(Source: Business Wire)
Harleysville National Corporation (NASDAQ:HNBC) reported today a net loss of $8.0 million or $.18 per diluted share excluding the non-cash goodwill charge of $214.5 million for the second quarter of 2009. This compares to net income of $7.3 million, or $.23 per diluted share, for the second quarter of 2008. For the six months ended June 30, 2009, the net loss was $3.4 million or $.08 per diluted share excluding the non-cash goodwill charge compared to net income of $14.6 million or $.46 per diluted share during the comparable period in 2008. Reported net loss including the non-cash goodwill charge was $222.5 million or $5.17 per diluted share for the second quarter of 2009. For the six months ended June 30, 2009, reported net loss including the non-cash goodwill charge was $217.9 million or $5.06 per diluted share.
The second quarter loss was driven by a non-cash goodwill impairment charge of $214.5 million, resulting from the decrease in the market value of the company's stock. This effectively constitutes the difference between the announced sale price of the company to First Niagara Financial Group for $5.50 per share, which was a 37.5% premium to the pre-announcement market price of the stock, and the company's book value per share of $10.75 prior to the announcement of the sale of the company to First Niagara Financial Group. The impairment charge was evaluated as part of the company's annual goodwill analysis. Also contributing to the loss was a provision for credit losses of $32.0 million and a one-time FDIC special assessment of $2.6 million, which were partially offset by a $4.9 million gain on the sale of investment securities.
Harleysville's second quarter financial results were anticipated, were made known to First Niagara during due diligence and will not impact the exchange ratio as outlined in the merger agreement with First Niagara.
Paul D. Geraghty, President and CEO, Harleysville National Corporation, said, "Second quarter results were disappointing for Harleysville National Corporation. Credit quality continued to be a challenge in our commercial real estate and home equity portfolios, necessitating a significant increase in loan loss reserves. In addition, the announced sale of the company to First Niagara earlier this week resulted in the writeoff of goodwill. That said, we look optimistically to the future. Our merger with First Niagara will make Harleysville part of a $20 billion community bank with a strong franchise stretching from Upstate New York through the Philadelphia suburbs and west to the Pittsburgh region. First Niagara is well capitalized and profitable, and our partnership with them will bring additional products and services to benefit all of our customers."
Mr. Geraghty continued, "As noted in our merger announcement, First Niagara does not plan to close any branches with the completion of the merger transaction, and is looking to leverage its acquisitions of Harleysville in the Philadelphia suburbs and National City branches in Pittsburgh as a springboard for growth throughout Pennsylvania."
Mr. Geraghty added, "From a credit standpoint, the Willow loan portfolio has performed extremely well during the recession, and while legacy Willow loans represent 27.8% of our total loan portfolio at June 30, 2009, they represent only 2.11% of chargeoffs. The addition of the Willow franchise, its branches in high-value, high-growth markets, its strong fee-generating product portfolio, and its expertise in credit management and administration made Harleysville a better bank and a more attractive acquisition target for First Niagara."
Provision for Loan Losses
During the second quarter of 2009, provision for loan losses was $32.0 million, compared to $3.1 million in the second quarter of 2008. The increase in provision for loan losses reflects an increase in nonperforming assets to $138.9 million at June 30, 2009, up from $89.5 million at March 31, 2009 and $39.1 million from a year ago.
Geraghty continued, "Our single biggest challenge over the past several quarters has been our exposure to the real estate markets, and in particular our legacy loans to commercial real estate developers as well as consumer home equity loans. We have taken several steps to triage and manage this exposure, but as the recession persisted, credit quality continued to deteriorate. We believe the loan loss reserves booked in the second quarter will position us to move forward as we work toward the completion of our merger with First Niagara."
During the first quarter of 2009, the company reported that its Total Capital to Risk-Weighted Assets at December 31, 2008 fell below the well-capitalized level to adequately capitalized. As of June 30, 2009, this ratio increased to 9.39% from 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 June 30, 2009, an increase of 34.2% or $1.3 billion over $3.9 billion at June 30, 2008. Willow Financial had assets of approximately $1.6 billion at the acquisition date of December 5, 2008.
Loans increased $937.3 million and deposits grew $1.1 billion from June 30, 2008. Adjusted for the Willow Financial acquisition and non-recurring loan sales during the second quarter of 2009 totaling approximately $117.2 million, organic loan growth was approximately $83.6 million or 3.3%, and organic deposits grew by $183.6 million or 6.4%.
Net interest income on a tax equivalent basis in the second quarter of 2009 increased $8.6 million or 31.6% from the same period in 2008 mainly as a result of the Willow Financial acquisition. The net interest margin for the second quarter of 2009 was 2.82% compared to 3.06% for the same period in 2008.
Nonperforming assets were $138.9 million at June 30, 2009. Nonperforming assets as a percentage of total assets increased to 2.67% from 1.58% at March 31, 2009, and 1.01% at June 30, 2008. Net charge-offs were $14.7 million compared to $423,000 in the second quarter of 2008. The allowance for credit losses increased to $70.3 million at quarter end, compared to $53.1 million at March 31, 2009, and $31.2 million at June 30, 2008. Provision for loan losses increased to $32.0 million from $3.1 million during the second quarter of 2008. Total loans delinquent 30 to 89 days totaled $34.4 million at June 30, 2009 compared to $139.3 million at March 31, 2009 and $25.1 million at June 30, 2008. The company's nonperforming assets combined with loans 30 to 89 days delinquent totaled $173.3 million at June 30, 2009. This is the measurement that corresponds to the Adjustment of Exchange Ratio included in the merger agreement.
Quarterly noninterest income was up $10.1 million from the second quarter of 2008. Gains on sales of investment securities increased by $4.8 million over last year's quarter. Service charges on deposits increased $1.0 million, or 30.0% mainly from the acquired Willow Financial deposit accounts. Wealth management fee growth was $.4 million or 7.8%. Gains from mortgage banking loan sales totaled $2.6 million, an increase of $2.4 million over last year's quarter. Other income increased $1.9 million over the second quarter of 2008 primarily from increases in automated teller machine and point of sale revenue as well as fees and valuation adjustments on derivative instruments. A non-cash other-than-temporary impairment charge of $.5 million on two private label collateralized mortgage obligations was also recorded during the second quarter of 2009.
Quarterly noninterest expenses were up $228.3 million over the same period in the prior year, primarily due to the aforementioned goodwill impairment charge of $214.5 million and the Willow Financial acquisition. In addition, FDIC insurance assessments increased by $4.9 million inclusive of the $2.6 million one-time FDIC special assessment previously mentioned. Other expenses were $3.4 million higher during the second quarter of 2009 mostly due to Willow Financial including increased professional, consulting and data processing expenses.
Non-GAAP Measures
Net loss excluding a non-cash goodwill 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 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 $2.7 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 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) June 30, 2009 (unaudited) For the period: Three Months Ended Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2009 2009 2008 2008 2008 Interest Income $ 60,045 $ 63,638 $ 54,583 $ 49,942 $ 49,353 Interest Expense 26,592 28,334 25,136 24,645 24,164 Net Interest Income 33,453 35,304 29,447 25,297 25,189 Provision for Loan Losses 32,000 7,121 7,920 2,580 3,107 Net Interest Income after Provision for Loan Losses 1,453 28,183 21,527 22,717 22,082 Service Charges 4,304 4,194 3,666 3,424 3,312 Gain on Sales of Investment Securities, Net 4,945 1,952 2,417 - 97 Other-than-temporary Impairment of Available for Sale Securities (530 ) (1,344 ) (1,923 ) - - Gain (Loss) on Mortgage Banking Sales, Net 2,703 1,698 136 (5 ) 219 Wealth Management Income 4,975 4,322 5,888 3,862 4,615 Bank-Owned Life Insurance Income 770 778 730 706 657 Other Income 4,544 4,559 2,430 2,458 2,696 Total Noninterest Income 21,711 16,159 13,344 10,445 11,596 Salaries, Wages and Employee Benefits 17,991 20,279 14,509 13,539 14,201 Occupancy 3,709 4,206 2,663 2,412 2,441 Furniture and Equipment 1,483 1,608 1,181 1,074 1,083 Intangibles Expense 696 948 2,211 678 631 FDIC Deposit Insurance 5,056 2,787 1,164 551 204 Goodwill impairment 214,536 - - - - Merger Charges - - 2,456 974 - Other Expenses 9,279 8,793 7,109 5,925 5,898 Total Noninterest Expense 252,750 38,621 31,293 25,153 24,458 (Loss) Income Before Income Taxes (229,586 ) 5,721 3,578 8,009 9,220 Income Tax (Benefit) Expense (7,083 ) 1,126 (245 ) 1,370 1,893 Net (Loss) Income $ (222,503 ) $ 4,595 $ 3,823 $ 6,639 $ 7,327 Per Common Share Data: Weighted Average Common Shares - Basic 43,080,849 42,990,542 34,695,062 31,385,257 31,359,011 Weighted Average Common Shares - Diluted 43,080,849 43,018,233 34,843,058 31,551,026 31,521,608 Net (Loss) Income Per Share - Basic $ (5.17 ) $ 0.11 $ 0.11 $ 0.21 $ 0.24 Net (Loss) Income Per Share - Diluted $ (5.17 ) $ 0.11 $ 0.11 $ 0.21 $ 0.23 Cash Dividend Per Share $ 0.01 $ 0.10 $ 0.20 $ 0.20 $ 0.20 Book Value $ 5.77 $ 11.00 $ 11.05 $ 9.90 $ 10.45 Market Value $ 4.73 $ 6.06 $ 14.44 $ 16.98 $ 11.16 For the period: Six Months Ended June 30, 2009 2008 Interest Income $ 123,683 $ 101,769 Interest Expense 54,926 52,373 Net Interest Income 68,757 49,396 Provision for Loan Losses 39,121 5,067 Net Interest Income after Provision for Loan Losses 29,636 44,329 Service Charges 8,498 6,425 Gain on Sales of Investment Securities, Net 6,897 225 Other-than-temporary Impairment of Available for Sale Securities (1,874 ) - Gain on Mortgage Banking Sales, Net 4,401 426 Wealth Management Income 9,297 8,894 Bank-Owned Life Insurance Income 1,548 1,341 Other Income 9,103 5,117 Total Noninterest Income 37,870 22,428 Salaries, Wages and Employee Benefits 38,270 28,060 Occupancy 7,915 5,026 Furniture and Equipment 3,091 2,177 Intangibles Expense 1,644 1,319 FDIC Deposit Insurance 7,843 367 Goodwill Impairment 214,536 - Other Expenses 18,072 11,227 Total Noninterest Expense 291,371 48,176 (Loss) Income Before Income Taxes (223,865 ) 18,581 Income Tax (Benefit) Expense (5,957 ) 3,950 Net (Loss) Income $ (217,908 ) $ 14,631 Six Months Ended June 30, Per Common Share Data: 2009 2008 Weighted Average Common Shares - Basic 43,035,945 31,352,922 Weighted Average Common Shares - Diluted 43,035,945 31,522,029 Net (Loss) Income Per Share - Basic $ (5.06 ) $ 0.47 Net (Loss) Income Per Share - Diluted $ (5.06 ) $ 0.46 Cash Dividend Per Share $ 0.11 $ 0.40 -------------------------------------------------------------------------------
2009 2009 2008 2008 2008 Asset Quality Data: 2Q 1Q 4Q 3Q 2Q Nonaccrual Loans $ 132,598 $ 85,393 $ 75,060 $ 36,278 $ 36,284 90 + Days Past Due Loans 4,090 2,073 1,849 1,275 1,676 Nonperforming Loans 136,688 87,466 76,909 37,553 37,960 Net Assets in Foreclosure 2,168 2,008 1,626 1,221 1,189 Nonperforming Assets $ 138,856 $ 89,474 $ 78,535 $ 38,774 $ 39,149 Loan Loss Reserve $ 70,341 $ 53,062 $ 49,955 $ 31,668 $ 31,174 Loan Loss Reserve / Loans 2.05 % 1.47 % 1.36 % 1.25 % 1.25 % Loan Loss Reserve / Nonperforming Loans 51.5 % 60.7 % 65.0 % 84.3 % 82.1 % Nonperforming Assets / Total Assets 2.67 % 1.58 % 1.43 % 0.98 % 1.01 % Net Loan Charge-offs $ 14,721 $ 4,014 $ 2,558 $ 2,086 $ 423 Net Loan Charge-offs (annualized) / Average Loans 1.68 % 0.44 % 0.36 % 0.33 % 0.07 % 2009 2009 2008 2008 2008 Selected Ratios (annualized): 2Q 1Q 4Q 3Q 2Q Return on Average Assets -15.92 % 0.33 % 0.35 % 0.68 % 0.76 % Return on Average Shareholders' Equity -186.57 % 3.88 % 4.40 % 8.20 % 8.79 % Yield on Earning Assets (FTE) 4.92 % 5.29 % 5.69 % 5.76 % 5.80 % Cost of Interest Bearing Funds 2.35 % 2.53 % 2.82 % 3.10 % 3.12 % Net Interest Margin (FTE) 2.82 % 3.02 % 3.16 % 3.02 % 3.06 % Leverage Ratio 5.91 % 6.33 % 8.19 % 8.13 % 8.18 % 2009 2008 Selected Ratios (annualized): Year-to-date Year-to-date Return on Average Assets -7.86 % 0.76 % Return on Average Shareholders' Equity -91.66 % 8.67 % Yield on Earning Assets (FTE) 5.09 % 5.93 % Cost of Interest Bearing Funds 2.43 % 3.36 % Net Interest Margin (FTE) 2.90 % 2.99 % Balance Sheet (Period End): 2009 2009 2008 2008 2008 2Q 1Q 4Q 3Q 2Q Assets $ 5,210,327 $ 5,646,195 $ 5,490,509 $ 3,949,730 $ 3,882,232 Earning Assets 4,909,443 5,109,083 4,944,126 3,626,352 3,544,587 Investment Securities 1,110,123 1,179,213 1,231,661 983,349 1,014,134 Loans 3,439,267 3,615,775 3,685,244 2,539,037 2,501,968 Other Earning Assets 360,053 314,095 27,221 103,966 28,485 Interest-Bearing Liabilities 4,353,600 4,585,275 4,449,461 3,221,921 3,114,993 Total Deposits 3,998,155 4,147,418 3,938,432 3,018,276 2,865,148 Noninterest-Bearing Deposits 517,108 497,921 479,469 343,308 362,750 Interest-Bearing Checking 597,831 579,922 556,855 430,607 422,850 Money Market 991,476 1,074,892 1,042,302 727,693 756,588 Savings 317,196 309,767 270,885 182,342 183,226 Time Deposits 1,574,544 1,684,916 1,588,921 1,334,326 1,139,734 Total Borrowed Funds 872,553 935,778 990,498 546,953 612,595 Federal Home Loan Bank 475,087 515,993 522,671 213,755 223,764 Other Borrowings 397,466 419,785 467,827 333,198 388,831 Shareholders' Equity 248,685 473,713 474,707 310,994 327,910 Balance Sheet (Average): 2009 2009 2008 2008 2008 2Q 1Q 4Q 3Q 2Q Assets $ 5,605,475 $ 5,580,099 $ 4,341,741 $ 3,899,593 $ 3,856,900 Earning Assets 5,080,393 5,047,766 3,956,963 3,580,454 3,552,208 Investment Securities 1,199,597 1,209,012 1,072,468 1,002,901 1,029,502 Loans 3,511,623 3,666,744 2,860,891 2,522,034 2,491,894 Other Earning Assets 369,173 172,010 23,604 55,519 30,812 Interest-Bearing Liabilities 4,547,522 4,543,033 3,550,359 3,158,464 3,114,520 Total Deposits 4,121,543 4,062,577 3,289,483 2,923,815 2,900,523 Noninterest-Bearing Deposits 493,142 472,687 445,495 348,183 340,802 Interest-Bearing Checking 601,230 560,239 444,141 428,078 415,398 Money Market 1,064,346 1,060,299 820,395 739,931 804,890 Savings 315,856 286,317 212,081 182,403 176,917 Time Deposits 1,646,969 1,683,035 1,367,371 1,225,220 1,162,516 Total Borrowed Funds 919,121 953,143 706,371 582,832 554,799 Federal Home Loan Bank 504,903 520,592 289,245 217,717 213,860 Other Borrowings 414,218 432,551 417,126 365,115 340,939 Shareholders' Equity 478,338 480,491 345,887 322,077 335,311 -------------------------------------------------------------------------------
Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis Three Months Ended June 30, 2009 Three Months Ended June 30, 2008 Average Average Average Average Balance Interest Rate Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $ 890,582 $ 10,451 4.72 % $ 740,847 $ 9,622 5.22 % Non-taxable investments( (2)) 309,015 4,957 6.45 % 288,655 4,380 6.10 % Total investment securities 1,199,597 15,408 5.17 % 1,029,502 14,002 5.47 % Federal funds sold and deposits in banks 369,173 239 0.26 % 30,812 119 1.55 % Loans((2) (3)) 3,511,623 46,522 5.33 % 2,491,894 37,067 5.98 % Total earning assets 5,080,393 62,169 4.92 % 3,552,208 51,188 5.80 % Noninterest-earning assets 525,082 304,692 Total assets $ 5,605,475 $ 3,856,900 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $ 1,981,432 5,335 1.08 % $ 1,397,205 5,661 1.63 % Time 1,646,969 13,936 3.40 % 1,162,516 12,937 4.48 % Total interest-bearing deposits 3,628,401 19,271 2.14 % 2,559,721 18,598 2.92 % Borrowed funds 919,121 7,321 3.20 % 554,799 5,566 4.04 % Total interest-bearing liabilities 4,547,522 26,592 2.35 % 3,114,520 24,164 3.12 % Noninterest-bearing liabilities: Demand deposits 493,142 340,802 Other liabilities 86,473 66,267 Total noninterest-bearing liabilities 579,615 407,069 Total liabilities 5,127,137 3,521,589 Shareholders' equity 478,338 335,311 Total liabilities and shareholders' equity $ 5,605,475 $ 3,856,900 Net interest spread 2.57 % 2.68 % Effect of noninterest-bearing sources 0.25 % 0.38 % Net interest income/margin on earning assets $ 35,577 2.82 % $ 27,024 3.06 % Less tax equivalent adjustment 2,126 1,835 Net interest income $ 33,451 $ 25,189 Six Months Ended June 30, 2009 Six Months Ended June 30, 2008 Average Average Average Average Balance Interest Rate Balance Interest Rate Assets Earning assets: Investment securities Taxable investments $ 888,214 $ 22,237 5.03 % $ 747,157 $ 19,376 5.22 % Non-taxable investments( (2)) 316,064 10,282 6.54 % 289,377 8,736 6.07 % Total investment securities 1,204,278 32,519 5.43 % 1,036,534 28,112 5.45 % Federal funds sold and deposits in banks 271,136 366 0.27 % 57,485 813 2.84 % Loans((2) (3)) 3,588,754 95,180 5.33 % 2,477,569 76,472 6.21 % Total earning assets 5,064,168 128,065 5.09 % 3,571,588 105,397 5.93 % Noninterest-earning assets 528,687 302,341 Total assets $ 5,592,855 $ 3,873,929 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Savings and money market $ 1,944,350 11,506 1.19 % $ 1,406,329 13,756 1.97 % Time 1,664,903 28,629 3.46 % 1,199,999 27,438 4.60 % Total interest-bearing deposits 3,609,253 40,135 2.24 % 2,606,328 41,194 3.18 % Borrowed funds 936,038 14,791 3.18 % 526,932 11,179 4.27 % Total interest-bearing liabilities 4,545,291 54,926 2.43 % 3,133,260 52,373 3.36 % Noninterest-bearing liabilities: Demand deposits 482,970 332,460 Other liabilities 85,188 68,854 Total noninterest-bearing liabilities 568,158 401,314 Total liabilities 5,113,449 3,534,574 Shareholders' equity 479,406 339,355 Total liabilities and shareholders' equity $ 5,592,855 $ 3,873,929 Net interest spread 2.66 % 2.57 % Effect of noninterest-bearing sources 0.24 % 0.42 % Net interest income/margin on earning assets $ 73,139 2.90 % $ 53,024 2.99 % Less tax equivalent adjustment 4,384 3,628 Net interest income $ 68,755 $ 49,396 -------------------------------------------------------------------------------
Regulatory Capital Actual As of June 30, 2009 Amount Ratio Total Capital (to risk weighted assets): Corporation $ 379,698 9.39 % Harleysville National Bank 361,488 8.95 % Tier 1 Capital (to risk weighted assets): Corporation 328,928 8.14 % Harleysville National Bank 310,779 7.70 % Tier 1 Capital (to average assets): Corporation 328,928 5.91 % Harleysville National Bank 310,779 5.60 % 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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