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National Penn Bancshares, Inc. Q1 2010 Earnings Call Transcript

National Penn Bancshares, Inc. Q1 2010 Earnings Call Transcript

National Penn Bancshares, Inc. (NPBC)

Q1 2010 Earnings Call

April 23, 2010 1:00 pm ET


Scott Fainor – President & CEO

Michael Hughes – CFO

Sandra Bodnyk – Chief Risk Officer


Jason O'Donnell - Boenning & Scattergood

Damon DelMonte - Keefe Bruyette & Woods

Avi Barak - Sandler O'Neill

Andrew Stapp - B. Riley & Co.

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Good afternoon and welcome to the National Penn Bancshares first quarter 2010 earnings call (Operator Instructions) This call and accompanying presentation slides will be archived on National Penn’s Investor Relation website following the live call.

A transcript of today’s call and the slides will also be furnished on SEC’s Form 8-K. National Penn’s earnings release was furnished earlier today to the SEC on Form 8-K and is also on the Investor Relation website.

The 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 slide number one of the presentation. I will now introduce National Penn’s President and CEO, Scott Fainor.

Scott Fainor

Joining me today are Michael Hughes, our Chief Financial Officer, and Sandra Bodnyk, our Chief Risk Officer. We have changed our format of the call this quarter. I will begin by making a few introductory remarks, with Michael and Sandra giving some more in depth analysis, then I will conclude the presentation.

We are also looking forward to the live question-and-answer session with the investment community which will follow the prepared remarks. As it relates to the first quarter, I believe we have made progress on our short-term initiatives and see some more favorable trends in asset quality.

Regarding asset quality, our nonperforming assets have remained relatively stable over the last several quarters in the $125 million range in fact, declined in the quarter. Although classified assets grew in the quarter the trend line is flattening. Sandra will provide additional color on the quarter.

These trends allowed us to reduce our provision for loan losses to $32.5 million as compared to $47 million in the previous quarter. Despite the decreased provision our allowance for loan losses increased as the provision exceeded net charge-offs.

Significant highlights of the quarter were, core operations provided stable and strong contribution. The net interest margin improved. Our nonbanking businesses continued to perform well. We controlled operating expenses. The balance sheet remains strong and we have enhanced our capital ratios at both the holding company and the banks.

Based upon this performance we returned to profitability which sets the stage for 2010. We remain cautious about the impact of the local economy but the trends are directionally correct as asset quality measures continue to improve.

Let me now turn the presentation over to Michael Hughes, to discuss some specifics of our financial performance.

Michael Hughes

Thank you Scott, this presentation contains the non-GAAP financial measure of core earnings, let me begin by reviewing the reconciliation of reported earnings to core operating earnings.

The good news is that the adjustments are few in number in the quarter. Core earnings per share were $0.03 per share. The first adjustment is a $7.3 million pre-tax or $4.7 million after-tax and is truly an accounting convention.

The company previously made an irrevocable election to mark-to-market on a quarterly basis a portion of National Penn’s trust preferred. Those that trade on a retail basis under the symbol NPBCO.

As you would suspect the preferred is thinly traded as market price improves, National Penn records and expense. During the first quarter the price increased from $21.00 a share to $23.87 per share and on the last day, the stock was up approximately $1.23.

Obviously this is not a core item, it is a noncash item and it does not impact bank regulatory capital ratios. The other item is a $4.1 million pre-tax gain, $2.6 million after-tax related to the curtailment of the defined benefit plan.

It is a curtailment which freezes benefits and not a termination. In addition to this one-time gain pension expense will be reduced on an ongoing basis. We do not anticipate that compensation expense in total would be reduced as we reevaluate the match in our defined contribution plan and look forward to removing the salary freeze later in 2010.

Let’s look at some of our core fundamentals and review slide three, the net interest margin expanded in the first quarter. Based upon our initiative to manage the balance sheet by repricing some higher cost deposits. Despite the contraction in the balance sheet net interest income was flat as the margin expanded.

We do not expect to see the same level of benefit in future periods from CD repricing as we have seen in 2009 and early 2010. Nonperforming assets negatively impacted the margin by 10 basis points in the quarter which is similar to the impact in the last quarter.

As we look at other income on slide four, the core noninterest income for the quarter decreased from $29.3 million to $25.8 million. Items of note were the previously discussed mark on the trust preferred and the pension plan curtailment gain.

There are some timing and seasonality adjustments and wealth management was impacted by approximately $450,000 due to the sale of [Vantage]. Of note were some softness in the private service charges due to seasonality and mortgage originations declined, each reduced refinancing activity.

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