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Harleysville National Corporation Reports Third Quarter Earnings of $10.2 Million

Posted on: Monday, 17 October 2005, 12:00 CDT

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

SOURCE: Harleysville National Corporation

Source: MARKET WIRE

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