HNBC Harleysville Natl Corp Pa (MM)

Harleysville National Corporation (NASDAQ:HNBC) reported today net income of $2.8 million or $.07 per diluted share for the fourth quarter of 2009. This compares to net income of $3.8 million, or $.11 per diluted share, for the fourth quarter of 2008.

For the year 2009, the net loss was $219.5 million or $5.09 per diluted share. Excluding the non-cash goodwill impairment charge of $214.5 million recorded in the second quarter, the net loss was $4.9 million or $.11 per diluted share, compared to net income of $25.1 million or $.78 per diluted share during the comparable period in 2008.

Fourth quarter results included a $4.5 million provision for credit losses; a $2.9 million non-cash other-than-temporary impairment (OTTI) charge on investment securities; as well as professional fees of $2.5 million associated with recent corporate finance activities, including the pending merger with First Niagara Financial Group, Inc. (“First Niagara”).

Paul D. Geraghty, President and CEO, Harleysville National Corporation, said, “We continue to manage our loan portfolio to protect the bank’s capital base and minimize increases in delinquencies and non-performing assets, while building a stronger balance sheet. To this end, during the fourth quarter we increased our penetration of retail and business deposit accounts and grew non-municipal core deposits. We were also encouraged by the full payoffs of two nonperforming loans totaling $18 million during the fourth quarter contributing to a $20 million decline in nonperforming assets over the linked quarter.”

During the fourth quarter of 2009, provision for loan losses was $4.5 million, compared to $14.8 million in the third quarter of 2009 and $7.9 million in the fourth quarter of 2008. The decrease in provision for loan losses reflects a decrease in nonperforming assets to $133.6 million at December 31, 2009, from $153.7 million at September 30, 2009 as well as a decline in outstanding loans of $256.7 million. The increase in the provision compared to the fourth quarter of 2008 was mainly due to the increase in non-performing assets from $78.5 million from a year ago. Total Capital to Risk-Weighted Assets improved to 10.64% at December 31, 2009 from 9.51% at September 30, 2009 and 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 December 31, 2009, a decrease of 5.5% or $302.7 million over $5.5 billion at December 31, 2008, primarily the result of the $214.5 million goodwill impairment charge during the second quarter of 2009.
• Loans decreased $691.9 million from December 31, 2008, mainly due to increased refinancing activity and reduced origination volume as well as the sale of first mortgage residential loans totaling $106.3 million and indirect consumer installment loans and commercial loans totaling $67.2 million. In addition, $63.2 million of commercial loans were participated to First Niagara. Deposits at December 31, 2009 remained level with the prior year.
• Net interest income on a tax equivalent basis in the fourth quarter of 2009 remained level with the same period in 2008. Net interest income on a tax equivalent basis increased $25.7 million for the year ended December 31, 2009 mainly as a result of the Willow Financial acquisition. The net interest margin for the fourth quarter of 2009 was 2.56% compared to 3.16% for the same period in 2008 reflecting lower yields on a higher level of short term interest earning assets intended to increase the company’s liquidity position.
• Nonperforming assets were $133.6 million at December 31, 2009. Nonperforming assets as a percentage of total assets decreased to 2.58% from 2.98% at September 30, 2009, and increased from 1.43% at December 31, 2008. Net charge-offs were $15.1 million compared to $2.6 million in the fourth quarter of 2008. The allowance for credit losses decreased to $66.6 million at December 31, 2009, compared to $77.3 million at September 30, 2009, and increased from $50.0 million at December 31, 2008. The provision for loan losses decreased to $4.5 million from $14.8 million during the third quarter of 2009 and $7.9 million during the fourth quarter of 2008. Total loans delinquent 30 to 89 days totaled $26.2 million at December 31, 2009 compared to $31.8 million at September 30, 2009 and $97.0 million at December 31, 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 December 31, 2009, delinquent loans were $182.8 million compared to $193.3 million at September 30, 2009.
• Quarterly noninterest income was level with the fourth quarter of 2008. Service charges on deposits increased $0.8 million or 20.7% over last year’s quarter mainly from the acquired Willow Financial deposit accounts. Gains on sales of investment securities increased by $0.7 million and gains from mortgage banking loan sales increased $2.1 million compared to the same period in 2008. These increases were partially offset by an increase in non-cash OTTI charges of $1.0 million during the fourth quarter of 2009 on investment securities. During the fourth quarter of 2009, OTTI charges of $2.9 million were recorded on collateralized debt obligation investments in pooled trust preferred securities, equity securities and a private label collateralized mortgage obligation. During the fourth quarter of 2008, an OTTI charge of $1.9 million was recorded on one pooled trust preferred security. In addition, wealth management income decreased $1.7 million over last year’s quarter primarily the result of a lower level of life insurance revenue.
• Quarterly noninterest expense was up $4.9 million over the same period in the prior year, primarily due to the Willow Financial acquisition and the previously-mentioned professional fees of $2.5 million. In addition, FDIC insurance assessments increased by $1.2 million. Other expense was $2.0 million higher during the fourth quarter of 2009 mostly due to the Willow Financial acquisition.

Non-GAAP Measures

Net loss excluding a non-cash goodwill impairment 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 impairment 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 $3.3 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, the receipt of which are required to close the merger, 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) December 31, 2009 (unaudited)  

For the period:

Three Months Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31,   2009       2009       2009       2009       2008   Interest Income $ 52,123 $ 55,005 $ 60,045 $ 63,638 $ 54,583 Interest Expense   22,445       23,567       26,592       28,334       25,136   Net Interest Income 29,678 31,438 33,453 35,304 29,447 Provision for Loan Losses   4,450       14,750       32,000       7,121       7,920   Net Interest Income after Provision for Loan Losses   25,228       16,688       1,453       28,183       21,527     Service Charges 4,425 4,361 4,304 4,194 3,666 Gain on Sales of Investment Securities, Net 3,138 1,383 4,945 1,952 2,417 Other-than-temporary Impairment of Available for Sale Securities (2,875 ) (4,650 ) (530 ) (1,344 ) (1,923 ) Gain on Mortgage Banking Sales, Net 2,265 2,352 2,703 1,698 136 Wealth Management Income 4,143 4,656 4,975 4,322 5,888 Bank-Owned Life Insurance Income 796 789 770 778 730 Other Income   1,621       3,384       4,544       4,559       2,430   Total Noninterest Income   13,513       12,275       21,711       16,159       13,344     Salaries, Wages and Employee Benefits 15,262 17,561 17,991 20,279 14,509 Occupancy 3,828 3,752 3,709 4,206 2,663 Furniture and Equipment 1,355 1,286 1,483 1,608 1,181 Professional Fees 4,708 4,491 1,827 1,569 1,520 Intangibles Expense 1,002 1,669 696 948 2,211 FDIC Deposit Insurance 2,403 3,227 5,056 2,787 1,164 Goodwill impairment - - 214,536 - - Merger Charges - - - - 2,456 Other Expenses   7,592       8,235       7,452       7,224       5,589   Total Noninterest Expense   36,150       40,221       252,750       38,621       31,293     Income (Loss) Before Income Taxes 2,591 (11,258 ) (229,586 ) 5,721 3,578 Income Tax (Benefit) Expense   (211 )     (6,889 )     (7,083 )     1,126       (245 ) Net Income (Loss) $ 2,802     $ (4,369 )   $ (222,503 )   $ 4,595     $ 3,823     Per Common Share Data: Weighted Average Common Shares - Basic 43,138,050 43,102,844 43,080,849 42,990,542 34,695,062 Weighted Average Common Shares - Diluted 43,138,291 43,102,844 43,080,849 43,018,233 34,843,058 Net Income (Loss) Per Share - Basic $ 0.07 $ (0.10 ) $ (5.17 ) $ 0.11 $ 0.11 Net Income (Loss) Per Share - Diluted $ 0.07 $ (0.10 ) $ (5.17 ) $ 0.11 $ 0.11 Cash Dividend Per Share $ - $ - $ 0.01 $ 0.10 $ 0.20 Book Value $ 6.06 $ 6.04 $ 5.77 $ 11.00 $ 11.05 Market Value $ 6.43 $ 5.33 $ 4.73 $ 6.06 $ 14.44    

For the period:

Twelve Months Ended December 31,   2009       2008   Interest Income $ 230,811 $ 206,294 Interest Expense   100,938       102,154   Net Interest Income 129,873 104,140 Provision for Loan Losses   58,321       15,567   Net Interest Income after Provision for Loan Losses   71,552       88,573     Service Charges 17,284 13,515 Gain on Sales of Investment Securities, Net 11,418 2,642 Other-than-temporary Impairment of Available for Sale Securities (9,399 ) (1,923 ) Gain on Mortgage Banking Sales, Net 9,018 557 Wealth Management Income 18,096 18,644 Bank-Owned Life Insurance Income 3,133 2,777 Other Income   14,108       10,005   Total Noninterest Income   63,658       46,217     Salaries, Wages and Employee Benefits 71,093 56,108 Occupancy 15,495 10,101 Furniture and Equipment 5,732 4,432 Professional Fees 12,595 4,939 Intangibles Expense 4,315 4,208 FDIC Deposit Insurance 13,473 2,082 Goodwill Impairment 214,536 - Merger Charges - 3,430 Other Expenses   30,503       19,322   Total Noninterest Expense   367,742       104,622     (Loss) Income Before Income Taxes (232,532 ) 30,168 Income Tax (Benefit) Expense   (13,057 )     5,075   Net (Loss) Income $ (219,475 )   $ 25,093       Twelve Months Ended December 31, Per Common Share Data:     2009       2008   Weighted Average Common Shares - Basic 43,078,543 32,201,150 Weighted Average Common Shares - Diluted 43,078,543 32,364,137 Net (Loss) Income Per Share - Basic $ (5.09 ) $ 0.78 Net (Loss) Income Per Share - Diluted $ (5.09 ) $ 0.78 Cash Dividend Per Share $ 0.11 $ 0.80     2009 2009 2009 2009 2008

Asset Quality Data:

4Q   3Q   2Q   1Q   4Q Nonaccrual Loans $ 129,932 $ 133,737 $ 132,598 $ 85,393 $ 75,060 90 + Days Past Due Loans   1,396       18,117       4,090       2,073       1,849   Nonperforming Loans 131,328 151,854 136,688 87,466 76,909 Net Assets in Foreclosure   2,286       1,824       2,168       2,008       1,626   Nonperforming Assets $ 133,614     $ 153,678     $ 138,856     $ 89,474     $ 78,535   Loan Loss Reserve $ 66,620 $ 77,276 $ 70,341 $ 53,062 $ 49,955 Loan Loss Reserve / Loans 2.23 % 2.38 % 2.05 % 1.47 % 1.36 % Loan Loss Reserve / Nonperforming Loans 50.7 % 50.9 % 51.5 % 60.7 % 65.0 % Nonperforming Assets / Total Assets 2.58 % 2.98 % 2.67 % 1.58 % 1.43 % Net Loan Charge-offs $ 15,106 $ 7,814 $ 14,721 $ 4,014 $ 2,558

Net Loan Charge-offs (annualized) / Average Loans

1.91 % 0.93 % 1.68 % 0.44 % 0.36 %     2009 2009 2009 2009 2008

Selected Ratios (annualized):

4Q   3Q   2Q   1Q   4Q Return on Average Assets 0.21 % -0.34 % -15.92 % 0.33 % 0.35 % Return on Average Shareholders' Equity 4.22 % -6.73 % -186.57 % 3.88 % 4.40 % Yield on Earning Assets (FTE) 4.37 % 4.69 % 4.92 % 5.29 % 5.69 % Cost of Interest Bearing Funds 2.05 % 2.18 % 2.35 % 2.53 % 2.82 % Net Interest Margin (FTE) 2.56 % 2.75 % 2.82 % 3.02 % 3.16 % Leverage Ratio 6.33 % 6.10 % 5.91 % 6.33 % 8.19 %   2009 2008

Selected Ratios (annualized):

Year-to-date   Year-to-date Return on Average Assets -4.08 % 0.63 % Return on Average Shareholders' Equity -59.48 % 7.45 % Yield on Earning Assets (FTE) 4.81 % 5.83 % Cost of Interest Bearing Funds 2.28 % 3.15 % Net Interest Margin (FTE) 2.78 % 3.04 %    

Balance Sheet (Period End):

2009 2009 2009 2009 2008 4Q   3Q   2Q   1Q   4Q Assets $ 5,187,796 $ 5,163,359 $ 5,210,327 $ 5,646,195 $ 5,490,509 Earning Assets 4,889,224 4,870,316 4,909,443 5,109,083 4,944,126 Investment Securities 1,108,124 1,082,032 1,110,123 1,179,213 1,231,661 Loans 2,993,378 3,250,095 3,439,267 3,615,775 3,685,244 Other Earning Assets 787,722 538,189 360,053 314,095 27,221 Interest-Bearing Liabilities 4,317,949 4,320,928 4,353,600 4,585,275 4,449,461 Total Deposits 3,944,847 3,941,908 3,998,155 4,147,418 3,938,432 Noninterest-Bearing Deposits 523,475 495,644 517,108 497,921 479,469 Interest-Bearing Checking 665,039 629,378 597,831 579,922 556,855 Money Market 887,423 895,463 991,476 1,074,892 1,042,302 Savings 319,293 309,586 317,196 309,767 270,885 Time Deposits 1,549,617 1,611,837 1,574,544 1,684,916 1,588,921 Total Borrowed Funds 896,577 874,664 872,553 935,778 990,498 Federal Home Loan Bank 461,024 471,948 475,087 515,993 522,671 Other Borrowings 435,553 402,716 397,466 419,785 467,827 Shareholders' Equity 261,571 260,656 248,685 473,713 474,707  

Balance Sheet (Average):

2009 2009 2009 2008 2008 4Q   3Q   2Q   1Q   4Q Assets $ 5,194,041 $ 5,153,024 $ 5,605,475 $ 5,580,099 $ 4,341,741 Earning Assets 4,900,320 4,845,099 5,080,393 5,047,766 3,956,963 Investment Securities 1,054,990 1,095,611 1,199,597 1,209,012 1,072,468 Loans 3,141,745 3,332,059 3,511,623 3,666,744 2,860,891 Other Earning Assets 703,585 417,429 369,173 172,010 23,604 Interest-Bearing Liabilities 4,335,880 4,298,522 4,547,522 4,543,033 3,550,359 Total Deposits 3,964,366 3,938,675 4,121,543 4,062,577 3,289,483 Noninterest-Bearing Deposits 510,426 511,802 493,142 472,687 445,495 Interest-Bearing Checking 643,003 612,674 601,230 560,239 444,141 Money Market 911,209 943,047 1,064,346 1,060,299 820,395 Savings 312,192 314,911 315,856 286,317 212,081 Time Deposits 1,587,536 1,556,241 1,646,969 1,683,035 1,367,371 Total Borrowed Funds 881,940 871,649 919,121 953,143 706,371 Federal Home Loan Bank 470,747 472,705 504,903 520,592 289,245 Other Borrowings 411,193 398,944 414,218 432,551 417,126 Shareholders' Equity 263,203 257,435 478,338 480,491 345,887              

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

  Three Months Ended December 31, 2009 Three Months Ended December 31, 2008 Average Average Average Average Balance   Interest   Rate   Balance   Interest   Rate Assets Earning assets: Investment securities Taxable investments $ 796,324 $ 8,254 4.11 % $ 758,807 $ 10,301 5.40 % Non-taxable investments (2)   258,666     4,175   6.40 %     313,661     4,820   6.11 % Total investment securities 1,054,990 12,429 4.67 % 1,072,468 15,121 5.61 % Federal funds sold and deposits in banks 703,585 380 0.21 % 23,604 52 0.88 % Loans(2) (3)   3,141,745     41,190   5.20 %     2,860,891     41,434   5.76 % Total earning assets 4,900,320 53,999 4.37 % 3,956,963 56,607 5.69 % Noninterest-earning assets   293,721   384,778 Total assets $ 5,194,041 $ 4,341,741   Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $ 1,866,404 4,158 0.88 % $ 1,476,617 5,604 1.51 % Time   1,587,536     11,168   2.79 %     1,367,371     13,357   3.89 % Total interest-bearing deposits 3,453,940 15,326 1.76 % 2,843,988 18,961 2.65 % Borrowed funds   881,940     7,119   3.20 %     706,371     6,175   3.48 % Total interest-bearing liabilities 4,335,880 22,445 2.05 % 3,550,359 25,136 2.82 % Noninterest-bearing liabilities: Demand deposits 510,426 369,480 Other liabilities   84,532   76,015 Total noninterest-bearing liabilities   594,958   445,495 Total liabilities 4,930,838 3,995,854 Shareholders' equity   263,203   345,887 Total liabilities and shareholders' equity $ 5,194,041 $ 4,341,741   Net interest spread 2.32 % 2.87 % Effect of noninterest-bearing sources     0.24 %     0.29 % Net interest income/margin on earning assets $ 31,554   2.56 % $ 31,471   3.16 % Less tax equivalent adjustment   1,876   2,024 Net interest income $ 29,678 $ 29,447    

Twelve Months Ended December 31, 2009

Twelve Months Ended December 31, 2008

Average Average Average Average Balance   Interest   Rate   Balance   Interest   Rate Assets Earning assets: Investment securities Taxable investments $ 842,534 $ 39,254 4.66 % $ 738,640 $ 39,195 5.31 % Non-taxable investments (2)   296,725     19,239   6.48 %     298,472     18,110   6.07 % Total investment securities 1,139,259 58,493 5.13 % 1,037,112 57,305 5.53 % Federal funds sold and deposits in banks 417,011 1,027 0.25 % 48,474 1,097 2.26 % Loans(2) (3)   3,411,383     179,640   5.27 %     2,585,101     155,447   6.01 % Total earning assets 4,967,653 239,160 4.81 % 3,670,687 213,849 5.83 % Noninterest-earning assets   413,817   327,285 Total assets $ 5,381,470 $ 3,997,972   Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $ 1,906,121 20,036 1.05 % $ 1,409,941 25,140 1.78 % Time   1,618,014     51,986   3.21 %     1,248,412     53,771   4.31 % Total interest-bearing deposits 3,524,135 72,022 2.04 % 2,658,353 78,911 2.97 % Borrowed funds   906,172     28,916   3.19 %     586,088     23,243   3.97 % Total interest-bearing liabilities 4,430,307 100,938 2.28 % 3,244,441 102,154 3.15 % Noninterest-bearing liabilities: Demand deposits 497,159 345,717 Other liabilities   85,042   71,160 Total noninterest-bearing liabilities   582,201   416,877 Total liabilities 5,012,508 3,661,318 Shareholders' equity   368,962   336,654 Total liabilities and shareholders' equity $ 5,381,470 $ 3,997,972   Net interest spread 2.53 % 2.68 % Effect of noninterest-bearing sources     0.25 %     0.36 % Net interest income/margin on earning assets $ 138,222   2.78 % $ 111,695   3.04 % Less tax equivalent adjustment   8,349   7,555 Net interest income $ 129,873 $ 104,140      

Regulatory Capital

    Actual

As of December 31, 2009

Amount   Ratio   Total Capital (to risk weighted assets): Corporation $ 369,864 10.64 % Harleysville National Bank 403,732 11.65 % Tier 1 Capital (to risk weighted assets): Corporation 326,121 9.38 % Harleysville National Bank 360,115 10.39 % Tier 1 Capital (to average assets): Corporation 326,121 6.33 % Harleysville National Bank 360,115 7.01 %  

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.