SOURCE: Harleysville National Corporation

October 17, 2005 11:19 ET

Harleysville National Corporation Reports Third Quarter Earnings of $10.2 Million

HARLEYSVILLE, PA -- (MARKET WIRE) -- October 17, 2005 -- Harleysville National Corporation (NASDAQ: HNBC), today announced third quarter 2005 earnings of $10.2 million, level with third quarter 2004 earnings. Earnings for the nine-month period ending September 30, 2005, were $29.0 million, a 2.0% increase over earnings of $28.5 million for the nine-month period ending September 30, 2004.

The Corporation's consolidated total assets were $3.12 billion at September 30, 2005, an increase of 4.8% or $144.0 million over $2.98 billion in total assets reported at September 30, 2004. Of this increase, 5.6% or $167.7 million was due to loan growth, partially offset by a net decrease in cash and investments of 1.2% or $34.3 million.

For the quarter ending September 30, 2005, diluted earnings per share of $.36 and basic earnings per share of $.37 remained level with the earnings during the third quarter of 2004. For the nine-month period ended September 30, 2005, diluted earnings per share were $1.03 compared to $1.02 for the same period in 2004 and basic earnings per share of $1.05 remained consistent with those during the first nine months of 2004. The financial results for 2005 include the issuance of 1,310,000 shares of the Corporation's common stock for a 5% stock dividend payable September 15, 2005. All share and per share information has been restated to reflect this stock dividend.

"We are pleased with the results for the quarter, particularly with our ability to grow both loans and deposits in this intensely competitive market," said Gregg J. Wagner, President and Chief Executive Officer. "The interest rate environment has continued to make it difficult to maintain our historical levels of earnings growth and we see this as an ongoing challenge over the near term."

DETAILED REVIEW OF FINANCIAL RESULTS

Net interest income on a fully tax-equivalent basis in the third quarter of 2005 decreased $449,000 or 1.9% over the same period in 2004 and increased $949,000 or 1.4% from the nine-month period ending September 30, 2004. The decrease during the third quarter of 2005 was mainly attributed to higher deposit rates offset in part by higher loan volume. The increase for the nine months of 2005 was mostly due to higher loan volume, partially offset by higher deposit rates and an elevated level of borrowings. The net interest margin for the third quarter of 2005 was 3.23%, compared to 3.34% for the second quarter of 2005 and 3.51% for the third quarter of 2004. The decline in the net interest margin from 2004 is primarily due to higher funding costs, particularly in money market deposit accounts and short-term borrowings. Average earning assets increased $171.4 million or 6.4% during the third quarter of 2005 versus the comparable period in 2004. Average loans grew by $195.3 million or 11.4% during the same period, partially offset by a decrease in investment securities of $28.4 million or 3.0%.

Nonperforming assets (including nonaccrual loans, net assets in foreclosure and loans 90 days or more past due) were .26% of total assets at September 30, 2005, compared to .20% at December 31, 2004, and .16% at September 30, 2004. The increase in nonperforming assets at September 30, 2005, in relation to December 31, 2004 was mainly due to commercial mortgage loans, primarily attributable to one borrower, totaling $1.5 million and placed on nonaccrual of interest. The increase in the provision for the three and nine-month periods ending September 30, 2005, compared to the same periods in 2004, was primarily due to inherent risk related to loan growth and the increase in nonperforming loans.

Core deposits increased 4.7% or $72.0 million, to $1.61 billion at September 30, 2005, up from $1.54 billion at September 30, 2004. Total deposits increased $139.8 million for the same period, which was primarily attributable to the growth in core deposits and time deposits of $100,000 or greater.

Total noninterest income of $7.7 million for the third quarter of 2005 reflects an increase of $1.0 million or 15.5% from the comparable period in 2004. For the nine-month period ended September 30, 2005, noninterest income rose $3.7 million or 19.5%, up from $18.8 million for the same period in 2004. The third quarter increase was primarily due to $1.8 million in gains on sales of investment securities, partially offset by a decrease of $617,000 in trust and investment advisory fees related to the sale of Cumberland Advisors, Inc., which took place in the second quarter of this year. The year-to-date increase over the first nine months of 2004 was attributed to $1.4 million in the gains on sales of investment securities, a cumulative increase in trust and investment advisory fees of $654,000, key-man life insurance income of $434,000 and gains of $690,000 and $287,000 on the sales of Harleysville National Bank's McAdoo branch and Cumberland Advisors, Inc., respectively, during the second quarter of 2005.

Noninterest expense of $15.3 million for the third quarter of 2005 increased $836,000 or 5.8% from $14.5 million in the third quarter of 2004, and $4.8 million or 11.2% for the first nine months of 2005 in comparison to the same period in 2004. Salaries and benefits expense decreased $565,000 during the third quarter of 2005 from the comparable period in 2004. This was primarily related to the sale of Cumberland Advisors, Inc. and lower bonus expense, which were partially offset by higher pension and healthcare costs. Salaries and benefits expense increased $2.0 million for the nine months ended September 30, 2005, over the same period in 2004, primarily due to the acquisition of Millennium Bank and higher pension and healthcare costs. Occupancy expense increased $572,000 for the nine months ended September 30, 2005 over the same period in 2004, mostly due to the Millennium acquisition and a new branch opening. Other expense increased $1.5 million for the third quarter of 2005 and $2.6 million for the nine-month period, mainly due to increased expenses for advertising, professional fees (Sarbanes-Oxley related) and deferred compensation expense for directors and employees, as well as lower loan origination expense deferrals related to decreased loan origination volume.

Harleysville National Corporation, with assets of $3 billion, is the holding company for Harleysville National Bank (HNB). Investment Management and Trust Services are provided through Millennium Wealth Management & Private Banking, a division of HNB. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted under Nasdaq National Market Issues. For more information, visit the Harleysville National Corporation website at 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, 2005
(unaudited)

For the period:                       Three Months Ended
                     Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,  Sept. 30,
                       2005       2005       2005       2004       2004
                    ---------- ---------- ---------- ---------- ----------
Interest Income     $   38,570 $   36,889 $   35,272 $   34,196 $   33,366
Interest Expense        16,826     15,042     13,602     12,735     11,286
                    ---------- ---------- ---------- ---------- ----------
Net Interest Income     21,744     21,847     21,670     21,461     22,080
Provision for Loan
 Losses                    650        650        750      1,070        499
                    ---------- ---------- ---------- ---------- ----------
Net Interest Income
 after Provision
 for Loan Losses        21,094     21,197     20,920     20,391     21,581
                    ---------- ---------- ---------- ---------- ----------

Service Charges          2,112      2,044      1,957      1,953      2,000
Gains on Sales of
 Investment
 Securities, Net         1,898        226        923      2,036        112
Gain on Sale of
 Branch                      -        690          -          -          -
Trust, Investment
 Services and
 Advisory Income         1,261      2,051      1,929      1,999      1,878
Bank-Owned Life
 Insurance Income          497        645        493        627        647
Income on Life
 Insurance                   -        177          -        586          -
Other Income             1,962      1,919      1,641      2,194      2,056
                    ---------- ---------- ---------- ---------- ----------
  Total Noninterest
   Income                7,730      7,752      6,943      9,395      6,693
                    ---------- ---------- ---------- ---------- ----------

Salaries, Wages
 and Employee
 Benefits                9,189     10,180      9,500     10,215      9,754
Occupancy                1,277      1,243      1,391      1,218      1,135
Furniture and
 Equipment                 963      1,151      1,170      1,256      1,217
Other Expenses           3,884      4,319      3,442      3,985      2,371
                    ---------- ---------- ---------- ---------- ----------
  Total Noninterest
   Expense              15,313     16,893     15,503     16,674     14,477
                    ---------- ---------- ---------- ---------- ----------

Income Before
 Income Taxes           13,511     12,056     12,360     13,112     13,797
Income Tax Expense       3,349      2,366      3,195      2,999      3,632
                    ---------- ---------- ---------- ---------- ----------
  Net Income        $   10,162 $    9,690 $    9,165 $   10,113 $   10,165
                    ========== ========== ========== ========== ==========

Per Common Share
 Data:
Weighted Average
 Common Shares
 - Basic            27,521,780 27,552,322 27,559,493 27,492,032 27,552,647
Weighted Average
 Common Shares
 - Diluted          28,075,455 28,113,870 28,316,146 28,410,643 28,408,383
Net Income Per
 Share - Basic      $     0.37 $     0.35 $     0.33 $     0.37 $     0.37
Net Income Per
 Share - Diluted    $     0.36 $     0.35 $     0.32 $     0.35 $     0.36
Cash Dividend
 Per Share          $     0.18 $     0.17 $     0.17 $     0.21 $     0.16
Book Value          $    10.04 $    10.00 $     9.75 $     9.81 $     9.71
Market Value        $    21.94 $    22.06 $    20.24 $    25.33 $    23.34


For the period:                   Nine Months Ended
                                    September 30,
                                  2005        2004
                               ----------  ----------
Interest Income                $  110,731  $   93,533
Interest Expense                   45,470      29,903
Net Interest Income                65,261      63,630
Provision for Loan Losses           2,050       1,485
                               ----------  ----------
Net Interest Income after
  Provision for Loan Losses        63,211      62,145
                               ----------  ----------

Service Charges                     6,113       5,854
Gains on Sales of
 Investment Securities, Net         3,047       1,653
Gain on Sale of Branch                690           -
Trust, Investment Services
 and Advisory Income                5,241       4,587
Bank-Owned Life Insurance
 Income                             1,635       1,779
Income on Life Insurance              177           -
Other Income                        5,522       4,890
                               ----------  ----------
  Total Noninterest Income         22,425      18,763
                               ----------  ----------

Salaries, Wages and Employee
 Benefits                          28,869      26,865
Occupancy                           3,911       3,339
Furniture and Equipment             3,284       3,607
Other Expenses                     11,645       9,076
                               ----------  ----------
  Total Noninterest Expense        47,709      42,887
                               ----------  ----------

Income Before Income Taxes         37,927      38,021
Income Tax Expense                  8,910       9,567
                               ----------  ----------
  Net Income                   $   29,017  $   28,454
                               ==========  ==========


Per Common Share Data:
Weighted Average Common
 Shares - Basic                27,544,393  27,032,475
Weighted Average Common
 Shares - Diluted              28,134,749  27,945,621
Net Income Per Share
 - Basic                       $     1.05  $     1.05
Net Income Per Share
 - Diluted                     $     1.03  $     1.02
Cash Dividend Per Share        $     0.52  $     0.47


                             2005      2005      2005      2004      2004
Asset Quality Data:           3Q        2Q        1Q        4Q        3Q
                           -------   -------   -------   -------   -------
Nonaccrual Loans           $ 6,388   $ 3,531   $ 4,572   $ 4,705   $ 3,350
90 + Days Past Due Loans     1,125       679       599       981       948
                           -------   -------   -------   -------   -------
Nonperforming Loans          7,513     4,210     5,171     5,686     4,298
Net Assets in Foreclosure      469       459       411       370       347
                           -------   -------   -------   -------   -------
Nonperforming Assets       $ 7,982   $ 4,669   $ 5,582   $ 6,056   $ 4,645
                           =======   =======   =======   =======   =======
Loan Loss Reserve          $19,205   $18,890   $18,724   $18,455   $17,795
Loan Loss Reserve / Loans     0.99%     1.00%     1.00%     1.00%     1.00%
Loan Loss Reserve /
 Nonperforming Loans         255.6%    448.7%    362.1%    324.6%    414.0%
Nonperforming Assets /
 Total Assets                 0.26%     0.15%     0.19%     0.20%     0.16%
Net Loan Charge-offs       $   335   $   484   $   481   $   410   $   644
Net Loan Charge-offs
 (annualized) / Average
 Loans                        0.07%     0.10%     0.11%     0.09%     0.15%


                             2005      2005      2005      2004      2004
Selected Ratios
 (annualized):                3Q        2Q        1Q        4Q        3Q
                           -------   -------   -------   -------   -------
Return on Average Assets      1.32%     1.29%     1.25%     1.36%     1.40%
Return on Average
 Shareholders' Equity        14.64%    14.30%    13.69%    15.00%    15.61%
Yield on Earning Assets
 (FTE)                        5.56%     5.48%     5.34%     5.16%     5.18%
Cost of Interest Bearing
 Funds                        2.79%     2.57%     2.37%     2.19%     2.01%
Net Interest Margin (FTE)     3.23%     3.34%     3.37%     3.34%     3.51%
Leverage Ratio                9.83%     9.06%     8.99%     8.91%     8.99%


                                  2005          2004
                               ----------    ----------
Selected Ratios (annualized): Year-to-date  Year-to-date
                               ----------    ----------
Return on Average Assets             1.29%         1.40%
Return on Average
 Shareholders' Equity               14.22%        15.42%
Yield on Earning Assets (FTE)        5.46%         5.19%
Cost of Interest Bearing Funds       2.58%         1.90%
Net Interest Margin (FTE)            3.31%         3.62%


Balance Sheet
 (Period End):     2005        2005        2005        2004        2004
                    3Q          2Q          1Q          4Q          3Q
                ----------  ----------  ----------  ----------  ----------
Assets          $3,120,138  $3,032,588  $3,002,572  $3,024,515  $2,976,173
Earning Assets   2,920,126   2,837,263   2,817,956   2,845,656   2,791,891
  Investment
   Securities      900,345     893,587     907,379     943,563     975,750
  Loans          1,941,866   1,891,692   1,865,641   1,845,802   1,774,189
  Other Earning
   Assets           77,915      51,984      44,936      56,291      41,952
Interest-Bearing
 Liabilities     2,464,440   2,349,820   2,343,177   2,367,229   2,332,102
Total Deposits   2,349,559   2,223,304   2,237,567   2,212,563   2,209,753
  Noninterest-
   Bearing
   Deposits        335,614     360,695     332,525     333,516     325,132
  Interest-
   Bearing
   Checking        399,482     331,201     352,132     305,584     320,276
  Money Market     677,507     676,260     679,872     713,039     661,480
  Savings          196,242     209,865     222,553     223,039     229,992
  Time, under
   $100,000        529,302     508,313     523,782     508,010     527,971
  Time, $100,000
   or greater      211,412     136,970     126,703     129,375     144,902
Total Borrowed
 Funds             450,495     487,211     438,135     488,182     447,481
  Federal Home
   Loan Bank       292,750     272,750     272,750     317,750     257,750
  Other
   Borrowings      157,745     214,461     165,385     170,432     189,731
Shareholders'
 Equity            275,627     275,484     268,724     270,532     266,966

Balance Sheet
 (Average):        2005        2005        2005        2004        2004
                    3Q          2Q          1Q          4Q          3Q
                ----------  ----------  ----------  ----------  ----------
Assets          $3,054,895  $3,006,076  $2,976,361  $2,957,559  $2,878,769
Earning Assets   2,866,964   2,823,832   2,801,817   2,776,599   2,695,559
  Investment
   Securities      903,924     900,457     910,981     941,704     932,310
  Loans          1,912,551   1,879,028   1,845,408   1,793,935   1,717,245
  Other Earning
   Assets           50,489      44,347      45,428      40,960      46,004
Interest-Bearing
 Liabilities     2,388,883   2,344,504   2,328,569   2,308,446   2,237,681
Total Deposits   2,260,962   2,226,609   2,196,584   2,213,829   2,154,443
  Noninterest-
   Bearing
   Deposits        343,658     339,234     321,912     324,466     329,559
  Interest-
   Bearing
   Checking        350,425     342,133     325,081     317,328     285,735
  Money Market     675,550     675,052     688,602     692,703     620,420
  Savings          206,161     216,287     222,853     226,251     237,463
  Time, under
   $100,000        514,590     508,723     513,986     517,167     525,701
  Time, $100,000
   or greater      170,578     145,180     124,150     135,914     155,565
Total Borrowed
 Funds             471,579     457,129     453,897     419,083     412,797
  Federal Home
   Loan Bank       277,967     272,750     292,917     263,566     255,837
  Other
   Borrowings      193,612     184,379     160,980     155,517     156,960
Shareholders'
 Equity            275,450     271,735     271,531     268,211     259,035


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

                          Three Months Ended         Three Months Ended
                          September 30, 2005         September 30, 2004
                         Average         Average    Average         Average
                         Balance  Interest Rate     Balance  Interest Rate
                       ----------  ------  ----   ----------  ------  ----
Assets
Earning assets:
  Investment
   securities
    Taxable
     investments       $  642,405  $5,678  3.51%  $  709,890  $6,448  3.61%
    Non-taxable
     investments (2)      261,519   4,190  6.36%     222,420   3,873  6.93%
                       ----------  ------  ----   ----------  ------  ----
      Total investment
       securities         903,924   9,868  4.33%     932,310  10,321  4.40%
  Federal funds sold
   and deposits in
   banks                   50,489     418  3.28%      46,004     162  1.40%
  Loans(2)              1,912,551  29,886  6.20%   1,717,245  24,598  5.70%
                       ----------  ------  ----   ----------  ------  ----
        Total earning
         assets         2,866,964  40,172  5.56%   2,695,559  35,081  5.18%
  Noninterest-earning
   assets                 187,931                    183,210
                       ----------                 ----------
          Total assets $3,054,895                 $2,878,769
                       ==========                 ==========

Liabilities and
 Shareholders' Equity
Interest-bearing
 liabilities:
  Interest-bearing
   deposits:
    Savings and money
     market            $1,232,136   5,916  1.90%  $1,143,618   2,647  0.92%
    Time                  685,168   6,163  3.57%     681,266   5,327  3.11%
                       ----------  ------  ----   ----------  ------  ----
      Total interest-
       bearing
       deposits         1,917,304  12,079  2.50%   1,824,884   7,974  1.74%
  Borrowed funds          471,579   4,747  3.99%     412,797   3,312  3.19%
                       ----------  ------  ----   ----------  ------  ----
      Total interest-
       bearing
       liabilities      2,388,883  16,826  2.79%   2,237,681  11,286  2.01%
  Noninterest-bearing
   liabilities:
    Demand deposits       343,658                    329,559
    Other liabilities      46,904                     52,494
                       ----------                 ----------
      Total
       noninterest-
       bearing
       liabilities        390,562                    382,053
                       ----------                 ----------
        Total
         liabilities    2,779,445                  2,619,734
  Shareholders' equity    275,450                    259,035
                       ----------                 ----------
          Total
           liabilities
           and
           shareholders'
           equity      $3,054,895                 $2,878,769
                       ==========                 ==========

Net interest spread                        2.77%                      3.17%
Effect of noninterest-
 bearing sources                           0.46%                      0.34%
                                  -------  ----              -------  ----
Net interest income/
 margin on earning
 assets                           $23,346  3.23%             $23,795  3.51%
                                  -------  ----              -------  ----
Less tax equivalent
 adjustment                         1,602                      1,715
                                  -------                    -------
Net interest income               $21,744                    $22,080
                                  =======                    =======

                          Nine Months Ended          Nine Months Ended
                          September 30, 2005         September 30, 2004
                         Average         Average    Average         Average
                         Balance  Interest Rate     Balance  Interest Rate
                       ----------  ------  ----   ----------  ------  ----
Assets
Earning assets:
  Investment
   securities
    Taxable
     investments       $  641,102 $17,362  3.62%  $  703,978 $17,690  3.36%
    Non-taxable
     investments (2)      263,993  12,675  6.42%     238,001  12,835  7.20%
                       ----------  ------  ----   ----------  ------  ----
      Total investment
       securities         905,095  30,037  4.44%     941,979  30,525  4.33%
  Federal funds sold
   and deposits in
   banks                   46,773     994  2.84%      41,098     331  1.08%
  Loans(2) (3)          1,879,230  84,602  6.02%   1,568,837  68,261  5.81%
                       ----------  ------  ----   ----------  ------  ----
        Total earning
         assets         2,831,098 115,633  5.46%   2,551,914  99,117  5.19%
  Noninterest-earning
   assets                 181,633                    159,653
                       ----------                 ----------
          Total assets $3,012,731                 $2,711,567
                       ==========                 ==========

Liabilities and
 Shareholders' Equity
Interest-bearing
 liabilities:
  Interest-bearing
   deposits:
    Savings and money
     market            $1,234,032  15,235  1.65%  $1,072,585   6,143  0.77%
    Time                  659,241  17,130  3.47%     673,411  15,570  3.09%
                       ----------  ------  ----   ----------  ------  ----
      Total interest-
       bearing
       deposits         1,893,273  32,365  2.29%   1,745,996  21,713  1.66%
  Borrowed funds          460,933  13,105  3.80%     356,380   8,190  3.07%
                       ----------  ------  ----   ----------  ------  ----
      Total interest-
       bearing
       liabilities      2,354,206  45,470  2.58%   2,102,376  29,903  1.90%
  Noninterest-bearing
   liabilities:
    Demand deposits       335,015                    309,102
    Other liabilities      50,590                     53,585
                       ----------                 ----------
      Total
       noninterest-
       bearing
       liabilities        385,605                    362,687
                       ----------                 ----------
        Total
         liabilities    2,739,811                  2,465,063
  Shareholders' equity    272,920                    246,504
                       ----------                 ----------
          Total
           liabilities
           and
           shareholders'
           equity      $3,012,731                 $2,711,567
                       ==========                 ==========

Net interest spread                        2.88%                      3.29%
Effect of noninterest-
 bearing sources                           0.43%                      0.33%
                                  -------  ----              -------  ----
Net interest income/
 margin on earning
 assets                           $70,163  3.31%             $69,214  3.62%
                                  -------  ----              -------  ----
Less tax equivalent
 adjustment                         4,902                      5,584
                                  -------                    -------
Net interest income               $65,261                    $63,630
                                  =======                    =======

(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.

Contact Information

  • CONTACT:
    Gregg J. Wagner
    President and CEO
    PHONE: 215-513-2391