HNBC Harleysville Natl Corp Pa (MM)

HARLEYSVILLE, Pa., July 19 /PRNewswire-FirstCall/ -- Harleysville National Corporation (NASDAQ:HNBC), today announced second quarter 2007 diluted and basic earnings per share of $.24 and $.25, respectively compared to $.32 for the second quarter of 2006. Net income was $7.1 million for the second quarter of 2007 compared to $9.3 million during the same period in 2006. For the six months ended June 30, 2007, diluted and basic earnings per share were $.45 and $.46, respectively, as compared to $.62 and $.63, respectively in the comparable period of 2006. Net income for the six-month period ended June 30, 2007, was $13.2 million compared to $18.2 million during the comparable six-month period in 2006. "Earnings growth has been challenging in the difficult environment. We are encouraged by our progress in noninterest revenue with wealth management growth of 43% and bank service charges increasing 21% during the second quarter of 2007 over the comparable period in 2006. Additionally, we are pleased to report loan growth of 2.4% and core deposit growth of 7.6% from June 30, 2006 as well as a reduction in non-performing assets of approximately $800,000 since March 31, 2007," said Deb M. Takes, Interim President and Chief Executive Officer. The Corporation's consolidated total assets were $3.3 billion at June 30, 2007, an increase of 2.7% or $86.2 million over $3.2 billion in total assets reported at June 30, 2006. This rise was primarily attributable to loan growth of $49.4 million and an increase in cash and investments of $22.6 million. The growth in loans took place mainly in the Bank's real estate and commercial loan portfolios. The financial results for 2007 reflect the issuance of 1,382,000 shares of the Corporation's common stock for a 5% stock dividend payable September 15, 2006. All share and per share information has been restated to reflect this stock dividend. DETAILED REVIEW OF FINANCIAL RESULTS Net interest income on a tax equivalent basis in the second quarter of 2007 decreased $1.2 million or 5.1% from the same period in 2006 and decreased $2.8 million or 6.1% from the six-month period ending June 30, 2006. The decreases during 2007 were mainly attributable to higher deposit costs offset in part by increased loan and investment rates. The net interest margin for the second and first quarters of 2007 was 2.82%, compared to 3.04% for the second quarter of 2006. Due to market conditions, deposit rates increased faster than loan rates, resulting in a lower net interest margin compared to the second quarter of 2006. Average earning assets increased $74.8 million or 2.5% during the second quarter of 2007 versus the comparable period in 2006. Average loans grew by $55.4 million or 2.8% during the same period with average cash and investment securities increasing $19.4 million. Average interest-bearing deposits were up $86.3 million or 4.1%, primarily as a result of growth in interest-bearing checking accounts. Average borrowings increased $11.8 million or 2.7% with a higher level of long-term securities sold under agreement to repurchase offset in part by long-term Federal Home Loan Bank maturities as well as a reduced level of overnight funding replaced by deposit growth. Nonperforming assets (including nonaccrual loans, net assets in foreclosure and loans 90 days or more past due) were .57% of total assets at June 30, 2007, compared to .54% at December 31, 2006, and .36% at June 30, 2006. The increase in nonperforming assets at June 30, 2007, in relation to December 31, 2006, of $1.1 million was mainly due to a construction loan for one borrower and real estate loans for two borrowers placed on nonaccrual of interest, partially offset by the payoff of nonaccrual real estate loans for another borrower as well as a lower level of commercial mortgage loans 90 days past due. The increase of nonperforming assets in relation to June 30, 2006, was largely due to a higher level of real estate loans on non-accrual of interest. The loan loss provision increased $225,000 during the second quarter of 2007 over the comparable period in 2006. The loan loss provision increased $1.5 million for the six-month period ending June 30, 2007, as compared to the same period in 2006, primarily as a result of inherent risk related to loan growth and the increases in nonperforming loans and charge- offs which occurred during the first quarter of 2007. Total deposits increased $23.9 million or 1.0% to $2.50 billion at June 30, 2007, up from $2.48 billion at June 30, 2006. This was principally attributable to growth in interest-bearing checking and money market accounts partially offset by declines in savings and time deposit accounts. Core deposits (total deposits less time deposits) increased 7.6% or $123.2 million to $1.74 billion for the same periods. Noninterest income of $10.3 million for the second quarter of 2007 reflects an increase of $332,000 from the second quarter of 2006. Wealth management income rose $1.5 million during the second quarter of 2007 over the comparable quarter in 2006, primarily driven by a higher level of life insurance business at Cornerstone and the McPherson Enterprises acquisition on March 1, 2007. The Bank experienced an increase in deposit service charges of $416,000 during the second quarter of 2007 as compared to the second quarter of 2006 mainly from return check and overdraft fees. Partially offsetting these increases in noninterest income was the pre-tax gain of $1.4 million on the sale of the Bank's $15.3 million credit card portfolio during the second quarter of 2006. For the six-month period ended June 30, 2007, noninterest income was $19.4 million, an increase of $546,000 from the same period in 2006, primarily due to the previously aforementioned increases in wealth management income and service charges on deposits partially offset by the gain on the sale of the credit card portfolio during 2006. In addition, gains on sales of investment securities for the six months ended June 30, 2007 were $533,000. During the comparable period in 2006, there were no investment securities gains recognized. Noninterest expense of $20.1 million for the second quarter of 2007 increased $2.5 million from the second quarter of 2006 and increased $4.1 million for the six months ended June 30, 2007, over the comparable period in 2006. Salaries and benefits expense rose $1.6 million during the second quarter of 2007 and $2.7 million during the first six months of 2007 from the comparable periods in 2006, primarily due to higher staffing levels resulting from branch openings, increased commissions and incentives associated with higher wealth management revenue, higher cost of medical benefits and non- recurring compensation and severance charges related to a former executive which totaled approximately $300,000. Occupancy expense increased $287,000 and furniture and equipment expense increased $176,000 during the second quarter of 2007 over the same period in 2006 mostly due to several new office locations including the new operations center building in Harleysville and two branch openings as well as additional increases in rent. Other expense increased $404,000 and $906,000 for the three and six months ended June 30, 2007, respectively over the comparable periods in 2006, mainly as a result of increased computer software costs and professional and consulting expenses. Harleysville National Corporation, with assets of $3.3 billion, is the holding company for Harleysville National Bank (HNB). Investment Management and Trust Services are provided through Millennium Wealth Management, a division of HNB, with assets under management of $3.2 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted under NASDAQ Global Market Issues. For more information, visit the Harleysville National Corporation website at http://www.hncbank.com/ This press release may contain 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 factors. Such factors include the possibility that increased demand or prices for the Corporation's financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Corporation's filings with the Securities and Exchange Commission. Harleysville National Corporation Consolidated Selected Financial Data (1) (Dollars in thousands, except per share data) June 30, 2007 (unaudited) For the period: Three Months Ended Jun. 30, Mar. 31, Dec. 31, 2007 2007 2006 Interest Income $47,711 $46,695 $46,661 Interest Expense 27,556 26,858 26,849 Net Interest Income 20,155 19,837 19,812 Provision for Loan Losses 1,125 2,425 1,200 Net Interest Income after Provision for Loan Losses 19,030 17,412 18,612 Service Charges 2,442 1,918 1,994 Gains/(Losses) on Sales of Investment Securities, Net 2 531 (674) Gain on Sale of Credit Card Portfolio - - - Gain on Sale of Branch - - 10,650 Wealth Management Income 4,831 4,267 3,474 Bank-Owned Life Insurance Income 603 582 594 Other Income 2,377 1,849 2,168 Total Noninterest Income 10,255 9,147 18,206 Salaries, Wages and Employee Benefits 12,450 11,597 11,787 Occupancy 1,688 1,546 1,392 Furniture and Equipment 1,076 917 956 Other Expenses 4,927 4,719 4,332 Total Noninterest Expense 20,141 18,779 18,467 Income Before Income Taxes 9,144 7,780 18,351 Income Tax Expense 2,065 1,646 5,079 Net Income $7,079 $6,134 $13,272 Per Common Share Data: Weighted Average Common Shares - Basic 28,944,643 28,965,500 28,966,810 Weighted Average Common Shares - Diluted 29,190,602 29,255,820 29,291,521 Net Income Per Share - Basic $0.25 $0.21 $0.46 Net Income Per Share - Diluted $0.24 $0.21 $0.45 Cash Dividend Per Share $0.20 $0.20 $0.20 Book Value $9.93 $10.23 $10.18 Market Value $16.12 $17.82 $19.31 For the period: Three Months Ended Sep. 30, Jun. 30, 2006 2006 Interest Income $45,961 $44,223 Interest Expense 25,347 22,947 Net Interest Income 20,614 21,276 Provision for Loan Losses 900 900 Net Interest Income after Provision for Loan Losses 19,714 20,376 Service Charges 2,092 2,026 Gains/(Losses) on Sales of Investment Securities, Net - - Gain on Sale of Credit Card Portfolio - 1,444 Gain on Sale of Branch - - Wealth Management Income 3,372 3,378 Bank-Owned Life Insurance Income 591 601 Other Income 2,231 2,474 Total Noninterest Income 8,286 9,923 Salaries, Wages and Employee Benefits 11,487 10,854 Occupancy 1,379 1,401 Furniture and Equipment 917 900 Other Expenses 3,777 4,523 Total Noninterest Expense 17,560 17,678 Income Before Income Taxes 10,440 12,621 Income Tax Expense 2,533 3,336 Net Income $7,907 $9,285 Per Common Share Data: Weighted Average Common Shares - Basic 29,011,903 28,933,741 Weighted Average Common Shares - Diluted 29,384,310 29,351,584 Net Income Per Share - Basic $0.27 $0.32 Net Income Per Share - Diluted $0.27 $0.32 Cash Dividend Per Share $0.19 $0.18 Book Value $9.89 $9.58 Market Value $20.10 $20.20 For the period: Six Months Ended June 30, 2007 2006 Interest Income $94,406 $86,319 Interest Expense 54,414 43,572 Net Interest Income 39,992 42,747 Provision for Loan Losses 3,550 2,100 Net Interest Income after Provision for Loan Losses 36,442 40,647 Service Charges 4,360 3,916 Gains on Sales of Investment Securities, Net 533 - Gain on Sale of Credit Card Portfolio - 1,444 Wealth Management Income 9,098 7,942 Bank-Owned Life Insurance Income 1,185 1,201 Other Income 4,226 4,353 Total Noninterest Income 19,402 18,856 Salaries, Wages and Employee Benefits 24,047 21,373 Occupancy 3,234 2,899 Furniture and Equipment 1,993 1,791 Other Expenses 9,646 8,740 Total Noninterest Expense 38,920 34,803 Income Before Income Taxes 16,924 24,700 Income Tax Expense 3,711 6,464 Net Income $13,213 $18,236 Six Months Ended June 30, Per Common Share Data: 2007 2006 Weighted Average Common Shares - Basic 28,955,014 28,903,632 Weighted Average Common Shares - Diluted 29,222,626 29,368,854 Net Income Per Share - Basic $0.46 $0.63 Net Income Per Share - Diluted $0.45 $0.62 Cash Dividend Per Share $0.40 $0.36 2007 2007 2006 2006 2006 Asset Quality Data: 2Q 1Q 4Q 3Q 2Q Nonaccrual Loans $17,389 $17,519 $15,201 $10,806 $10,164 90 + Days Past Due Loans 1,283 2,001 2,444 2,262 1,279 Nonperforming Loans 18,672 19,520 17,645 13,068 11,443 Net Assets in Foreclosure 41 10 - 87 64 Nonperforming Assets $18,713 $19,530 $17,645 $13,155 $11,507 Loan Loss Reserve $21,646 $20,929 $21,154 $21,303 $20,617 Loan Loss Reserve / Loans 1.04% 1.01% 1.03% 1.05% 1.02% Loan Loss Reserve / Nonperforming Loans 115.9% 107.2% 119.9% 163.0% 180.2% Nonperforming Assets / Total Assets 0.57% 0.59% 0.54% 0.39% 0.36% Net Loan Charge-offs $408 $2,650 $1,349 $214 $178 Net Loan Charge-offs (annualized) / Average Loans 0.08% 0.52% 0.26% 0.04% 0.04% 2007 2007 2006 2006 2006 Selected Ratios (annualized): 2Q 1Q 4Q 3Q 2Q Return on Average Assets 0.86% 0.76% 1.61% 0.96% 1.16% Return on Average Shareholders' Equity 9.69% 8.47% 18.18% 11.10% 13.44% Yield on Earning Assets (FTE) 6.40% 6.37% 6.22% 6.20% 6.10% Cost of Interest Bearing Funds 4.17% 4.14% 4.05% 3.88% 3.60% Net Interest Margin (FTE) 2.82% 2.82% 2.75% 2.89% 3.04% Leverage Ratio 9.27% 9.32% 9.36% 9.24% 9.31% 2007 2006 Selected Ratios (annualized): Year-to-date Year-to-date Return on Average Assets 0.81% 1.15% Return on Average Shareholders' Equity 9.08% 13.25% Yield on Earning Assets (FTE) 6.39% 6.04% Cost of Interest Bearing Funds 4.15% 3.47% Net Interest Margin (FTE) 2.82% 3.09% Balance Sheet (Period End): 2007 2007 2006 2Q 1Q 4Q Assets $3,303,244 $3,324,967 $3,249,828 Earning Assets 3,061,300 3,100,047 3,022,219 Investment Securities 943,924 928,547 911,889 Loans 2,081,991 2,065,777 2,047,355 Other Earning Assets 35,385 105,723 62,975 Interest-Bearing Liabilities 2,637,615 2,654,182 2,578,377 Total Deposits 2,503,554 2,526,841 2,516,855 Noninterest-Bearing Deposits 339,618 328,096 327,973 Interest-Bearing Checking 516,600 524,429 539,974 Money Market 759,905 711,969 662,966 Savings 121,874 130,981 133,370 Time Deposits 765,557 831,366 852,572 Total Borrowed Funds 473,679 455,437 389,495 Federal Home Loan Bank 192,750 224,750 239,750 Other Borrowings 280,929 230,687 149,745 Shareholders' Equity 286,906 296,246 294,751 Balance Sheet (Period End): 2006 2006 3Q 2Q Assets $3,363,003 $3,217,018 Earning Assets 3,136,487 2,991,628 Investment Securities 922,251 925,545 Loans 2,034,273 2,032,625 Other Earning Assets 179,963 33,458 Interest-Bearing Liabilities 2,707,217 2,541,713 Total Deposits 2,628,246 2,479,658 Noninterest-Bearing Deposits 326,851 356,043 Interest-Bearing Checking 571,444 419,312 Money Market 675,904 664,392 Savings 150,889 175,071 Time Deposits 903,158 864,840 Total Borrowed Funds 405,822 418,098 Federal Home Loan Bank 239,750 257,750 Other Borrowings 166,072 160,348 Shareholders' Equity 286,605 277,737 Balance Sheet (Average): 2007 2007 2006 2Q 1Q 4Q Assets $3,303,020 $3,280,854 $3,279,260 Earning Assets 3,080,691 3,067,366 3,071,093 Investment Securities 936,526 944,658 919,848 Loans 2,062,144 2,059,871 2,034,515 Other Earning Assets 82,021 62,837 116,730 Interest-Bearing Liabilities 2,653,605 2,629,978 2,629,023 Total Deposits 2,517,291 2,515,658 2,543,658 Noninterest-Bearing Deposits 314,215 308,095 317,673 Interest-Bearing Checking 552,666 528,874 541,676 Money Market 737,463 716,266 672,458 Savings 125,528 130,934 140,181 Time Deposits 787,419 831,489 871,670 Total Borrowed Funds 450,529 422,415 403,038 Federal Home Loan Bank 207,981 228,750 239,750 Other Borrowings 242,548 193,665 163,288 Shareholders' Equity 293,032 293,795 289,618 Balance Sheet (Average): 2006 2006 3Q 2Q Assets $3,253,616 $3,218,481 Earning Assets 3,037,009 3,005,888 Investment Securities 917,103 929,002 Loans 2,027,028 2,006,723 Other Earning Assets 92,878 70,163 Interest-Bearing Liabilities 2,593,694 2,555,544 Total Deposits 2,518,958 2,459,453 Noninterest-Bearing Deposits 334,847 342,654 Interest-Bearing Checking 466,447 415,426 Money Market 676,035 661,444 Savings 163,136 180,968 Time Deposits 878,493 858,961 Total Borrowed Funds 409,583 438,745 Federal Home Loan Bank 241,685 285,904 Other Borrowings 167,898 152,841 Shareholders' Equity 282,678 277,064 Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis Three Months Ended June 30, 2007 Average Average Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $676,830 $8,488 5.03% Non-taxable investments (2) 259,696 3,908 6.04% Total investment securities 936,526 12,396 5.31% Federal funds sold and deposits in banks 82,021 1,086 5.31% Loans (2)(3) 2,062,144 35,709 6.95% Total earning assets 3,080,691 49,191 6.40% Noninterest-earning assets 222,329 Total assets $3,303,020 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,415,657 12,830 3.64% Time 787,419 9,302 4.74% Total interest-bearing deposits 2,203,076 22,132 4.03% Borrowed funds 450,529 5,424 4.83% Total interest-bearing liabilities 2,653,605 27,556 4.17% Noninterest-bearing liabilities: Demand deposits 314,215 Other liabilities 42,168 Total noninterest-bearing liabilities 356,383 Total liabilities 3,009,988 Shareholders' equity 293,032 Total liabilities and shareholders' equity $3,303,020 Net interest spread 2.23% Effect of noninterest-bearing sources 0.59% Net interest income/margin on earning assets $21,635 2.82% Less tax equivalent adjustment 1,480 Net interest income $20,155 Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis Three Months Ended June 30, 2006 Average Average Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $673,545 $7,552 4.50% Non-taxable investments (2) 255,457 3,904 6.13% Total investment securities 929,002 11,456 4.95% Federal funds sold and deposits in banks 70,163 855 4.89% Loans(2) (3) 2,006,723 33,426 6.68% Total earning assets 3,005,888 45,737 6.10% Noninterest-earning assets 212,593 Total assets $3,218,481 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,257,838 8,918 2.84% Time 858,961 8,965 4.19% Total interest-bearing deposits 2,116,799 17,883 3.39% Borrowed funds 438,745 5,064 4.63% Total interest-bearing liabilities 2,555,544 22,947 3.60% Noninterest-bearing liabilities: Demand deposits 342,654 Other liabilities 43,219 Total noninterest-bearing liabilities 385,873 Total liabilities 2,941,417 Shareholders' equity 277,064 Total liabilities and shareholders' equity $3,218,481 Net interest spread 2.50% Effect of noninterest-bearing sources 0.54% Net interest income/margin on earning assets $22,790 3.04% Less tax equivalent adjustment 1,514 Net interest income $21,276 Six Months Ended June 30, 2007 Average Average Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $680,719 $17,052 5.05% Non-taxable investments (2) 259,851 7,845 6.09% Total investment securities 940,570 24,897 5.34% Federal funds sold and deposits in banks 72,482 1,892 5.26% Loans (2)(3) 2,061,014 70,614 6.91% Total earning assets 3,074,066 97,403 6.39% Noninterest-earning assets 217,922 Total assets $3,291,988 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,395,976 24,936 3.60% Time 809,334 19,018 4.74% Total interest-bearing deposits 2,205,310 43,954 4.02% Borrowed funds 436,550 10,460 4.83% Total interest-bearing liabilities 2,641,860 54,414 4.15% Noninterest-bearing liabilities: Demand deposits 311,169 Other liabilities 45,558 Total noninterest-bearing liabilities 356,727 Total liabilities 2,998,587 Shareholders' equity 293,401 Total liabilities and shareholders' equity $3,291,988 Net interest spread 2.24% Effect of noninterest-bearing sources 0.58% Net interest income/margin on earning assets $42,989 2.82% Less tax equivalent adjustment 2,997 Net interest income $39,992 Six Months Ended June 30, 2006 Average Average Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $681,829 $14,874 4.40% Non-taxable investments (2) 251,084 7,681 6.17% Total investment securities 932,913 22,555 4.88% Federal funds sold and deposits in banks 54,119 1,280 4.77% Loans(2) (3) 1,997,801 65,510 6.61% Total earning assets 2,984,833 89,345 6.04% Noninterest-earning assets 206,561 Total assets $3,191,394 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,243,715 16,431 2.66% Time 822,309 16,609 4.07% Total interest-bearing deposits 2,066,024 33,040 3.22% Borrowed funds 464,039 10,532 4.58% Total interest-bearing liabilities 2,530,063 43,572 3.47% Noninterest-bearing liabilities: Demand deposits 340,672 Other liabilities 43,183 Total noninterest-bearing liabilities 383,855 Total liabilities 2,913,918 Shareholders' equity 277,476 Total liabilities and shareholders' equity $3,191,394 Net interest spread 2.57% Effect of noninterest-bearing sources 0.52% Net interest income/margin on earning assets $45,773 3.09% Less tax equivalent adjustment 3,026 Net interest income $42,747 (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. DATASOURCE: Harleysville National Corporation CONTACT: Deb M. Takes, Interim President and CEO of Harleysville National Corporation, +1-215-513-2304 Web site: http://www.hncbank.com/

Copyright