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EX-31.2 - EXHIBIT 31.2 - NATIONAL PENN BANCSHARES INCnpbc09302014ex312.htm
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EX-32.1 - EXHIBIT 32.1 - NATIONAL PENN BANCSHARES INCnpbc09302014ex321.htm
EX-31.1 - EXHIBIT 31.1 - NATIONAL PENN BANCSHARES INCnpbc09302014ex311.htm

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

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

o 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: 000-22537-01

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.
645 Hamilton Street, Suite 1100
Allentown, Pennsylvania 18101
(Address of principal executive offices) (Zip Code)

(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 ý 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 ý 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 ý
 
Accelerated filer o
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 ý

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 October 31, 2014
Common Stock, no stated par value
 
147,356,365



TABLE OF CONTENTS


2


 PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Unaudited
 
 
 
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Cash and due from banks
$
96,856

 
$
102,241

Interest-earning deposits with banks
98,512

 
181,282

Total cash and cash equivalents
195,368

 
283,523

 
 
 
 
Investment securities available-for-sale, at fair value
1,461,586

 
1,894,107

Investment securities held-to-maturity
 

 
 

(Fair value $889,438 and $452,202 for 2014 and 2013, respectively)
864,234

 
438,445

Other securities
55,931

 
63,746

Loans held-for-sale
3,890

 
4,951

Loans, net of allowance for loan losses of $88,927 and $96,367 for 2014 and 2013, respectively
5,377,025

 
5,236,901

Premises and equipment, net
110,392

 
96,232

Accrued interest receivable
27,839

 
27,130

Bank owned life insurance
151,443

 
147,869

Other real estate owned and other repossessed assets
1,561

 
1,278

Goodwill
258,279

 
258,279

Other intangible assets, net
4,803

 
6,854

Unconsolidated investments
8,167

 
8,713

Other assets
112,482

 
123,820

TOTAL ASSETS
$
8,633,000

 
$
8,591,848

 
 
 
 
LIABILITIES
 

 
 

Non-interest bearing deposits
$
990,438

 
$
970,051

Interest bearing deposits
5,297,498

 
5,102,527

Total deposits
6,287,936

 
6,072,578

 
 
 
 
Customer repurchase agreements
580,290

 
551,736

Repurchase agreements

 
50,000

Federal Home Loan Bank advances
359,155

 
603,232

Senior long-term debt
125,000

 

Subordinated debentures
77,321

 
77,321

Accrued interest payable and other liabilities
96,114

 
105,115

TOTAL LIABILITIES
7,525,816

 
7,459,982

 
 
 
 
SHAREHOLDERS' EQUITY
 

 
 

Common stock, no stated par value; authorized 250,000,000 shares, issued: September 30, 2014 - 152,267,940; December 31, 2013 - 152,310,162
1,388,513

 
1,387,966

Accumulated deficit
(143,514
)
 
(175,990
)
Accumulated other comprehensive loss
(7,922
)
 
(21,157
)
Treasury stock: September 30, 2014 - 12,962,823 shares; December 31, 2013 - 6,511,411 shares
(129,893
)
 
(58,953
)
TOTAL SHAREHOLDERS' EQUITY
1,107,184

 
1,131,866

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
8,633,000

 
$
8,591,848

 
 
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 

3


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
INTEREST INCOME
 
 
 
 
 
 
 
 
Loans, including fees
$
53,857

 
$
54,577

 
$
158,915

 
$
165,558

 
Investment securities
 
 
 
 
 
 
 
 
Taxable
11,365

 
10,105

 
34,180

 
29,585

 
Tax-exempt
6,114

 
6,768

 
18,847

 
20,887

 
Deposits with banks
32

 
48

 
87

 
164

 
Total interest income
71,368

 
71,498

 
212,029

 
216,194

 
INTEREST EXPENSE
 

 
 

 
 
 
 
 
Deposits
4,483

 
5,468

 
13,927

 
17,213

 
Customer repurchase agreements
399

 
440

 
1,192

 
1,398

 
Repurchase agreements
197

 
614

 
1,406

 
1,956

 
Short-term borrowings

 

 
1

 
41

 
Federal Home Loan Bank advances
1,297

 
1,325

 
4,214

 
5,042

 
Senior long-term debt
227

 

 
227

 

 
Subordinated debentures
535

 
539

 
1,592

 
2,554

 
Total interest expense
7,138

 
8,386

 
22,559

 
28,204

 
Net interest income
64,230

 
63,112

 
189,470

 
187,990

 
Provision for loan losses
1,000

 
1,250

 
2,251

 
4,250

 
Net interest income after provision for loan losses
63,230

 
61,862

 
187,219

 
183,740

 
NON-INTEREST INCOME
 

 
 

 
 
 
 
 
Wealth management
6,945

 
6,883

 
20,944

 
20,700

 
Service charges on deposit accounts
3,826

 
3,894

 
10,744

 
11,407

 
Insurance commissions and fees
3,029

 
3,071

 
9,835

 
9,664

 
Cash management and electronic banking fees
4,720

 
4,860

 
14,115

 
14,132

 
Mortgage banking
987

 
1,621

 
2,639

 
5,598

 
Bank owned life insurance
1,238

 
1,260

 
3,654

 
3,727

 
Earnings (losses) of unconsolidated investments
(20
)
 
661

 
(506
)
 
653

 
Gains on sale of non-performing loans

 

 
946

 

 
Other operating income
2,146

 
2,551

 
6,366

 
7,307

 
Net gains from fair value changes of subordinated debentures

 

 

 
2,111

 
Net gains on sales of investment securities

 
7

 
8

 
54

 
Total non-interest income
22,871

 
24,808

 
68,745

 
75,353

 
NON-INTEREST EXPENSE
 

 
 

 
 
 
 
 
Salaries, wages and employee benefits
29,655

 
29,598

 
87,743

 
87,965

 
Premises and equipment
7,769

 
7,724

 
23,690

 
22,726

 
FDIC insurance
1,140

 
1,404

 
3,657

 
4,111

 
Other operating expenses
13,594

 
14,877

 
41,519

 
44,388

 
Loss on debt extinguishment

 

 

 
64,888

 
Total non-interest expense
52,158

 
53,603

 
156,609

 
224,078

 
Income before income taxes
33,943

 
33,067

 
99,355

 
35,015

 
Income tax expense
8,623

 
8,507

 
25,126

 
2,840

 
NET INCOME
$
25,320

 
$
24,560

 
$
74,229

 
$
32,175

 
PER SHARE
 

 
 

 
 
 
 
 
Basic earnings
$
0.18

 
$
0.17

 
$
0.53

 
$
0.22

 
Diluted earnings
$
0.18

 
$
0.17

 
$
0.53

 
$
0.22

 
Dividends paid in cash
$
0.10

 
$
0.10

 
$
0.30

 
$
0.20

(a) 
 
 
 
 
 
 
 
 
 
(a) In lieu of a 1st quarter 2013 cash dividend, the Company paid an additional dividend of $0.10 per share in the 4th quarter of 2012.
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
 
 

4


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
(dollars in thousands)
Before
Tax
Amount
 
Income Tax
Expense (benefit)
 
Net of
Tax
Amount
 
Before
Tax
Amount
 
Income Tax
Expense (benefit)
 
Net of
Tax
Amount
Net income
$
33,943

 
$
8,623

 
$
25,320

 
$
99,355

 
$
25,126

 
$
74,229

 
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period on investment securities
(7,069
)
 
(2,474
)
 
(4,595
)
 
24,646

 
8,626

 
16,020

Less net gains on sales of investment securities realized in net income

 

 

 
8

 
3

 
5

Unrealized gains (losses) on investment securities
(7,069
)
 
(2,474
)
 
(4,595
)
 
24,638

 
8,623

 
16,015

 
 
 
 
 
 
 
 
 
 
 
 
Pension adjustments
(4,391
)
 
(1,537
)
 
(2,854
)
 
(4,277
)
 
(1,497
)
 
(2,780
)
Other comprehensive income (loss)
(11,460
)
 
(4,011
)
 
(7,449
)
 
20,361

 
7,126

 
13,235

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
$
22,483

 
$
4,612

 
$
17,871

 
$
119,716

 
$
32,252

 
$
87,464

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
(dollars in thousands)
Before
Tax
Amount
 
Income Tax
Expense (benefit)
 
Net of
Tax
Amount
 
Before
Tax
Amount
 
Income Tax
Expense (benefit)
 
Net of
Tax
Amount
Net income
$
33,067

 
$
8,507

 
$
24,560

 
$
35,015

 
$
2,840

 
$
32,175

 
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period on investment securities
2,750

 
962

 
1,788

 
(61,190
)
 
(21,416
)
 
(39,774
)
Less net gains on sales of investment securities realized in net income
7

 
2

 
5

 
54

 
19

 
35

Unrealized gains (losses) on investment securities
2,743

 
960

 
1,783

 
(61,244
)
 
(21,435
)
 
(39,809
)
 
 
 
 
 
 
 
 
 
 
 
 
Pension adjustments
2,928

 
1,025

 
1,903

 
3,041

 
1,065

 
1,976

Other comprehensive income (loss)
5,671

 
1,985

 
3,686

 
(58,203
)
 
(20,370
)
 
(37,833
)
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
$
38,738

 
$
10,492

 
$
28,246

 
$
(23,188
)
 
$
(17,530
)
 
$
(5,658
)
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 




5


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands, except share data)
Common
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
Shares
 
Value
 
 
 
Treasury
Stock
 
Total
Balance at December 31, 2013
145,798,751

 
$
1,387,966

 
$
(175,990
)
 
$
(21,157
)
 
$
(58,953
)
 
$
1,131,866

Comprehensive income:
 

 
 

 
 

 
 
 
 

 
 

Net income
 

 
 

 
74,229

 
 

 
 

 
74,229

Other comprehensive income, net of taxes
 

 
 

 
 

 
13,235

 
 

 
13,235

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
87,464

 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared, common
 
 
 
 
(41,753
)
 
 
 
 
 
(41,753
)
Shares issued under share-based plans, net of excess tax benefits
506,366

 
547

 
 

 
 

 
4,450

 
4,997

Common stock repurchases
(7,000,000
)
 
 
 
 
 
 
 
(75,390
)
 
(75,390
)
Balance at September 30, 2014
139,305,117

 
$
1,388,513

 
$
(143,514
)
 
$
(7,922
)
 
$
(129,893
)
 
$
1,107,184

 
 
 

 
 

 
 

 
 

The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
 
 


6


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Nine Months Ended September 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
74,229

 
$
32,175

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Provision for loan losses
2,251

 
4,250

Depreciation and amortization
8,743

 
9,951

Amortization of premiums and discounts on investment securities, net
(132
)
 
2,376

Net gains from sales of investment securities
(8
)
 
(54
)
Decrease in fair value of subordinated debentures

 
(2,111
)
Bank owned life insurance policy income
(3,654
)
 
(3,727
)
Share-based compensation expense
3,210

 
2,442

Unconsolidated investment distributions, net
546

 
2,170

Loans originated for resale
(70,641
)
 
(159,095
)
Proceeds from sale of loans originated for resale
73,742

 
175,187

Proceeds from sale of non-performing loans
3,046

 

Gains on sale of loans, net
(2,040
)
 
(4,513
)
Gains on sale of non-performing loans, net
(946
)
 

Losses (gains) of other real estate owned, net
232

 
(200
)
Gains on sale of buildings

 
(301
)
Loss on debt extinguishment

 
64,888

Changes in assets and liabilities:
 
 
 
(Increase) decrease in accrued interest receivable
(709
)
 
695

Decrease in accrued interest payable
(2,068
)
 
(3,041
)
Decrease (increase) in other assets
2,362

 
(10,419
)
(Decrease) increase in other liabilities
(11,210
)
 
14,055

Net cash provided by operating activities
76,953

 
124,728

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Proceeds from maturities and repayments of investment securities held-to-maturity
66,049

 
19,070

Proceeds from maturities and repayments of investment securities available-for-sale
209,227

 
348,493

Proceeds from sale of investment securities available-for-sale
476

 
3,432

Purchase of investment securities available-for-sale
(242,008
)
 
(488,757
)
Proceeds from other securities
7,815

 
24,253

Proceeds from sale of loans previously held for investment
943

 
1,181

Increase in loans
(148,202
)
 
(69,460
)
Purchases of premises and equipment
(21,109
)
 
(4,829
)
Proceeds from the sale of other real estate owned
1,323

 
2,110

Proceeds from sale of buildings

 
868

Net cash used in investing activities
(125,486
)
 
(163,639
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Net increase in transaction and savings deposit accounts
353,400

 
642,376

Net decrease in time deposits
(138,042
)
 
(142,485
)
Net increase (decrease) in customer repurchase agreements
28,554

 
(38,286
)
Decrease in short-term borrowings

 
(100,000
)
Decrease in repurchase agreements
(50,000
)
 
(25,000
)
Net decrease in FHLB advances
(243,821
)
 
(417,382
)
Repayment of subordinated debentures

 
(65,206
)
Proceeds from senior debt issuance
125,000

 

Proceeds from shares issued, share-based plans
2,371

 
2,542

Excess tax benefit on share-based plans
59

 
37

Repurchase of common stock
(75,390
)
 

Cash dividends, common
(41,753
)
 
(29,123
)
Net cash used in financing activities
(39,622
)
 
(172,527
)
Net decrease in cash and cash equivalents
(88,155
)
 
(211,438
)
Cash and cash equivalents at beginning of year
283,523

 
428,128

Cash and cash equivalents at end of period
$
195,368

 
$
216,690

 
 
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 

7


NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW DISCLOSURES
 
The Company considers cash and due from banks and interest earning deposits with banks to be cash equivalents for the purposes of reporting cash flows. Cash paid for interest and income taxes is as follows:
(dollars in thousands)
Nine Months Ended September 30,
 
2014
 
2013
Interest
$
24,627

 
$
31,246

Income taxes
18,218

 
1,576

 


8

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
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, 2013, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (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, 2014.

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.  All material inter-company balances have been eliminated. References to the Company include all the Company’s subsidiaries unless otherwise noted.
 

2.  BUSINESS COMBINATION

On October 24, 2014, the Company completed its acquisition of TF Financial Corporation ("TF Financial") through a stock and cash merger. TF Financial was a savings and loan holding company with 3rd Fed Bank as its wholly-owned subsidiary. Headquartered in Newtown, Pennsylvania, TF Financial operated eighteen branch offices and as of June 30, 2014, TF Financial had approximately $840 million of assets, which included $610 million of loans, and $686 million of deposits. This acquisition will be accounted for under the acquisition method of accounting. Accordingly, the Company is in the process of performing assessments of net assets acquired and determining fair values of these identifiable assets acquired and liabilities assumed as of October 24, 2014. TF Financial's results of operations have been included in the Company's consolidated statements of income and comprehensive income since October 24, 2014. The operations of TF Financial are not included in the accompanying financial statements dated September 30, 2014.

The acquisition was valued at approximately $136 million, consisting of approximately $58.4 million in cash and the issuance of approximately 8.0 million shares of National Penn common stock valued at approximately $77.3 million.


3.  EARNINGS PER SHARE

The components of the Company’s basic and diluted earnings per share are as follows:
(dollars in thousands, except share data)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
25,320

 
$
24,560

 
$
74,229

 
$
32,175

Calculation of shares
 

 
 

 
 
 
 
Weighted average basic shares
139,275,683

 
145,669,300

 
139,934,960

 
145,549,146

Dilutive effect of share-based compensation
549,451

 
455,521

 
531,477

 
427,375

Weighted average fully diluted shares
139,825,134

 
146,124,821

 
140,466,437

 
145,976,521

 
 
 
 
 
 
 
 
Earnings per share
 

 
 

 
 
 
 
Basic
$
0.18

 
$
0.17

 
$
0.53

 
$
0.22

Diluted
$
0.18

 
$
0.17

 
$
0.53

 
$
0.22

    

9

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

    
The following stock options were excluded from the computation of earnings per share as they were anti-dilutive:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Stock options
2,014,419

 
3,351,751

 
2,018,705

 
3,522,366

Exercise price
 
 
 
 
 
 
 
Low
$
8.69

 
$
8.69

 
$
8.69

 
$
8.69

High
$
21.49

 
$
21.49

 
$
21.49

 
$
21.49



4.  INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities at September 30, 2014 are summarized as follows:
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-Sale
 
 
 
 
 
 
 
U.S. Government agencies
$
1,000

 
$
7

 
$

 
$
1,007

State and municipal bonds
67,298

 
5,031

 
(120
)
 
72,209

Agency mortgage-backed securities/collateralized mortgage obligations
1,372,417

 
17,969

 
(14,662
)
 
1,375,724

Non-agency collateralized mortgage obligations
2,732

 
61

 

 
2,793

Corporate securities and other
4,109

 
546

 
(323
)
 
4,332

Marketable equity securities
3,583

 
1,938

 

 
5,521

Total
$
1,451,139

 
$
25,552

 
$
(15,105
)
 
$
1,461,586

 
 
 
 
 
 
 
 
 
Carrying
Value
(b)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Held-to-Maturity
 

 
 

 
 

 
 

State and municipal bonds
$
509,146

 
$
24,570

 
$
(105
)
 
$
533,611

Agency mortgage-backed securities/collateralized mortgage obligations
352,447

 
2,315

 
(1,592
)
 
353,170

Non-agency collateralized mortgage obligations
199

 
3

 

 
202

Corporate securities and other
2,442

 
17

 
(4
)
 
2,455

Total
$
864,234

 
$
26,905

 
$
(1,701
)
 
$
889,438

 
 
 
 
 
 
 
 
(b) For securities which were transferred from the available-for-sale category to held-to maturity, the carrying value of the transferred securities represents their fair value at the date of transfer adjusted for subsequent amortization.  The carrying value of all other held-to-maturity securities represents their amortized cost.
    
At March 31, 2014, 240 available-for-sale debt securities, with an amortized cost basis of $492 million, a net unrealized loss of $4.1 million and a fair value of $488 million, were reclassified as held-to-maturity. Transfers of debt securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security which will offset the effect on net interest income.

10

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities at December 31, 2013 are summarized as follows:
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-Sale
 

 
 

 
 

 
 

U.S. Government agencies
$
1,000

 
$

 
$
(10
)
 
$
990

State and municipal bonds
210,680

 
7,701

 
(3,670
)
 
214,711

Agency mortgage-backed securities/collateralized mortgage obligations
1,683,092

 
18,040

 
(41,952
)
 
1,659,180

Non-agency collateralized mortgage obligations
4,222

 
44

 
(8
)
 
4,258

Corporate securities and other
9,517

 
646

 
(495
)
 
9,668

Marketable equity securities
3,583

 
1,717

 

 
5,300

Total
$
1,912,094

 
$
28,148

 
$
(46,135
)
 
$
1,894,107

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Held-to-Maturity
 

 
 

 
 

 
 

State and municipal bonds
$
403,344

 
$
13,028

 
$
(895
)
 
$
415,477

Agency mortgage-backed securities/collateralized mortgage obligations
34,843

 
1,624

 

 
36,467

Non-agency collateralized mortgage obligations
258

 

 

 
258

Total
$
438,445

 
$
14,652

 
$
(895
)
 
$
452,202



Gains and losses from sales of investment securities are as follows:
(dollars in thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Gains
$

 
$
7

 
$
8

 
$
54

Losses

 

 

 

Net gains (losses) from sales of investment securities
$

 
$
7

 
$
8

 
$
54


    

11

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


The following tables indicate the length of time individual securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013, respectively.
 
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
Less than 12 months
 
12 months or longer
 
Total
 
No. of Securities
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
State and municipal bonds
40
 
$
15,237

 
$
(76
)
 
$
12,216

 
$
(149
)
 
$
27,453

 
$
(225
)
Agency mortgage-backed securities/collateralized mortgage obligations
190
 
514,165

 
(4,551
)
 
320,489

 
(11,703
)
 
834,654

 
(16,254
)
Corporate securities and other
3
 
1,010

 
(4
)
 
1,175

 
(323
)
 
2,185

 
(327
)
Total debt securities
233
 
530,412

 
(4,631
)
 
333,880

 
(12,175
)
 
864,292

 
(16,806
)
Marketable equity securities
1
 
50

 

 

 

 
50

 

Total
234
 
$
530,462

 
$
(4,631
)
 
$
333,880

 
$
(12,175
)
 
$
864,342

 
$
(16,806
)

    
December 31, 2013
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
Less than 12 months
 
12 months or longer
 
Total
 
No. of Securities
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
U.S. Government agencies
1
 
$
990

 
$
(10
)
 
$

 
$

 
$
990

 
$
(10
)
State and municipal bonds
145
 
76,402

 
(2,282
)
 
20,708

 
(2,283
)
 
97,110

 
(4,565
)
Agency mortgage-backed securities/collateralized mortgage obligations
241
 
953,423

 
(33,990
)
 
115,815

 
(7,962
)
 
1,069,238

 
(41,952
)
Non-agency collateralized mortgage obligations
5
 
820

 
(8
)
 

 

 
820

 
(8
)
Corporate securities and other
5
 
1,966

 
(35
)
 
2,708

 
(460
)
 
4,674

 
(495
)
Total
397
 
$
1,033,601

 
$
(36,325
)
 
$
139,231

 
$
(10,705
)
 
$
1,172,832

 
$
(47,030
)

    
The fair value of investment securities pledged as collateral are presented below:
(dollars in thousands)
September 30, 2014
 
December 31, 2013
Deposits
$
1,275,633

 
$
966,751

Repurchase agreements
627,404

 
650,627

Other
78,471

 
81,408

Total
$
1,981,508

 
$
1,698,786

    

12

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


The specified values of investment securities, by contractual maturity, at September 30, 2014 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Available-for-Sale
 
Held-to-Maturity
(dollars in thousands)
Amortized
Cost
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Due in one year or less
$
4,063

 
$
4,132

 
$

 
$

Due after one through five years
58,208

 
62,608

 
8,863

 
9,000

Due after five through ten years
157,993

 
163,868

 
192,305

 
200,618

Due after ten years
1,227,292

 
1,225,457

 
663,066

 
679,820

Marketable equity securities
3,583

 
5,521

 

 

Total
$
1,451,139

 
$
1,461,586

 
$
864,234

 
$
889,438

 
Evaluation of Impairment of Securities

The Company did not record any other-than-temporary impairment ("OTTI") losses for the three and nine months ended September 30, 2014 and 2013.

As of September 30, 2014 and December 31, 2013, accumulated other comprehensive income did not include any impairment related charges for the non-credit-related components of OTTI.     

The majority of the investment portfolio is comprised of U.S. Government Agency securities (mortgage-backed and collateralized mortgage obligations) and state and municipal bonds. For the investment securities in an unrealized loss position, the Company has concluded, based on its analysis, that the unrealized losses 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.

At September 30, 2014, gross unrealized losses totaled $16.8 million, and the gross unrealized losses of securities in an unrealized loss position for twelve months or longer totaled $12.2 million, of which $11.7 million is attributable to agency mortgage-backed securities and $0.5 million attributable to state and municipal securities and other.  The Company evaluates a variety of factors in concluding whether securities are other-than-temporarily impaired.  These factors include, but are not limited to, the type and purpose of the bond, the underlying rating of the bond issuer, and the presence of credit enhancements (i.e. state guarantees, municipal bond insurance, collateral requirements, etc.). As a result of its review and considering the attributes of the individual securities, the Company concluded that the securities were not other-than-temporarily impaired.

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 carrying value, which may be maturity, the Company does not consider the securities in an unrealized loss position for twelve months or longer to be other-than-temporarily impaired.

Other securities on the Company’s consolidated balance sheet totaled $55.9 million and $63.7 million as of September 30, 2014 and December 31, 2013, respectively. The balance includes Federal Loan Home Bank ("FHLB") of Pittsburgh stock and Federal Reserve Bank stock. These securities lack a market, and as such they are carried at par/cost since their fair value is not readily determinable. The Company evaluates, and will continue to evaluate, these securities for impairment each reporting period and has concluded the carrying value of these securities is not impaired. During 2014, the FHLB of Pittsburgh repurchased an additional $7.8 million, net, of capital stock from the Company at par/cost. Also, during 2014 and 2013 the Company received and recorded dividends on its FHLB stock.

13

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


5.  LOANS

The following table presents loan classifications:
September 30, 2014
Performing
 
 
 
 
(dollars in thousands)
Pass Rated
 
Special Mention
 
Classified
 
Non-Performing
 
Total
Commercial and industrial
$
2,317,690

 
$
35,606

 
$
93,241

 
$
11,333

 
$
2,457,870

 
 
 
 
 
 
 
 
 
 
CRE - permanent
1,052,618

 
9,982

 
20,340

 
3,406

 
1,086,346

CRE - construction
191,305

 
1,912

 
6,964

 
8,547

 
208,728

Commercial real estate
1,243,923

 
11,894

 
27,304

 
11,953

 
1,295,074

 
 
 
 
 
 
 
 
 
 
Residential mortgages
647,224

 

 
680

 
13,019

 
660,923

Home equity
771,109

 

 
533

 
4,844

 
776,486

All other consumer
268,716

 

 
5,166

 
1,717

 
275,599

Consumer
1,687,049

 

 
6,379

 
19,580

 
1,713,008

 
 
 
 
 
 
 
 
 
 
Loans
$
5,248,662

 
$
47,500

 
$
126,924

 
$
42,866

 
$
5,465,952

 
 
 
 
 
 
 
 
 
 
Percent of loans
96.03
%
 
0.87
%
 
2.32
%
 
0.78
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
December 31, 2013
Performing
 
 

 
 

(dollars in thousands)
Pass Rated
 
Special Mention
 
Classified
 
Non-Performing
 
Total
Commercial and industrial
$
2,327,344

 
$
38,873

 
$
79,179

 
$
15,268

 
$
2,460,664

 
 
 
 
 
 
 
 
 
 
CRE - permanent
944,589

 
9,191

 
36,272

 
4,786

 
994,838

CRE - construction
167,710

 
2,962

 
15,534

 
12,128

 
198,334

Commercial real estate
1,112,299

 
12,153

 
51,806

 
16,914

 
1,193,172

 
 
 
 
 
 
 
 
 
 
Residential mortgages
636,829

 

 
2,243

 
13,153

 
652,225

Home equity
757,064

 

 
137

 
5,407

 
762,608

All other consumer
256,957

 
160

 
5,633

 
1,849

 
264,599

Consumer
1,650,850

 
160

 
8,013

 
20,409

 
1,679,432

 
 
 
 
 
 
 
 
 
 
Loans
$
5,090,493

 
$
51,186

 
$
138,998

 
$
52,591

 
$
5,333,268

 
 
 
 
 
 
 
 
 
 
Percent of loans
95.45
%
 
0.96
%
 
2.60
%
 
0.99
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 

14

NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


The following table presents the details for past due loans: 
September 30, 2014
Past Due and Still Accruing
 
Accruing Current Balances
 
Non-Accrual Balances (d)
 
Total Balances
(dollars in thousands)
30-59 Days
 
60-89 Days
 
90 Days or More (c)
 
Total
 
 
 
Commercial and industrial
$
645

 
$
514

 
$
10

 
$
1,169

 
$
2,445,496

 
$
11,205

 
$
2,457,870

 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE - permanent
1,513

 
450

 

 
1,963

 
1,081,496

 
2,887

 
1,086,346

CRE - construction

 
370

 

 
370

 
199,811

 
8,547

 
208,728

Commercial real estate
1,513

 
820

 

 
2,333

 
1,281,307

 
11,434

 
1,295,074

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
3,569

 
1,949

 
637

 
6,155

 
647,965

 
6,803

 
660,923

Home equity
3,195

 
802

 
533

 
4,530

 
767,995

 
3,961

 
776,486

All other consumer
3,308

 
895

 
1,781

 
5,984

 
268,148

 
1,467

 
275,599

Consumer
10,072

 
3,646

 
2,951

 
16,669

 
1,684,108

 
12,231

 
1,713,008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
$
12,230

 
$
4,980

 
$
2,961

 
$
20,171

 
$
5,410,911

 
$
34,870

 
$
5,465,952

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percent of loans
0.22
%
 
0.09
%
 
0.05
%
 
0.37
%
 
 

 
0.64
%
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
Past Due and Still Accruing
 
Accruing Current Balances
 
Non-Accrual Balances (d)
 
Total Balances
(dollars in thousands)
30-59 Days
 
60-89 Days
 
90 Days or More (c)
 
Total
 
 
 
Commercial and industrial
$
3,362

 
$
1,520

 
$
11

 
$
4,893

 
$
2,440,836

 
$
14,935

 
$
2,460,664

 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE - permanent
6,191

 
181

 

 
6,372

 
984,208

 
4,258

 
994,838

CRE - construction
373

 

 

 
373

 
185,833

 
12,128

 
198,334

Commercial real estate
6,564

 
181

 

 
6,745

 
1,170,041

 
16,386

 
1,193,172

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
4,509

 
774

 
2,197

 
7,480

 
637,708

 
7,037

 
652,225

Home equity
4,383

 
1,101

 
140

 
5,624

 
752,197

 
4,787

 
762,608

All other consumer
2,761

 
814

 
1,118

 
4,693

 
258,175

 
1,731

 
264,599

Consumer
11,653

 
2,689

 
3,455

 
17,797

 
1,648,080

 
13,555

 
1,679,432

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
$
21,579

 
$
4,390

 
$
3,466

 
$
29,435

 
$
5,258,957

 
$
44,876

 
$
5,333,268

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percent of loans
0.40
%
 
0.08
%
 
0.07
%
 
0.55
%
 
 

 
0.84
%