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| 8-K - NPBC WEBCAST Q&A - NATIONAL PENN BANCSHARES INC | form8-k.htm |
EXHIBIT
99.1
Question
and Answer Portion of the
National
Penn Bancshares, Inc. Year End 2009
Earnings
Webcast
Thursday,
January 28, 2010 – 1:00 p.m. ET
Scott V. Fainor, National Penn
Bancshares, President & CEO
Michael J. Hughes, National Penn
Bancshares, GEVP & CFO
Sandra L. Bodnyk, National Penn
Bancshares, GEVP & Chief Risk Officer
Michelle H. Debkowski, National
Penn Bancshares, EVP & IRO
QUESTIONS AND ANSWER
SEGMENT
Scott
Fainor: And we’ll now
address questions that have been received to this point. Questions that may be
received after this point will be addressed as possible in the public filing of
the transcript of our question and answer segment. I’ll turn it back to Michelle
Debkowski.
Michelle
Debkowski: Thank you,
Scott. We did have a few questions presented during the webcast, and Scott, I
will begin with you. Why did we receive an MOU [Memorandum of Understanding]
when classified assets didn’t seem that bad? Should we expect a spike in
non-performing assets for the first quarter?
Scott
Fainor: We share
your observation in this question. However, we work closely with our primary
regulator, the Office of the Comptroller of Currency (OCC), and we understand
that regulators are more frequently issuing MOUs, or informal agreements, to
banks where problem asset levels have increased. In our case, the
recommended matters are reflective of a great deal of work that has been
accomplished and will be sustained.
Michelle
Debkowski: Mike, the next few
questions are for you. What was your net interest margin for the fourth quarter
on a non-FTE [Fully Taxable Equivalent] basis? How does that compare to the
third quarter under your assessment of earning assets?
Mike
Hughes: The non-tax
equivalent net interest margin was 3.04% in the fourth quarter compared to 2.98%
in the third quarter.
Michelle
Debkowski: What specific
securities was the OTTI charge of $2.2 million taken on in the fourth
quarter?
Mike
Hughes: It related to a community bank equity portfolio.
Michelle
Debkowski: Assuming the
company is profitable in 2010 and no further OTTI charges are taken, what would
be your normalized tax rate for the year?
Mike
Hughes: A difficult
answer again, because it is impacted by what the level of pre-tax earnings are,
and the differential really is our permanent differences - a tax-free income
driven from our municipal portfolio which aggregates on an annual basis
somewhere in the $40 million to $45 million range.
Michelle
Debkowski: Mike, were there
any previous quarter restatements? Average-earning assets look off in prior
quarters as to non-performing loans.
Mike
Hughes: The one that I
did show that we re-classed was the fed reserve account into earning assets. As
far as non–performing loans, there was no reclassification. We did break out a
little bit of more detail between non-performing loans and assets, but no
reclassification.
Michelle
Debkowski: Mike, how much
cash do you have at the holding company that could be downstreamed to the bank
to meet the required ratio?
Mike
Hughes: As I mentioned,
there’s $57 million at year-end at the holding company level.
Michelle
Debkowski: Thank you.
Scott, the next several questions are for you. Do you have to raise capital to
hit your 8% Tier 1 leverage target?
Scott
Fainor: No, we don’t. As
Mike stated in the webcast presentation, the gap to that ratio is $11
million.
Michelle
Debkowski: Please give
us the background and details around why you specifically received an MOU. What
brought this on?
Scott
Fainor: Well, when
classified assets increased, we had agreed to work on reducing those problem
assets, as we have discussed in previous quarters. We want to strengthen the
loan review process and our credit administration functions and many of these
initiatives are in various stages of completion, as I stated
earlier.
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Michelle
Debkowski: Once you hit 8%
on your Tier 1 leverage ratio, does the MOU go away?
Scott
Fainor: No, it doesn’t.
We will have to continue to work with our primary regulator and we are committed
by self-imposing a self-improvement plan that, once again, we will work through
to completion on those various items I addressed in the previous
question.
Michelle
Debkowski: Scott, are
the new capital requirements indicative of what you’re going to have to maintain
for the foreseeable future?
Scott
Fainor: Yes. Until we
reduce our classified asset levels and return to profitability and we see an
improving economy, we will, once again, want to remain with stronger capital
levels at this time.
Michelle
Debkowski: Thank you, Scott.
Mike, why did you restate your net interest margin?
Mike
Hughes: Well, as we
discussed previously on the slide, we restated it for the Federal Reserve
account. The amount restated was relatively insignificant from the P&L
[profit and loss] standpoint, but we think it’s more appropriately included in
the margin.
Michelle
Debkowski: What are your thoughts
about enhancing your capital position? Will you raise capital, shrink the
balance sheet, or both?
Mike
Hughes: As Scott just mentioned, I
do not see a capital raise in conjunction with the MOU. The amount of
the shortfall on the leverage ratio is relatively insignificant. We do have the
ability to shrink the bank to some extent if that was needed, and when you
really put it in context, for a $10 billion bank, if you shrunk it by $150
million, you’d satisfy that capital shortfall. It’s one of the avenues we could
look at.
Michelle
Debkowski: Sandy, could you
provide details regarding the composition of classified assets as well as some
color on the migration in these assets?
Sandy
Bodnyk: Yes. Slide 12, I
think, depicts the outline of our classified assets by product type. To put some
of those percentages into numbers for you – $300 million of classified assets
are in the C&I [commercial and industrial] portfolio, that’s the broad
spectrum of various companies. $44 million is in permanent real estate. $127
million is in CRE [commercial real estate] construction. That makes up a vast
amount of the $501 million total. I might note for you that the largest credit
within this is a $10 million credit in the CRE construction classification. I
think our growth in classified assets is slow growth, and classified assets,
NPAs and charge offs have leveled, and I think that speaks to the migration also
flowing in terms of additional classified and criticized assets.
Michelle
Debkowski: Thank you, Sandy.
Mike, some more questions for you. Please provide some color on the
sale of the wealth unit?
Mike
Hughes: The wealth unit
we did not purchase. It was part of an acquisition of a smaller bank. The
business model was primarily out of market and was done through referral
sources. When we looked at the out of market and also the net income,
considering the way business was referred, we didn’t think it was consistent
with our model.
Michelle
Debkowski: Can you discuss
opportunities for further net interest margin expansion?
Mike
Hughes: I think Nat Penn,
like other institutions, still has the ability or will benefit from repricing of
the CDs [certificates of deposit] portfolio for a period of time, probably early
in 2010. And then the other opportunity we have is because of our liquidity
position. We do have the opportunity to reduce that over time and extend out a
little bit on the curve.
Michelle
Debkowski: What was driving
the sequential increase in other non-interest expense? $21.4 million from $15.7
million.
Mike
Hughes: A couple of
significant items in there. We talked about the FDIC/regulatory issue in the
quarter. That had an impact of approximately $2 million. We did some year-end
tax planning around some non income tax issues. That was another couple million
and they’re the two major factors in that area.
Michelle
Debkowski: How many assets would
you have to sell to reduce assets rather than issuing equity?
Mike
Hughes: I think we
mentioned that previously. It’s about $150 million. If everything else stayed
status quo, that would generate an adequate amount of capital.
Michelle
Debkowski: Was the goodwill
impairment related to KNBT, Nittany, Christiana, or all of the
above?
Mike
Hughes: If you look at
Nat Penn, we have two reporting segments. We have “community banking” and then
“other” related to money management and insurance, so that goodwill impairment
was not specifically attributable to any acquisition.
Michelle
Debkowski: What with the
additional OTTI, I thought you had marked it essentially to zero. I think you’ve
spoken about that.
Mike
Hughes: I have.
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Michelle
Debkowski: Will NPBC do an additonal capital raise in 2010 to
repay TARP?
Mike
Hughes: I think we would
not as we’ve discussed previously, and also if you keep reading some of the
questions there, whether there is any provision in the MOU to raise capital, no,
and then the last question, what’s the difference between an informal and a
formal MOU? I think the informal action really shows the degree of severity and
I think from our perspective, the informal is a much better
agreement.
Michelle
Debkowski: Who is National Penn's primary regulator?
Mike
Hughes: OCC
Michelle
Debkowski: Sandy, who is
the Chief Risk Manager at NPBC and how long has this position been
filled?
Sandy
Bodnyk: I am the Chief
Risk Officer of NPBC and I have been in this position for seven
months.
Michelle
Debkowski: Sandy, what is
the balance of the SNC [shared national credits] loan sales and what was the
mark?
Sandy
Bodnyk: We sold it - $65
million of SNC [shared national credits] portfolio. The return on that was
approximately $0.905 on the dollar.
Michelle
Debkowski: Scott, a couple
of questions for you. Under what conditions will the MOU be lifted?
Scott
Fainor: As I stated
earlier in this webcast, we need to reduce classified asset levels and we need
to once again strengthen our process around internal loan review and the credit
administration functions, which we are well on our way to doing, with many of
these initiatives in various stages of completion.
Michelle
Debkowski: How does
the deep-dive in the loan portfolio in the 3rd
quarter of ‘09 relate to the MOU? Was it separate? Was it one of the terms of
the agreement?
Sandy
Bodnyk: That action was
taken in the summer of this year. It was prior to any agreement.
Scott
Fainor: I would say that
they are not related. We’ve always had a focus on the risk in our credit
portfolio. We will continue to keep a focus on this risk and manage down our
classified assets and get them out of the bank.
Michelle
Debkowski: Scott, are there lending restrictions due to the
MOU?
Scott
Fainor: No.
Michelle
Debkowski: Sandy, what is a
classified asset, and what is a difference between a classified asset and a
non-performing asset?
Sandy
Bodnyk: A classified
asset is a loan or other asset that exhibits a defined weakness, which would
potentially impair future performance. As far as a non-performing asset, it is
an asset where we have – although not clearly defined – there is a realistic
expectation that principal and/or interest cannot fully be repaid.
Michelle
Debkowski: Mike, can you
provide guidance regarding your expectations for loan charge-offs and the core
expense run rate?
Mike
Hughes: Core expense run
rate, we’ve talked about previously. We believe it is in that $60 million range
per quarter in 2010. As it relates to loan charge-offs, we haven’t provided
guidance. If you look at the last 3 quarters, it is in that mid $20 million
range, but again, it is a function of economic conditions.
Michelle
Debkowski: Thank you, Mike.
The last question I am going to address to our Chairman, Tom Beaver. Tom, please
give some color and background about the CEO change. What drove the
change?
Tom
Beaver: In these trying
times, a public company Board has many matters to consider and battle. Our
course of action grew out of discussions by the Board about how best to move
National Penn forward. This was a mutual decision between the Board and Glenn
Moyer to transition to retirement. Glenn will report to Scott Fainor and be a
special advisor in 2010 and 2011.
Michelle
Debkowski: This concludes our presentation and we thank you
for joining us.
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