ex10-1.htm


    


    


    


    EXHIBIT
10.1

    


    Scott
V. Fainor – Prepared Remarks

    Annual
Meeting of Shareholders

    April
27, 2010

    


    


    Good
morning and welcome!  I’m honored to be standing here as the new
president and chief executive officer of National Penn Bancshares!

    


    2009 was
a year of extraordinary challenge and change at National Penn.  The
Board of Directors and executive management took critically important steps to
strengthen our balance sheet.  But the cost of these actions was high,
and as a result, the company’s financial performance suffered.

    My
fundamental task as your new president and CEO is to return National Penn to an
acceptable and consistent level of profitability as soon as
possible.  I am pleased to report that we achieved a start at
executing on our strategic plan by announcing last Friday, April 23rd, a
profit of two cents a share, or $1.9 million dollars, for the first
quarter.  This is a positive start to 2010, but much more needs to be
done!

    


    Before I
provide more detail about the first quarter, I’d first like to review our 2009
performance with a particular focus on the 4th
quarter, when we took a number of difficult and decisive actions to lay the
groundwork for our return to profitability.

    


    Summary
of 2009

    As you
know, the impact of the global and national economic crisis on businesses
everywhere has been unprecedented.  National Penn was no
exception.

    


    For the
full year 2009, National Penn reported a net loss of $356.4 million
dollars.  These results were due primarily to the proactive steps we
took to strengthen our balance sheet. They included the following:

    


    
      	
              o  

            	
              The
      raise of $225 million dollars in capital in 2009, which allowed us to
      build our allowance for loan and lease losses to $146.3 million dollars at
      year end.

            


    

     

    
      	
              o  

            	
              The
      exit of our Collateralized Debt Obligation investments. The negative
      impact of this was approximately $67 million dollars after tax in
      2009.  We expect to receive a $27 million dollar refund in 2010
      related to this action.

            


    

     

    
      	
              o  

            	
              The
      sale of a large portion of lower-rated shared national credit loans,
      resulting in a pre-tax loss of $6
million.

            


    

     

    
      	
              o  

            	
              A
      non-cash goodwill impairment charge of $275 million
      dollars.  While this charge affected short-term earnings, I want
      to emphasize that it had no impact on regulatory capital ratios or
      tangible book value.

            


    

     

     

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    
 

    


    All of
these decisions were difficult. But your Board of Directors and executive
management believe that shareholders and other National Penn stakeholders will
be best served in the future by these actions.

    


    Despite
the challenges of 2009, National Penn also accomplished the
following:

     

    
      	
              o  

            	
              In
      the area of Enterprise Risk Management, we strengthened our policies and
      procedures and eliminated a prior material
  weakness.

            


    

     

    
      	
              o  

            	
              Demonstrating
      our focus on customers and communities, National Penn originated more than
      $1 billion dollars in new loans to creditworthy borrowers and doubled the
      number of residential mortgages loans versus the previous
      year.

            


    

     

    
      	
              o  

            	
              These
      actions helped demonstrate our role as a force in the housing, employment
      and economic growth of our region, despite the
  downturn.

            


    

     

    
      	
              o  

            	
              Expenses
      continued to be well-managed.  As one example of this, direct
      expenses in the mortgage area were 48% below budget, even as revenue
      increased. This was a reflection of our success in holding down expenses,
      a discipline that is part of our
culture.

            


    

     

    
      	
              o  

            	
              In
      the area of liquidity, deposit growth for 2009 was
  7.7%.

            


    

     

    
      	
              o  

            	
              Our
      deposit market share also improved in 2009.  In Pennsylvania, we
      moved up to 9th rank versus eleventh rank in 2008.  At year-end,
      National Penn had risen to #1 deposit market share in Berks and Centre
      counties and remained #1 and #2 in Northampton and Lehigh counties,
      respectively.  We now have a top ten market share in twelve of
      the seventeen counties we serve in Pennsylvania, Maryland and
      Delaware.  The growth of profitable core deposits will continue
      to be a major focus in 2010.

            


    

    


    Regulatory
Compliance

    In an
effort to maintain compliance with our regulators, we have agreed to do the
following:

     

    
      	
              o  

            	
              Develop
      and implement initiatives to enhance the oversight of problem
      assets;

            


    

     

    
      	
              o  

            	
              Enhance
      our process for the allowance for loan and lease
  losses;

            


    

     

    
      	
              o  

            	
              Strengthen
      our internal loan review and credit administration functions,
      and

            


    

     

    
      	
              o  

            	
              Maintain
      and enhance capital ratios.

            


    

    


    Many of
these initiatives have been accomplished or are in various stages of completion
through a self-imposed improvement plan we put in place this
January.  We are making excellent progress in achieving the changes to
our administration of asset quality and maintaining strong capital
levels.

    


    TARP
Repayment

    In regard
to the repayment of the United States Treasury’s investment in National Penn,
also known as “TARP”, we will approach this in a shareholder friendly manner,
developing potential strategies that may include repayment in installments over
time.

     

     

     

    
      
         

      

      
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    Current
performance

    As I
previously stated, we are pleased to announce a return to profitability of 2
cents per share, or $1.9 million dollars, in the first quarter of
2010.

    


    In
addition, our core fundamentals remain strong.  Our net interest
margin increased to 3.44 percent in the first quarter versus 3.29 percent in the
4th
quarter of 2009.  We controlled expenses, despite increased FDIC
insurance and regulatory costs.  Asset quality metrics improved,
including:

     

    
      	
              o  

            	
              A
      decline in non-performing loans;

            


    

     

    
      	
              o  

            	
              An
      improved coverage of non-performing loans;
and

            


    

     

    
      	
              o  

            	
              An
      increase in the loan loss reserve.

            


    

    


    Our loan
portfolio continues to perform better than peers and industry
averages.

    


    New loan
growth continues to be slow at this time, reflecting the reluctance of small and
medium size businesses to borrow and a general lack of confidence in the
regional and national economy. However, we believe, through our many
conversations with customers, that confidence is slowly returning and will
continue to grow in the second half of the year.

    


    Our goal
is to continue to develop high quality, long term relationships with our
customers.  Our non bank businesses, such as insurance, investment and
trust, continue to perform well.  Our balance sheet remains strong,
and we have enhanced our capital ratios at both the holding company, National
Penn Bancshares, and our two banks, National Penn Bank and Christiana Bank &
Trust Company.

    


    Dividend
Discussion

    As part
of our earnings, the company also announced that National Penn’s board of
directors approved a first quarter cash dividend of one cent per
share.  We recognize the importance of the dividend to
shareholders.  But we also recognize the strategic importance of
managing the company for the longer term.  For the immediate future,
that means continuing to preserve capital until the economy shows stronger signs
of improvement and National Penn’s earnings return to a more consistent
level.

    


    Positioning
National Penn for profitability

    A key to
achieving longer term profitability is a strong management team.  On
February 1, 2010, I announced the formation of an Office of the
President.  This is a group of seven executives who report directly to
me and who are strong and successful leaders. I would like to introduce them to
you now and will ask them to rise as I do so:

     

    
      	
              o  

            	
              Michael J. Hughes, Chief
      Financial Officer.  Mike is a CPA and former investment banker
      with 30 years experience in the financial industry, serving in a variety
      of roles including CFO of both public and private companies. His expertise
      includes financial strategy and restructuring and mergers and
      acquisitions.

            


    

     

     

    
      
         

      

      
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              o  

            	
              Sandra L. Bodnyk, Chief
      Risk Officer. Sandy has 35 years of financial services industry
      experience, a decade of which has been focused in risk
      management.  Since she was named to her position in 2009, she
      has led an intensive effort to review and mitigate risks related to
      credit, technology, and other critical areas of our
      operations.

            


    

     

    
      	
              o  

            	
              Donald P. Worthington,
      head of National Penn Wealth Management, began his banking career in
      1962.  Leading the Wealth Management group, he is responsible
      for the company’s diverse network of investment, trust, insurance and
      private banking entities and is a director and chairman of two of those
      entities as well as of Christiana Bank & Trust
  Company.

            


    

     

    
      	
              o  

            	
              David B. Kennedy. As
      chief delivery officer, Dave is head of National Penn’s commercial and
      retail bank as delivered through our 127 community banking offices. He is
      responsible for the Regional Presidents Group as well as the product
      development, delivery and marketing areas.  A veteran of 27
      years in the financial services industry, he formerly served as president
      of National Penn’s KNBT Northern
division.

            


    

     

    
      	
              o  

            	
              Scott L. Gruber, head of
      Corporate Banking, Scott is responsible for commercial real estate,
      corporate, middle market and SBA lending, as well as cash management and
      government banking.  A veteran of 25 years in financial
      services, he formerly served as president of National Penn’s Central
      Region.

            


    

     

    
      	
              o  

            	
              Carl F. Kovacs, head of
      Operations and Technology, has more than 36 years in the financial
      services industry.  Experienced in bank operations, he is
      responsible for client support and information technology, which includes
      the many systems, such as network infrastructure and computer operations,
      that support the delivery of our products and services to
      customers.

            


    

     

    
      	
              o  

            	
              Michelle H. Debkowski,
      Corporate Secretary, Governance and Investor Relations
      Officer.  Michelle joined the company in 1993 after working in
      the public accounting field.  A CPA, she has served at National
      Penn in positions in the regulatory compliance, accounting and internal
      audit areas.

            


    

    


    With this
team, I have developed a strategic plan that was approved by the Board of
Directors and is built on accountability and a sense of urgency.

    


    Our
agenda is clear. It is reflected in the following five goals:

     

    
      	
              o  

            	
              Number
      one – Reviewing line of business profitability. This includes focusing on
      capital alternatives and maximizing shareholder
  value.

            


    

     

    
      	
              o  

            	
              Number
      two – Addressing regulatory compliance. We have already implemented and
      are executing all aspects of our self-imposed improvement
      plan.

            


    

     

    
      	
              o  

            	
              Number
      three - Restoring and maintaining strong asset quality.  This
      includes activities such as reducing non-performing loans, improving
      credit administration and enhancing lending and loan review
      processes.

            


    

     

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

     

     

    
      	
              o  

            	
              Number
      four – Continuing to develop a strong and sustainable risk management
      culture.   We are well into this strategy, which includes
      integrating Enterprise Risk Management throughout all areas of our
      company.

            


    

     

    
      	
              o  

            	
              Number
      five – Restoring
      and maintaining the core earnings power of the
  franchise.

            


    

    


    This is a
very focused strategic plan with targeted objectives and, most importantly, a
management team that is fully engaged and executing this plan!

    


    Looking
Ahead

    As we
look to the future, we recognize that the financial services industry and the
global, national and regional economy are enduring a once-in-a-generation
storm.  It has impacted the economic, political and social sectors of
society.  The effect will continue for years to come and will create a
slow recovery for our customers and for the communities that National Penn
serves.  The asset quality challenges facing our company as well as
many others across the region and nation are a reflection of these
pressures.

    


    We
believe that by acting quickly, we can rebuild and strengthen the company and
can be better positioned than our competitors to take advantage of the strategic
opportunities such significant changes create.

    


    With
difficult actions behind us, an energized management group, an excellent team of
employees, and with the signs of an economic recovery in its early stages, we
are cautiously optimistic about the future.

    


    To
summarize:

     

    
      	
              o  

            	
              Our
      balance sheet is strong, with enhanced capital levels and strong reserves
      for loan losses.

            


    

     

    
      	
              o  

            	
              We
      remain focused on maintaining a disciplined approach to loan review and
      administration and reducing problem
assets.

            


    

     

    
      	
              o  

            	
              We
      have an excellent distribution network, strong market presence, and a
      loyal customer base.

            


    

     

    
      	
              o  

            	
              We
      are known for a high level of customer service and for a broad range of
      banking, insurance, investment and trust
  services.

            


    

    


    These are
reasons to be positive.  But we recognize that to continue to be
successful in this challenging environment, we need to execute our plan, harness
our strength and continue to operate efficiently and profitably.  We
are confident that substantial progress has and will continue to be made in 2010
to achieve our goal of consistent long term profitability and enhanced
shareholder value at National Penn Bancshares.

    


    Thank
you!

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