National Penn Bancshares CEO Discusses Q3 2010 Results – Earnings Call Transcript

National Penn Bancshares CEO Discusses Q3 2010 Results â¿¿ Earnings Call Transcript
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National Penn Bancshares, Inc. (

NPBC

)

Q3 2010 Earnings Conference Call

October 28, 2010 1 PM ET

Executives

Scott Fainor – President and CEO

Mike Hughes – EVP and CFO

Sandy Bodnyk – EVP and Chief Risk Officer

Analysts

Damon Delmonte – Keefe Bruyette & Woods

David Darst – Guggenheim Securities LLC

Mac Hodgson – SunTrust

Mike Shafir – Sterne Agee

Christopher Marinac – FIG Partners

Andy Stapp – B. Riley

Thomas Frick – Boenning & Scattergood

Presentation

Operator

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Previous Statements by NPBC
» National Penn Bancshares, Inc. Q2 2010 Earnings Call Transcript
» National Penn Bancshares, Inc. Q1 2010 Earnings Call Transcript
» National Penn Bancshares Inc. Q4 2008 Earnings Call Transcript
» National Penn Bancshares, Inc. Q3 2008 Earnings Call Transcript

Good afternoon everyone and welcome to National Penn Bancshares Q3 2010 earnings call. Please note this call is being recorded. All callers will be in a listen only mode during the prepared remarks. At the end of the prepared remarks there will be a live question-and-answer session with analysts.

This call and the accompanying presentation slides located on National Penn’s Investor Relations website at

www.nationalpennbancshares.com

will be archived on the site following this call. A transcript of today’s call and the slides will also be furnished on FCC form 8-K. National Penn’s earnings release was furnished earlier today to the FCC on a form 8-K and is also on the investor relations website.

This presentation may contain forward-looking information that is intended to be covered by the safe harbor provided by the private securities litigation reform act of 1995. Please take a moment to review the safe harbor slide of the presentation.

It is now my pleasure to turn the conference over to National Penn’s President and CEO, Scott Fainor.

Scott Fainor

Thank you and thank you to everyone joining our Q3 earnings web cast conference call today. I’m joined by Mike Hughes our Chief Financial Officer and Sandy Bodnyk our Chief Risk Officer who will be giving more in depth analysis as part of this web cast presentation today.

I’m very pleased to report positive earnings momentum and results for our Q3. Our focused efforts have translated into favorable asset quality trends in all categories. Also, we were excited to report that the Warburg Pincus initial investment of $63.3 million dollars was received on October 20 with the remaining portion of the total $150 million dollar investment being made after the receipt of regulatory approvals which we expect to be completed the late Q4. I would like to now turn this presentation over to Mike Hughes.

Mike Hughes

Thank you Scott. Referring to slide number three, we reported earnings of $.08 per share for the quarter. The good news is there’s a lack of reconciling items between reported and core earnings. The only item is the exclusion of the mark on our own trust preferred which increased in price from $23.26 to $24.29 in the quarter.

The trust preferred is thinly traded but may be impacted by interest rates and indeed the Warburg Pincus investment. Core earnings per share is $.09 per share for the quarter.

Referring to slide four, the contraction in a net interest (inaudible) is primarily due to soft loan demand and continued de-risking of the balance sheet. Approximately 40% of the decline in average loans was due to management of classified credits.

Deposit pricing impact continues but had a lower relative benefit than previous quarters. We have taken actions to mitigate future margin pressure including further reductions in deposit rates instituted at the end of Q3 and some initiatives to reduce liquidity. The margin, however, will be driven to a great extent by loan demand.

We began in Q3 a greatly enhanced business development calling program focused on enhancing market share in this environment of lower demand. It should also be noted the percentage margin would be impacted in Q4 by two to three basis points by the Warburg Pincus investment.

As you look at slide nine, operating expenses remained well controlled and the efficiency ratio has been consistent over a longer period of time.

On slide six, core nine interest income favorably impacted by mortgage loan originations driven by the refinancing in this rate environment. Also reflected in the quarter, $300,000 of OTPI approximately related to the bank equity portfolio. And the equity method of accounting for a limit of partnership interest we have, reduced quarter to quarter by about $600,000.

On slide eight or slide seven shows the strong capital ratio’s pro forma for the actions that we’ve taken. We’ve discussed before that the vestiture of Christiania, which is anticipated to close in late Q4 again subject to regulatory approval. And then the investment by Warburg Pincus as Scott mentioned, $63 million currently received in the month of October with the remainder subject to regulatory approval in Q4.

So if you look at this slide, you can look at these ratios as of 9/30 pro forma for both of those transactions and then illustrative for the potential repayment of TARP with a comparison to our peer group capital ratios very strong and compared very favorably to the peer group.

On slide eight, those strong capital ratios are even more apparent when you look at the reserve coverages relative to our peers. If you look at non-performing loans at 1.67% compared to a peer group at (six thirty) of 3.36% relatively half the levels of our peer group.

Loan loss reserve and non-performing loans 163% versus our peer group of 60%. Look at net charge offs for the quarter have declined from $24.8 million in Q2 to $20.6 million in Q3 resulting in a decreased provision from $25 million in the second to $20 million in the third. And the loan marks reserve was maintained at previous quarter level.

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