HNBC Harleysville Natl Corp Pa (MM)

HARLEYSVILLE, Pa., Oct. 18 /PRNewswire-FirstCall/ -- Harleysville National Corporation (NASDAQ:HNBC), today announced third quarter 2007 diluted earnings per share of $.25 compared to $.27 for the third quarter of 2006. Net income was $7.2 million for the third quarter of 2007 compared to $7.9 million during the same period in 2006. For the nine months ended September 30, 2007, diluted earnings per share was $.70 compared to $.89 in the comparable period of 2006. Net income for the nine-month period ended September 30, 2007, was $20.4 million compared to $26.1 million during the comparable nine-month period in 2006. "Earnings growth has been difficult during the quarter. However, we continue to report higher levels of noninterest income with wealth management revenue up 34% and bank service charges increasing 18% during the third quarter of 2007 over last year. We achieved loan growth of $61 million or 3.0% primarily from commercial customers over last year. We also recognized some credit deterioration in the quarter and continue to be concerned with overall credit quality," said Paul D. Geraghty, President and Chief Executive Officer. The Corporation's consolidated total assets were $3.4 billion at September 30, 2007, remaining level with total assets reported at September 30, 2006. Loans increased by $61.5 million over September 30, 2006 mainly due to growth in the real estate and commercial loan portfolios. DETAILED REVIEW OF FINANCIAL RESULTS Net interest income on a tax equivalent basis in the third quarter of 2007 increased $237,000 or 1.1% from the same period in 2006 and decreased $2.5 million or 3.8% from the nine-month period ending September 30, 2006. The year-to-date decrease during 2007 was mainly attributable to higher deposit costs offset in part by increased loan and investment rates. The net interest margin for the third and second quarters of 2007 was 2.88% and 2.82%, respectively, compared to 2.89% for the third quarter of 2006. Due to market conditions, deposit rates increased faster than loan rates, resulting in a lower net interest margin compared to the third quarter of 2006, partially offset by an increase in loan prepayment penalties during the third quarter of 2007. Average earning assets increased $44.9 million or 1.5% during the third quarter of 2007 versus the comparable period in 2006. Average loans grew by $63.4 million or 3.1% during the same period with average cash and investment securities decreasing $18.5 million. Average interest-bearing deposits were down slightly by $19.0 million or 1.0%, due to reductions in time deposits and savings accounts offset by growth in interest-bearing checking and money market accounts. Average borrowings increased $92.2 million or 22.5% with a higher level of long-term securities sold under agreement to repurchase and overnight borrowings offset in part by long-term Federal Home Loan Bank maturities. Nonperforming assets (including nonaccrual loans, net assets in foreclosure and loans 90 days or more past due) were .46% of total assets at September 30, 2007, compared to .54% at December 31, 2006, and .39% at September 30, 2006. The decrease in nonperforming assets at September 30, 2007, in relation to December 31, 2006, of $2.0 million was mainly due to a lower level of commercial real estate loans 90 days past due. The increase of nonperforming assets in relation to September 30, 2006, of $2.5 million was largely due to a higher level of residential mortgage loans and commercial loans on non-accrual of interest partially offset by a lower level of loans 90 days past due in all loan categories. The increase in the provision for the three and nine-month periods ending September 30, 2007, compared to the same periods in 2006, of $1.6 million and $3.1 million, respectively was as a result of decreased quality of the loan portfolio, as well as charge-offs during 2007. The charge-offs were principally related to real estate construction loans for one borrower which were disposed of subsequent to September 30, 2007. Total deposits decreased $83.9 million or 3.2% to $2.54 billion at September 30, 2007, from $2.63 billion at September 30, 2006. This was mainly attributable to a decline in public fund deposits and regular savings accounts partially offset by growth in money market accounts. Noninterest income of $9.8 million for the third quarter of 2007 reflects an increase of $1.5 million or 17.8% from the third quarter of 2006. Wealth management income rose $1.2 million or 34.2% during the third quarter of 2007 over the comparable quarter in 2006, primarily driven by a higher level of life insurance and advisory business at Cornerstone as well as growth in trust assets. The Bank experienced an increase in deposit service charges of $368,000 during the third quarter of 2007 as compared to the third quarter of 2006 mainly from return check and overdraft fees. For the nine-month period ended September 30, 2007, noninterest income was $29.2 million, an increase of $2.0 million from the same period in 2006. This increase was primarily due to the previously aforementioned increases in wealth management income and service charges on deposits with year-to-date increases of $2.3 million and $812,000, respectively, partially offset by the $1.4 million pre-tax gain on the sale of the credit card portfolio during 2006. In addition, gains on sales of investment securities for the nine months ended September 30, 2007 were $475,000. During the comparable period in 2006, there were no investment securities gains recognized. Noninterest expense of $18.9 million for the third quarter of 2007 increased $1.3 million from the third quarter of 2006 and increased $5.4 million for the nine months ended September 30, 2007, over the comparable period in 2006. Salaries and benefits expense rose $248,000 during the third quarter of 2007 and $2.9 million during the first nine months of 2007 from the comparable periods in 2006, primarily due to higher staffing levels resulting from new branch openings, increased incentives associated with higher wealth management revenue and higher cost of medical benefits partially offset by non-recurring compensation and severance charges mainly related to the former Chief Executive Officer's contract during 2006. Occupancy expense increased $352,000 and $687,000 for the three and nine months ended September 30, 2007 over the same periods in 2006 mostly due to several new office locations including the new operations center building in Harleysville and three new branch openings along with additional increases in rent. Other expense increased $716,000 and $1.6 million for the three and nine months ended September 30, 2007, respectively over the comparable periods in 2006, mainly as a result of increased computer software costs and professional and consulting expenses as well as lower deferred loan origination costs resulting from lower loan volume. Harleysville National Corporation, with assets of $3.4 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 $3.3 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted under NASDAQ Global Select Market(R). 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) September 30, 2007 (unaudited) For the period: Three Months Ended Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, 2007 2007 2007 2006 2006 Interest Income $49,022 $47,711 $46,695 $46,661 $45,961 Interest Expense 28,158 27,556 26,858 26,849 25,347 Net Interest Income 20,864 20,155 19,837 19,812 20,614 Provision for Loan Losses 2,525 1,125 2,425 1,200 900 Net Interest Income after Provision for Loan Losses 18,339 19,030 17,412 18,612 19,714 Service Charges 2,460 2,442 1,918 1,994 2,092 (Losses)/Gains on Sales of Investment Securities, Net (58) 2 531 (674) - Gain on Sale of Branch - - - 10,650 - Wealth Management Income 4,525 4,831 4,267 3,474 3,372 Bank-Owned Life Insurance Income 648 603 582 594 591 Other Income 2,190 2,377 1,849 2,168 2,231 Total Noninterest Income 9,765 10,255 9,147 18,206 8,286 Salaries, Wages and Employee Benefits 11,735 12,450 11,597 11,787 11,487 Occupancy 1,731 1,688 1,546 1,392 1,379 Furniture and Equipment 897 1,076 917 956 917 Other Expenses 4,493 4,927 4,719 4,332 3,777 Total Noninterest Expense 18,856 20,141 18,779 18,467 17,560 Income Before Income Taxes 9,248 9,144 7,780 18,351 10,440 Income Tax Expense 2,047 2,065 1,646 5,079 2,533 Net Income $7,201 $7,079 $6,134 $13,272 $7,907 Per Common Share Data: Weighted Average Common Shares - Basic 28,881,006 28,944,643 28,965,500 28,966,810 29,011,903 Weighted Average Common Shares - Diluted 29,107,274 29,190,602 29,255,820 29,291,521 29,384,310 Net Income Per Share - Basic $0.25 $0.25 $0.21 $0.46 $0.27 Net Income Per Share - Diluted $0.25 $0.24 $0.21 $0.45 $0.27 Cash Dividend Per Share $0.20 $0.20 $0.20 $0.20 $0.19 Book Value $10.19 $9.93 $10.23 $10.18 $9.89 Market Value $15.89 $16.12 $17.82 $19.31 $20.10 For the period: Nine Months Ended September 30, 2007 2006 Interest Income $143,428 $132,280 Interest Expense 82,572 68,919 Net Interest Income 60,856 63,361 Provision for Loan Losses 6,075 3,000 Net Interest Income after Provision for Loan Losses 54,781 60,361 Service Charges 6,820 6,008 Gains on Sales of Investment Securities, Net 475 - Gain on Sale of Credit Card Portfolio - 1,444 Wealth Management Income 13,623 11,314 Bank-Owned Life Insurance Income 1,833 1,792 Other Income 6,416 6,584 Total Noninterest Income 29,167 27,142 Salaries, Wages and Employee Benefits 35,782 32,860 Occupancy 4,965 4,278 Furniture and Equipment 2,890 2,708 Other Expenses 14,139 12,517 Total Noninterest Expense 57,776 52,363 Income Before Income Taxes 26,172 35,140 Income Tax Expense 5,758 8,997 Net Income $20,414 $26,143 Nine Months Ended September 30, Per Common Share Data: 2007 2006 Weighted Average Common Shares - Basic 28,930,073 28,940,119 Weighted Average Common Shares - Diluted 29,183,811 29,373,646 Net Income Per Share - Basic $0.71 $0.90 Net Income Per Share - Diluted $0.70 $0.89 Cash Dividend Per Share $0.60 $0.55 2007 2007 2007 2006 2006 Asset Quality Data: 3Q 2Q 1Q 4Q 3Q Nonaccrual Loans $14,507 $17,389 $17,519 $15,201 $10,806 90 + Days Past Due Loans 1,119 1,283 2,001 2,444 2,262 Nonperforming Loans 15,626 18,672 19,520 17,645 13,068 Net Assets in Foreclosure 28 41 10 - 87 Nonperforming Assets $15,654 $18,713 $19,530 $17,645 $13,155 Loan Loss Reserve $22,622 $21,646 $20,929 $21,154 $21,303 Loan Loss Reserve / Loans 1.08% 1.04% 1.01% 1.03% 1.05% Loan Loss Reserve / Nonperforming Loans 144.8% 115.9% 107.2% 119.9% 163.0% Nonperforming Assets / Total Assets 0.46% 0.57% 0.59% 0.54% 0.39% Net Loan Charge-offs $1,549 $408 $2,650 $1,349 $214 Net Loan Charge-offs (annualized) / Average Loans 0.29% 0.08% 0.52% 0.26% 0.04% 2007 2007 2007 2006 2006 Selected Ratios (annualized): 3Q 2Q 1Q 4Q 3Q Return on Average Assets 0.86% 0.86% 0.76% 1.61% 0.96% Return on Average Shareholders' Equity 9.86% 9.69% 8.47% 18.18% 11.10% Yield on Earning Assets (FTE) 6.50% 6.40% 6.37% 6.22% 6.20% Cost of Interest Bearing Funds 4.19% 4.17% 4.14% 4.05% 3.88% Net Interest Margin (FTE) 2.88% 2.82% 2.82% 2.75% 2.89% Leverage Ratio 9.98% 9.27% 9.32% 9.36% 9.24% 2007 2006 Selected Ratios (annualized): Year-to-date Year-to-date Return on Average Assets 0.83% 1.09% Return on Average Shareholders' Equity 9.34% 12.52% Yield on Earning Assets (FTE) 6.43% 6.09% Cost of Interest Bearing Funds 4.17% 3.61% Net Interest Margin (FTE) 2.84% 3.02% Balance Sheet (Period End): 2007 2007 2007 2006 2006 3Q 2Q 1Q 4Q 3Q Assets $3,380,519 $3,303,244 $3,324,967 $3,249,828 $3,363,003 Earning Assets 3,143,019 3,061,300 3,100,047 3,022,219 3,136,487 Investment Securities 929,103 943,924 928,547 911,889 922,251 Loans 2,095,800 2,081,991 2,065,777 2,047,355 2,034,273 Other Earning Assets 118,116 35,385 105,723 62,975 179,963 Interest-Bearing Liabilities 2,737,079 2,637,615 2,654,182 2,578,377 2,707,217 Total Deposits 2,544,340 2,503,554 2,526,841 2,516,855 2,628,246 Noninterest-Bearing Deposits 309,489 339,618 328,096 327,973 326,851 Interest-Bearing Checking 494,653 516,600 524,429 539,974 571,444 Money Market 727,486 759,905 711,969 662,966 675,904 Savings 106,890 121,874 130,981 133,370 150,889 Time Deposits 905,822 765,557 831,366 852,572 903,158 Total Borrowed Funds 502,228 473,679 455,437 389,495 405,822 Federal Home Loan Bank 204,750 192,750 224,750 239,750 239,750 Other Borrowings 297,478 280,929 230,687 149,745 166,072 Shareholders' Equity 294,394 286,906 296,246 294,751 286,605 Balance Sheet (Average): 2007 2007 2007 2006 2006 3Q 2Q 1Q 4Q 3Q Assets $3,309,516 $3,303,020 $3,280,854 $3,279,260 $3,253,616 Earning Assets 3,081,953 3,080,691 3,067,366 3,071,093 3,037,009 Investment Securities 933,672 936,526 944,658 919,848 917,103 Loans 2,090,440 2,062,144 2,059,871 2,034,515 2,027,028 Other Earning Assets 57,841 82,021 62,837 116,730 92,878 Interest-Bearing Liabilities 2,666,889 2,653,605 2,629,978 2,629,023 2,593,694 Total Deposits 2,477,260 2,517,291 2,515,658 2,543,658 2,518,958 Noninterest-Bearing Deposits 312,123 314,215 308,095 317,673 334,847 Interest-Bearing Checking 509,168 552,666 528,874 541,676 466,447 Money Market 740,678 737,463 716,266 672,458 676,035 Savings 113,957 125,528 130,934 140,181 163,136 Time Deposits 801,334 787,419 831,489 871,670 878,493 Total Borrowed Funds 501,752 450,529 422,415 403,038 409,583 Federal Home Loan Bank 191,141 207,981 228,750 239,750 241,685 Other Borrowings 310,611 242,548 193,665 163,288 167,898 Shareholders' Equity 289,828 293,032 293,795 289,618 282,678 Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis Three Months Ended Three Months Ended September 30, 2007 September 30, 2006 Average Average Average Average Balance Interest Rate Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $669,051 $8,769 5.20% $661,976 $7,538 4.52% Non-taxable investments(2) 264,621 4,004 6.00% 255,127 3,892 6.05% Total investment securities 933,672 12,773 5.43% 917,103 11,430 4.94% Federal funds sold and deposits in banks 57,841 661 4.53% 92,878 1,227 5.24% Loans(2)(3) 2,090,440 37,094 7.04% 2,027,028 34,823 6.82% Total earning assets 3,081,953 50,528 6.50% 3,037,009 47,480 6.20% Noninterest-earning assets 227,563 216,607 Total assets $3,309,516 $3,253,616 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,363,803 12,276 3.57% $1,305,618 10,630 3.23% Time 801,334 9,652 4.78% 878,493 9,732 4.40% Total interest- bearing deposits 2,165,137 21,928 4.02% 2,184,111 20,362 3.70% Borrowed funds 501,752 6,230 4.93% 409,583 4,985 4.83% Total interest- bearing liabilities 2,666,889 28,158 4.19% 2,593,694 25,347 3.88% Noninterest-bearing liabilities: Demand deposits 312,123 334,847 Other liabilities 40,676 42,397 Total noninterest- bearing liabilities 352,799 377,244 Total liabilities 3,019,688 2,970,938 Shareholders' equity 289,828 282,678 Total liabilities and shareholders' equity $3,309,516 $3,253,616 Net interest spread 2.31% 2.32% Effect of noninterest- bearing sources 0.57% 0.57% Net interest income/margin on earning assets $22,370 2.88% $22,133 2.89% Less tax equivalent adjustment 1,506 1,519 Net interest income $20,864 $20,614 Nine Months Ended Nine Months Ended September 30, 2007 September 30, 2006 Average Average Average Average Balance Interest Rate Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $676,787 $25,821 5.10% $675,138 $22,412 4.44% Non-taxable investments(2) 261,458 11,849 6.06% 252,447 11,573 6.13% Total investment securities 938,245 37,670 5.37% 927,585 33,985 4.90% Federal funds sold and deposits in banks 67,548 2,553 5.05% 67,181 2,507 4.99% Loans(2)(3) 2,070,931 107,708 6.95% 2,007,650 100,333 6.68% Total earning assets 3,076,724 147,931 6.43% 3,002,416 136,825 6.09% Noninterest- earning assets 221,173 209,946 Total assets $3,297,897 $3,212,362 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,385,133 37,212 3.59% $1,264,577 27,061 2.86% Time 806,638 28,670 4.75% 841,242 26,341 4.19% Total interest- bearing deposits 2,191,771 65,882 4.02% 2,105,819 53,402 3.39% Borrowed funds 458,523 16,690 4.87% 445,688 15,517 4.65% Total interest- bearing liabilities 2,650,294 82,572 4.17% 2,551,507 68,919 3.61% Noninterest- bearing liabilities: Demand deposits 311,491 338,709 Other liabilities 43,915 42,918 Total noninterest- bearing liabilities 355,406 381,627 Total liabilities 3,005,700 2,933,134 Shareholders' equity 292,197 279,228 Total liabilities and shareholders' equity $3,297,897 $3,212,362 Net interest spread 2.26% 2.48% Effect of noninterest- bearing sources 0.58% 0.54% Net interest income/margin on earning assets $65,359 2.84% $67,906 3.02% Less tax equivalent adjustment 4,503 4,545 Net interest income $60,856 $63,361 (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: Paul D. Geraghty, President and CEO of Harleysville National Corporation, +1-215-513-2391 Web site: http://www.hncbank.com/

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