LEHIGH VALLEY, Pa., July 25, 2007 (PRIME NEWSWIRE) -- KNBT Bancorp, Inc. (Nasdaq:KNBT), the holding company for Keystone Nazareth Bank & Trust Company (the "Bank"), today reported earnings for the second quarter, continued loan and deposit growth and balance sheet restructuring.
Net income for the quarter ended June 30, 2007 was $2.0 million or $0.08 per diluted share compared to $5.9 million or $0.21 per diluted share for the same period in 2006. Results for the second quarter include the impact of the previously announced security sales along with an increase in the deferred tax asset valuation allowance, a writedown of real estate due to branch relocations and deferred expenses related to the redemption of trust preferred debt. These items reduced diluted earnings per share by $0.09 for the quarter after tax.
KNBT sold $81.7 million in agency securities during the second quarter at a pre-tax loss of $2.2 million as previously disclosed in the Company's earnings release for the first quarter. This transaction reduced diluted earnings per share for the quarter by $0.05 after tax. The proceeds from the security sales were used to repay FHLB debt, the redemption of trust preferred securities and the purchase of agency securities.
Included in the quarter was a $650,000 non-cash charge to increase the valuation allowance related to KNBT's deferred tax asset created when it funded the Keystone Nazareth Charitable Foundation in 2003. This charge reduced diluted earnings per share by $0.02 after tax.
Additional highlights for the second quarter include:
* Loan growth of $152.2 million or 9.5% since December 31, 2006,
19% annualized, with continued excellent asset quality.
* Deposit growth of $72.7 million or 3.8% since December 31,
2006, 7.6% annualized.
* Declared a quarterly cash dividend of $0.10 per share.
* The repurchase of 438,988 shares of common stock during the
second quarter at an average price per share of $14.97. In
July, KNBT repurchased an additional 226,574 shares at an
average price of $14.16.
* The redemption of $22.4 million of trust preferred securities
bearing an average interest rate of 8.89%.
Scott V. Fainor, President and Chief Executive Officer, stated, "The quarter was marked by a very challenging interest rate environment. With our asset repositioning strategy, we believe the Company is better positioned to improve core operations. The sale of $81.7 million of low yielding securities combined with the repayment of high cost borrowings and the purchase of higher yielding securities resulted in an improved net interest margin. We continue to experience solid loan growth, deposit growth as well as growth in our fee income businesses." Mr. Fainor added, "The credit quality of our loan portfolio continues to be outstanding."
Net Income
Net income was $2.0 million or $0.08 per diluted share compared to $5.5 million or $0.21 per diluted share and $5.9 million or $0.21 per diluted share for the quarters ended March 31, 2007 and June 30, 2006, respectively.
For the six months ended June 30, 2007, net income totaled $7.5 million or $0.28 per diluted share compared to $11.4 million or $0.40 per diluted share for the same period in 2006.
As previously noted, net income was primarily affected by the $2.2 million pre-tax loss incurred with the sale of securities combined with a $650,000 increase in the deferred tax asset valuation allowance.
Net Interest Income and Net Interest Margin
Net interest income increased by $201,000 during the quarter compared to the quarter ended March 31, 2007. The net interest margin on a tax equivalent basis for the second quarter increased two basis points to 2.79% compared to 2.77% for the first quarter of 2007.
KNBT presents its net interest margin on a tax-equivalent basis because management believes that such presentation provides information that is more useful for a proper accounting of KNBT's operating results. These disclosures should neither be viewed as a substitute for operating results determined in accordance with generally accepted accounting principles ("GAAP") nor are they reasonably comparable to non-GAAP performance measures which may be presented by other companies. Without the adjustment for tax-free income, the net interest margin for the quarters ended June 30, 2007 and March 31, 2007 was 2.75% and 2.74%, respectively.
Provision for Loan Losses and Related Allowance for Loan Losses
The provision for loan losses for the quarter ended June 30, 2007 was $645,000 reflecting the continued growth of the loan portfolio, particularly in commercial loans which grew more than 10% since December 31, 2006 and more than 23% since June 30, 2006.
At June 30, 2007, KNBT's total non-performing assets were $5.2 million compared to $6.0 million and $7.4 million at December 31, 2006 and June 30, 2006, respectively. In addition, at June 30, 2007, KNBT's allowance for loan losses was 340% of its total non-performing loans and 0.98% of its total loans.
Non-Interest Income and Non-Interest Expense
Non-interest income was $7.1 million for the quarter ended June 30, 2007 compared to $9.7 million for the quarter ended March 31, 2007. The decrease in non-interest income for the second quarter of 2007 was due to the $2.2 million loss incurred on the sale of agency securities discussed above and a $225,000 writedown of real estate as a result of branch relocations. The decrease was offset by an increase in income of $144,000 or 3.1% from Wealth Management and the Insurance Group and an increase in fee income of $223,000 or 9.0% compared to the previous quarter.
Non-interest expense increased $1.3 million for the quarter ended June 30, 2007 compared to the previous quarter ended March 31, 2007. The increase in expense was primarily comprised of $383,000 in professional fees, $123,000 in advertising costs and a charge of $316,000 of deferred expenses related to the redemption of trust preferred debt.
Income Tax Expense
KNBT's income tax expense was $1.7 million for the three months ended June 30, 2007. Included in the quarter was a $650,000 non-cash charge to increase the valuation allowance related to the impairment of the $5.2 million deferred tax asset recorded when KNBT made a $16.1 million contribution to the Keystone Nazareth Charitable Foundation established in connection with the conversion of the Bank to stock form in 2003. Upon review of KNBT's current operations, including, among other things, the effects of the $2.2 million pre-tax loss on the sale of securities and the $316,000 of charges related to the accelerated amortization of deferred costs related to the issuance of trust preferred securities, combined with the existing level of tax benefits acquired in prior acquisitions, KNBT determined that the valuation allowance should be increased. The effective income tax rate for the second quarter of 2007 was 45.4% compared to 31.7% for the quarter ended March 31, 2007.
About KNBT Bancorp, Inc.
KNBT Bancorp, Inc. is the parent bank holding company for Keystone Nazareth Bank & Trust Company. Keystone Nazareth Bank & Trust Company is a Pennsylvania-chartered savings bank headquartered in Bethlehem, Pennsylvania with 56 branch offices in Lehigh, Northampton, Carbon, Monroe, Luzerne, Columbia and Schuylkill Counties, Pennsylvania.
Website: www.knbt.com
The information contained in this press release may contain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder) which are not historical facts or as to KNBT's management's intentions, plans, beliefs, expectations or opinions or with respect to the operation of KNBT or its subsidiaries. These statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of KNBT and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) economic and competitive conditions which could affect the volume and type of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increases significantly; (4) changes in the interest rate environment may reduce interest margins; (5) general economic conditions, either nationally or in the markets in which KNBT is doing business, are less favorable than expected; (6) acquisitions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties; (7) legislation or changes in regulatory requirements adversely affect the business in which KNBT is engaged; and other factors discussed in the documents filed by KNBT with the Securities and Exchange Commission ("SEC") from time to time. Copies of these documents may be obtained from KNBT upon request and without charge (except for the exhibits thereto) or can be accessed at the website maintained by the SEC at http://www.sec.gov. KNBT undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
KNBT Bancorp, Inc.
Consolidated Statements of Income
(unaudited)
For the Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2007 2007 2006 2006 2006
---------- ---------- ---------- ---------- ----------
(in thousands except per share data)
Interest
income $ 37,693 $ 37,042 $ 37,719 $ 37,769 $ 36,661
Interest
expense 20,191 19,741 20,087 19,794 18,140
---------- ---------- ---------- ---------- ----------
Net interest
income 17,502 17,301 17,632 17,975 18,521
Provision for
loan losses 645 -- 1,014 365 1,200
---------- ---------- ---------- ---------- ----------
Net interest
income after
provision for
loan losses 16,857 17,301 16,618 17,610 17,321
Non-interest
income:
Deposit
service
charges 2,688 2,465 2,430 2,456 2,340
Securities
gains
(losses) (2,159) 536 6 1,440 1,597
Gain on sale
of branches -- -- 3,502 -- --
Wealth
management
income 2,366 2,374 2,213 2,061 2,302
Bank-owned
life
insurance 872 861 884 835 781
Insurance
group income 2,442 2,290 2,137 2,146 2,395
Other 867 1,176 1,197 1,235 1,034
---------- ---------- ---------- ---------- ----------
Total non-
interest
income 7,076 9,702 12,369 10,173 10,449
Non-interest
expense:
Salaries,
wages and
employee
benefits 11,260 11,215 11,173 11,265 11,147
Net occupancy
and equipment
expense 2,979 2,977 2,898 3,171 2,964
Other 6,012 4,781 5,716 4,767 5,289
---------- ---------- ---------- ---------- ----------
Total non-
interest
expense 20,251 18,973 19,787 19,203 19,400
---------- ---------- ---------- ---------- ----------
Income before
income taxes 3,682 8,030 9,200 8,580 8,370
Income tax
expense 1,670 2,544 2,894 2,669 2,464
---------- ---------- ---------- ---------- ----------
Net income $ 2,012 $ 5,486 $ 6,306 $ 5,911 $ 5,906
========== ========== ========== ========== ==========
Per Common Share Data
--------------------------------------------------------------------
Weighted
average
common shares
- diluted 26,390,254 26,586,047 26,578,083 26,540,660 27,805,107
Weighted
average
common shares
- basic 26,237,836 26,311,289 26,303,917 26,355,973 27,381,824
Net income per
share
- diluted $ 0.08 $ 0.21 $ 0.24 $ 0.22 $ 0.21
Net income per
share- basic $ 0.08 $ 0.21 $ 0.24 $ 0.22 $ 0.22
Book value $ 13.55 $ 13.76 $ 13.52 $ 13.29 $ 12.83
Tangible book
value $ 8.37 $ 8.72 $ 8.52 $ 8.26 $ 7.86
KNBT Bancorp, Inc.
Asset Quality
(unaudited)
At Period End or
For the Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2007 2007 2006 2006 2006
---------------------------------------------------
(dollars in thousands)
Non-accruing
loans $ 4,245 $ 4,280 $ 4,869 $ 5,467 $ 6,066
Accruing loans
90 days or
more past due 852 391 1,058 775 988
-------- -------- -------- -------- --------
Total non-
performing
loans 5,097 4,671 5,927 6,242 7,054
Other real
estate owned 126 77 32 205 322
-------- -------- -------- -------- --------
Total non-
performing
assets $ 5,223 $ 4,748 $ 5,959 $ 6,447 $ 7,376
======== ======== ======== ======== ========
Total non-
performing
loans as a
percentage of
loans, net 0.29% 0.27% 0.37% 0.40% 0.46%
Total non-
performing
loans as a
percentage of
total assets 0.18% 0.16% 0.20% 0.21% 0.24%
Total non-
performing
assets as a
percentage of
total assets 0.18% 0.16% 0.21% 0.22% 0.25%
Allowance for
loan losses,
beginning of
period $ 16,667 $ 17,044 $ 16,630 $ 16,600 $ 15,963
Provision for
loan losses 645 -- 1,014 365 1,200
Total charge
offs (430) (449) (705) (413) (754)
Recoveries on
loans
previously
charged-off 431 72 105 78 191
-------- -------- -------- -------- --------
Net loans
charged off 1 (377) (600) (335) (563)
-------- -------- -------- -------- --------
Allowance for
loan losses, at
period end $ 17,313 $ 16,667 $ 17,044 $ 16,630 $ 16,600
======== ======== ======== ======== ========
Allowance for
loan losses at
period end to:
Average net loans 1.00% 1.02% 1.07% 1.06% 1.11%
Total loans at
period end 0.98% 0.97% 1.05% 1.05% 1.08%
Non-performing
loans 339.67% 356.82% 287.57% 266.42% 235.33%
KNBT Bancorp, Inc.
(unaudited)
For the Three Months Ended
Balances June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(Period End) 2007 2007 2006 2006 2006
-------------------------------------------------------------------
(dollars in thousands)
Assets $2,888,789 $2,906,829 $2,898,827 $2,926,763 $2,994,485
---------- ---------- ---------- ---------- ---------- ----------
Total
earning
assets: 2,525,322 2,547,350 2,535,197 2,556,670 2,631,759
Investment
securities 738,282 801,739 923,110 946,593 1,022,900
Net loans 1,755,290 1,704,772 1,603,122 1,574,022 1,523,847
Commercial 663,021 619,992 600,058 559,054 536,947
Mortgage 583,583 580,704 507,919 499,877 503,946
Consumer 525,999 520,743 512,189 531,721 499,554
Less:
Allowance
for loan
loss (17,313) (16,667) (17,044) (16,630) (16,600)
Loans held
for sale 1,362 605 1,994 2,264 20
Other
earning
assets 30,388 40,234 6,971 33,791 84,992
Goodwill
and other
intangible
assets 134,901 132,995 132,866 134,243 135,132
-------------------------------------------------------------------
Total
deposits: 1,980,251 1,940,125 1,907,547 1,888,636 1,912,797
Non-interest
bearing
deposits 206,327 200,351 206,972 197,612 205,847
Interest-
bearing
checking 241,543 247,396 241,567 232,775 238,715
Money market 619,322 572,736 532,824 452,196 438,457
Savings 205,144 211,944 214,949 230,157 252,435
Certificates
of deposit 589,084 588,634 593,079 653,602 654,583
IRA & Keogh 118,831 119,064 118,156 122,294 122,760
Brokered
CDs -- -- -- -- --
-------------------------------------------------------------------
Other
borrowings 104,269 78,103 45,296 46,513 54,862
Subordinated
debt 15,515 38,286 38,406 38,525 38,642
Federal
Home Loan
Bank
advances 399,314 457,992 519,161 568,861 613,487
Shareholders'
equity 352,274 361,603 356,026 349,715 341,823
For the Three Months Ended
Balances June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(Daily Average) 2007 2007 2006 2006 2006
-------------------------------------------------------------------
Assets $2,892,074 $2,877,115 $2,917,925 $2,964,750 $2,975,532
------- ---------- ---------- ---------- ---------- ----------
Total
earning
assets: 2,544,847 2,527,087 2,560,145 2,605,410 2,619,100
Investment
securities 745,363 887,402 920,940 1,013,377 1,096,658
Net loans 1,728,825 1,630,587 1,588,064 1,563,182 1,499,584
Commercial 642,638 604,757 571,102 547,357 526,522
Mortgage 580,735 534,165 506,344 506,735 493,575
Consumer 522,333 508,687 527,281 525,707 495,589
Less:
Allowance
for loan
loss (16,881) (17,022) (16,662) (16,617) (16,102)
Loans held
for sale 1,399 1,944 1,880 29 330
Other
earning
assets 69,260 7,154 49,261 28,823 22,528
Goodwill
and other
intangible
assets 133,582 132,635 133,811 134,757 134,543
-------------------------------------------------------------------
Total
deposits: 1,946,206 1,890,473 1,894,407 1,899,642 1,853,122
Non-
interest
bearing
accounts 195,409 189,911 196,362 195,523 196,149
Interest-
bearing
checking 239,374 234,132 234,670 236,346 233,862
Money
market 596,137 541,947 494,093 448,266 380,712
Savings 209,224 212,175 223,941 239,887 257,816
Certificates
of deposit 587,087 593,596 624,009 657,002 656,589
IRA & Keogh 118,975 118,712 121,332 122,618 124,222
Brokered
CDs -- -- -- -- 3,772
-------------------------------------------------------------------
Other
borrowings 79,492 58,657 58,760 52,827 48,809
Subordinated
debt 31,919 38,358 38,474 38,585 38,713
Federal Home
Loan Bank
advances 440,220 495,139 539,100 594,691 645,831
Shareholders'
equity 360,550 358,811 353,777 344,380 356,669
KNBT Bancorp, Inc.
(unaudited)
For the Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
Ratios 2007 2007 2006 2006 2006
---------------------------------------------------------------------
Return on average
equity 2.23% 6.12% 7.13% 6.87% 6.62%
Return on average
tangible equity
(a) 3.62% 9.68% 11.40% 11.11% 10.77%
Return on average
assets 0.28% 0.76% 0.86% 0.80% 0.79%
Net interest margin 2.79% 2.77% 2.78% 2.79% 2.90%
Efficiency ratio 80.13% 68.56% 64.52% 66.70% 64.95%
Shareholders'
equity to total
assets 12.19% 12.44% 12.28% 11.95% 11.42%
Tangible equity to
total assets 7.53% 7.89% 7.74% 7.42% 6.99%
------------------
(a) Reconciliation
Table for Non-
GAAP Financial
Measures
Return on average
equity 2.23% 6.12% 7.13% 6.87% 6.62%
Effect of goodwill
and intangibles 1.39% 3.56% 4.27% 4.24% 4.15%
--------- --------- --------- --------- ---------
Return on average
tangible equity 3.62% 9.68% 11.40% 11.11% 10.77%
========= ========= ========= ========= =========
Average tangible
equity excludes
acquisition
related average
goodwill and
intangibles:
Average equity $ 360,550 $ 358,811 $ 353,777 $ 344,380 $ 356,669
Average goodwill
and intangibles (138,247) (132,052) (132,565) (131,478) (137,305)
Average tangible --------- --------- --------- --------- ---------
equity $ 222,303 $ 226,759 $ 221,212 $ 212,902 $ 219,364
========= ========= ========= ========= =========
KNBT Bancorp, Inc.
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
-------- -------- -------- --------
(in thousands, except per share data)
Interest income $ 37,693 $ 36,661 $ 74,735 $ 72,932
Interest expense 20,191 18,140 39,932 35,676
-------- -------- -------- --------
Net interest income 17,502 18,521 34,803 37,256
Provision for loan losses 645 1,200 645 1,950
-------- -------- -------- --------
Net interest income after
provision for loan losses 16,857 17,321 34,158 35,306
Non-interest income:
Deposit service charges 2,688 2,340 5,153 4,526
Securities gains (losses) (2,159) 1,597 (1,623) 1,735
Gain on extinguishment of
debt -- -- -- 1,179
Wealth management income 2,366 2,302 4,740 4,222
Bank-owned life insurance 872 781 1,733 1,555
Insurance group income 2,442 2,395 4,732 4,320
Other income 867 1,034 2,043 1,992
-------- -------- -------- --------
Total non-interest income 7,076 10,449 16,778 19,529
Non-interest expense:
Salaries, wages and
employee benefits 11,260 11,147 22,475 21,821
Net occupancy and equipment
expense 2,979 2,964 5,956 6,228
Other expenses 6,012 5,289 10,793 10,864
-------- -------- -------- --------
Total non-interest expense 20,251 19,400 39,224 38,913
-------- -------- -------- --------
Income before income taxes 3,682 8,370 11,712 15,922
Income tax expense 1,670 2,464 4,214 4,536
-------- -------- -------- --------
Net income $ 2,012 $ 5,906 $ 7,498 $ 11,386
======== ======== ======== ========
Net income per share-
diluted $ 0.08 $ 0.21 $ 0.28 $ 0.40
Net income per share- basic $ 0.08 $ 0.22 $ 0.29 $ 0.41