HNBC Harleysville Natl Corp Pa (MM)

Harleysville National Corporation (NASDAQ:HNBC) reported today a net loss of $4.4 million or $.10 per diluted share for the third quarter of 2009. This compares to net income of $6.6 million, or $.21 per diluted share, for the third quarter of 2008.

For the nine months ended September 30, 2009, net loss was $222.3 million or $5.16 per diluted share. Excluding the non-cash goodwill charge of $214.5 million recorded in the second quarter, the net loss was $7.7 million or $.18 per diluted share, compared to net income of $21.3 million or $.68 per diluted share during the comparable period in 2008.

Third quarter results included a $14.8 million provision for credit losses; a $4.7 million non-cash other-than-temporary impairment (OTTI) charge on investment securities; as well as professional fees of $2.4 million associated with recent corporate finance activities, including the pending merger with First Niagara Financial Group, Inc. (“First Niagara”), which is expected to close during the first quarter of 2010.

Paul D. Geraghty, President and CEO, Harleysville National Corporation, said, “We are carefully managing our loan portfolio to preserve and protect the bank’s capital base, and minimize increases in delinquencies and non-performing assets, while also working hard to grow our franchise. To this end, during the third quarter we increased our penetration of retail and business accounts, grew non-municipal core deposits, and continued to expand sales of electronic banking services. We were also encouraged by the full payoffs of two nonperforming loans totaling $18 million after quarter end. The payoffs virtually offset the increase in nonperforming loans over the linked quarter.”

During the third quarter of 2009, provision for loan losses was $14.8 million, compared to $2.6 million in the third quarter of 2008 and $32.0 million in the second quarter of 2009. The increase in provision for loan losses reflects an increase in nonperforming assets to $153.7 million at September 30, 2009, up from $138.9 million at June 30, 2009 and $38.8 million from a year ago. Total Capital to Risk-Weighted Assets improved to 9.51% at September 30, 2009 from 8.88% at December 31, 2008.

Key Financial Metrics

The following is an overview of the key financial metrics for the quarter:

• Total assets were $5.2 billion at September 30, 2009, an increase of 30.7% or $1.2 billion over $3.9 billion at September 30, 2008, primarily the result of the Willow Financial Bancorp acquisition (“Willow Financial”), which had assets of approximately $1.6 billion at the acquisition date of December 5, 2008.
• Loans increased $711.1 million and deposits grew $923.6 million from September 30, 2008, primarily the result of the Willow Financial acquisition.
• Net interest income on a tax equivalent basis in the third quarter of 2009 increased $6.3 million or 23.3% from the same period in 2008 mainly as a result of the Willow Financial acquisition. The net interest margin for the third quarter of 2009 was 2.75% compared to 3.02% for the same period in 2008.
• Nonperforming assets were $153.7 million at September 30, 2009. Nonperforming assets as a percentage of total assets increased to 2.98% from 2.67% at June 30, 2009, and 0.98% at September 30, 2008. As noted above, subsequent to quarter end the bank benefited from the full payoff of two nonperforming loans totaling $18 million. Net charge-offs were $7.8 million compared to $14.7 million in the second quarter of 2009 and $2.1 million in the third quarter of 2008. The allowance for credit losses increased to $77.3 million at September 30, 2009, compared to $70.3 million at June 30, 2009, and $31.7 million at September 30, 2008. Provision for loan losses increased to $14.8 million from $2.6 million during the third quarter of 2008. Total loans delinquent 30 to 89 days totaled $31.8 million at September 30, 2009 compared to $34.4 million at June 30, 2009 and $27.5 million at September 30, 2008.
• The merger agreement with First Niagara, as filed with the SEC on July 28, 2009, calls for a downward adjustment to the merger consideration to be received by Harleysville National Corporation shareholders if the amount of our delinquent loans equals or exceeds $237.5 million as of any month end prior to the closing date of the merger. For purposes of this calculation, “delinquent loans” is defined as the sum of non-performing assets, loans 30 to 89 days delinquent, and cumulative charge-offs subsequent to the signing of the agreement. By this definition, at September 30, 2009, delinquent loans were $193.3 million.
• Quarterly noninterest income was up $1.8 million from the third quarter of 2008. Gains on sales of investment securities increased by $1.4 million over last year’s quarter. Gains from mortgage banking loan sales totaled $2.4 million; there were no gains in last year’s quarter. Service charges on deposits increased $.9 million or 27.4% mainly from the acquired Willow Financial deposit accounts. Other income increased $.9 million over the third quarter of 2008 primarily from increases in automated teller machine and point of sale revenue and an increase in the cash surrender value of keyman life insurance. These increases were partially offset by a non-cash OTTI charge of $4.7 million recorded during the third quarter of 2009 mainly on two collateralized debt obligation investments in pooled trust preferred securities.
• Quarterly noninterest expenses were up $15.1 million over the same period in the prior year, primarily due to the Willow Financial acquisition and the previously-mentioned professional fees of $2.4 million. In addition, FDIC insurance assessments increased by $2.7 million. Other expenses were $6.8 million higher during the third quarter of 2009 mostly due to Willow Financial including increased professional, consulting and data processing expenses.

Non-GAAP Measures

Net loss excluding a non cash goodwill charge is not a defined term under U.S. generally accepted accounting principles (non-GAAP measure). A Non-GAAP measure should not be considered in isolation or as a substitute for net loss prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. Management of the company believes that net loss excluding a non cash goodwill charge is a useful measure and can be used to evaluate the company’s operations.

Harleysville National Corporation, with assets of $5.2 billion, is the holding company for Harleysville National Bank (HNB). Investment Management and Trust Services are provided through Millennium Wealth Management and Cornerstone, divisions of HNB, with assets under management of $3.1 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted under NASDAQ Global Select Market®. For more information, visit the Harleysville National Corporation website at www.hncbank.com.

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various risks, uncertainties and other factors. Such risks, uncertainties and other factors that could cause actual results and experience to differ include, but are not limited to, the following: the Corporation’s merger with First Niagara Financial Group, Inc. is subject to a number of conditions and approvals, including regulatory approvals, and the final consideration to be paid to Harleysville stockholders is subject to adjustment, the strategic initiatives may not be completed on satisfactory terms or at all; increased demand or prices for the Corporation’s financial services and products may not occur; changing economic and competitive conditions; technological developments; the effectiveness of the Corporation’s business strategy due to changes in current or future market conditions; effects of deterioration of economic conditions on customers specifically the effect on loan customers to repay loans; inability of the Corporation to raise or achieve desired or required levels of capital; the effects of competition, and of changes in laws and regulations, including industry consolidation and development of competing financial products and services; interest rate movements; relationships with customers and employees; challenges in establishing and maintaining operations in new markets; volatilities in the securities markets; and deteriorating economic conditions and other risks and uncertainties, including those detailed under the caption “Forward-Looking Statements” in the Corporation’s Form 10-K Annual Report for the year ended December 31, 2008 and subsequent filings made with the Securities and Exchange Commission.

         

Harleysville National Corporation

Consolidated Selected Financial Data (1) (Dollars in thousands, except per share data) September 30, 2009 (unaudited)  

For the period:

Three Months Ended Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, 2009   2009   2009   2008   2008 Interest Income $ 55,005 $ 60,045 $ 63,638 $ 54,583 $ 49,942 Interest Expense   23,567       26,592       28,334       25,136       24,645   Net Interest Income 31,438 33,453 35,304 29,447 25,297 Provision for Loan Losses   14,750       32,000       7,121       7,920       2,580   Net Interest Income after Provision for Loan Losses   16,688       1,453       28,183       21,527       22,717     Service Charges 4,361 4,304 4,194 3,666 3,424 Gain on Sales of Investment Securities, Net 1,383 4,945 1,952 2,417 - Other-than-temporary Impairment of Available for Sale Securities (4,650 ) (530 ) (1,344 ) (1,923 ) - Gain (Loss) on Mortgage Banking Sales, Net 2,352 2,703 1,698 136 (5 ) Wealth Management Income 4,656 4,975 4,322 5,888 3,862 Bank-Owned Life Insurance Income 789 770 778 730 706 Other Income   3,384       4,544       4,559       2,430       2,458   Total Noninterest Income   12,275       21,711       16,159       13,344       10,445     Salaries, Wages and Employee Benefits 17,561 17,991 20,279 14,509 13,539 Occupancy 3,752 3,709 4,206 2,663 2,412 Furniture and Equipment 1,286 1,483 1,608 1,181 1,074 Intangibles Expense 1,669 696 948 2,211 678 FDIC Deposit Insurance 3,227 5,056 2,787 1,164 551 Goodwill impairment - 214,536 - - - Merger Charges - - - 2,456 974 Other Expenses   12,726       9,279       8,793       7,109       5,925   Total Noninterest Expense   40,221       252,750       38,621       31,293       25,153     (Loss) Income Before Income Taxes (11,258 ) (229,586 ) 5,721 3,578 8,009 Income Tax (Benefit) Expense   (6,889 )     (7,083 )     1,126       (245 )     1,370   Net (Loss) Income $ (4,369 )   $ (222,503 )   $ 4,595     $ 3,823     $ 6,639    

Per Common Share Data:

Weighted Average Common Shares - Basic 43,102,844 43,080,849 42,990,542 34,695,062 31,385,257 Weighted Average Common Shares - Diluted 43,102,844 43,080,849 43,018,233 34,843,058 31,551,026 Net (Loss) Income Per Share - Basic $ (0.10 ) $ (5.17 ) $ 0.11 $ 0.11 $ 0.21 Net (Loss) Income Per Share - Diluted $ (0.10 ) $ (5.17 ) $ 0.11 $ 0.11 $ 0.21 Cash Dividend Per Share $ - $ 0.01 $ 0.10 $ 0.20 $ 0.20 Book Value $ 6.04 $ 5.77 $ 11.00 $ 11.05 $ 9.90 Market Value $ 5.33 $ 4.73 $ 6.06 $ 14.44 $ 16.98      

For the period:

Nine Months Ended September 30, 2009   2008 Interest Income $ 178,688 $ 151,711 Interest Expense   78,493       77,018 Net Interest Income 100,195 74,693 Provision for Loan Losses   53,871       7,647 Net Interest Income after Provision for Loan Losses   46,324       67,046   Service Charges 12,859 9,849 Gain on Sales of Investment Securities, Net 8,280 225 Other-than-temporary Impairment of Available for Sale Securities (6,524 ) - Gain on Mortgage Banking Sales, Net 6,753 420 Wealth Management Income 13,953 12,756 Bank-Owned Life Insurance Income 2,337 2,047 Other Income   12,487       7,576 Total Noninterest Income   50,145       32,873   Salaries, Wages and Employee Benefits 55,831 41,599 Occupancy 11,667 7,438 Furniture and Equipment 4,377 3,251 Intangibles Expense 3,313 1,997 FDIC Deposit Insurance 11,070 918 Goodwill Impairment 214,536 - Merger Charges - 974 Other Expenses   30,798       17,152 Total Noninterest Expense   331,592       73,329   (Loss) Income Before Income Taxes (235,123 ) 26,590 Income Tax (Benefit) Expense   (12,846 )     5,320 Net (Loss) Income $ (222,277 )   $ 21,270     Nine Months Ended September 30, Per Common Share Data:   2009   2008 Weighted Average Common Shares - Basic 43,058,489 31,363,779 Weighted Average Common Shares - Diluted 43,058,489 31,531,942 Net (Loss) Income Per Share - Basic $ (5.16 ) $ 0.68 Net (Loss) Income Per Share - Diluted $ (5.16 ) $ 0.67 Cash Dividend Per Share $ 0.11 $ 0.60             2009 2009 2009 2008 2008

Asset Quality Data:

3Q   2Q   1Q   4Q   3Q Nonaccrual Loans $ 133,737 $ 132,598 $ 85,393 $ 75,060 $ 36,278 90 + Days Past Due Loans   18,117       4,090       2,073       1,849       1,275   Nonperforming Loans 151,854 136,688 87,466 76,909 37,553 Net Assets in Foreclosure   1,824       2,168       2,008       1,626       1,221   Nonperforming Assets $ 153,678     $ 138,856     $ 89,474     $ 78,535     $ 38,774   Loan Loss Reserve $ 77,276 $ 70,341 $ 53,062 $ 49,955 $ 31,668 Loan Loss Reserve / Loans 2.38 % 2.05 % 1.47 % 1.36 % 1.25 % Loan Loss Reserve / Nonperforming Loans 50.9 % 51.5 % 60.7 % 65.0 % 84.3 % Nonperforming Assets / Total Assets 2.98 % 2.67 % 1.58 % 1.43 % 0.98 % Net Loan Charge-offs $ 7,814 $ 14,721 $ 4,014 $ 2,558 $ 2,086

Net Loan Charge-offs (annualized) / Average Loans

0.93 % 1.68 % 0.44 % 0.36 % 0.33 %     2009 2009 2009 2008 2008

Selected Ratios (annualized):

3Q   2Q   1Q   4Q   3Q Return on Average Assets -0.34 % -15.92 % 0.33 % 0.35 % 0.68 % Return on Average Shareholders' Equity -6.73 % -186.57 % 3.88 % 4.40 % 8.20 % Yield on Earning Assets (FTE) 4.69 % 4.92 % 5.29 % 5.69 % 5.76 % Cost of Interest Bearing Funds 2.18 % 2.35 % 2.53 % 2.82 % 3.10 % Net Interest Margin (FTE) 2.75 % 2.82 % 3.02 % 3.16 % 3.02 % Leverage Ratio 6.10 % 5.91 % 6.33 % 8.19 % 8.13 %   2009 2008

Selected Ratios (annualized):

Year-to-date   Year-to-date Return on Average Assets -5.46 % 0.73 % Return on Average Shareholders' Equity -73.45 % 8.52 % Yield on Earning Assets (FTE) 4.96 % 5.88 % Cost of Interest Bearing Funds 2.35 % 3.27 % Net Interest Margin (FTE) 2.86 % 3.00 %    

Balance Sheet (Period End):

2009 2009 2009 2008 2008 3Q   2Q   1Q   4Q   3Q Assets $ 5,163,359 $ 5,210,327 $ 5,646,195 $ 5,490,509 $ 3,949,730 Earning Assets 4,870,316 4,909,443 5,109,083 4,944,126 3,626,352 Investment Securities 1,082,032 1,110,123 1,179,213 1,231,661 983,349 Loans 3,250,095 3,439,267 3,615,775 3,685,244 2,539,037 Other Earning Assets 538,189 360,053 314,095 27,221 103,966 Interest-Bearing Liabilities 4,320,928 4,353,600 4,585,275 4,449,461 3,221,921 Total Deposits 3,941,908 3,998,155 4,147,418 3,938,432 3,018,276 Noninterest-Bearing Deposits 495,644 517,108 497,921 479,469 343,308 Interest-Bearing Checking 629,378 597,831 579,922 556,855 430,607 Money Market 895,463 991,476 1,074,892 1,042,302 727,693 Savings 309,586 317,196 309,767 270,885 182,342 Time Deposits 1,611,837 1,574,544 1,684,916 1,588,921 1,334,326 Total Borrowed Funds 874,664 872,553 935,778 990,498 546,953 Federal Home Loan Bank 471,948 475,087 515,993 522,671 213,755 Other Borrowings 402,716 397,466 419,785 467,827 333,198 Shareholders' Equity 260,656 248,685 473,713 474,707 310,994  

Balance Sheet (Average):

2009 2009 2008 2008 2008 3Q   2Q   1Q   4Q   3Q Assets $ 5,153,024 $ 5,605,475 $ 5,580,099 $ 4,341,741 $ 3,899,593 Earning Assets 4,845,099 5,080,393 5,047,766 3,956,963 3,580,454 Investment Securities 1,095,611 1,199,597 1,209,012 1,072,468 1,002,901 Loans 3,332,059 3,511,623 3,666,744 2,860,891 2,522,034 Other Earning Assets 417,429 369,173 172,010 23,604 55,519 Interest-Bearing Liabilities 4,298,522 4,547,522 4,543,033 3,550,359 3,158,464 Total Deposits 3,938,675 4,121,543 4,062,577 3,289,483 2,923,815 Noninterest-Bearing Deposits 511,802 493,142 472,687 445,495 348,183 Interest-Bearing Checking 612,674 601,230 560,239 444,141 428,078 Money Market 943,047 1,064,346 1,060,299 820,395 739,931 Savings 314,911 315,856 286,317 212,081 182,403 Time Deposits 1,556,241 1,646,969 1,683,035 1,367,371 1,225,220 Total Borrowed Funds 871,649 919,121 953,143 706,371 582,832 Federal Home Loan Bank 472,705 504,903 520,592 289,245 217,717 Other Borrowings 398,944 414,218 432,551 417,126 365,115 Shareholders' Equity 257,435 478,338 480,491 345,887 322,077              

Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis

 

Three Months Ended September 30, 2009

Three Months Ended September 30, 2008

Average Average Average Average Balance   Interest   Rate   Balance   Interest   Rate Assets Earning assets: Investment securities Taxable investments $ 798,874 $ 8,761 4.36 % $ 701,626 $ 9,518 5.40 % Non-taxable investments (2)   296,737     4,782   6.41 %     301,275     4,554   6.01 % Total investment securities 1,095,611 13,543 4.92 % 1,002,901 14,072 5.58 % Federal funds sold and deposits in banks 417,429 281 0.27 % 55,519 232 1.66 % Loans(2) (3)   3,332,059     43,270   5.17 %     2,522,034     37,541   5.91 % Total earning assets 4,845,099 57,094 4.69 % 3,580,454 51,845 5.76 % Noninterest-earning assets   307,925   319,139 Total assets $ 5,153,024 $ 3,899,593   Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $ 1,870,632 4,372 0.93 % $ 1,350,412 5,780 1.70 % Time   1,556,241     12,189   3.12 %     1,225,220     12,976   4.21 % Total interest-bearing deposits 3,426,873 16,561 1.92 % 2,575,632 18,756 2.90 % Borrowed funds   871,649     7,006   3.20 %     582,832     5,889   4.02 % Total interest-bearing liabilities 4,298,522 23,567 2.18 % 3,158,464 24,645 3.10 % Noninterest-bearing liabilities: Demand deposits 511,802 348,183 Other liabilities   85,265   70,869 Total noninterest-bearing liabilities   597,067   419,052 Total liabilities 4,895,589 3,577,516 Shareholders' equity   257,435   322,077 Total liabilities and shareholders' equity $ 5,153,024 $ 3,899,593   Net interest spread 2.51 % 2.66 % Effect of noninterest-bearing sources     0.24 %     0.36 % Net interest income/margin on earning assets $ 33,527   2.75 % $ 27,200   3.02 % Less tax equivalent adjustment   2,089   1,903 Net interest income $ 31,438 $ 25,297  

Nine Months Ended September 30, 2009

Nine Months Ended September 30, 2008

Average Average Average Average Balance   Interest   Rate   Balance   Interest   Rate Assets Earning assets: Investment securities Taxable investments $ 858,107 $ 31,000 4.83 % $ 731,870 $ 28,894 5.27 % Non-taxable investments (2)   309,551     15,064   6.51 %     293,371     13,290   6.05 % Total investment securities 1,167,658 46,064 5.27 % 1,025,241 42,184 5.50 % Federal funds sold and deposits in banks 320,436 647 0.27 % 56,825 1,045 2.46 % Loans(2) (3)   3,502,250     138,450   5.29 %     2,492,498     114,013   6.11 % Total earning assets 4,990,344 185,161 4.96 % 3,574,564 157,242 5.88 % Noninterest-earning assets   454,289   307,982 Total assets $ 5,444,633 $ 3,882,546   Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $ 1,919,507 15,878 1.11 % $ 1,387,554 19,536 1.88 % Time   1,628,284     40,818   3.35 %     1,208,467     40,414   4.47 % Total interest-bearing deposits 3,547,791 56,696 2.14 % 2,596,021 59,950 3.08 % Borrowed funds   914,339     21,797   3.19 %     545,701     17,068   4.18 % Total interest-bearing liabilities 4,462,130 78,493 2.35 % 3,141,722 77,018 3.27 % Noninterest-bearing liabilities: Demand deposits 492,687 337,739 Other liabilities   85,213   69,531 Total noninterest-bearing liabilities   577,900   407,270 Total liabilities 5,040,030 3,548,992 Shareholders' equity   404,603   333,554 Total liabilities and shareholders' equity $ 5,444,633 $ 3,882,546   Net interest spread 2.61 % 2.61 % Effect of noninterest-bearing sources     0.25 %     0.39 % Net interest income/margin on earning assets $ 106,668   2.86 % $ 80,224   3.00 % Less tax equivalent adjustment   6,473   5,531 Net interest income $ 100,195 $ 74,693      

Regulatory Capital

    Actual

As of September 30, 2009

Amount   Ratio   Total Capital (to risk weighted assets): Corporation $ 358,533 9.51 % Harleysville National Bank 344,277 9.15 % Tier 1 Capital (to risk weighted assets): Corporation 311,054 8.25 % Harleysville National Bank 296,884 7.89 % Tier 1 Capital (to average assets): Corporation 311,054 6.10 % Harleysville National Bank 296,884 5.83 %  

As of December 31, 2008

  Total Capital (to risk weighted assets): Corporation $ 384,522 8.88 % Harleysville National Bank 370,552 8.58 % Tier 1 Capital (to risk weighted assets): Corporation 334,467 7.73 % Harleysville National Bank 320,497 7.42 % Tier 1 Capital (to average assets): Corporation 334,467 8.19 % Harleysville National Bank 320,497 7.88 %  

(1)

 

Certain prior period amounts have been reclassified to conform to current period presentation.

(2)

The interest earned on nontaxable investment securities and loans is shown on a tax equivalent basis (tax rate of 35%).

(3)

Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income.