HNBC Harleysville Natl Corp Pa (MM)

HARLEYSVILLE, Pa., July 17 /PRNewswire-FirstCall/ -- Harleysville National Corporation (NASDAQ:HNBC) today reported net income of $7.3 million for the second quarter of 2008, up 3.5% compared to $7.1 million for the second quarter of 2007. Diluted earnings per share were $.23, down $.01 from $.24 the same period last year. For the six months ended June 30, 2008, net income was $14.6 million or $.46 per diluted share compared to $13.2 million or $.45 per diluted share during the comparable period in 2007. Paul D. Geraghty, president and CEO, said, "Earnings were stable on a sequential basis this quarter despite a continued challenging macroeconomic environment for banking. Commercial and retail customers in our market territory are definitely feeling the impact of higher gas prices and a slowing economy, making our growth initiatives difficult to execute. Accordingly, the year over year growth we experienced was primarily a result of the East Penn Financial acquisition, which closed in November 2007, as well as $90 million in organic loan growth." Mr. Geraghty continued, "The credit environment remains challenging, and the industry-wide deterioration in credit quality that began last summer continues. During the quarter, loans classified as nonaccrual increased $12.5 million, primarily attributable to residential real estate. All of the borrowers associated with these nonaccrual loans are located in our market territory and in most cases our collateral is local land that has been subdivided for residential development in the growing counties of the Philadelphia suburbs and the Lehigh Valley. We understand these markets and are confident we can manage the collateral, if necessary. We have also taken steps in response to the situation. The bank increased its allowance for loan losses to approximately 1.25% of outstanding loans at June 30, 2008, and we continue to evaluate appraisals, financial reviews and inspections. All mortgage loans within our portfolio were booked with traditional bank customers through our branch network and we have virtually no exposure to subprime borrowers -- a benefit of our historically careful approach to residential mortgage lending." Mr. Geraghty continued, "We are moving toward our goal to become the Best Community Bank Anywhere. However, there is no single initiative that will drive us to this goal overnight. That said, we are excited about our recently-announced acquisition of Willow Financial Bancorp and its banking subsidiary, Willow Financial Bank. The acquisition of Willow Financial, which is expected to close in the fourth quarter, will make Harleysville the third-largest bank holding company headquartered in the region, and is expected to be accretive to earnings in 2009. Willow Financial provides a complementary branch footprint that fits with our current branch platform; a significant presence in Chester County, the fastest growing county in Pennsylvania; and exciting fee-generating businesses that deliver added value for Harleysville customers and shareholders. Additionally, as a larger bank we will have more opportunities to use advanced technology and create synergies through our combined resources to reduce cost and improve the customer experience. Harleysville's recent investment in our operations center will enable us to execute the Willow Financial acquisition and deliver these significant synergies. The combined bank will have the scale, capital base, and product set to enhance shareholder value, serve customers, and be a major force in the banking industry, without significant increases in staff or facilities. We view the acquisition as a significant event in Harleysville's history and look forward to its closing later this year." The following is an overview of the key financial highlights for the quarter: -- Total assets were $3.9 billion at June 30, 2008, an increase of 17.5% from $3.3 billion at June 30, 2007. -- Loans were $2.5 billion, an increase of 20.2% from $2.08 billion at June 30, 2007. Deposits were $2.87 billion, up 14.4% from $2.50 billion last year. -- Net interest income on a tax equivalent basis in the second quarter of 2008 increased $5.4 million or 24.9% from the same period in 2007 mainly as a result of a decrease in customer deposit costs and the East Penn acquisition as well as organic loan growth. Second quarter net interest margin of 3.06% was up for the second consecutive quarter, increasing 24 basis points year over year and 15 basis points sequentially. -- Nonperforming assets were $39.1 million at June 30, 2008. Nonperforming assets as a percentage of total assets were 1.01% at June 30, 2008, compared to 0.69% at March 31, 2008 and 0.57% at June 30, 2007. Net charge-offs were $423,000, compared to $408,000 in the second quarter of 2007. The allowance for credit losses increased to $31.2 million at quarter end, compared to $28.5 million at March 31, 2008, and $21.6 million at June 30, 2007. Provision for loan losses increased to $3.1 million from $1.1 million during the second quarter of 2007. -- Noninterest income was $11.6 million during the quarter, an increase of 13.1% from $10.3 million in last year's second quarter, driven by growth in service charges on deposits of $870,000. -- Noninterest expense was $24.5 million, an increase of 21.4% from $20.1 million in the second quarter of 2007, driven by the acquisition of East Penn as well as branch expansion. Occupancy expenses increased due to the addition of the East Penn branches as well as rent expense on the bank properties in the sale-leaseback transaction completed in the fourth quarter of 2007. Other expenses increased mostly due to additional professional and consulting fees and the identifiable intangible asset amortization related to the East Penn acquisition. Harleysville National Corporation, with assets of $3.9 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 $2.8 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted on the NASDAQ Global Select Market(R). For more information, visit the Harleysville National Corporation website at http://www.hncbank.com/. Harleysville National Corporation will file a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents Harleysville has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC website at http://www.sec.gov/. Alternatively, Harleysville will arrange to send you the prospectus if you request it by calling toll-free 1-800-423-3955, Extension 62305. You may also request these documents by e-mail addressed to Harleysville at lchemnitz@hncbank. These documents are also available by accessing Harleysville's website at http://www.hncbank.com/ and clicking "Investor Information," then clicking "Documents," and clicking the most recent Registration Statement under "Other Filings." 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, 2008 (unaudited) For the period: Three Months Ended Jun. 30, Mar. 31, Dec. 31, 2008 2008 2007 Interest Income $49,353 $52,416 $51,133 Interest Expense 24,164 28,209 29,555 Net Interest Income 25,189 24,207 21,578 Provision for Loan Losses 3,107 1,960 4,475 Net Interest Income after Provision for Loan Losses 22,082 22,247 17,103 Service Charges 3,312 3,113 2,870 Gains/(Losses) on Sales of Investment Securities, Net 97 128 657 Gain on Sale-Leaseback of Bank Properties - - 2,788 Wealth Management Income 4,567 4,277 5,019 Bank-Owned Life Insurance Income 657 684 656 Other Income 2,963 2,630 2,181 Total Noninterest Income 11,596 10,832 14,171 Salaries, Wages and Employee Benefits 14,201 13,859 13,050 Occupancy 2,441 2,585 2,043 Furniture and Equipment 1,083 1,094 1,051 Other Expenses 6,733 6,180 7,435 Total Noninterest Expense 24,458 23,718 23,579 Income Before Income Taxes 9,220 9,361 7,695 Income Tax Expense 1,893 2,057 1,514 Net Income $7,327 $7,304 $6,181 Per Common Share Data: Weighted Average Common Shares - Basic 31,359,011 31,346,833 30,075,054 Weighted Average Common Shares - Diluted 31,521,608 31,522,736 30,278,743 Net Income Per Share - Basic $0.24 $0.23 $0.20 Net Income Per Share - Diluted $0.23 $0.23 $0.20 Cash Dividend Per Share $0.20 $0.20 $0.20 Book Value $10.45 $10.95 $10.83 Market Value $11.16 $14.42 $14.57 For the period: Three Months Ended Sep. 30, Jun. 30, 2007 2007 Interest Income $49,022 $47,711 Interest Expense 28,158 27,556 Net Interest Income 20,864 20,155 Provision for Loan Losses 2,525 1,125 Net Interest Income after Provision for Loan Losses 18,339 19,030 Service Charges 2,460 2,442 Gains/(Losses) on Sales of Investment Securities, Net (58) 2 Gain on Sale-Leaseback of Bank Properties - - Wealth Management Income 4,525 4,831 Bank-Owned Life Insurance Income 648 603 Other Income 2,190 2,377 Total Noninterest Income 9,765 10,255 Salaries, Wages and Employee Benefits 11,735 12,450 Occupancy 1,731 1,688 Furniture and Equipment 897 1,076 Other Expenses 4,493 4,927 Total Noninterest Expense 18,856 20,141 Income Before Income Taxes 9,248 9,144 Income Tax Expense 2,047 2,065 Net Income $7,201 $7,079 Per Common Share Data: Weighted Average Common Shares - Basic 28,881,006 28,944,643 Weighted Average Common Shares - Diluted 29,107,274 29,190,602 Net Income Per Share - Basic $0.25 $0.25 Net Income Per Share - Diluted $0.25 $0.24 Cash Dividend Per Share $0.20 $0.20 Book Value $10.19 $9.93 Market Value $15.89 $16.12 For the period: Six Months Ended June 30, 2008 2007 Interest Income $101,769 $94,406 Interest Expense 52,373 54,414 Net Interest Income 49,396 39,992 Provision for Loan Losses 5,067 3,550 Net Interest Income after Provision for Loan Losses 44,329 36,442 Service Charges 6,425 4,360 Gains on Sales of Investment Securities, Net 225 533 Wealth Management Income 8,844 9,098 Bank-Owned Life Insurance Income 1,341 1,185 Other Income 5,593 4,226 Total Noninterest Income 22,428 19,402 Salaries, Wages and Employee Benefits 28,060 24,047 Occupancy 5,026 3,234 Furniture and Equipment 2,177 1,993 Other Expenses 12,913 9,646 Total Noninterest Expense 48,176 38,920 Income Before Income Taxes 18,581 16,924 Income Tax Expense 3,950 3,711 Net Income $14,631 $13,213 Six Months Ended June 30, Per Common Share Data: 2008 2007 Weighted Average Common Shares - Basic 31,352,922 28,955,014 Weighted Average Common Shares - Diluted 31,522,029 29,222,626 Net Income Per Share - Basic $0.47 $0.46 Net Income Per Share - Diluted $0.46 $0.45 Cash Dividend Per Share $0.40 $0.40 2008 2008 2007 2007 2007 Asset Quality Data: 2Q 1Q 4Q 3Q 2Q Nonaccrual Loans $36,284 $23,819 $21,091 $14,507 $17,389 90 + Days Past Due Loans 1,676 1,702 857 1,119 1,283 Nonperforming Loans 37,960 25,521 21,948 15,626 18,672 Net Assets in Foreclosure 1,189 1,536 28 28 41 Nonperforming Assets $39,149 $27,057 $21,976 $15,654 $18,713 Loan Loss Reserve $31,174 $28,490 $27,328 $22,622 $21,646 Loan Loss Reserve / Loans 1.25% 1.15% 1.11% 1.08% 1.04% Loan Loss Reserve / Nonperforming Loans 82.1% 111.6% 124.5% 144.8% 115.9% Nonperforming Assets / Total Assets 1.01% 0.69% 0.56% 0.46% 0.57% Net Loan Charge-offs $423 $798 $3,019 $1,549 $408 Net Loan Charge-offs (annualized) / Average Loans 0.07% 0.13% 0.53% 0.29% 0.08% 2008 2008 2007 2007 2007 Selected Ratios (annualized): 2Q 1Q 4Q 3Q 2Q Return on Average Assets 0.76% 0.75% 0.68% 0.86% 0.86% Return on Average Shareholders' Equity 8.79% 8.55% 7.74% 9.86% 9.69% Yield on Earning Assets (FTE) 5.80% 6.07% 6.28% 6.50% 6.40% Cost of Interest Bearing Funds 3.12% 3.60% 4.02% 4.19% 4.17% Net Interest Margin (FTE) 3.06% 2.91% 2.76% 2.88% 2.82% Leverage Ratio 8.18% 8.07% 8.72% 9.98% 9.27% 2008 2007 Selected Ratios (annualized): Year-to-date Year-to-date Return on Average Assets 0.76% 0.81% Return on Average Shareholders' Equity 8.67% 9.08% Yield on Earning Assets (FTE) 5.93% 6.39% Cost of Interest Bearing Funds 3.36% 4.15% Net Interest Margin (FTE) 2.99% 2.82% Balance Sheet (Period End): 2008 2008 2007 2Q 1Q 4Q Assets $3,882,232 $3,894,019 $3,903,001 Earning Assets 3,544,587 3,569,040 3,579,211 Investment Securities 1,014,134 1,048,915 982,915 Loans 2,501,968 2,481,930 2,460,823 Other Earning Assets 28,485 38,195 135,473 Interest-Bearing Liabilities 3,114,993 3,129,316 3,135,085 Total Deposits 2,865,148 2,987,907 2,985,058 Noninterest-Bearing Deposits 362,750 355,027 358,258 Interest-Bearing Checking 422,850 399,178 482,104 Money Market 756,588 854,831 796,325 Savings 183,226 171,337 145,681 Time Deposits 1,139,734 1,207,534 1,202,690 Total Borrowed Funds 612,595 496,436 508,285 Federal Home Loan Bank 223,764 208,774 216,785 Other Borrowings 388,831 287,662 291,500 Shareholders' Equity 327,910 343,282 339,310 Balance Sheet (Period End): 2007 2007 3Q 2Q Assets $3,380,519 $3,303,244 Earning Assets 3,143,019 3,061,300 Investment Securities 929,103 943,924 Loans 2,095,800 2,081,991 Other Earning Assets 118,116 35,385 Interest-Bearing Liabilities 2,737,079 2,637,615 Total Deposits 2,544,340 2,503,554 Noninterest-Bearing Deposits 309,489 339,618 Interest-Bearing Checking 494,653 516,600 Money Market 727,486 759,905 Savings 106,890 121,874 Time Deposits 905,822 765,557 Total Borrowed Funds 502,228 473,679 Federal Home Loan Bank 204,750 192,750 Other Borrowings 297,478 280,929 Shareholders' Equity 294,394 286,906 Balance Sheet (Average): 2008 2008 2007 2Q 1Q 4Q Assets $3,856,900 $3,890,959 $3,589,139 Earning Assets 3,552,208 3,590,965 3,326,663 Investment Securities 1,029,502 1,043,566 962,918 Loans 2,491,894 2,463,242 2,278,188 Other Earning Assets 30,812 84,157 85,557 Interest-Bearing Liabilities 3,114,520 3,151,996 2,914,269 Total Deposits 2,900,523 2,977,052 2,718,625 Noninterest-Bearing Deposits 340,802 324,120 313,556 Interest-Bearing Checking 415,398 436,828 480,003 Money Market 804,890 822,411 768,596 Savings 176,917 156,211 122,442 Time Deposits 1,162,516 1,237,482 1,034,028 Total Borrowed Funds 554,799 499,064 509,200 Federal Home Loan Bank 213,860 211,607 211,043 Other Borrowings 340,939 287,457 298,157 Shareholders' Equity 335,311 343,400 316,778 Balance Sheet (Average): 2007 2007 3Q 2Q Assets $3,309,516 $3,303,020 Earning Assets 3,081,953 3,080,691 Investment Securities 933,672 936,526 Loans 2,090,440 2,062,144 Other Earning Assets 57,841 82,021 Interest-Bearing Liabilities 2,666,889 2,653,605 Total Deposits 2,477,260 2,517,291 Noninterest-Bearing Deposits 312,123 314,215 Interest-Bearing Checking 509,168 552,666 Money Market 740,678 737,463 Savings 113,957 125,528 Time Deposits 801,334 787,419 Total Borrowed Funds 501,752 450,529 Federal Home Loan Bank 191,141 207,981 Other Borrowings 310,611 242,548 Shareholders' Equity 289,828 293,032 Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis Three Months Ended June 30, 2008 Average Average Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $740,847 $9,622 5.22% Non-taxable investments (2) 288,655 4,380 6.10% Total investment securities 1,029,502 14,002 5.47% Federal funds sold and deposits in banks 30,812 119 1.55% Loans(2) (3) 2,491,894 37,067 5.98% Total earning assets 3,552,208 51,188 5.80% Noninterest-earning assets 304,692 Total assets $3,856,900 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,397,205 5,661 1.63% Time 1,162,516 12,937 4.48% Total interest-bearing deposits 2,559,721 18,598 2.92% Borrowed funds 554,799 5,566 4.04% Total interest-bearing liabilities 3,114,520 24,164 3.12% Noninterest-bearing liabilities: Demand deposits 340,802 Other liabilities 66,267 Total noninterest-bearing liabilities 407,069 Total liabilities 3,521,589 Shareholders' equity 335,311 Total liabilities and shareholders' equity $3,856,900 Net interest spread 2.68% Effect of noninterest-bearing sources 0.38% Net interest income/margin on earning assets $27,024 3.06% Less tax equivalent adjustment 1,835 Net interest income $25,189 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 Six Months Ended June 30, 2008 Average Average Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $747,157 $19,376 5.22% Non-taxable investments (2) 289,377 8,736 6.07% Total investment securities 1,036,534 28,112 5.45% Federal funds sold and deposits in banks 57,485 813 2.84% Loans(2) (3) 2,477,569 76,472 6.21% Total earning assets 3,571,588 105,397 5.93% Noninterest-earning assets 302,341 Total assets $3,873,929 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $1,406,329 13,756 1.97% Time 1,199,999 27,438 4.60% Total interest-bearing deposits 2,606,328 41,194 3.18% Borrowed funds 526,932 11,179 4.27% Total interest-bearing liabilities 3,133,260 52,373 3.36% Noninterest-bearing liabilities: Demand deposits 332,460 Other liabilities 68,854 Total noninterest-bearing liabilities 401,314 Total liabilities 3,534,574 Shareholders' equity 339,355 Total liabilities and shareholders' equity $3,873,929 Net interest spread 2.57% Effect of noninterest-bearing sources 0.42% Net interest income/margin on earning assets $53,024 2.99% Less tax equivalent adjustment 3,628 Net interest income $49,396 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 (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.harleysvillebank.com/

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