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EX-31.2 - EXHIBIT 31.2 - NATIONAL PENN BANCSHARES INCex31-2.htm
EX-32.1 - EXHIBIT 32.1 - NATIONAL PENN BANCSHARES INCex32-1.htm
EX-10.7 - EXHIBIT 10.6 - NATIONAL PENN BANCSHARES INCex10-6.htm
EX-10.2 - EXHIBIT 10.2 - NATIONAL PENN BANCSHARES INCex10-2.htm
EX-31.1 - EXHIBIT 31.1 - NATIONAL PENN BANCSHARES INCex31-1.htm
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   
SECURITIES EXCHANGE ACT OF 1934
     
   
For the quarterly period ended March 31, 2011
   
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   
SECURITIES EXCHANGE ACT OF 1934
     
   
For the transition period from ________________ to ________________

000-22537-01
(Commission File Number)
 
NATIONAL PENN BANCSHARES, INC.
(Exact Name of Registrant as Specified in Charter)

Pennsylvania
23-2215075
(State or Other Jurisdiction of Incorporation)
IRS Employer Identification No.

Philadelphia and Reading Avenues,
Boyertown, PA  19512
(Address of Principal Executive Offices)

(800) 822-3321
Registrant’s telephone number, including area code
 
(Former Name or Former Address, if Changed Since Last Report):  N/A

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 xNo  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer  ¨
Non-accelerated filer   o  (Do not check if a smaller reporting company)
Smaller reporting company o
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o           No  x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding at May 6, 2011
Common Stock, no stated par value
 
151,627,686 shares

 
 
 
 

 
 
 
TABLE OF CONTENTS


Part I - Financial Information.
Page
       
 
Item 1.
Financial Statements
       
 
Item 2.
Management’s Discussion and Analysis of
 
   
Financial Condition and Results of Operation
       
 
Item 3.
Quantitative and Qualitative Disclosures About
 
   
Market Risk
       
 
Item 4.
Controls and Procedures
       
Part II - Other Information.
 
       
 
Item 1.
Legal Proceedings
       
 
Item  1A.
Risk Factors
       
 
Item 2.
Unregistered Sales of Equity Securities
 
   
and Use of  Proceeds
       
 
Item 3.
Defaults Upon Senior Securities
       
 
Item 4.
[Removed and Reserved by the SEC]
       
 
Item 5.
Other Information
       
 
Item 6.
Exhibits
       
Signatures
       
Exhibits


 
2

 
 
 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
Unaudited
       
(dollars in thousands)
 
March 31,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Cash and due from banks
  $ 113,031     $ 90,283  
Interest-earning deposits with banks
    392,337       612,099  
Total cash and cash equivalents
    505,368       702,382  
                 
Investment securities available for sale, at fair value
    1,622,395       1,632,118  
Investment securities held to maturity
               
(Fair value $533,369 and $537,932 for 2011 and 2010, respectively)
    535,488       546,957  
Other securities
    77,894       80,615  
Loans and leases held for sale
    5,561       12,785  
Loans and leases, net of allowance for loan and lease losses of $142,960 and $150,054
               
for 2011 and 2010, respectively
    5,096,625       5,163,884  
Premises and equipment, net
    103,771       105,483  
Accrued interest receivable
    34,264       33,829  
Bank owned life insurance
    135,373       134,154  
Other real estate owned and other repossessed assets
    7,653       7,453  
Goodwill
    258,279       258,279  
Other intangible assets, net
    20,530       22,217  
Unconsolidated investments under the equity method
    12,211       11,482  
Other assets
    127,855       132,982  
TOTAL ASSETS
  $ 8,543,267     $ 8,844,620  
                 
LIABILITIES
               
Non-interest bearing deposits
  $ 834,321     $ 808,835  
Interest bearing deposits
    5,098,695       5,250,338  
Total deposits
    5,933,016       6,059,173  
                 
Securities sold under repurchase agreements
    696,256       734,455  
Short-term borrowings
    6,184       10,000  
Federal Home Loan Bank advances
    627,716       703,761  
Subordinated debentures
    142,831       142,780  
Accrued interest payable and other liabilities
    39,655       57,014  
TOTAL LIABILITIES
    7,445,658       7,707,183  
                 
SHAREHOLDERS' EQUITY
               
Preferred stock, no stated par value; authorized 1,000,000 shares
               
Series B, $1,000 liquidation preference, 5% cumulative; 150,000 shares issued and
         
   outstanding as of December 31, 2010
    -       148,441  
Common stock, no stated par value; authorized 250,000,000 shares, issued and
               
   outstanding:  March 31, 2011 - 151,506,511; December 31, 2010 - 136,792,414
    1,379,014       1,292,342  
Accumulated deficit
    (279,817 )     (293,940 )
Accumulated other comprehensive loss
    (1,588 )     (9,406 )
TOTAL SHAREHOLDERS' EQUITY
    1,097,609       1,137,437  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 8,543,267     $ 8,844,620  
                 
The accompanying notes are an integral part of these financial statements.
               
 
 
 
 
3

 
 
 
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

   
Three Months
 
(dollars in thousands, except per share data)
 
Ended March 31,
 
   
2011
   
2010
 
INTEREST INCOME
           
Loans and leases, including fees
  $ 69,228     $ 78,654  
Investment securities
               
Taxable
    11,357       11,098  
Tax-exempt
    8,493       8,838  
Federal funds sold and deposits in banks
    280       247  
Total interest income
    89,358       98,837  
INTEREST EXPENSE
               
Deposits
    11,407       18,281  
Securities sold under repurchase agreements
    2,395       2,874  
FHLB advances and subordinated debentures
    9,586       10,423  
Total interest expense
    23,388       31,578  
Net interest income
    65,970       67,259  
Provision for loan and lease losses
    10,000       32,500  
Net interest income after provision for loan and lease losses
    55,970       34,759  
NON-INTEREST INCOME
               
Wealth management
    5,924       7,101  
Service charges on deposit accounts
    4,664       5,341  
Insurance commissions and fees
    3,221       3,771  
Cash management and electronic banking fees
    4,371       4,158  
Mortgage banking
    1,080       1,153  
Bank owned life insurance
    1,220       1,983  
Equity in undistributed net earnings of unconsolidated investments
    1,700       163  
Gain on pension plan curtailment
    -       4,066  
Other operating income
    2,055       2,733  
Net (losses) from fair value changes on subordinated debentures
    (51 )     (7,261 )
                 
IMPAIRMENT LOSSES ON INVESTMENT SECURITIES:
               
Impairment losses on investment securities
    -       (634 )
Non credit-related losses on securities not expected to be sold
               
recognized in other comprehensive loss before tax
    -       -  
Net impairment losses on investment securities
    -       (634 )
Total non-interest income
    24,184       22,574  
                 
NON-INTEREST EXPENSE
               
Salaries, wages and employee benefits
    31,449       29,429  
Net premises and equipment
    7,272       7,998  
FDIC insurance
    3,457       4,097  
Other operating expenses
    14,659       16,133  
Total non-interest expense
    56,837       57,657  
Income (loss) before income taxes
    23,317       (324 )
Income tax expense (benefit)
    4,537       (4,250 )
NET  INCOME
    18,780       3,926  
Preferred dividends and accretion of preferred discount
    (1,691 )     (2,005 )
Accelerated accretion from redemption of preferred stock
    (1,452 )     -  
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
  $ 15,637     $ 1,921  
PER SHARE OF COMMON STOCK
               
Basic earnings available to common shareholders
  $ 0.10     $ 0.02  
Diluted earnings available to common shareholders
  $ 0.10     $ 0.02  
Dividends paid in cash
  $ 0.01     $ 0.01  
                 
The accompanying notes are an integral part of these financial statements.
               
 
 
4

 
 
 
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

                           
Accumulated
       
(dollars in thousands, except share data)
             
Series B
         
Other
       
   
Common
   
Preferred
   
Accumulated
   
Comprehensive
       
   
Shares
   
Value
   
Stock
   
Deficit
   
Loss
   
Total
 
Balance at December 31, 2010
    136,792,414     $ 1,292,342     $ 148,441     $ (293,940 )   $ (9,406 )   $ 1,137,437  
Comprehensive income:
                                               
Net Income
                            18,780               18,780  
Other comprehensive income, net of taxes
                                    7,818       7,818  
Total comprehensive income
                                            26,598  
                                                 
Cash dividends declared common
                            (1,515 )             (1,515 )
Cash dividends declared preferred
                            (1,583 )             (1,583 )
Shares issued under share-based plans,
                                               
net of excess tax benefits
    383,518       2,129                               2,129  
Shares issued in private placement
    14,330,579       84,543                               84,543  
Amortization of preferred discount
                    1,559       (1,559 )             -  
Repayment of Series B Preferred Stock
                    (150,000 )                     (150,000 )
                                                 
Balance at March 31, 2011
    151,506,511     $ 1,379,014     $ -     $ (279,817 )   $ (1,588 )   $ 1,097,609  
                                                 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
5

 


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)
 
Three Months Ended March 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 18,780     $ 3,926  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan and lease losses
    10,000       32,500  
Share-based compensation expense
    1,528       296  
Depreciation and amortization
    4,179       4,041  
Amortization (accretion) of premiums and discounts on investment securities, net
    622       (44 )
Impairment losses on investment securities
    -       634  
Gain on equity-method investments, net of distributions
    (729 )     (21 )
Loans originated for resale
    (33,951 )     (43,161 )
Proceeds from sale of loans
    41,906       55,456  
Gain on sale of loans, net
    (731 )     (828 )
Loss on sale of other real estate owned, net
    -       401  
Increase in fair value of subordinated debtentures
    51       7,261  
Bank-owned life insurance policy income
    (1,220 )     (1,983 )
Gain on pension plan curtailment
    -       (4,066 )
Changes in assets and liabilities:
               
Increase in accrued interest receivable
    (435 )     (610 )
Decrease in accrued interest payable
    (3,890 )     (3,488 )
Decrease (increase) in other assets
    3,639       (4,633 )
(Decrease) increase in other liabilities
    (12,014 )     2,901  
Net cash provided by operating activities
    27,735       48,582  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from maturities and repayments of investment securities held to maturity
    11,295       10,458  
Proceeds from sales of investment securities available for sale
    -       460  
Proceeds from maturities and repayments of investment securities available for sale
    81,222       63,291  
Purchase of investment securities available for sale
    (60,716 )     (136,180 )
Proceeds from sale of loans previously held for investment
    2,007       2,814  
Net decrease in loans and leases
    54,800       68,577  
Purchases of premises and equipment
    (546 )     (1,429 )
Claims from bank owned life insurance
    -       1,722  
Proceeds from the sale of other real estate owned
    65       2,923  
Net cash provided by investing activities
    88,127       12,636  
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net decrease in core deposits
    (18,709 )     (54,521 )
Net decrease in certificates of deposit
    (107,448 )     (272,967 )
Net (decrease) increase in securities sold under repurchase agreements
    (38,199 )     21,505  
Net (decrease) increase in short-term borrowings
    (3,816 )     265  
Repayments of FHLB advances
    (75,812 )     (12,642 )
Proceeds from shares issued under share-based plans
    678       101  
Excess tax expense on share-based plans
    (351 )     (20 )
Issuance of shares under dividend reinvestment plan
    274       362  
Issuance of common stock in private placement
    84,543       -  
Repayment of Series B Preferred stock
    (150,000 )     -  
Cash dividends, common
    (1,515 )     (1,260 )
Cash dividends, preferred
    (2,521 )     (1,875 )
Net cash used in financing activities
    (312,876 )     (321,052 )
Net decrease in cash and cash equivalents
    (197,014 )     (259,834 )
Cash and cash equivalents at beginning of year
    702,382       603,257  
Cash and cash equivalents at end of period
  $ 505,368     $ 343,423  



 
6

 


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW DISCLOSURES

      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:

   
Three Months Ended
 
(dollars in thousands)
 
March 31,
 
   
2011
   
2010
 
 Interest
  $ 27,278     $ 35,066  
 Taxes
    8,604       -  
 
The Company’s investing and financing activities that affected assets or liabilities, but did not result in cash receipts or cash payments were as follows:

   
Three Months Ended
 
 (dollars in thousands)
 
March 31,
 
   
2011
   
2010
 
 Transfers of loans to other real estate¹
  $ 452     $ 1,479  
 Other than temporary impairment on investment securities
    -       634  
 Dividends accrued not paid on Series B Preferred Stock
    -       938  
                 
¹$0.3 million and $3.3 million of OREO was disposed of during the periods ending March 31, 2011 and 2010, respectively.
 
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION                                                                                                    

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted  in the United States (“GAAP”).  However, all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of these financial statements have been included.  These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for National Penn Bancshares, Inc. (the “Company” or “National Penn”)  for the year ended December 31, 2010, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”).  The results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The consolidated statement of operations includes Christiana Bank & Trust Company’s (“Christiana”), a Delaware state-chartered bank and trust company, results of operations until its divestiture on December 3, 2010, for the period it was owned by National Penn.
 
The Company has prepared its accompanying consolidated financial statements in accordance with GAAP as applicable to the financial services industry.   The consolidated financial statements include the balances of the Company and its wholly owned subsidiary, National Penn Bank (“National Penn Bank”).  All material intercompany balances and transactions have been eliminated in consolidation.  References to the Company include all the Company’s subsidiaries unless otherwise noted.


 
7

 

 
2.  EARNINGS PER SHARE

(dollars in thousands, except per share data )
 
Three months ended March 31,
 
   
2011
   
2010
 
Income for EPS:
           
Net income available to common shareholders
  $ 15,637     $ 1,921  
                 
Calculation of shares:
               
Weighted average basic shares
    150,461,063       125,875,061  
Dilutive effect of:
               
   Share-based compensation
    304,820       164,051  
   Warrants
    -       -  
Weighted average fully diluted shares
    150,765,883       126,039,112  
                 
Earnings per common share:
               
Basic
  $ 0.10     $ 0.02  
Diluted
  $ 0.10     $ 0.02  
 
Certain stock options and warrants were not included in the computation of diluted earnings per share because the option exercise and strike prices were greater than the average market price for the period.  The three months ended March 31, 2011, excluded 3.4 million stock options ranging from $5.85 to $21.49 per share and 8,951 restricted shares and units with an average grant price of $17.92 because they were anti-dilutive.  The three months ended March 31, 2010, excluded 4.6 million stock options with exercise prices ranging from $6.88 to $21.49 per share and 9,000 restricted shares and units with an average grant price of $6.36 because they were anti-dilutive.

3.  INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities are summarized as follows:

   
March 31, 2011
 
         
Gross
   
Gross
       
(dollars in thousands)
 
Amortized
   
unrealized
   
unrealized
   
Fair
 
   
cost
   
gains
   
losses
   
value
 
Available for Sale
                       
U.S. Treasury securities
  $ 19,965     $ 11     $ -     $ 19,976  
U.S. Government agency securities
    4,995       94       -       5,089  
State and municipal bonds
    339,893       5,476       (12,800 )     332,569  
Agency mortgage-backed securities/
                               
collateralized mortgage obligations
    1,205,281       27,970       (7,284 )     1,225,967  
Non-agency collateralized mortgage obligations
    20,394       274       (185 )     20,483  
Corporate securities and other
    14,187       173       (605 )     13,755  
Marketable equity securities
    3,759       801       (4 )     4,556  
Total
  $ 1,608,474     $ 34,799     $ (20,878 )   $ 1,622,395  
                                 
Held to Maturity
                               
State and municipal bonds
  $ 427,353     $ 3,355     $ (7,707 )   $ 423,001  
Agency mortgage-backed securities/
                               
collateralized mortgage obligations
    106,975       2,197       -       109,172  
Non-agency collateralized mortgage obligations
    1,160       36       -       1,196  
Total
  $ 535,488     $ 5,588     $ (7,707 )   $ 533,369  

 
8

 

 
   
December 31, 2010
 
         
Gross
   
Gross
       
(dollars in thousands)
 
Amortized
   
unrealized
   
unrealized
   
Fair
 
   
cost
   
gains
   
losses
   
value
 
Available for Sale
                       
U.S. Treasury securities
  $ 19,952     $ -     $ (3 )   $ 19,949  
U.S. Government agency securities
    4,995       99       -       5,094  
State and municipal bonds
    345,310       4,880       (16,836 )     333,354  
Agency mortgage-backed securities/
                               
collateralized mortgage obligations
    1,216,153       26,854       (11,648 )     1,231,359  
Non-agency collateralized mortgage obligations
    25,071       280       (277 )     25,074  
Corporate securities and other
    14,189       90       (1,245 )     13,034  
Marketable equity securities
    3,759       506       (11 )     4,254  
Total
  $ 1,629,429     $ 32,709     $ (30,020 )   $ 1,632,118  
                                 
Held to Maturity
                               
State and municipal bonds
  $ 427,720     $ 1,281     $ (12,593 )   $ 416,408  
Agency mortgage-backed securities/
                               
collateralized mortgage obligations
    117,756       2,241       -       119,997  
Non-agency collateralized mortgage obligations
    1,481       46       -       1,527  
Total
  $ 546,957     $ 3,568     $ (12,593 )   $ 537,932  
 
During the three months ended March 31, 2011 and 2010 the Company did not sell investment securities.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2011:

         
Less than 12 months
   
12 months or longer
   
Total
 
(dollars in thousands)
 
No. of
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Securities
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
State and municipal bonds
    627     $ 319,378     $ (9,406 )   $ 69,874     $ (11,101 )   $ 389,252     $ (20,507 )
Agency mortgage-backed securities/ collateralized mortgage obligations
    61       339,601       (7,270 )     287       (14 )     339,888       (7,284 )
Non-agency collateralized mortgage obligations
    5       -       -       3,662       (185 )     3,662       (185 )
Corporate securities and other
    10       1,042       (20 )     5,450       (585 )     6,492       (605 )
Total debt securities
    703       660,021       (16,696 )     79,273       (11,885 )     739,294       (28,581 )
Marketable equity securities
    2       129       (4 )     -       -       129       (4 )
Total
    705     $ 660,150     $ (16,700 )   $ 79,273     $ (11,885 )   $ 739,423     $ (28,585 )
 
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2010:

         
Less than 12 months
   
12 months or longer
   
Total
 
(dollars in thousands)
 
No. of
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Securities
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
U. S. Treasury securities
    1     $ 19,949     $ (3 )   $ -     $ -     $ 19,949     $ (3 )
State and municipal bonds
    907       474,765       (17,811 )     67,841       (11,618 )     542,606       (29,429 )
Agency mortgage-backed securities/ collateralized mortgage obligations
    66       382,356       (11,647 )     2,016       (1 )     384,372       (11,648 )
Non-agency collateralized mortgage obligations
    7       3,363       (58 )     4,195       (219 )     7,558       (277 )
Corporate securities and other
    11       1,854       (151 )     5,471       (1,094 )     7,325       (1,245 )
Total debt securities
    992       882,287       (29,670 )     79,523       (12,932 )     961,810       (42,602 )
Marketable equity securities
    2       50       (11 )     -       -       50       (11 )
Total
    994     $ 882,337     $ (29,681 )   $ 79,523     $ (12,932 )   $ 961,860     $ (42,613 )

 
9

 



The amortized cost and fair value of investment securities, by contractual maturity, at March 31, 2011 are shown below.  Expected maturities will differ from contractual maturities because investment securities may be called or prepaid with or without call or prepayment penalties.

(dollars in thousands)
 
Available for Sale
   
Held to Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
Due in one year or less
  $ 36,166     $ 36,280     $ 14,808     $ 14,887  
Due after one through five years
    43,466       45,142       -       -  
Due after five through ten years
    199,848       208,830       29,512       29,949  
Due after ten years
    1,325,235       1,327,587       491,168       488,533  
Marketable equity securities
    3,759       4,556       -       -  
    $ 1,608,474     $ 1,622,395     $ 535,488     $ 533,369  
 
Investment securities were pledged as collateral for the following:

(dollars in thousands)
 
March 31,
   
December 31,
 
   
2011
   
2010
 
Deposits
  $ 744,190     $ 893,532  
Repurchase agreements
    775,548       835,640  
Other
    46,519       126,091  
    $ 1,566,257     $ 1,855,263  
 
Evaluation of Impairment of Securities

As of March 31, 2011 and December 31, 2010, there were no amounts recorded in OCI for the non credit-related component of OTTI.

The majority of the investment portfolio is comprised of U.S. Treasury, Government Agency, state and municipal securities, mortgage-backed securities, and collateralized mortgage obligations.  The unrealized losses in the Company’s investments are primarily caused by the movement of interest rates, and the contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.

The majority of the unrealized losses for twelve months or longer are attributed to municipal bonds.  The Company evaluates a variety of factors in concluding whether the municipal bonds are other-than-temporarily impaired.  These factors include, but are not limited to, the type and purpose of the bond (the Company primarily owns general obligation bonds and essential purpose revenue bonds), the underlying rating of the bond issuer, and the presence of credit enhancements (i.e. state guarantees, municipal bond insurance, collateral requirements, etc.).  At March 31, 2011, approximately 70% of the Company’s municipal investment securities were general obligations of various municipalities.  As a result of its review and considering the attributes of these bonds, the Company concluded that the securities were not other-than-temporarily impaired since the decline in the fair value of these securities is due to changes in relative credit spreads for the industry.

Because the Company does not intend to sell these investments and it is not more likely than not it will be required to sell these investments before a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Other securities on the Company’s consolidated balance sheet totaled $77.9 million and $80.6 million as of March 31, 2011 and December 31, 2010, respectively. The balance includes FHLB of Pittsburgh stock and Federal Reserve Bank stock. These securities lack a market, and as such they are carried at cost since fair value is not readily determinable. The Company evaluates these securities for impairment each reporting period and has concluded the carrying value of these securities is not impaired. The Company will continue to monitor these investments for impairment each reporting period. During the first quarter of 2011, the FHLB of Pittsburgh repurchased $2.7 million of its capital stock from the Company at par.


 
10

 


4.  LOANS

The following tables represent loan and lease classifications as of March 31, 2011 and December 31, 2010:

   
Performing
             
March 31, 2011
  Pass Rated Loans     Special Mention Loans     Classified Loans     Non-Performing Loans    
Total Loans
 
(dollars in thousands)
                             
Commercial and industrial loans and leases
  $ 2,039,772     $ 94,899     $ 242,098     $ 34,162     $ 2,410,931  
                                         
CRE - permanent
    688,965       55,866       59,533       15,511       819,875  
CRE - construction
    105,344       36,752       46,816       18,012       206,924  
Commercial  real estate
    794,309       92,618       106,349       33,523       1,026,799  
                                         
Residential mortgages
    740,543       -       -       6,385       746,928  
Home equity lines and loans
    738,498       -       33       2,254       740,785  
All other consumer
    301,856       4,376       10,642       2,829       319,703  
Consumer loans
    1,780,897       4,376       10,675       11,468       1,807,416  
                                         
Total loans and leases
  $ 4,614,978     $ 191,893     $ 359,122     $ 79,153     $ 5,245,146  
                                         
                                         
   
Performing
                 
December 31, 2010
     Pass Rated Loans        Special Mention Loans        Classified Loans        Non-Performing Loans    
Total Loans
 
(dollars in thousands)
                                       
Commercial and industrial loans and leases
  $ 2,032,157     $ 101,667     $ 266,179     $ 34,957     $ 2,434,960  
                                         
CRE - permanent
    649,122       48,213       53,832       17,821       768,988  
CRE - construction
    159,410       36,045       66,209       19,392       281,056  
Commercial  real estate
    808,532       84,258       120,041       37,213       1,050,044  
                                         
Residential mortgages
    759,605       -       -       5,809       765,414  
Home equity lines and loans
    742,177       -       33       2,914       745,124  
All other consumer
    315,213       3,778       9,219       2,971       331,181  
Consumer loans
    1,816,995       3,778       9,252       11,694       1,841,719  
                                         
Total loans and leases
  $ 4,657,684     $ 189,703     $ 395,472     $ 83,864     $ 5,326,723  

 
11

 


The following tables represent the details for past-due loans and leases as of March 31, 2011 and December 31, 2010:

March 31, 2011
 
30-59 Days Past Due and Still Accruing
   
60-89 Days Past Due and Still Accruing
   
90 Days or More Past Due and Still Accruing (1)
   
Total Past Due and Still Accruing
   
Accruing Current Balances
   
Non-Accrual Balances
   
Total Loan Balances
 
(dollars in thousands)
                                         
Commercial and industrial loans and leases
  $ 4,381     $ 2,103     $ 40     $ 6,524     $ 2,370,285     $ 34,122     $ 2,410,931  
                                                         
CRE - permanent
    3,628       744       104       4,476       799,992       15,407       819,875  
CRE - construction
    827       -       -       827       188,085       18,012       206,924  
Commercial  real estate
    4,455       744       104       5,303       988,077       33,419       1,026,799  
                                                         
Residential mortgages
    4,191       490       731       5,412       736,213       5,303       746,928  
Home equity lines and loans
    3,156       653       289       4,098       734,722       1,965       740,785  
All other consumer
    2,081       905       1,019       4,005       313,888       1,810       319,703  
Consumer loans
    9,428       2,048       2,039       13,515       1,784,823       9,078       1,807,416  
                                                         
Total loans and leases
  $ 18,264     $ 4,895     $ 2,183     $ 25,342     $ 5,143,185     $ 76,619     $ 5,245,146  
                                                         
Percent of total loans and leases
    0.35 %     0.09 %     0.04 %     0.48 %             1.46 %        
 
December 31, 2010
 
30-59 Days Past Due and Still Accruing
   
60-89 Days Past Due and Still Accruing
   
90 Days or More Past Due and Still Accruing (1)
   
Total Past Due and Still Accruing
   
Accruing Current Balances
   
Non-Accrual Balances
   
Total Loan Balances
 
(dollars in thousands)
                                         
Commercial and industrial loans and leases
  $ 2,541     $ 2,740     $ 88     $ 5,369     $ 2,394,722     $ 34,869     $ 2,434,960  
                                                         
CRE - permanent
    2,176       1,310       -       3,486       747,681       17,821       768,988  
CRE - construction
    1,061       2,500       -       3,561       258,103       19,392       281,056  
Commercial  real estate
    3,237       3,810       -       7,047       1,005,784       37,213       1,050,044  
                                                         
Residential mortgages
    5,240       1,487       7       6,734       752,878       5,802       765,414  
Home equity lines and loans
    3,688       745       781       5,214       737,777       2,133       745,124  
All other consumer
    2,185       380       877       3,442       325,645       2,094       331,181  
Consumer loans
    11,113       2,612       1,665       15,390       1,816,300       10,029       1,841,719  
                                                         
Total loans and leases
  $ 16,891     $ 9,162     $ 1,753     $ 27,806     $ 5,216,806     $ 82,111     $ 5,326,723  
                                                         
Percent of total loans and leases
    0.32 %     0.17 %     0.03 %     0.52 %             1.54 %        
                                                         
(1) Loans 90 days or more past due remain on accrual status if they are well secured and collection of all principal and interest is probable.
         


 
12

 
 
Additional details for changes in the allowance for loan and lease losses by loan portfolio as of March 31, 2011 and March 31, 2010:
 
March 31, 2011
 
Commercial 1
   
Commercial Real Estate 2
   
Consumer 3
   
Unallocated
   
Total
 
(dollars in thousands)
                             
Allowance for loan and lease losses:
                             
Beginning balance
  $ 69,655     $ 51,177     $ 20,897     $ 8,325     $ 150,054  
Charge-offs
    (9,569 )     (5,313 )     (3,871 )     -       (18,753 )
Recoveries
    250       494       915       -       1,659  
Provision
    5,455       2,553       2,177       (185 )     10,000  
Divested reserves
    -       -       -       -       -  
Ending balance
  $ 65,791     $ 48,911     $ 20,118     $ 8,140     $ 142,960  
                                         
Ending balance: individually evaluated for impairment
  $ 3,147     $ 1,453     $ 73     $ -     $ 4,673  
                                         
Ending balance: collectively evaluated for impairment
  $ 62,644     $ 47,458     $ 20,045     $ 8,140     $ 138,287  
                                         
Total loans and leases
  $ 2,410,931     $ 1,026,799     $ 1,807,416     $ -     $ 5,245,146  
                                         
Ending balance: individually evaluated for impairment
  $ 34,122     $ 33,419     $ 9,429     $ -     $ 76,970  
                                         
Ending balance: collectively evaluated for impairment
  $ 2,376,809     $ 993,380     $ 1,797,987     $ -     $ 5,168,176  
 
March 31, 2010
 
Commercial 1
   
Commercial Real Estate 2
   
Consumer 3
   
Unallocated
   
Total
 
(dollars in thousands)
                             
Allowance for loan and lease losses:
                             
Beginning balance
  $ 73,031     $ 55,652     $ 13,828     $ 3,760     $ 146,271  
Charge-offs
    (3,135 )     (19,990 )     (4,357 )     -       (27,482 )
Recoveries
    874       1,204       483       -       2,561  
Provision
    9,527       14,960       5,203       2,810       32,500  
Divested reserves
    -       -       -       -       -  
Ending balance
  $ 80,297     $ 51,826     $ 15,157     $ 6,570     $ 153,850  
                                         
Ending balance: individually evaluated for impairment