets.

Adjusted net income and returns(1) are non-GAAP measures and exclude certain items which management believes affect the comparability of results between periods. The following table reconciles the non-GAAP measure of adjusted net income to the GAAP measure of net income available to common shareholders and diluted earnings per share and calculates the adjusted return on average assets(1).

                                                              Three Months Ended
(dollars in thousands, except per share data)     March 31,      December 31,      March 31,
                                                    2013             2012            2012
Adjusted net income reconciliation
Net income (loss)                               $   (17,404 )   $     25,144     $    25,302
After tax unrealized fair value (gain) loss on
subordinated debentures                              (1,372 )            164          (1,069 )
After tax loss on debt extinguishment                42,177                -               -
Adjusted net income                             $    23,401     $     25,308     $    24,233

Earnings per share
Net income (loss)                               $     (0.12 )   $       0.17     $      0.17
After tax unrealized fair value gain on
subordinated debentures                               (0.01 )              -           (0.01 )
After tax loss on debt extinguishment                  0.29                -               -
Adjusted net income                             $      0.16     $       0.17     $      0.16

Average assets                                  $ 8,298,815     $  8,440,642     $ 8,397,381
Adjusted return on average assets                      1.14 %           1.19 %          1.16 %

(1) Refer to the Statement Regarding Non-GAAP Financial Measures at the beginning of Part I, Item 2.

During the first quarter of 2013, the Company continued to deliver consistent adjusted net income, which is summarized as follows:
Adjusted net income was $23.4 million, or $0.16 per diluted share, for the first quarter of 2013 compared to $25.3 million, or $0.17 per diluted share, for the fourth quarter of 2012 and $24.2 million, or $0.16 per diluted share, for the first quarter of 2012. Adjusted net income remains stable despite modest reductions to net interest income, as asset quality trends led to a reduced provision for loan losses and expense levels continue to be favorable. Adjusted ROAA was 1.14% for the three months ended March 31, 2013. Adjusted net income excluded the effects of the changes in the fair value of the Company's subordinated debentures and the loss on debt extinguishment, as discussed above.

Net interest income totaled $61.6 million for the three months ended March 31, 2013 compared to $63.8 million for the three months ended March 31, 2012. The decrease in net interest income reflects the repricing of assets in the continued low interest rate environment. However, management of funding costs through the restructure and termination of $400 million of FHLB advances and the redemption of $65.2 million of fixed rate subordinated debentures helped to mitigate the effect of declining asset yields. The Company's interest rate management initiatives maintained net interest margin at 3.49% for the three months ended March 31, 2013 on $7.7 billion of average earning assets. Net interest margin for the prior year period was 3.55% on $7.8 billion of average earning assets.

Table of Contents

The Company continues to experience improvements in asset quality. Classified loans declined by 30% since March 31, 2012, and non-performing loans declined to 1.02% of total loans at March 31, 2013. The sustained improvement in asset quality resulted in a $0.5 million decrease to the provision for loan losses ("provision") which totaled $1.5 million for the three months ended March 31, 2013, compared to $2.0 million for the three months ended March 31, 2012.

Other non-interest income increased by $0.8 million and totaled $23.4 million for the three months ended March 31, 2013. The results of the wealth management and mortgage banking operations combined to contribute $1.2 million to the increase.

Non-interest expense, excluding the first quarter of 2013 loss on debt extinguishment of $64.9 million, continued to be well controlled at $52.4 million for the three months ended March 31, 2013, consistent with the three months ended March 31, 2012. The efficiency ratio(1) was stable at 58.61% for the three months ended March 31, 2013, as the Company continued to effectively manage expense levels.

Compared to the quarter ended December 31, 2012, other non-interest income declined modestly due primarily to decreases in mortgage banking and customer interest rate swap activity as demand for these products decreased slightly during the current quarter.

  Add NPBC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NPBC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now

Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.