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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 June 30, 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 No  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 x    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 August 4, 2011
Common Stock, no stated par value
 
151,681,748 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                                                                                                      



 


 
 

 
 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
Unaudited
       
(dollars in thousands)
 
June 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Cash and due from banks
  $ 105,918     $ 90,283  
Interest-earning deposits with banks
    513,132       612,099  
Total cash and cash equivalents
    619,050       702,382  
                 
Investment securities available for sale, at fair value
    1,696,682       1,632,118  
Investment securities held to maturity
               
(Fair value $529,162 and $537,932 for 2011 and 2010, respectively)
    518,578       546,957  
Other securities
    75,308       80,615  
Loans held for sale
    8,852       12,785  
Loans and leases, net of allowance for loan and lease losses of $137,909 and $150,054
       
for 2011 and 2010, respectively
    5,032,165       5,163,884  
Premises and equipment, net
    103,017       105,483  
Accrued interest receivable
    31,862       33,829  
Bank owned life insurance
    136,606       134,154  
Other real estate owned and other repossessed assets
    8,407       7,453  
Goodwill
    258,279       258,279  
Other intangible assets, net
    18,970       22,217  
Unconsolidated investments under the equity method
    12,327       11,482  
Other assets
    113,038       132,982  
TOTAL ASSETS
  $ 8,633,141     $ 8,844,620  
                 
LIABILITIES
               
Non-interest bearing deposits
  $ 839,811     $ 808,835  
Interest bearing deposits
    5,104,350       5,250,338  
Total deposits
    5,944,161       6,059,173  
                 
Securities sold under repurchase agreements
    738,628       734,455  
Short-term borrowings
    6,390       10,000  
Federal Home Loan Bank advances
    627,332       703,761  
Subordinated debentures
    143,261       142,780  
Accrued interest payable and other liabilities
    39,856       57,014  
TOTAL LIABILITIES
    7,499,628       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:  June 30, 2011 - 151,660,444; December 31, 2010 - 136,792,414
    1,379,690       1,292,342  
Accumulated deficit
    (258,125 )     (293,940 )
Accumulated other comprehensive income (loss)
    11,948       (9,406 )
TOTAL SHAREHOLDERS' EQUITY
    1,133,513       1,137,437  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 8,633,141     $ 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
   
Six Months
 
(dollars in thousands, except per share data)
 
Ended June 30,
   
Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
INTEREST INCOME
                       
Loans and leases, including fees
  $ 67,553     $ 77,830     $ 136,781     $ 156,484  
Investment securities
                               
Taxable
    11,552       11,457       22,909       22,555  
Tax-exempt
    8,401       8,803       16,894       17,641  
Federal funds sold and deposits in banks
    234       218       514       465  
Total interest income
    87,740       98,308       177,098       197,145  
INTEREST EXPENSE
                               
Deposits
    10,974       16,464       22,381       34,745  
Securities sold under repurchase agreements
    2,346       2,808       4,741       5,682  
Short-term borrowings
    -       -       -       -  
Federal Home Loan Bank advances
    7,039       8,010       14,256       16,063  
Subordinated debentures
    2,386       2,383       4,755       4,753  
Total interest expense
    22,745       29,665       46,133       61,243  
Net interest income
    64,995       68,643       130,965       135,902  
Provision for loan and lease losses
    3,000       25,000       13,000       57,500  
Net interest income after provision for loan and lease losses
    61,995       43,643       117,965       78,402  
NON-INTEREST INCOME
                               
Wealth management
    5,856       7,238       11,780       14,339  
Service charges on deposit accounts
    4,616       5,446       9,280       10,787  
Insurance commissions and fees
    3,520       3,639       6,741       7,410  
Cash management and electronic banking fees
    4,645       4,614       9,016       8,772  
Mortgage banking
    1,014       1,231       2,094       2,384  
Bank owned life insurance
    1,233       1,280       2,453       3,263  
Equity in undistributed net earnings of unconsolidated investments
    116       537       1,816       700  
Gain on pension plan curtailment
    -       -       -       4,066  
Other operating income
    1,818       2,771       3,873       5,504  
Net (losses) gains from fair value changes on subordinated debentures
    (430 )     1,543       (481 )     (5,718 )
Net gains (losses) on sales of investment securities
    -       214       -       214  
                                 
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
    22,388       28,513       46,572       51,087  
                                 
NON-INTEREST EXPENSE
                               
Salaries, wages and employee benefits
    30,408       30,999       61,857       60,428  
Net premises and equipment
    6,787       7,209       14,059       15,207  
Goodwill impairment
    -       8,250       -       8,250  
FDIC insurance
    2,726       4,056       6,183       8,153  
Other operating expenses
    14,200       16,049       28,859       32,182  
Total non-interest expense
    54,121       66,563       110,958       124,220  
Income (loss) before income taxes
    30,262       5,593       53,579       5,269  
Income tax expense (benefit)
    7,054       9,132       11,591       4,882  
NET  INCOME
    23,208       (3,539 )     41,988       387  
Preferred dividends and accretion of preferred discount
    -       (2,005 )     (1,691 )     (4,010 )
Accelerated accretion from redemption of preferred stock
    -       -       (1,452 )     -  
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
  $ 23,208     $ (5,544 )   $ 38,845     $ (3,623 )
PER SHARE OF COMMON STOCK
                               
Basic earnings available to common shareholders
  $ 0.15     $ (0.04 )   $ 0.26     $ (0.03 )
Diluted earnings available to common shareholders
  $ 0.15     $ (0.04 )   $ 0.26     $ (0.03 )
Dividends paid in cash
  $ 0.01     $ 0.01     $ 0.02     $ 0.02  
                                 
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
                            41,988               41,988  
Other comprehensive income, net of taxes
                            21,354       21,354  
Total comprehensive income
                            41,988       21,354       63,342  
                                                 
Cash dividends declared common
                      (3,031 )             (3,031 )
Cash dividends declared preferred
                      (1,583 )             (1,583 )
Shares issued under share-based plans,
                                         
net of excess tax benefits
    537,451       3,805                               3,805  
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 )
Repurchase of common stock warrants
      (1,000 )                             (1,000 )
                                                 
Balance at June 30, 2011
    151,660,444     $ 1,379,690     $ -     $ (258,125 )   $ 11,948     $ 1,133,513  
                                                 
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)
 
Six Months Ended June 30,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 41,988     $ 387  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan and lease losses
    13,000       57,500  
Share-based compensation expense
    2,182       895  
Depreciation and amortization
    8,242       8,111  
Amortization (accretion) of premiums and discounts on investment securities, net
    948       (4 )
Gains on investment securities, net
    -       (214 )
(Losses) gains on equity-method investments, net of distributions
    (845 )     85  
Loans originated for resale
    (59,960 )     (84,511 )
Proceeds from sale of loans
    65,332       87,483  
Gain on sale of loans, net
    (1,439 )     (888 )
(Gain) loss on sale of other real estate owned, net
    (7 )     433  
Gain on sale of bank buildings
    -       (223 )
Increase in fair value of subordinated debtentures
    481       5,718  
Impairment losses on investment securities
    -       634  
Bank-owned life insurance policy income
    (2,453 )     (3,263 )
Gain on pension plan curtailment
    -       (4,066 )
Goodwill impairment
    -       8,250  
Changes in assets and liabilities:
               
Decrease in accrued interest receivable
    1,967       820  
Decrease in accrued interest payable
    (4,260 )     (1,717 )
Decrease  in other assets
    14,024       5,329  
(Decrease) increase in other liabilities
    (10,915 )     6,113  
Net cash provided by operating activities
    68,285       86,872  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from maturities and repayments of investment securities held to maturity
    28,087       22,141  
Proceeds from sales of investment securities available for sale
    -       6,668  
Purchase of investment securites held to maturity
    -       (50 )
Proceeds from maturities and repayments of investment securities available for sale
    150,289       213,232  
Purchase of investment securities available for sale
    (184,263 )     (259,560 )
Proceeds from sale of loans previously held for investment
    2,764       10,973  
Net decrease in loans and leases
    114,157       195,923  
Purchases of premises and equipment
    (2,064 )     (2,212 )
Claims from bank owned life insurance
    -       2,082  
Proceeds from sale of bank buildings
    -       911  
Proceeds from the sale of other real estate owned
    375       4,354  
Net cash provided by investing activities
    109,345       194,462  
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net (decrease) increase in core deposits
    (378 )     54,967  
Net decrease in certificates of deposit
    (114,634 )     (297,614 )
Net increase in securities sold under repurchase agreements
    4,173       14,991  
Net (decrease) increase in short-term borrowings
    (3,610 )     100  
Repayments of FHLB advances
    (75,963 )     (49,259 )
Proceeds from shares issued under share-based plans
    1,132       230  
Excess tax expense on share-based plans
    (221 )     (28 )
Issuance of shares under dividend reinvestment plan
    548       622  
Issuance of common stock in private placement
    84,543       -  
Repayment of Series B Preferred stock
    (150,000 )     -  
Repurchase of common stock warrants
    (1,000 )     -  
Cash dividends, common
    (3,031 )     (2,509 )
Cash dividends, preferred
    (2,521 )     (3,750 )
Net cash used in financing activities
    (260,962 )     (282,250 )
Net decrease in cash and cash equivalents
    (83,332 )     (916 )
Cash and cash equivalents at beginning of year
    702,382       603,257  
Cash and cash equivalents at end of period
  $ 619,050     $ 602,341  
                 
 
 
 
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:
 
   
Six Months Ended
 
(dollars in thousands)
 
June 30,
 
   
2011
   
2010
 
Interest
  $ 50,393     $ 62,961  
Taxes
    13,703       -  
                 
 
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:

   
Six Months Ended
 
(dollars in thousands)
 
June 30,
 
   
2011
   
2010
 
Transfers of loans to other real estate¹
  $ 1,798     $ 9,539  
Other than temporary impairment on investment securities
    -       634  
Dividends accrued not paid on Series B Preferred Stock
    -       938  
                 
¹  $0.9 million and $4.8 million of OREO was disposed of during the periods ending June 30, 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 June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Income for EPS:
                       
Net income (loss) available to common shareholders
  $ 23,208     $ (5,544 )   $ 38,845     $ (3,623 )
                                 
Calculation of shares:
                               
Weighted average basic shares
    151,601,052       126,045,667       151,034,207       125,960,351  
Dilutive effect of:
                               
   Share-based compensation
    234,350       -       269,390       -  
   Warrants
            -       -       -  
Weighted average fully diluted shares
    151,835,402       126,045,667       151,303,597       125,960,351  
                                 
Earnings per common share:
                               
Basic
  $ 0.15     $ (0.04 )   $ 0.26     $ (0.03 )
Diluted
  $ 0.15     $ (0.04 )   $ 0.26     $ (0.03 )
                                 

The following options were excluded from the computation of earnings per share as they were anti-dilutive:

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Stock Options
    3,494,093       4,534,699       3,354,531       4,453,495  
Exercise Price
                               
Low
  $ 5.85     $ 5.60     $ 5.85     $ 5.60  
High
  $ 21.49     $ 21.49     $ 21.49     $ 21.49  
 
 
 
 

 
 
8

 
 
3.  INVESTMENT SECURITIES

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

     
June 30, 2011
 
           
Gross
   
Gross
       
(dollars in thousands)
 
Amortized
    unrealized     unrealized    
Fair
 
     
cost
   
gains
   
losses
   
value
 
Available for Sale
                       
U.S. Treasury securities
  $ 19,979     $ 17     $ -     $ 19,996  
U.S. Government agency securities
    4,996       81       -       5,077  
State and municipal bonds
    334,723       7,795       (7,657 )     334,861  
Agency mortgage-backed securities/
    1,267,621       34,906       (1,816 )     1,300,711  
    collateralized mortgage obligations                              
Non-agency collateralized mortgage obligations
    18,632       475       (84 )     19,023  
Corporate securities and other
    13,039       136       (570 )     12,605  
Marketable equity securities
    3,759       733       (83 )     4,409  
    Total   $ 1,662,749     $ 44,143     $ (10,210 )   $ 1,696,682  
                                 
Held to Maturity
                               
State and municipal bonds
  $ 426,426     $ 10,200     $ (2,623 )   $ 434,003  
Agency mortgage-backed securities/
    91,083       2,974       -     $ 94,057  
  collateralized mortgage obligations                                
Non-agency collateralized mortgage obligations
    1,069       33       -     $ 1,102  
   Total   $ 518,578     $ 13,207     $ (2,623 )   $ 529,162  
                                   
 
 
   
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  
                                 
 

 
 
9

 
 
Gains and losses from sales of investment securities are as follows:
 
   
For the six months
 
(dollars in thousands)
 
ended June 30,
 
   
2011
   
2010
 
Gains
  $ -     $ 214  
Losses
    -       -  
Net gains from sales of
               
  investment securities
  $ -     $ 214  
                 
 
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at June 30, 2011 and December 31, 2010, respectively.

June 30, 2011
                                         
         
Less than 12 months
   
12 months or longer
   
Total
 
(dollars in thousands)
 
No. of
Securities
 
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
State and municipal bonds
    285     $ 108,863     $ (2,249 )   $ 71,331     $ (8,031 )   $ 180,194     $ (10,280 )
Agency mortgage-backed securities/
                                                 
collateralized mortgage obligations
    44       217,650       (1,809 )     253       (7 )     217,903       (1,816 )
Non-agency collateralized mortgage obligations
    4       -       -       2,266       (84 )     2,266       (84 )
Corporate securities and other
    10       2,907       (42 )     3,953       (528 )     6,860       (570 )
Total debt securities
    343       329,420       (4,100 )     77,803       (8,650 )     407,223       (12,750 )
Marketable equity securities
    3       639       (83 )     -       -       639       (83 )
Total
    346     $ 330,059     $ (4,183 )   $ 77,803     $ (8,650 )   $ 407,862     $ (12,833 )
                                                         
                                                         
                                                         
December 31, 2010
                                                       
           
Less than 12 months
   
12 months or longer
   
Total
 
(dollars in thousands)
 
No. of
Securities
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
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 )
                                                         
 
The amortized cost and fair value of investment securities, by contractual maturity, at June 30, 2011 are shown below.  Expected maturities will differ from contractual maturities because investment securities may be called or prepaid.
 
(dollars in thousands)
 
Available for Sale
   
Held to Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
Due in one year or less
  $ 27,731     $ 27,801     $ 4,148     $ 4,182  
Due after one through five years
    42,039       44,010       -       -  
Due after five through ten years
    200,968       211,561       30,516       31,378  
Due after ten years
    1,388,252       1,408,901       483,914       493,602  
Marketable equity securities
    3,759       4,409       -       -  
    $ 1,662,749     $ 1,696,682     $ 518,578     $ 529,162  
                                 
 
 
 
 
10

 
 
Investment securities were pledged as collateral for the following:
 
(dollars in thousands)
 
June 30,
   
December 31,
 
   
2011
   
2010
 
Deposits
  $ 859,601     $ 893,532  
Repurchase agreements
    798,153       835,640  
Other
    47,992       126,091  
    $ 1,705,746     $ 1,855,263  
                 
 
Evaluation of Impairment of Securities

As of June 30, 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 June 30, 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 $75.3 million and $80.6 million as of June 30, 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 half of 2011, the FHLB of Pittsburgh repurchased $5.3 million of its capital stock from the Company at par.
 
 
 
 
11

 
 
4.  LOANS

The following tables represent loan and lease classifications as of June 30, 2011 and December 31, 2010:

                               
   
Performing
             
June 30, 2011
 
Pass Rated Loans
 
Special Mention Loans
     Classified Loans     Non-Performing Loans    
Total Loans
 
(dollars in thousands)
                             
Commercial and industrial loans and leases
  $ 2,064,154     $ 84,001     $ 229,448     $ 31,338     $ 2,408,941  
                                         
CRE - permanent
    703,308       39,039       61,841       14,376       818,564  
CRE - construction
    88,206       35,270       31,743       15,844       171,063  
Commercial  real estate
    791,514       74,309       93,584       30,220       989,627  
                                         
Residential mortgages
    728,222       -       -       6,117       734,339  
Home equity lines and loans
    753,004       -       -       2,296       755,300  
All other consumer
    277,378       3,199       6,930       3,212       290,719  
Consumer loans
    1,758,604       3,199       6,930       11,625       1,780,358  
                                         
Total loans and leases
  $ 4,614,272     $ 161,509     $ 329,962     $ 73,183     $ 5,178,926  
                                         
                                         
   
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  
                                         


 
12

 



The following tables represent the details for past-due loans and leases as of June 30, 2011 and December 31, 2010:
 
June 30, 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
  $ 4,557     $ 598     $ 63     $ 5,218     $ 2,372,448     $ 31,275     $ 2,408,941  
                                                         
CRE - permanent
    2,204       233       -       2,437       804,248       11,879       818,564  
CRE - construction
    1,294       -       -       1,294       153,925       15,844       171,063  
Commercial  real estate
    3,498       233       -       3,731       958,173       27,723       989,627  
                                                         
Residential mortgages
    3,356       422       -       3,778       725,365       5,196       734,339  
Home equity lines and loans
    2,439       853       354       3,646       750,127       1,527       755,300  
All other consumer
    2,488       402       1,150       4,040       284,617       2,062       290,719  
Consumer loans
    8,283       1,677       1,504       11,464       1,760,109       8,785       1,780,358