EX-99.1 PRESRELEASE 2 earningpressrelease.htm FIRST QUARTER EARNINGS PRESS RELEASE-3-31-06









FOR IMMEDIATE RELEASE
CONTACT:  Gregg J. Wagner, President and CEO
PHONE: 215-513-2391


HARLEYSVILLE NATIONAL CORPORATION REPORTS
FIRST QUARTER EARNINGS OF $9.0 MILLION


HARLEYSVILLE, PA (April 17, 2006) - Harleysville National Corporation (NASDAQ: HNBC), today announced first quarter 2006 diluted earnings of $.32 per share and basic earnings per share of $.33, level with the earnings for the same period last year. Net income was $9.0 million compared to $9.2 million for the first quarter of 2005. “We are particularly pleased with our recent acquisition, Cornerstone, a Millennium Wealth Management company,” said Gregg J. Wagner, President and Chief Executive Officer. “On a core earnings basis, this year’s first quarter reflected an improvement over the comparable period for last year, because the 2005 earnings included the benefit of $.02 per share related to the gain on sales of investment securities of $923,000.”
 
The Corporation’s consolidated total assets were $3.2 billion at March 31, 2006, an increase of 6.6% or $199.1 million over $3.0 billion in total assets reported at March 31, 2005. Of this increase, 4.6% or $137.8 million was attributable to loan growth and 1.2% or $35.0 million was due to a net increase in cash and investments.
 
The financial results for 2006 include a favorable impact on operations from the acquisition of the Cornerstone Companies effective January 1, 2006. The results were also impacted by 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.
 

-5-

DETAILED REVIEW OF FINANCIAL RESULTS
 
Net interest income on a tax equivalent basis in the first quarter of 2006 decreased $301,000 or 1.3% over the same period in 2005. The decrease during the first quarter of 2006 was mainly attributed to higher deposit and borrowing rates offset in part by higher loan rates and loan volume. The net interest margin for the first quarter of 2006 was 3.15%, compared to 3.16% for the fourth quarter of 2005 and 3.37% for the first quarter of 2005. Due to market conditions, deposit and short-term borrowing rates have increased more quickly than loan rates resulting in a lower net interest margin. Average earning assets increased $161.7 million or 5.8% during the first quarter of 2006 versus the comparable period in 2005. Average loans grew by $143.4 million or 7.8% during the same period and investment securities increased $25.9 million or 2.8%.
 
Nonperforming assets (including nonaccrual loans, net assets in foreclosure and loans 90 days or more past due) were .33% of total assets at March 31, 2006, compared to .27% at December 31, 2005 and .19% at March 31, 2005. The increase in nonperforming assets at March 31, 2006, in relation to December 31, 2005, was mainly due to commercial mortgage loans for two borrowers totaling $2.3 million. The increase in relation to March 31, 2005, was due to the previously aforementioned loans in addition to commercial mortgage loans for one borrower totaling $1.5 million and commercial business loans for two borrowers totaling $445,000 which were placed on nonaccrual of interest during the fourth quarter of 2005. The increase in the provision for the three-month period ending March 31, 2006, compared to the same period in 2005, was primarily due to inherent risk related to loan growth and the increase in nonperforming loans.
 
Total deposits increased 8.4% or $188.1 million to $2.43 billion at March 31, 2006, up from $2.24 billion at March 31, 2005. This was primarily attributable to growth in customer time deposits and an increase in brokered certificates of deposit. Core deposits remained level at $1.59 billion for the same periods.
 

-6-
 

 
Noninterest income of $8.9 million for the first quarter of 2006 rose $2.0 million or 28.7% from the comparable period in 2005. This increase was primarily due to the acquisition of the Cornerstone Companies which generated an increase of $2.6 million in wealth management income over the same period last year, partially offset by the sale of Cumberland Advisors, which was divested in the second quarter of 2005. There were no gains on sales of investment securities during the first quarter of 2006 as compared to $923,000 during the same period in 2005.
 
Noninterest expense of $17.1 million for the first quarter of 2006 increased $1.6 million or 10.5% from $15.5 million in the first quarter of 2005. Salaries and benefits expense increased $1.0 million during the first quarter of 2006 from the comparable period in 2005 primarily related to the acquisition of the Cornerstone Companies and compensation expense in 2006 of $128,000 resulting from recording the Company’s stock option expense in conformance with FAS 123 (R), “Stock Based Compensation.” Other expense increased $775,000 mainly due to the Cornerstone Companies acquisition as well as increased computer software expenses.
 
Harleysville National Corporation, with assets in excess of $3 billion, is the holding company for Harleysville National Bank (HNB). Investment Management and Trust Services are provided through Millennium Wealth Management, a division of HNB, with assets under management in excess of $2.35 billion. 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.
-7-
Harleysville National Corporation
                                      
Consolidated Selected Financial Data(1)
    
   
   
   
   
   
 
(Dollars in thousands, except per share data)
    
   
   
   
   
   
 
March 31, 2006
                                      
(unaudited)
                                      
                                       
For the period:
        
Three Months Ended
                  
 
    
Mar. 31, 
    
Dec. 31,
 
 
Sep. 30,
 
 
Jun. 30,
 
 
Mar. 31,
        
 
    
2006
 
 
2005
 
 
2005
 
 
2005
 
 
2005
        
Interest Income
  
$
42,096
  
$
41,008
  
$
38,570
  
$
36,889
  
$
35,272
        
Interest Expense
    
20,625
   
19,148
   
16,826
   
15,042
   
13,602
       
Net Interest Income
    
21,471
   
21,860
   
21,744
   
21,847
   
21,670
       
Provision for Loan Losses
    
1,200
   
1,351
   
650
   
650
   
750
       
Net Interest Income after
                                      
    Provision for Loan Losses
    
20,271
   
20,509
   
21,094
   
21,197
   
20,920
       
                                       
Service Charges
    
1,890
   
2,089
   
2,112
   
2,044
   
1,957
       
Gains on Sales of Investment Securities, Net
    
-
   
1,747
   
1,898
   
226
   
923
       
Gain on Sale of Branch
    
-
   
-
   
-
   
690
   
-
       
Wealth Management Income
    
4,570
   
1,410
   
1,261
   
2,051
   
1,929
       
Bank-Owned Life Insurance Income
    
600
   
599
   
497
   
645
   
493
       
Income on Life Insurance
    
-
   
-
   
-
   
177
   
-
       
Other Income
    
1,873
   
1,720
   
1,962
   
1,919
   
1,641
       
    Total Noninterest Income
    
8,933
   
7,565
   
7,730
   
7,752
   
6,943
       
                                       
Salaries, Wages and Employee Benefits
    
10,519
   
8,572
   
9,189
   
10,180
   
9,500
       
Occupancy
    
1,498
   
1,265
   
1,277
   
1,243
   
1,391
       
Furniture and Equipment
    
891
   
947
   
963
   
1,151
   
1,170
       
Other Expenses
    
4,217
   
3,986
   
3,884
   
4,319
   
3,442
       
    Total Noninterest Expense
    
17,125
   
14,770
   
15,313
   
16,893
   
15,503
       
                                       
Income Before Income Taxes
    
12,079
   
13,304
   
13,511
   
12,056
   
12,360
       
Income Tax Expense
    
3,128
   
3,493
   
3,349
   
2,366
   
3,195
       
    Net Income
  
$
8,951
  
$
9,811
  
$
10,162
  
$
9,690
  
$
9,165
        
                                       
Per Common Share Data:
                                      
Weighted Average Common Shares - Basic
    
27,498,274
   
27,430,277
   
27,521,780
   
27,552,322
   
27,559,493
       
Weighted Average Common Shares - Diluted
    
27,980,829
   
27,935,571
   
28,075,455
   
28,113,870
   
28,316,146
       
Net Income Per Share - Basic
  
$
0.33
  
$
0.36
  
$
0.37
  
$
0.35
  
$
0.33
        
Net Income Per Share - Diluted
  
$
0.32
  
$
0.35
  
$
0.36
  
$
0.35
  
$
0.32
        
Cash Dividend Per Share
 
$
0.19
  
$
0.23
  
$
0.18
  
$
0.17
  
$
0.17
        
Book Value
  
$
10.15
  
$
9.96
  
$
10.04
  
$
10.00
  
$
9.75
        
Market Value
  
$
22.74
  
$
19.10
  
$
21.94
  
$
22.06
  
$
20.24
        
                                       
                                       
     
2006
 
 
2005
 
 
2005
 
 
2005
 
 
2005
        
Asset Quality Data:
    
1Q
 
 
4Q
 
 
3Q
 
 
2Q
 
 
1Q
        
Nonaccrual Loans
  
$
9,430
  
$
7,493
  
$
6,388
  
$
3,531
  
$
4,572
        
90 + Days Past Due Loans
    
1,093
   
846
   
1,125
   
679
   
599
       
Nonperforming Loans
    
10,523
   
8,339
   
7,513
   
4,210
   
5,171
       
Net Assets in Foreclosure
    
78
   
29
   
469
   
459
   
411
       
Nonperforming Assets
  
$
10,601
  
$
8,368
  
$
7,982
  
$
4,669
  
$
5,582
        
Loan Loss Reserve
  
$
19,895
  
$
19,865
  
$
19,205
  
$
18,890
  
$
18,724
        
Loan Loss Reserve / Loans
    
0.99
%
  
1.00
%
  
0.99
%
  
1.00
%
  
1.00
%
      
Loan Loss Reserve / Nonperforming Loans
    
189.1
%
  
238.2
%
  
255.6
%
  
448.7
%
  
362.1
%
      
Nonperforming Assets / Total Assets
    
0.33
%
  
0.27
%
  
0.26
%
  
0.15
%
  
0.19
%
      
Net Loan Charge-offs
  
$
1,170
  
$
691
  
$
335
  
$
484
  
$
481
        
Net Loan Charge-offs (annualized) / Average Loans
    
0.24
%
  
0.14
%
  
0.07
%
  
0.10
%
  
0.11
%
      
                                       
                                       
   
 
2006
 
 
2005
 
 
2005
 
 
2005
 
 
2005
        
Selected Ratios (annualized):
    
1Q
 
 
4Q
 
 
3Q
 
 
2Q
 
 
1Q
        
Return on Average Assets
    
1.15
%
  
1.25
%
  
1.32
%
  
1.29
%
  
1.25
%
      
Return on Average Shareholders' Equity
    
13.06
%
  
14.25
%
  
14.64
%
  
14.30
%
  
13.69
%
      
Yield on Earning Assets (FTE)
    
5.97
%
  
5.76
%
  
5.56
%
  
5.48
%
  
5.34
%
      
Cost of Interest Bearing Funds
    
3.34
%
  
3.09
%
  
2.79
%
  
2.57
%
  
2.37
%
      
Net Interest Margin (FTE)
    
3.15
%
  
3.16
%
  
3.23
%
  
3.34
%
  
3.37
%
      
Leverage Ratio
    
9.33
%
  
9.69
%
  
9.83
%
  
9.06
%
  
8.99
%
      
 
 
-8-
 
 
                                       
Balance Sheet (Period End):
    
2006
 
 
2005
 
 
2005
 
 
2005
 
 
2005
        
   
1Q 
    
4Q
 
 
3Q
 
 
2Q
 
 
1Q
        
Assets
  
$
3,201,693
  
$
3,117,359
  
$
3,120,138
  
$
3,032,588
  
$
3,002,572
        
Earning Assets
    
2,979,595
   
2,924,156
   
2,920,126
   
2,837,263
   
2,817,956
       
   Investment Securities
    
936,665
   
901,208
   
900,345
   
893,587
   
907,379
       
   Loans
    
2,003,450
   
1,985,493
   
1,941,866
   
1,891,692
   
1,865,641
       
   Other Earning Assets
    
39,480
   
37,455
   
77,915
   
51,984
   
44,936
       
Interest-Bearing Liabilities
    
2,534,165
   
2,441,185
   
2,464,440
   
2,349,820
   
2,343,177
       
Total Deposits
    
2,425,673
   
2,365,457
   
2,349,559
   
2,223,304
   
2,237,567
       
   Noninterest-Bearing Deposits
    
345,118
   
363,440
   
335,614
   
360,695
   
332,525
       
   Interest-Bearing Checking
    
382,199
   
387,374
   
399,482
   
331,201
   
352,132
       
   Money Market
    
678,276
   
667,952
   
677,507
   
676,260
   
679,872
       
   Savings
    
187,534
   
190,033
   
196,242
   
209,865
   
222,553
       
   Time Deposits
    
832,546
   
756,658
   
740,714
   
645,283
   
650,485
       
Total Borrowed Funds
    
453,610
   
439,168
   
450,495
   
487,211
   
438,135
       
   Federal Home Loan Bank
    
297,750
   
297,750
   
292,750
   
272,750
   
272,750
       
   Other Borrowings
    
155,860
   
141,418
   
157,745
   
214,461
   
165,385
       
Shareholders' Equity
    
279,989
   
273,232
   
275,627
   
275,484
   
268,724
       
                                       
Balance Sheet (Average):
    
2006
 
 
2005
 
 
2005
 
 
2005
 
 
2005
        
   
1Q 
    
4Q
 
 
3Q
 
 
2Q
 
 
1Q
        
Assets
  
$
3,164,007
  
$
3,117,686
  
$
3,054,895
  
$
3,006,076
  
$
2,976,361
        
Earning Assets
    
2,963,541
   
2,925,231
   
2,866,964
   
2,823,832
   
2,801,817
       
   Investment Securities
    
936,867
   
897,032
   
903,924
   
900,457
   
910,981
       
   Loans
    
1,988,778
   
1,961,722
   
1,912,551
   
1,879,028
   
1,845,408
       
   Other Earning Assets
    
37,896
   
66,477
   
50,489
   
44,347
   
45,428
       
Interest-Bearing Liabilities
    
2,504,301
   
2,458,400
   
2,388,883
   
2,344,504
   
2,328,569
       
Total Deposits
    
2,353,353
   
2,353,430
   
2,260,962
   
2,226,609
   
2,196,584
       
   Noninterest-Bearing Deposits
    
338,666
   
338,768
   
343,658
   
339,234
   
321,912
       
   Interest-Bearing Checking
    
375,470
   
385,985
   
350,425
   
342,133
   
325,081
       
   Money Market
    
666,722
   
680,365
   
675,550
   
675,052
   
688,602
       
   Savings
    
187,245
   
192,961
   
206,161
   
216,287
   
222,853
       
   Time Deposits
    
785,250
   
755,351
   
685,168
   
653,903
   
638,136
       
Total Borrowed Funds
    
489,614
   
443,738
   
471,579
   
457,129
   
453,897
       
   Federal Home Loan Bank
    
297,750
   
294,435
   
277,967
   
272,750
   
292,917
       
   Other Borrowings
    
191,864
   
149,303
   
193,612
   
184,379
   
160,980
       
Shareholders' Equity
    
277,892
   
273,135
   
275,450
   
271,735
   
271,531
       
                                       
Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis
                      
                                       
   
Three Months Ended March 31, 2006 
  
Three Months Ended March 31, 2005
   
Average
          
Average
 
 
Average
 
 
 
 
 
Average
 
   
Balance 
    
Interest
 
 
Rate
 
 
Balance
 
 
Interest
 
 
Rate
  
Assets
                                      
Earning assets:
                                      
   Investment securities
                                      
   Taxable investments
  
$
690,204
  
$
7,322
    
4.30
%
$
652,314
  
$
6,054
    
3.76
%
   Non-taxable investments (2)
    
246,663
   
3,777
   
6.21
%
  
258,667
   
4,132
   
6.48
%
     Total investment securities
    
936,867
   
11,099
   
4.80
%
  
910,981
   
10,186
   
4.53
%
Federal funds sold and deposits in banks
    
37,896
   
425
   
4.55
%
  
45,428
   
269
   
2.40
%
Loans(2) (3)
    
1,988,778
   
32,084
   
6.54
%
  
1,845,408
   
26,431
   
5.81
%
     Total earning assets
    
2,963,541
   
43,608
   
5.97
%
  
2,801,817
   
36,886
   
5.34
%
Noninterest-earning assets
    
200,466
               
174,544
             
       Total assets
  
$
3,164,007
              
$
2,976,361
              
                                       
Liabilities and Shareholders' Equity
                                      
Interest-bearing liabilities:
                                      
   Interest-bearing deposits:
                                      
     Savings and money market
  
$
1,229,437
    
7,513
   
2.48
%
$
1,236,536
    
4,280
   
1.40
%
     Time
    
785,250
   
7,644
   
3.95
%
  
638,136
   
5,307
   
3.37
%
       Total interest-bearing deposits
    
2,014,687
   
15,157
   
3.05
%
  
1,874,672
   
9,587
   
2.07
%
Borrowed funds
    
489,614
   
5,468
   
4.53
%
  
453,897
   
4,015
   
3.59
%
       Total interest-bearing liabilities
    
2,504,301
   
20,625
   
3.34
%
  
2,328,569
   
13,602
   
2.37
%
Noninterest-bearing liabilities:
                                      
   Demand deposits
    
338,666
               
321,912
             
   Other liabilities
    
43,148
               
54,349
             
       Total noninterest-bearing liabilities
    
381,814
               
376,261
             
         Total liabilities
    
2,886,115
               
2,704,830
             
Shareholders' equity
    
277,892
               
271,531
             
           Total liabilities and shareholders' equity
  
$
3,164,007
              
$
2,976,361
              
                                       
Net interest spread
                
2.63
%
              
2.97
%
Effect of noninterest-bearing sources
                
0.52
%
              
0.40
%
Net interest income/margin on earning assets
        
$
22,983
    
3.15
%
      
$
23,284
    
3.37
%
Less tax equivalent adjustment
          
1,512
               
1,614
       
Net interest income
        
$
21,471
              
$
21,670
        
                                       
(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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