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