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.
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