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EX-32.1 - EXHIBIT 32.1 - NATIONAL PENN BANCSHARES INCexhibit321906certification.htm
EX-31.1 - EXHIBIT 31.1 - NATIONAL PENN BANCSHARES INCexhibit311302certification.htm
EX-31.2 - EXHIBIT 31.2 - NATIONAL PENN BANCSHARES INCexhibit312302certification.htm
EX-32.2 - EXHIBIT 32.2 - NATIONAL PENN BANCSHARES INCexhibit322906certification.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, 2015

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, former address and former fiscal year, 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 30, 2015
Common Stock, no stated par value
 
140,302,259



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,
2015
 
December 31,
2014
ASSETS
 
 
 
Cash and due from banks
$
101,975

 
$
110,784

Interest-earning deposits with banks
119,616

 
303,055

Total cash and cash equivalents
221,591

 
413,839

 
 
 
 
Investment securities available-for-sale, at fair value
1,641,230

 
1,530,661

Investment securities held-to-maturity
 

 
 

(Fair value $832,935 and $949,935 for 2015 and 2014, respectively)
807,574

 
921,042

Other securities
54,399

 
67,512

Loans held-for-sale
6,239

 
4,178

Loans, net of allowance for loan losses of $83,148 and $90,675 at September 30, 2015 and December 31, 2014, respectively
6,079,141

 
6,051,604

Premises and equipment, net
109,181

 
116,414

Accrued interest receivable
29,697

 
29,491

Bank owned life insurance
196,643

 
171,775

Other real estate owned and other repossessed assets
4,719

 
4,867

Goodwill
302,940

 
302,244

Other intangible assets, net
6,725

 
8,757

Unconsolidated investments
8,552

 
8,124

Other assets
118,828

 
120,357

TOTAL ASSETS
$
9,587,459

 
$
9,750,865

 
 
 
 
LIABILITIES
 

 
 

Non-interest bearing deposits
$
1,169,922

 
$
1,085,158

Interest bearing deposits
5,789,353

 
5,644,587

Total deposits
6,959,275

 
6,729,745

 
 
 
 
Customer repurchase agreements
573,986

 
607,705

Federal Home Loan Bank advances and other borrowings
583,350

 
910,378

Senior long-term debt
125,000

 
125,000

Subordinated debentures
77,321

 
77,321

Accrued interest payable and other liabilities
110,104

 
112,077

TOTAL LIABILITIES
8,429,036

 
8,562,226

 
 
 
 
SHAREHOLDERS' EQUITY
 

 
 

Common stock, no stated par value; authorized 250,000,000 shares, issued: September 30, 2015 - 152,267,940; December 31, 2014 - 152,267,940
1,389,602

 
1,390,130

Accumulated deficit
(100,459
)
 
(135,246
)
Accumulated other comprehensive loss
(5,727
)
 
(10,991
)
Treasury stock: September 30, 2015 - 11,984,545 shares; December 31, 2014 - 5,131,856 shares
(124,993
)
 
(55,254
)
TOTAL SHAREHOLDERS' EQUITY
1,158,423

 
1,188,639

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
9,587,459

 
$
9,750,865

 
 
 
 
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,
 
2015
 
2014
 
2015
 
2014
INTEREST INCOME
 
 
 
 
 
 
 
Loans, including fees
$
59,735

 
$
53,857

 
$
176,236

 
$
158,915

Investment securities
 
 
 
 
 
 
 
Taxable
11,180

 
11,365

 
35,149

 
34,180

Tax-exempt
5,577

 
6,114

 
17,540

 
18,847

Deposits with banks
37

 
32

 
115

 
87

Total interest income
76,529

 
71,368

 
229,040

 
212,029

INTEREST EXPENSE
 

 
 

 
 
 
 
Deposits
4,740

 
4,483

 
13,879

 
13,927

Customer repurchase agreements
403

 
399

 
1,210

 
1,192

Repurchase agreements

 
197

 

 
1,406

Federal Home Loan Bank advances and other borrowings
1,606

 
1,297

 
4,858

 
4,215

Senior long-term debt
1,366

 
227

 
4,098

 
227

Subordinated debentures
547

 
535

 
1,611

 
1,592

Total interest expense
8,662

 
7,138

 
25,656

 
22,559

Net interest income
67,867

 
64,230

 
203,384

 
189,470

Provision for loan losses
1,000

 
1,000

 
3,000

 
2,251

Net interest income after provision for loan losses
66,867

 
63,230

 
200,384

 
187,219

NON-INTEREST INCOME
 

 
 

 
 
 
 
Wealth management
6,654

 
6,945

 
20,158

 
20,944

Service charges on deposit accounts
3,468

 
3,826

 
10,103

 
10,744

Insurance commissions and fees
3,128

 
3,029

 
9,529

 
9,835

Cash management and electronic banking fees
5,068

 
4,720

 
14,935

 
14,115

Mortgage banking
1,617

 
987

 
4,643

 
2,639

Bank owned life insurance
2,746

 
1,238

 
5,683

 
3,654

Earnings (losses) of unconsolidated investments
133

 
(20
)
 
722

 
(506
)
Gains on sale of non-performing loans

 

 

 
946

Other operating income
2,212

 
2,146

 
6,870

 
6,366

Net gains on sales of available-for-sale investment securities

 

 

 
8

Total non-interest income
25,026

 
22,871

 
72,643

 
68,745

NON-INTEREST EXPENSE
 

 
 

 
 
 
 
Salaries, wages and employee benefits
29,570

 
29,655

 
89,691

 
87,743

Premises and equipment
8,189

 
7,769

 
25,844

 
23,690

FDIC insurance
1,220

 
1,140

 
3,991

 
3,657

Other operating expenses
13,398

 
13,594

 
41,393

 
41,519

Merger related expenses
1,840

 

 
1,840

 

Total non-interest expense
54,217

 
52,158

 
162,759

 
156,609

Income before income taxes
37,676

 
33,943

 
110,268

 
99,355

Income tax expense
9,800

 
8,623

 
28,427

 
25,126

NET INCOME
$
27,876

 
$
25,320

 
$
81,841

 
$
74,229

PER SHARE
 

 
 

 
 
 
 
Basic earnings
$
0.20

 
$
0.18

 
$
0.58

 
$
0.53

Diluted earnings
$
0.20

 
$
0.18

 
$
0.58

 
$
0.53

Dividends paid in cash
$
0.11

 
$
0.10

 
$
0.33

 
$
0.30

 
 
 
 
 

 

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, 2015
 
Nine Months Ended September 30, 2015
(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
$
37,676

 
$
9,800

 
$
27,876

 
$
110,268

 
$
28,427

 
$
81,841

 
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains arising during the period on investment securities
8,467

 
2,963

 
5,504

 
7,199

 
2,520

 
4,679

Less net gains on sales of available-for-sale investment securities realized in net income

 

 

 

 

 

Unrealized gains on investment securities
8,467

 
2,963

 
5,504

 
7,199

 
2,520

 
4,679

 
 
 
 
 
 
 
 
 
 
 
 
Pension adjustments
700

 
245

 
455

 
900

 
315

 
585

Other comprehensive income
9,167

 
3,208

 
5,959

 
8,099

 
2,835

 
5,264

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
$
46,843

 
$
13,008

 
$
33,835

 
$
118,367

 
$
31,262

 
$
87,105

 
 
 
 
 
 
 
 
 
 
 
 
 
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 available-for-sale 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

 
 
 
 
 
 
 
 
 
 
 
 
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, 2014
147,136,084

 
$
1,390,130

 
$
(135,246
)
 
$
(10,991
)
 
$
(55,254
)
 
$
1,188,639

Comprehensive income:
 

 
 

 
 

 
 
 
 

 
 

Net income
 

 
 

 
81,841

 
 

 
 

 
81,841

Other comprehensive income, net of taxes
 

 
 

 
 

 
5,264

 
 

 
5,264

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
87,105

 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared, common
 
 
 
 
(47,054
)
 
 
 
 
 
(47,054
)
Shares issued under share-based plans, net of excess tax benefits
617,365

 
(528
)
 
 

 
 

 
6,777

 
6,249

Common shares repurchased under authorized repurchase plan
(7,470,054
)
 
 
 
 
 
 
 
(76,516
)
 
(76,516
)
Balance at September 30, 2015
140,283,395

 
$
1,389,602

 
$
(100,459
)
 
$
(5,727
)
 
$
(124,993
)
 
$
1,158,423

 
 
 

 
 

 
 

 
 

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,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
81,841

 
$
74,229

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

 
 

Provision for loan losses
3,000

 
2,251

Depreciation and amortization
9,825

 
8,743

Amortization (accretion) of premiums and discounts on investment securities, net
1,739

 
(132
)
Net gains from sales of investment securities

 
(8
)
Bank owned life insurance policy income
(5,683
)
 
(3,654
)
Share-based compensation expense
3,861

 
3,210

Unconsolidated investment distributions, net
(428
)
 
546

Loans originated for resale
(120,938
)
 
(70,641
)
Proceeds from sale of loans originated for resale
122,374

 
73,742

Proceeds from sale of non-performing loans

 
3,046

Gains on sale of loans originated for resale, net
(3,497
)
 
(2,040
)
Gains on sale of non-performing loans, net

 
(946
)
Losses of other real estate owned, net
132

 
232

Changes in assets and liabilities:
 
 
 
Increase in accrued interest receivable
(206
)
 
(709
)
Decrease in accrued interest payable
(2,816
)
 
(2,068
)
(Increase) decrease in other assets
(991
)
 
2,362

Increase (decrease) in other liabilities
1,065

 
(11,210
)
Net cash provided by operating activities
89,278

 
76,953

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Proceeds from maturities and repayments of investment securities held-to-maturity
115,106

 
66,049

Proceeds from maturities and repayments of investment securities available-for-sale
240,666

 
209,227

Proceeds from sale of investment securities available-for-sale

 
476

Purchase of investment securities available-for-sale
(346,668
)
 
(242,008
)
Purchase of investment securities held-to-maturity
(274
)
 

Proceeds from sale of other securities
13,113

 
7,815

Proceeds from sale of loans previously held for investment
67

 
943

Proceeds from sale of acquired credit impaired loans
9,620

 

Increase in loans
(41,197
)
 
(148,202
)
Net change in premises and equipment
(459
)
 
(21,109
)
Proceeds from the sale of other real estate owned
680

 
1,323

Net increase in cash surrender value of bank owned life insurance
(20,458
)
 

Net cash used in investing activities
(29,804
)
 
(125,486
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Net increase in transaction and savings deposit accounts
290,529

 
353,400

Net decrease in time deposits
(60,999
)
 
(138,042
)
Net (decrease) increase in customer repurchase agreements
(33,719
)
 
28,554

Decrease in repurchase agreements

 
(50,000
)
Net decrease in FHLB advances and other borrowings
(327,013
)
 
(243,821
)
Proceeds from senior debt issuance

 
125,000

Proceeds from shares issued, share-based plans
3,133

 
2,371

Excess tax (expense) benefit on share-based plans
(83
)
 
59

Common stock repurchases
(76,516
)
 
(75,390
)
Cash dividends, common
(47,054
)
 
(41,753
)
Net cash used in financing activities
(251,722
)
 
(39,622
)
Net decrease in cash and cash equivalents
(192,248
)
 
(88,155
)
Cash and cash equivalents at beginning of year
413,839

 
283,523

Cash and cash equivalents at end of period
$
221,591

 
$
195,368

 
 
 
 
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,
 
2015
 
2014
Interest
$
28,471

 
$
24,627

Income taxes
17,419

 
18,218

 


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, 2014, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (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, 2015.

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 COMBINATIONS

BB&T Corporation

On August 17, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BB&T Corporation, a North Carolina corporation (“BB&T”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, National Penn will merge with and into BB&T, with BB&T as the surviving corporation (the "Merger"). Immediately following the Merger, National Penn’s wholly owned bank subsidiary, National Penn Bank, will merge with and into BB&T’s wholly owned bank subsidiary, Branch Banking and Trust Company (the “Bank Merger”), with Branch Banking and Trust Company as the surviving bank in the Bank Merger. The Merger Agreement was unanimously approved by the Board of Directors of each of National Penn and BB&T.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), National Penn shareholders will have the right to receive for each share of National Penn common stock, without par value, at their election (subject to proration in the event cash or stock is oversubscribed) either (i) $13.00 in cash or (ii) 0.3206 of a share (the “Exchange Ratio”) of BB&T common stock, par value $5.00 per share (the “Merger Consideration”). At the closing of the Merger, 30% of the outstanding shares of National Penn common stock (including the National Penn restricted stock, restricted stock units and deferred stock units that have the same election rights as common stock), will be converted into the right to receive the cash consideration, with the remaining 70% converted into the right to receive the stock consideration.

The completion of the Merger is subject to customary conditions, including, (1) the adoption of the Merger Agreement by National Penn’s shareholders, (2) the authorization for listing on the New York Stock Exchange of the shares of BB&T common stock to be issued in the Merger, (3) the effectiveness of the registration statement on Form S-4 for the BB&T common stock to be issued in the Merger, (4) the absence of any order, injunction or other legal restraint preventing the completion of the Merger or the Bank Merger or making the consummation of the Merger or the Bank Merger illegal and (5) the receipt of required regulatory approvals, including the approval of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the North Carolina Office of the Commissioner of Banks and the Pennsylvania Department of Banking. Each party’s obligation to complete the Merger is also subject to the following additional customary conditions: (1) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (2) performance in all material respects by the other party of its obligations under the Merger Agreement and (3) receipt by such party of an opinion from its counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. The SEC declared the registration statement on Form S-4 effective on October 23, 2015, and the proxy statement/prospectus was mailed to National Penn shareholders on or around October 27, 2015.


9

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

2.  BUSINESS COMBINATIONS - Continued

TF Financial Corporation

On October 24, 2014, the Company completed its acquisition of TF Financial Corporation ("TF Financial"), a savings and loan holding company, and its wholly-owned subsidiary, 3rd Fed Bank. Headquartered in Newtown, Pennsylvania, TF Financial operated eighteen branch offices in Pennsylvania and New Jersey and had acquisition date estimated fair values of approximately $801 million of assets, which included $595 million of loans, and $658 million of deposits. The assets and liabilities of TF Financial were recorded on National Penn's consolidated balance sheet at their preliminary estimated fair values as of October 24, 2014, the acquisition date, and TF Financial's results of operations have been included in the Company's consolidated statements of income and comprehensive income since that date.

The acquisition was valued at approximately $136 million, consisting of $58.4 million in cash and the issuance of 8,030,953 shares of the Company's common stock valued at $77.3 million, in exchange for 1,903,139 shares of TF Financial common stock.

Based on a preliminary purchase price allocation, the Company recorded $44 million in goodwill and $4.8 million in core deposit intangibles as a result of the acquisition. The amount of goodwill recorded reflects the excess purchase price over the estimated fair value of the net assets acquired. Based upon further review of the purchased credit-impaired ("PCI") loan portfolio, the Company recorded an additional $0.7 million in goodwill during the first quarter of 2015. None of the goodwill is deductible for income tax purposes. Refer to Footnote 5 within this section for additional information related to the acquired loan portfolio.

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,
 
2015
 
2014
 
2015
 
2014
Net income
$
27,876

 
$
25,320

 
$
81,841

 
$
74,229

Calculation of shares
 

 
 

 
 
 
 
Weighted average basic shares
140,235,094

 
139,275,683

 
141,081,076

 
139,934,960

Dilutive effect of share-based awards
681,100

 
549,451

 
636,852

 
531,477

Weighted average fully diluted shares
140,916,194

 
139,825,134

 
141,717,928

 
140,466,437

 
 
 
 
 
 
 
 
Earnings per share
 

 
 

 
 
 
 
Basic
$
0.20

 
$
0.18

 
$
0.58

 
$
0.53

Diluted
$
0.20

 
$
0.18

 
$
0.58

 
$
0.53



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,
 
2015
 
2014
 
2015
 
2014
Stock options
1,367,774

 
2,014,419

 
1,523,274

 
2,018,705



10

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

4.  INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities at September 30, 2015 are summarized as follows:
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-Sale
 
 
 
 
 
 
 
State and municipal bonds
$
60,365

 
$
3,813

 
$
(26
)
 
$
64,152

Agency mortgage-backed securities/collateralized mortgage obligations (a)
1,551,140

 
21,966

 
(5,396
)
 
1,567,710

Corporate securities and other
3,556

 
148

 
(303
)
 
3,401

Marketable equity securities
3,583

 
2,483

 
(99
)
 
5,967

Total
$
1,618,644

 
$
28,410

 
$
(5,824
)
 
$
1,641,230

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

 
 

 
 

 
 

U.S. Government agencies
$
3,886

 
$
113

 
$

 
$
3,999

State and municipal bonds
496,595

 
20,330

 
(320
)
 
516,605

Agency mortgage-backed securities/collateralized mortgage obligations (a)

306,080

 
5,510

 
(266
)
 
311,324

Corporate securities and other
1,013

 

 
(6
)
 
1,007

Total
$
807,574

 
$
25,953

 
$
(592
)
 
$
832,935

 
 
 
 
 
 
 
 
(a) Includes U.S. Government sponsored agency securities.
(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.
    
    

11

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

4.  INVESTMENT SECURITIES - Continued

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities at December 31, 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
63,674

 
4,488

 
(82
)
 
68,080

Agency mortgage-backed securities/collateralized mortgage obligations (a)
1,442,102

 
19,234

 
(9,875
)
 
1,451,461

Corporate securities and other
4,109

 
600

 
(348
)
 
4,361

Marketable equity securities
3,583

 
2,169

 

 
5,752

Total
$
1,514,468

 
$
26,498

 
$
(10,305
)
 
$
1,530,661

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

 
 

 
 

 
 

U.S. Government agencies
$
3,869

 
$
55

 
$

 
$
3,924

State and municipal bonds
551,627

 
24,480

 
(63
)
 
576,044

Agency mortgage-backed securities/collateralized mortgage obligations (a)
364,100

 
5,098

 
(694
)
 
368,504

Corporate securities and other
1,446

 
21

 
(4
)
 
1,463

Total
$
921,042

 
$
29,654

 
$
(761
)
 
$
949,935

 
 
 
 
 
 
 
 
(a) Includes U.S. Government sponsored agency securities.
 
 
 
 
 
 
 
(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.


Gains and losses from sales of available-for-sale investment securities are as follows:
(dollars in thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Gains
$

 
$

 
$

 
$
8

Losses

 

 

 

Net gains from sales of available-for-sale investment securities
$

 
$

 
$

 
$
8

 
 
 
 
 
 
 
 

    

12

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

4.  INVESTMENT SECURITIES - Continued

The following tables indicate the length of time individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014, respectively. The tables below include available-for-sale and held-to-maturity investment securities in an unrealized loss position at the specified dates.
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
52
 
$
27,765

 
$
(280
)
 
$
7,537

 
$
(66
)
 
$
35,302

 
$
(346
)
Agency mortgage-backed securities/collateralized mortgage obligations (a)
104
 
182,137

 
(868
)
 
249,808

 
(4,794
)
 
431,945

 
(5,662
)
Corporate securities and other
3
 
1,008

 
(6
)
 
1,195

 
(303
)
 
2,203

 
(309
)
Total debt securities
159
 
210,910

 
(1,154
)
 
258,540

 
(5,163
)
 
469,450

 
(6,317
)
Marketable equity securities
2
 
347

 
(99
)
 

 

 
347

 
(99
)
Total
161
 
$
211,257

 
$
(1,253
)
 
$
258,540

 
$
(5,163
)
 
$
469,797

 
$
(6,416
)

    
December 31, 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
29
 
$
9,166

 
$
(47
)
 
$
10,572

 
$
(98
)
 
$
19,738

 
$
(145
)
Agency mortgage-backed securities/collateralized mortgage obligations (a)
123
 
250,975

 
(1,763
)
 
296,419

 
(8,806
)
 
547,394

 
(10,569
)
Corporate securities and other
3
 
1,010

 
(4
)
 
1,150

 
(348
)
 
2,160

 
(352
)
Total
155
 
$
261,151

 
$
(1,814
)
 
$
308,141

 
$
(9,252
)
 
$
569,292

 
$
(11,066
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes U.S. Government sponsored agency securities.

    
The fair value of investment securities pledged as collateral are presented below and includes available-for-sale and held-to-maturity investment securities:
(dollars in thousands)
September 30, 2015
 
December 31, 2014
Deposits
$
1,183,717

 
$
1,043,175

Customer repurchase agreements
624,729

 
662,737

Other
59,591

 
70,837

Total
$
1,868,037

 
$
1,776,749

    

13

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

4.  INVESTMENT SECURITIES - Continued

The specified values of investment securities, by contractual maturity, at September 30, 2015 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
$
7,490

 
$
7,633

 
$
1,390

 
$
1,395

Due after one through five years
54,009

 
57,977

 
18,293

 
18,600

Due after five through ten years
152,358

 
158,335

 
265,134

 
275,650

Due after ten years
1,401,204

 
1,411,318

 
522,757

 
537,290

Marketable equity securities
3,583

 
5,967

 

 

Total
$
1,618,644

 
$
1,641,230

 
$
807,574

 
$
832,935

 
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, 2015 and 2014.

As of September 30, 2015 and December 31, 2014, 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, 2015, gross unrealized losses totaled $6.4 million, and the gross unrealized losses of securities in an unrealized loss position for twelve months or longer totaled $5.2 million, of which $4.8 million is attributable to agency mortgage-backed securities and $0.4 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 $54.4 million and $67.5 million as of September 30, 2015 and December 31, 2014, 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 2015, the FHLB of Pittsburgh and the Federal Reserve Bank repurchased an additional $13.1 million, net, of capital stock from the Company at par/cost. Also, during 2015 and 2014 the Company received and recorded dividends on its FHLB stock.

14

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

5.  LOANS

The following table summarizes loans outstanding, net of unearned income:
September 30, 2015
 
(dollars in thousands)
Originated Loans
 
Acquired Loans
 
Total
Commercial and industrial
$
2,617,874

 
$
46,829

 
$
2,664,703

 
 
 
 
 
 
CRE - permanent
1,183,612

 
107,495

 
1,291,107

CRE - construction
133,245

 
12,730

 
145,975

Commercial real estate
1,316,857

 
120,225

 
1,437,082

 
 
 
 
 
 
Residential mortgages
645,653

 
216,870

 
862,523

Home equity
796,999

 
107,130

 
904,129

All other consumer
293,722

 
130

 
293,852

Consumer
1,736,374

 
324,130

 
2,060,504

 
 
 
 
 
 
Loans
$
5,671,105

 
$
491,184

 
$
6,162,289


December 31, 2014
 
(dollars in thousands)
Originated Loans
 
Acquired Loans
 
Total
Commercial and industrial
$
2,548,438

 
$
51,429

 
$
2,599,867

 
 
 
 
 
 
CRE - permanent
1,092,006

 
137,312

 
1,229,318

CRE - construction
196,554

 
6,988

 
203,542

Commercial real estate
1,288,560

 
144,300

 
1,432,860

 
 
 
 
 
 
Residential mortgages
654,617

 
253,740

 
908,357

Home equity
783,248

 
130,582

 
913,830

All other consumer
287,224

 
141

 
287,365

Consumer
1,725,089

 
384,463

 
2,109,552

 
 
 
 
 
 
Loans
$
5,562,087

 
$
580,192

 
$
6,142,279


The carrying amount of acquired loans at September 30, 2015 totaled $491 million. The carrying value of acquired loans which were not impaired at acquisition was $490 million as of September 30, 2015, inclusive of a net fair value adjustment of $4.1 million, which will be accreted to interest income over the remaining life of the related portfolio. At September 30, 2015, the carrying value of loans acquired with deteriorated credit quality, or purchased credit-impaired ("PCI") loans, was $1.1 million, inclusive of a $0.5 million fair value adjustment. PCI loans are accounted for in accordance with ASC 310-30. The Company continues to evaluate the credit performance of the PCI loan portfolio and its potential resolution, which may include individual and/or bulk loan settlements.



    

15

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

5.  LOANS - Continued

The following tables present classifications for originated loans:
September 30, 2015
Performing
 
 
 
 
(dollars in thousands)
Pass Rated
 
Special Mention
 
Classified
 
Non-Performing
 
Total
Commercial and industrial
$
2,533,414

 
$
17,223

 
$
61,007

 
$
6,230

 
$
2,617,874

 
 
 
 
 
 
 
 
 
 
CRE - permanent
1,164,931

 
3,052

 
8,236

 
7,393

 
1,183,612

CRE - construction
122,966

 
270

 
1,505

 
8,504

 
133,245

Commercial real estate
1,287,897

 
3,322

 
9,741

 
15,897

 
1,316,857

 
 
 
 
 
 
 
 
 
 
Residential mortgages
631,338

 

 
734

 
13,581

 
645,653

Home equity
791,173

 

 
345

 
5,481

 
796,999

All other consumer
288,531

 

 
3,804

 
1,387

 
293,722

Consumer
1,711,042

 

 
4,883

 
20,449

 
1,736,374

 
 
 
 
 
 
 
 
 
 
Originated loans
$
5,532,353

 
$
20,545

 
$
75,631

 
$
42,576

 
$
5,671,105

 
 
 
 
 
 
 
 
 
 
Percent of originated loans
97.56
%
 
0.36
%
 
1.33
%
 
0.75
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 
December 31, 2014
Performing
 
 

 
 

(dollars in thousands)
Pass Rated
 
Special Mention
 
Classified
 
Non-Performing
 
Total
Commercial and industrial
$
2,431,251

 
$
24,129

 
$
70,765

 
$
22,293

 
$
2,548,438

 
 
 
 
 
 
 
 
 
 
CRE - permanent
1,065,916

 
4,351

 
13,307

 
8,432

 
1,092,006

CRE - construction
182,554

 
701

 
5,186

 
8,113

 
196,554

Commercial real estate
1,248,470

 
5,052

 
18,493

 
16,545

 
1,288,560

 
 
 
 
 
 
 
 
 
 
Residential mortgages
640,344

 

 
314

 
13,959

 
654,617

Home equity
778,611

 

 
335

 
4,302

 
783,248

All other consumer
280,975

 

 
4,256

 
1,993

 
287,224

Consumer
1,699,930

 

 
4,905

 
20,254

 
1,725,089

 
 
 
 
 
 
 
 
 
 
Originated loans
$
5,379,651

 
$
29,181

 
$
94,163

 
$
59,092

 
$
5,562,087

 
 
 
 
 
 
 
 
 
 
Percent of originated loans
96.73
%
 
0.52
%
 
1.69
%
 
1.06
%
 
100.00
%
 
 
 
 
 
 
 
 
 
 

    

16

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

5.  LOANS - Continued

The following tables present classifications for acquired loans:
September 30, 2015
Performing
 
 
 
 
 
 
(dollars in thousands)
Pass Rated
 
Special Mention
 
Classified
 
Non-Performing
 
PCI
 
Total
Commercial and industrial
$
43,972

 
$

 
$
2,473

 
$
384

 
$

 
$
46,829

 
 
 
 
 
 
 
 
 
 
 
 
CRE - permanent
104,332

 

 
1,689

 
353

 
1,121

 
107,495

CRE - construction
12,730

 

 

 

 

 
12,730

Commercial real estate
117,062

 

 
1,689

 
353

 
1,121

 
120,225

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
215,863

 

 

 
1,007

 

 
216,870

Home equity
106,805

 

 

 
325

 

 
107,130

All other consumer
130

 

 

 

 

 
130

Consumer
322,798

 

 

 
1,332

 

 
324,130

 
 
 
 
 
 
 
 
 
 
 
 
Acquired loans
$
483,832

 
$

 
$
4,162

 
$
2,069

 
$
1,121

 
$
491,184

 
 
 
 
 
 
 
 
 
 
 
 
Percent of acquired loans
98.50
%
 
%
 
0.85
%
 
0.42
%
 
0.23
%
 
100.00
%

December 31, 2014
Performing
 
 
 
 
 
 
(dollars in thousands)
Pass Rated
 
Special Mention
 
Classified
 
Non-Performing
 
PCI
 
Total
Commercial and industrial
$
49,091

 
$
697

 
$
418

 
$

 
$
1,223

 
$
51,429

 
 
 
 
 
 
 
 
 
 
 
 
CRE - permanent
122,952

 
7,840

 
1,409

 

 
5,111

 
137,312

CRE - construction
6,931

 

 

 

 
57

 
6,988

Commercial real estate
129,883

 
7,840

 
1,409

 

 
5,168

 
144,300

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
252,454

 

 
31

 

 
1,255

 
253,740

Home equity
130,552

 

 
30

 

 

 
130,582

All other consumer
141

 

 

 

 

 
141

Consumer
383,147

 

 
61

 

 
1,255