UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________

Form 10-Q

__________________

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 30, 2005

Or

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from ___________ to __________

Commission file number 0-15237

___________________

HARLEYSVILLE NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

___________________

Pennsylvania	23-2210237
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

483 Main Street

Harleysville, Pennsylvania 19438

(Address of principal executive office and zip code)

(215) 256-8851

(Registrant’s telephone number, including area code)

___________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 27,402,826 shares of Common Stock, $1.00 par value, outstanding on November 4, 2005.

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HARLEYSVILLE NATIONAL CORPORATION
INDEX TO FORM 10-Q REPORT
	PAGE
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 2005 (unaudited) and December 31, 2004	3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2005 and 2004 (unaudited)	4
Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2005 and 2004 (unaudited)	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (unaudited)	6
Notes to Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures about Market Risk	26
Item 4. Controls and Procedures	26
Part II. Other Information	27
Item 1. Legal Proceedings	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3. Defaults Upon Senior Securities	27
Item 4. Submission of Matters to a Vote of Security Holders	27
Item 5. Other Information	27
Item 6. Exhibits	28
Signatures	30
Certifications	33-36

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PART 1. FINANCIAL INFORMATION
HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)		September 30, 2005			December 31, 2004
		(Unaudited)
Assets
Cash and due from banks	$	62,133		$	50,699
Federal funds sold and securities purchased under agreements to resell		71,000			52,000
Interest-bearing deposits in banks		6,915			4,291
Total cash and cash equivalents		140,048			106,990
Residential mortgage loans held for sale		4,063			1,236
Investment securities available for sale		837,405			874,732
Investment securities held to maturity (market value $63,560 and $69,704, respectively)		62,940			68,831
Total loans and leases		1,937,803			1,844,566
Less: Allowance for loan losses		(19,205	)		(18,455	)
Net loans		1,918,598			1,826,111
Premises and equipment, net		26,806			26,963
Accrued interest receivable		12,719			12,089
Net assets in foreclosure		469			370
Goodwill		31,552			32,548
Intangible assets, net		4,067			4,168
Bank-owned life insurance		58,735			52,109
Other assets		22,736			18,368
Total assets	$	3,120,138		$	3,024,515
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing	$	335,614		$	333,516
Interest-bearing:
Checking accounts		399,482			305,584
Money market accounts		677,507			713,039
Savings		196,242			223,039
Time, under $100,000		529,302			508,010
Time, $100,000 or greater		211,412			129,375
Total deposits		2,349,559			2,212,563
Federal funds purchased and securities sold under agreements to repurchase		104,491			142,445
Other short-term borrowings		1,706			47,213
Long-term borrowings		292,750			272,750
Accrued interest payable		24,343			26,613
Subordinated debt		51,548			25,774
Other liabilities		20,114			26,625
Total liabilities		2,844,511			2,753,983
Shareholders' Equity:
Series preferred stock, par value $1 per share; Authorized 8,000,000 shares, none issued		-			-
Common stock, par value $1 per share; authorized 75,000,000 Shares; issued 27,500,407 shares at September 30, 2005 and
27,319,988 shares at December 31, 2004		27,500			27,320
Additional paid in capital		168,315			160,039
Retained earnings		84,783			99,730
Accumulated other comprehensive income (loss)		(4,102	)		1,243
Treasury stock, at cost: 41,324 shares at September 30, 2005 and
1,042,734 shares at December 31, 2004		(869	)		(17,800	)
Total shareholders' equity		275,627			270,532
Total liabilities and shareholders' equity	$	3,120,138		$	3,024,515

See accompanying notes to consolidated financial statements.

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HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share information)		2005		2004		2005		2004
Interest Income:
Loans, including fees	$	29,194	$	23,226	$	82,188	$	63,798
Lease financing		483		1,072		1,711		3,570
Investment securities:
Taxable		5,678		6,448		17,362		17,690
Exempt from federal taxes		2,797		2,458		8,476		8,144
Federal funds sold and securities purchased under agreements to resell		353		155		888		305
Deposits in banks		65		7		106		26
Total interest income		38,570		33,366		110,731		93,533
Interest Expense:
Savings and money market deposits		5,916		2,647		15,235		6,143
Time, under $100,000		4,604		4,490		13,542		13,142
Time, $100,000 or greater		1,559		837		3,588		2,428
Short-term borrowings		1,299		329		3,153		888
Long-term borrowings		3,448		2,983		9,952		7,302
Total interest expense		16,826		11,286		45,470		29,903
Net interest income		21,744		22,080		65,261		63,630
Provision for loan losses		650		499		2,050		1,485
Net interest income after provision for loan losses		21,094		21,581		63,211		62,145
Noninterest Income:
Service charges		2,112		2,000		6,113		5,854
Gain on sales in investment securities, net		1,898		112		3,047		1,653
Gain on sale of branch		-		-		690		-
Trust, investment services and advisory income		1,261		1,878		5,241		4,587
Bank-owned life insurance income		497		647		1,635		1,779
Income on life insurance		-		-		177		-
Other income		1,962		2,056		5,522		4,890
Total noninterest income		7,730		6,693		22,425		18,763
Net interest income after provision for loan losses and noninterest income		28,824		28,274		85,636		80,908
Noninterest Expense:
Salaries, wages and employee benefits		9,189		9,754		28,869		26,865
Occupancy		1,277		1,135		3,911		3,339
Furniture and equipment		963		1,217		3,284		3,607
Other expense		3,884		2,371		11,645		9,076
Total noninterest expense		15,313		14,477		47,709		42,887
Income before income tax expense		13,511		13,797		37,927		38,021
Income tax expense		3,349		3,632		8,910		9,567
Net income	$	10,162	$	10,165	$	29,017	$	28,454
Net income per share information:
Basic	$	0.37	$	0.37	$	1.05	$	1.05
Diluted	$	0.36	$	0.36	$	1.03	$	1.02
Cash dividends per share	$	0.18	$	0.16	$	0.52	$	0.47
Weighted average number of common shares:
Basic		27,521,780		27,552,647		27,544,393		27,032,475
Diluted		28,075,455		28,408,383		28,134,749		27,945,621

See accompanying notes to consolidated financial statements.

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HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars and share information in thousands)

Nine Months Ended September 30, 2005
	Common Stock	Treasury Stock					Additional					Accumulated Other
	Number of	Number of			Par		Paid		Retained			Comprehensive			Treasury						Comprehensive
	Shares	Shares			Value		In Capital		Earnings			Income (Loss)			Stock			Total			Income (Loss)
Balance, January 1, 2005	27,320	(1,043	)	$	27,320	$	160,039	$	99,730		$	1,243		$	(17,800	)	$	270,532
Issuance of stock for stock options, net of tax benefits	142	68			142		2,181		-			-			1,282			3,605
Issuance of stock for stock awards	-	-			-		5		-			-			-			5
Stock dividend	38	1,272			38		6,090		(29,535	)		-			23,392			(15	)
Net income	-	-			-		-		29,017			-			-			29,017		$	29,017
Other comprehensive loss, net of reclassifications and tax	-	-			-		-		-			(5,345	)		-			(5,345	)		(5,345	)
Purchases of treasury stock	-	(338	)		-		-		-			-			(7,743	)		(7,743	)
Cash dividends	-	-			-		-		(14,429	)		-			-			(14,429	)
Comprehensive income																				$	23,672
Balance, September 30, 2005	27,500	(41	)	$	27,500	$	168,315	$	84,783		$	(4,102	)	$	(869	)	$	275,627

Nine Months Ended September 30, 2004
	Common Stock	Treasury Stock					Additional						Accumulated Other
	Number of	Number of			Par		Paid			Retained			Comprehensive			Treasury						Comprehensive
	Shares	Shares			Value		In Capital			Earnings			Income (Loss)			Stock			Total			Income (Loss)
Balance, January 1, 2004	24,668	(823	)	$	24,668	$	98,646		$	109,502		$	8,098		$	(13,861	)	$	227,053
Issuance of stock for stock options, net of tax benefits	303	-			303		3,911			-			-			-			4,214
Issuance of stock for stock awards	-	-			-		7			-			-			-			7
Stock dividend	1,295	(46	)		1,295		28,456			(29,764	)		-			-			(13	)
Net income	-	-			-		-			28,454			-			-			28,454		$	28,454
Other comprehensive loss, net of reclassifications and tax	-	-			-		-			-			(5,662	)		-			(5,662	)		(5,662	)
Issuance of common stock for Acquisition of Millennium Bank	946	-			946		27,974			-			-			-			28,920
Purchases of treasury stock	-	(167	)		-		399			-			-			(3,596	)		(3,197	)
Sale of treasury stock	-	16			-		(275	)		-			-			275			-
Cash dividends	-	-			-		-			(12,810	)		-			-			(12,810	)
Comprehensive income																					$	22,792
Balance, September 30, 2004	27,212	(1,020	)	$	27,212	$	159,118		$	95,382		$	2,436		$	(17,182	)	$	266,966
See accompanying notes to consolidated financial statements.

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HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Nine Months Ended
(Dollars in thousands)	September 30,
		2005			2004
Operating Activities:
Net income	$	29,017		$	28,454
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,050			1,485
Depreciation and amortization		2,352			3,061
Net amortization of investment securities discounts/premiums		2,126			4,452
Deferred income tax benefit		(2,892	)		(569	)
Gains on sales of investment securities, net		(3,047	)		(1,653	)
Gain on sale of branch		(690	)		-
Gain on sale of bank subsidiary		(287	)		-
Net increase in accrued interest receivable		(642	)		(678	)
Net increase (decrease) in accrued interest payable		(1,894	)		2,533
Net increase in other assets		(2,389	)		(1,612	)
Net increase (decrease) in other liabilities		(2,598	)		2,324
Other, net		5			7
Net cash provided by operating activities		21,111			37,804
Investing Activities:
Proceeds from sales of investment securities available for sale		247,040			1,148,686
Proceeds, maturity or calls of investment securities held to maturity		5,870			1,099
Proceeds, maturity or calls of investment securities available for sale		144,473			214,010
Purchases of investment held to maturity		-			(3,826	)
Purchases of investment securities available for sale		(362,435	)		(1,387,509	)
Net increase in loans		(102,787	)		(211,249	)
Net cash paid in sale of branch		(7,431	)		—
Net cash received from sale of bank subsidiary		1,931			—
Net cash paid due to acquisition, net of cash acquired		—			(18,439	)
Net increase in premises and equipment		(2,535	)		(4,159	)
Purchase of bank-owned life insurance		(5,000	)		—
Other net increase in bank-owned life insurance		(1,626	)		(1,780	)
Proceeds from sales of other real estate		142			1,043
Net cash used in investing activities		(82,358	)		(262,124	)
Financing Activities:
Net increase in deposits		150,574			79,424
Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase		(37,954	)		75,130
Decrease in short-term borrowings		(45,507	)		(3,000	)
Advances of long-term borrowings		20,000			68,000
Advances of subordinated debt		25,774			20,619
Cash dividends		(14,429	)		(12,810	)
Repurchase of common stock		(7,743	)		(3,197	)
Proceeds from the exercise of stock options		3,605			4,214
Other, net		(15	)		(13	)
Net cash provided by financing activities		94,305			228,367
Net increase in cash and cash equivalents		33,058			4,047
Cash and cash equivalents at beginning of period		106,990			94,857
Cash and cash equivalents at end of the period	$	140,048		$	98,904
Cash paid during the period for:
Interest	$	47,611		$	27,753
Income taxes	$	12,850		$	7,400
Supplemental disclosure of noncash investing and financing activities:
Transfer of assets from loans to other real estate owned	$	279		$	517
Acquisition of Millennium Bank, common stock issued	$	—		$	28,920
See accompanying notes to consolidated financial statements.

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HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1- Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of Harleysville National Corporation (the Corporation) and its wholly owned subsidiaries - Harleysville National Bank (the Bank), HNC Financial Company and HNC Reinsurance Company, as of September 30, 2005, the results of its operations for the three and nine month periods, ended September 30, 2005 and 2004 and the cash flows for the nine month periods, ended September 30, 2005 and 2004. Certain prior period amounts have been reclassified to conform to current year presentation. All significant intercompany accounts and transactions have been eliminated in consolidation. We recommend that you read these unaudited consolidated financial statements in conjunction with the audited consolidated financial statements of the Corporation and the accompanying notes in the Corporation's 2004 Annual Report on Form 10-K. The results of operations for the three and nine month periods ended September 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Actual results could differ from those estimates.

Goodwill and Intangible Assets

Goodwill decreased to $31.6 million from $32.5 million at December 31, 2004 due to the sale of Cumberland Advisors, Inc. which took place in the second quarter of this year. Amortization and net valuation adjustments of core deposit intangibles and other intangible assets were $150,000 and $208,000 for the three months ended September 30, 2005 and 2004, respectively and $353,000 and $702,000 for the nine months ended September 30, 2005 and 2004, respectively. Management performed its annual review of goodwill at June 30, 2005 and determined there was no impairment of goodwill.

Stock Based Compensation

The Corporation follows Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. The Corporation has chosen an alternative permitted by the standard to continue accounting for employee stock options and similar instruments under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.”

Entities that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 has been applied.

The Corporation has four shareholder approved fixed stock option plans that allow the Corporation to grant options up to an aggregate of 3,617,011 shares of common stock to key employees and directors. At September 30, 2005, 2,344,571stock options had been granted under the stock option plans. The options have a term of ten years when issued and typically vest over a five-year period. The exercise price of each option is the market price of the Corporation’s stock on the date of grant. Additionally, at September 30, 2005, the Corporation has an additional 312,681 granted stock options, which were converted into the Corporation’s options as a result of the Millennium Bank acquisition. The options have a term of ten years and are exercisable at prices ranging from $9.71 to $14.50, at September 30, 2005, except for 34,485 non-qualified performance based stock options which were cancelled in conjunction with the sale of Cumberland Advisors, Inc.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants at September 30, 2005 and September 30, 2004, respectively: dividend yield of 2.86% and 2.66%; expected volatility of 29.66% and 29.10%; risk-free interest rate of 4.04% and 3.94%; and an expected life of 6.96 years and 6.96 years. The options converted as a result of the Millennium Bank acquisition have been excluded from the valuation since they have been included in goodwill under the purchase method of accounting.

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Note 1- Summary of Significant Accounting Policies (Continued)

The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (all per share information has been adjusted retroactively for the effect of stock dividends).

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except per share amounts)	September 30,				September 30,
		2005		2004		2005		2004
Net Income
As reported	$	10,162	$	10,165	$	29,017	$	28,454
Less: Stock-based compensation cost determined
Under fair value method for all awards		106		172		503		1,049
Proforma	$	10,056	$	9,993	$	28,514	$	27,405
Earnings per share (Basic)
As reported	$	.37	$	.37	$	1.05	$	1.05
Proforma	$	.37	$	.36	$	1.04	$	1.01
Earnings per share (Diluted)
As reported	$	.36	$	.36	$	1.03	$	1.02
Proforma	$	.36	$	.35	$	1.01	$	.98

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)). FAS 123(R) replaces FAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services and addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FAS 123(R) focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Under FAS 123(R), all forms of share-based payments to employees, including employee stock options, will be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award will generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. FAS 123(R) will eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25. In April 2005, the Securities and Exchange Commission adopted a new rule amending Regulation S-X to amend the date for compliance with FAS 123(R). Under FAS 123(R), the Corporation would have been required to apply the provisions of FAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. The Commission’s new rule allows registrants to implement FAS 123(R) at the beginning of their next fiscal year that begins after June 15, 2005.

The Corporation will adopt FAS 123(R) at the required effective date of January 1, 2006. The Corporation is continuing to evaluate FAS 123(R) and its effects on its results of operations. The Corporation will use the modified prospective application method of transition. Effective January 1, 2006, the Corporation will recognize compensation expense for the portion of outstanding awards at January 1, 2006 for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under FAS 123 for pro forma disclosures. For new grants awarded on or after January 1, 2006, the Corporation has chosen to continue the use of the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. In accordance with FAS 123(R), the Corporation will estimate the number of options for which the requisite service is expected to be rendered as compared to accounting for forfeitures as they occur under FAS 123.

For additional information on other significant accounting policies, see Note 1 of the Consolidated Financial Statements of the Corporation’s 2004 Annual Report on Form 10-K.

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Note 2 - Dispositions / Acquisition

On June 30, 2005, the Bank sold its former subsidiary, Cumberland Advisors, Inc., to David R. Kotok and Associates, Inc. in a stock sale. The sale price was $2.0 million cash and resulted in a $287,000 after-tax gain recorded in the second quarter of 2005. Cumberland Advisors had assets of $1.8 million. Cumberland Advisors, based in Vineland, New Jersey, is a SEC registered investment advisor specializing in fixed income money management and equities with approximately $700 million in assets under management at June 30, 2005. It was acquired by the Corporation on April 30, 2004 as part of its Millennium Bank acquisition. Based upon management’s analysis of Cumberland Advisors’ results of operations and assets in comparison to the Corporation’s, management determined the impact of the sale of Cumberland Advisors is immaterial, and therefore the transaction is not presented as discontinued operations.

On April 1, 2005, the Bank completed the sale of its McAdoo branch located in Schuylkill County, Pennsylvania with deposits of $13.9 million as well as certain loans and other assets of $5.8 million to The Legacy Bank. In connection with the sale, the Bank paid net cash of $7.4 million and recorded a pre-tax profit of $690,000 during the second quarter of 2005.

On April 30, 2004, the Corporation completed its acquisition of Millennium Bank which was merged with and into the Bank. Millennium Bank was based in Malvern, Pennsylvania with four banking offices, specializing in commercial lending and client relationship banking along with the wealth management unit, Cumberland Advisors, Inc. Millennium Bank’s results of operations are included in the Corporation’s results beginning April 30, 2004 through September 30, 2005.

The aggregate purchase price was $52.8 million in cash and stock which included $5.5 million in expenses associated with the acquisition. The Corporation acquired 100% of the outstanding shares of Millennium Bank. Millennium Bank shares of 1,511,624 were exchanged at a conversion ratio of .6256 (.68972 restated*) for 945,672 (1,042,603 restated*) shares of the Corporation’s common stock and Millennium Bank shares of 1,008,050 were exchanged for cash consideration of $16.1 million. Millennium Bank options of 302,250 were cashed out for consideration of $2.3 million and options of 453,325 were exchanged at a conversion ratio of .6256 (.68972 restated*) to acquire 283,601 shares (312,681 restated*) of the Corporation’s common stock (252,321 (278,196 restated*) options at an exercise price of $10.71 to $15.98 ($9.71 to $14.50 restated*) and 31,280 (34,485 restated*) performance based options at an exercise price of $13.59 ($12.33 restated*)).

* - Restated for five percent stock dividends paid on September 15, 2005 and September 15, 2004.

Note 3 - Trust Preferred Securities

On September 28, 2005, HNC Statutory Trust III (Trust III), a newly formed Delaware statutory trust subsidiary of the Corporation, issued $25.0 million of fixed/floating rate trust preferred securities which represent undivided beneficial interests in the assets of Trust III. Trust III issued mandatory redeemable preferred stock to investors and loaned the proceeds to the Corporation for general corporate purposes. Trust III holds, as its sole asset, a subordinated debenture in the amount of $25.8 million issued by the Corporation on September 28, 2005. Trust III qualifies as a variable interest entity under FASB Interpretation 46 (FIN 46), “Consolidation of Variable Interest Entities.” The trust preferred securities require quarterly distributions by Trust III to the holders of the trust preferred securities at a fixed rate equal to 5.67% through November 2010 and then will be payable at a variable interest rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 1.40% per annum. The trust preferred securities must be redeemed upon maturity of the subordinate debentures on November 23, 2035. The Corporation may redeem the debentures prior to their stated maturity upon the occurrence of specified special events or at the specified optional redemption dates. The Corporation may redeem the debentures, in whole but not in part, at any time, within 90 days following the occurrence and continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the trust preferred securities and in each case subject to regulatory approval if required. The Corporation also may redeem the debentures, in whole or in part, at the stated optional redemption date of November 23, 2010, and quarterly thereafter, subject to regulatory approval if required. The special and optional redemption price is equal to 100% of the principal amount of the debentures being redeemed plus accrued and unpaid interest on the debentures to the redemption date.

On March 25, 2004, HNC Statutory Trust II (Trust II), a Delaware statutory trust subsidiary of the Corporation, issued $20.0 million of floating rate (three-month LIBOR plus a margin of 2.70%) trust preferred securities, which represent undivided beneficial interests in the assets of Trust II. Trust II issued mandatory redeemable preferred stock to investors and loaned the proceeds to the Corporation. Trust II holds, as its sole asset, a subordinated debenture in the amount of $20.6 million issued by the Corporation on March 25, 2004. Trust II qualifies as a variable interest entity under FASB Interpretation 46 (FIN 46), “Consolidation of Variable Interest Entities.” The trust preferred securities must be redeemed upon maturity of the subordinate debentures on April 6, 2034. The Corporation may redeem the debentures prior to their stated maturity upon the occurrence of specified special events or at the specified optional redemption dates. The Corporation may redeem the debentures, in whole or in part, at any time, within 90 days following the occurrence and continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the trust preferred securities and in each case subject to regulatory approval if required. The Corporation also may redeem the debentures, in whole or in part, at the stated optional redemption date of April 7, 2009 and quarterly thereafter, subject to regulatory approval if required. The special and optional redemption price is equal to 100% of the principal amount of the debentures being redeemed plus accrued and unpaid interest on the debentures to the redemption date.

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Note 3 - Trust Preferred Securities (Continued)

On February 22, 2001, the Corporation issued $5.0 million of 10.2% junior subordinate deferrable interest debentures (the debentures) to Harleysville Statutory Trust I (Trust I), a Connecticut business trust, in which the Corporation owns all of the common equity. Trust I issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Corporation. Management has determined that Trust I qualifies as a variable interest entity under FIN 46, as revised. The Corporation deconsolidated Trust I during the first quarter of 2004 which resulted in the investment in the common stock of Trust I to be included in other assets as of March 31, 2004 and the corresponding increase in outstanding debt of $155,000. The trust preferred securities must be redeemed upon maturity of the subordinate debentures on February 22, 2031. The Corporation may redeem the debentures prior to their stated maturity upon the occurrence of specified special events or at the specified optional redemption dates. The Corporation may redeem the debentures, in whole but not in part, at any time, within 90 days following the occurrence and continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the trust preferred securities and in each case subject to regulatory approval if required. If the special redemption date is before February 22, 2011, the special redemption price is the greater of (i) 100% of the principal amount of the debentures, plus accrued and unpaid interest on the debentures to the special redemption date, or (ii) as determined by a quotation agent, the sum of (a) the present value of the principal amount of the debentures at 105.10% of the principal amount and the present value of interest payable from the special redemption date to February 22, 2011, each discounted to the special redemption date on a semi-annual basis, plus (b) accrued and unpaid interest on the debentures to the special redemption date. If the special redemption date is on February 22, 2011, the redemption price is 105.10% of the principal amount, and declines annually to 100.00% on February 22, 2021 and thereafter, plus accrued and unpaid interest on the debentures to the redemption date. The Corporation also may redeem the debt securities, in whole or in part, at the stated optional redemption date of February 22, 2011 and semi-annually thereafter, subject to regulatory approval if required. The redemption price on February 22, 2011 is equal to 105.10% of the principal amount, and declines annually to 100.00% on February 22, 2021 and thereafter, plus accrued and unpaid interest on the debentures to the redemption date.

The Corporation’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Corporation of Trust I’s, Trust II’s and Trust III’s obligations under the trust preferred securities.

In March 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of outstanding and prospective issuances of trust preferred securities in Tier 1 capital of bank holding companies. Under the final rule, trust preferred securities and other restricted core capital elements will be subject to stricter quantitative limits. The Board’s final rule limits restricted core capital elements to 25% of all core capital elements, net of goodwill, less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital. The final rule provides a five-year transition period ending March 31, 2009, for application of the quantitative limits. In addition, the requirement for trust preferred securities to include a call option has been eliminated, and standards for the junior subordinated debt underlying trust preferred securities eligible for Tier 1 capital treatment have been clarified. Management has evaluated the effects of the rule and does not anticipate a material impact on its capital ratios upon implementation.

Note 4 - Pension Plan

The Corporation has a non-contributory defined benefit pension plan covering substantially all employees. The plan’s benefits are based on years of service and the employee’s average compensation during any five consecutive years within the 10-year period preceding retirement.

Net periodic defined benefit pension expense for the nine months ended September 30, 2005 and 2004 included the following components:

	Nine Months Ended
	September 30,
(Dollars in thousands)		2005			2004
Service cost	$	789		$	655
Interest cost		481			424
Expected return on plan assets		(393	)		(358	)
Amortization of prior service cost		—			(79	)
Amortization of unrecognized net actuarial loss		70			60
Net periodic benefit expense	$	947		$	702

The Corporation has contributed $1.5 million to its pension plan in 2005.

Note 5 - Stock Dividend/Split

On September 15, 2005, the Corporation paid a five percent stock dividend to shareholders of record as of September 1, 2005. On September 15, 2004, the Corporation paid a five percent stock dividend to shareholders of record as of August 30, 2004. All prior period amounts were restated to reflect these stock dividends.

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Note 6 - Earnings Per Share

The Corporation follows the provisions of SFAS No. 128, “Earnings per Share.” Basic earnings per share exclude dilution and are computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per share take into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. All weighted average, actual shares and per share information in these financial statements have been adjusted retroactively for the effect of stock dividends. The calculations of basic earnings per share and diluted earnings per share are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30
(Dollars in thousands, except per share data)		2005		2004		2005		2004
Basic earnings per share
Net income available to common shareholders	$	10,162	$	10,165	$	29,017	$	28,454
Weighted average common shares outstanding		27,521,780		27,552,647		27,544,393		27,032,475
Basic earnings per share	$	.37	$	.37	$	1.05	$	1.05
Diluted earnings per share
Net income available to common shareholders and assumed conversions	$	10,162	$	10,165	$	29,017	$	28,454
Weighted average common shares outstanding		27,521,780		27,552,647		27,544,393		27,032,475
Dilutive potential common shares (1), (2)		553,675		855,736		590,356		913,146
Total diluted weighted average common shares outstanding		28,075,455		28,408,383		28,134,749		27,945,621
Diluted earnings per share	$	.36	$	.36	$	1.03	$	1.02

(1)   Includes incremental shares from assumed conversions of stock options.

(2)   Antidilutive options have been excluded in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common stock. For the three and nine months ended September 30, 2005, there were 352,581 antidilutive options at an average price of $26.95 and 354,681 antidilutive options at an average price of $26.92, respectively. For the three and nine months ended September 30, 2004, there were 244,650 antidilutive options at an average price of $27.66 and 239,400 antidilutive options at an average price of $27.77, respectively.

Note 7 - Comprehensive Income

The Corporation follows SFAS No. 130, “Reporting Comprehensive Income,” which establishes standards to provide prominent disclosure of comprehensive income items. The components of other comprehensive income are as follows:

Comprehensive Income
(Dollars in thousands)		Before tax			Tax Benefit			Net of tax
Nine months ended September 30, 2005		Amount			(Expense)			Amount
Net unrealized losses on available for sale securities:
Net unrealized holding losses arising during period	$	(5,533	)	$	1,937		$	(3,596	)
Less reclassification adjustment for net gains realized in net income		3,047			(1,066	)		1,981
Net unrealized losses		(8,580	)		3,003			(5,577	)
Change in fair value of derivatives used for cash flow hedges		552			(193	)		359
Unrealized loss on termination of cash flow hedge		(195	)		68			(127	)
Other comprehensive loss, net	$	(8,223	)	$	2,878		$	(5,345	)
(Dollars in thousands)		Before tax			Tax Benefit			Net of tax
Nine months ended September 30, 2004		Amount			(Expense	)		amount
Net unrealized losses on available for sale securities:
Net unrealized holding losses arising during period	$	(7,558	)	$	2,645		$	(4,913	)
Less reclassification adjustment for net gains realized in net income		1,653			(579	)		1,074
Net unrealized losses		(9,211	)		3,224			(5,987	)
Change in minimum pension liability		460			—			460
Change in fair value of derivatives used for cash flow hedges		(207	)		72			(135	)
Other comprehensive loss, net	$	(8,958	)	$	3,296		$	(5,662	)

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Note 8 - Financial Instruments with Off-Balance Sheet Risk

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amounts of those instruments. The Bank uses the same stringent credit policies in extending these commitments as they do for recorded financial instruments and controls exposure to loss through credit approval and monitoring procedures.

The approximate contract amounts are as follows:

	Total Amount Committed at
Commitments	September 30, 2005	December 31, 2004
(Dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$737,556	$660,238
Standby letters of credit and financial guarantees written	15,911	17,217
Financial instruments whose notional or contract amounts exceed the amount of credit risk:
Interest rate swap agreements	20,000	45,000

The interest rate swaps have the effect of converting the rates on money market deposit accounts to a fixed-rate cost of funds. This strategy will cause the Bank to recognize, in a rising rate environment, a larger interest rate spread than it otherwise would have without the swaps in effect. During the first quarter of 2005, the Corporation terminated a swap with a notional value of $25.0 million. The gross loss related to the termination of this swap is $310,000 which is being amortized through October 2006. The loss is being recorded into net interest income from accumulated other comprehensive loss. For the three and nine months ended September 30, 2005, the Corporation amortized into net interest income $46,000 and $115,000, respectively, related to this swap.

The Bank also had commitments with customers to extend mortgage loans at a specified rate at September 30, 2005 and December 31, 2004 of $4.8 million and $5.1 million, respectively and commitments to sell mortgage loans at a specified rate at September 30, 2005 and December 31, 2004 of $1.2 million and $2.2 million, respectively. The commitments are accounted for as a derivative and recorded at fair value. The Bank estimates the fair value of these commitments by comparing the secondary market price at the reporting date to the price specified in the contract to extend or sell the loan initiated at the time of the loan commitment. At September 30, 2005, the commitments had a negative fair value of $1,000 which was recorded as a reduction of other income. At December 31, 2004, the commitments had a positive fair value of $5,000 which was recorded as other income.

During December 2004 and January 2005, the Bank sold lease financing receivables of $10.5 million. Of these leases, $1.2 million were sold with full recourse and the remaining leases were sold subject to recourse with a maximum exposure of ten percent of the outstanding receivable. The total recourse exposure related to the sold leases is $2.0 million. During the first quarter of 2005, the Bank recorded a recourse liability of $216,000 which is the entire recourse liability recorded. This estimate was based on our historic losses as experienced on similar lease financing receivables. After the first anniversary of the sale agreement, and on a quarterly basis thereafter, upon written request by the Bank, the purchaser will review the portfolio performance and may reduce the total exposure to an amount equal to ten percent of the outstanding net book value. The Corporation will be subject to the full and partial recourse obligations until all the lease financing receivables have been paid or otherwise been terminated and all equipment has been sold or disposed of. The final lease payment is due in 2010 with approximately 90% of the lease financing receivables estimated to be paid down by 2007. The outstanding balance of these sold leases at September 30, 2005 was $7.5 million.

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Note 9 - Recent Accounting Pronouncements

In June 2005, the FASB approved the issuance of proposed FASB Staff Position (FSP) EITF 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,” as final without providing additional guidance on the meaning of other-than-temporary impairment. The final FSP will be retitled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” and will supersede EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” and EITF Topic D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” The final FSP will replace the guidance in paragraphs 10-18 of EITF Issue 03-1 (which had been deferred by FSP EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, ‘The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments’”) with references to existing other-than-temporary impairment guidance, such as FAS 115,“Accounting for Certain Investments in Debt and Equity Securities,” Staff Accounting Bulletin 59,“Accounting for Noncurrent Marketable Equity Securities,” and APB Opinion 18,“The Equity Method of Accounting for Investments in Common Stock.” FSP FAS 115-1 will codify the guidance set forth in EITF Topic D-44 and clarify that an investor should recognize an impairment loss no later than when the impairment is considered other than temporary, even if a decision to sell has not been made. The FASB approved the proposed FSP subject to a vote on the final draft. In September 2005, the Board decided to include in the final FSP, guidance similar to that provided in EITF Issue 03-1 regarding the accounting for debt securities subsequent to an other-than-temporary impairment. The Board also decided to add a footnote to clarify that the final FSP will not address when a debt security should be designated as nonaccrual or how to subsequently report income on a nonaccrual debt security. FSP FAS 115-1 will be applied prospectively and is effective for reporting periods beginning after December 15, 2005. Upon final issuance, the Corporation will determine the impact FSP FAS 115-1 will have on its financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (FAS 154). FAS 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” FAS 154 requires retrospective application to prior periods’ financial statements of every voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. FAS 154 carries forward without change the guidance in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. FAS 154 carries forward the provisions of SFAS No. 3 that govern reporting accounting changes in interim financial statements. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although earlier application is permitted for changes and corrections of errors made in fiscal years beginning after June 1, 2005. FAS 154 is not expected to have a material impact on the Corporation’s financial position or results of operations.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47). FIN 47 clarifies that an entity must recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. This Interpretation also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005 (December 31, 2005, for calendar-year enterprises), although early adoption is encouraged. FIN 47 is not expected to have a material impact on the Corporation’s financial position or results of operations.

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Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF

             RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following is management’s discussion and analysis of the significant changes in the results of operations, capital resources and liquidity presented in its accompanying consolidated financial statements for the Corporation, the Bank, HNC Financial Company and HNC Reinsurance Company. The Corporation’s consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. Current performance does not guarantee, and may not be indicative, of similar performance in the future. These are unaudited financial statements and, as such, are subject to year-end audit review.

In addition to historical information, this Form 10-Q contains forward-looking statements. We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of the Corporation and its subsidiaries. When we use words such as “believes,”“expects,”“anticipates,” or similar expressions, we are making forward-looking statements.

Shareholders should note that many factors, some of which are discussed elsewhere in this document and in the documents that we incorporate by reference, could affect the future financial results of the Corporation and its subsidiaries and could cause those results to differ materially from those expressed in our forward-looking statements contained or incorporated by reference in this document. These factors include the following:

*operating, legal and regulatory risks;

*economic, political and competitive forces affecting our banking,

                                            securities, asset management and credit services businesses and;

*the risk that our analyses of these risks and forces could be incorrect

                                           and/or that the strategies developed to address them could be unsuccessful.

Critical Accounting Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform to accounting principles generally accepted in the United States and general practices with the financial services industry. The Corporation’s significant accounting policies are described in Note 1 of the consolidated financial statements in this Form 10-Q and in the Corporation’s 2004 Annual Report on Form 10-K and are essential in understanding Management’s Discussion and Analysis of Results of Operations and Financial Condition. In applying accounting policies and preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ significantly from those estimates. Judgments and assumptions required by management, which have, or could have a material impact on the Corporation’s financial condition or results of operations are considered critical accounting estimates. The following is a summary of the policies the Corporation recognizes as involving critical accounting estimates: Allowance for Loan Loss, Goodwill and Other Intangible Asset Impairment, Stock-Based Compensation, Unrealized Gains and Losses on Debt Securities Available for Sale, and Deferred Taxes.

Allowance for Loan Losses: The Corporation maintains an allowance for loan losses at a level management believes is sufficient to absorb estimated probable credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires significant estimates by management. Consideration is given to a variety of factors in establishing these estimates including current and anticipated economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ perceived financial and management strengths, the adequacy of underlying collateral, the dependence on collateral, or the strength of the present value of future cash flows and other relevant factors. These factors may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required which may adversely affect the Corporation’s results of operations in the future.

Goodwill and Other Intangible Asset Impairment: Goodwill and other intangible assets are reviewed for potential impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill is tested for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Corporation employs general industry practices in evaluating the fair value of its goodwill and other intangible assets. The Corporation calculates the fair value using a combination of the following valuations: deposit premiums based on market deals, current stock pricing tracking as a multiple of book value, discounted cash flow of earnings with a terminal value and market multiple of earnings. Management performed its annual review of goodwill at June 30, 2005 and determined there was no impairment of goodwill.No assurance can be given that future impairment tests will not result in a charge to earnings.

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Stock-based Compensation: Under SFAS No. 123 “Accounting for Stock-Based Compensation” (FAS 123), companies have a choice whether to adopt the fair value based method of accounting for stock-based compensation or remain with the intrinsic value based method prescribed under APB Opinion No. 25, “Account for Stock Issued to Employees” (APB 25) but provide pro-forma disclosure as if the fair value based method was applied. The Corporation chose the intrinsic value based method under APB 25 and provides pro-forma disclosure required under FAS 123. In preparing the pro-forma disclosure, the Corporation estimates the fair value of employee stock options using a pricing model which takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Corporation’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)). Under FAS 123(R), all forms of share-based payments to employees, including employee stock options, will be treated the same as other forms of compensation by recognizing the related cost in the income statement. Registrants are required to implement FAS 123(R) at the beginning of their next fiscal year that begins after June 15, 2005, or after December 15, 2005 for small business issuers, per the Securities and Exchange Commission’s rule issued in April 2005 amending the FAS 123(R) compliance date.

Unrealized Gains and Losses on Debt Securities Available for Sale: The Corporation receives estimated fair values of debt securities from independent valuation services and brokers. In developing these fair values, the valuation services and brokers use estimates of cash flows based on historical performance of similar instruments in similar rate environments. Debt securities available for sale are mostly comprised of mortgage-backed securities.

Deferred Taxes: The Corporation recognizes deferred tax assets and liabilities for the future effects of temporary differences, net operating loss carryforwards, and tax credits. Deferred tax assets are subject to management’s judgment based upon available evidence that future realizations are likely. If management determines that the Corporation may not be able to realize some or all of the net deferred tax asset in the future, a charge to income tax expense may be required to reduce the value of the net deferred tax asset to the expected realizable value.

The Corporation has not substantively changed its application of the foregoing policies, and there have been no material changes in assumptions or estimation techniques used as compared to prior periods.

Financial Overview

The Corporation earned $10.2 million in the third quarter of 2005, 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 $28.5 million reported for the same period in 2004. The earnings for 2005 reflected increases in gains on sales of investment securities and loan interest income partially offset by increases in interest expense on deposits and salaries and benefits expense.

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.

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. Total assets at September 30, 2005 increased $95.6 million compared to December 31, 2004 with $96.1 million growth in loans.

For the three months ended September 30, 2005, the annualized return on average shareholders’ equity and the annualized return on average assets were 14.64% and 1.32%, respectively. For the same period in 2004, the annualized return on average shareholders’ equity was 15.61% and the annualized return on average assets was 1.40%. The decrease in the annualized return on average shareholders’ equity during 2005 was primarily due to the retention of earnings.

Nonperforming assets (nonaccruing loans, net assets in foreclosure and loans past due 90 days or more and still accruing interest) 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 annualized net loans charged-off to average loans was 0.07% during the third quarter of 2005, compared to 0.15% during the third quarter of 2004.

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Results of Operations

Net income is affected by five major elements: (1) net interest income, or the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowed funds; (2) the provision for loan losses, or the amount added to the allowance for loan losses to provide reserves for inherent losses on loans; (3) noninterest income, which is made up primarily of certain fees, trust income and gains and losses from sales of securities; (4) noninterest expense, which consists primarily of salaries, employee benefits and other operating expenses; and (5) income taxes. Each of these major elements will be reviewed in more detail in the following discussion.

Net Interest Income

Net interest income on a fully tax-equivalent basis in the third quarter of 2005 decreased $449,000 or 1.9% compared to 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. As a result of market conditions, deposit rates have increased more quickly than the loan rates have increased.

The rate volume variance analysis in the table below, which is computed on a tax-equivalent basis (tax rate of 35%), analyzes changes in net interest income for the three and nine months ended September 30, 2005 compared to September 30, 2004 by their volume and rate components. The change attributable to both volume and rate has been allocated proportionately.

Table 1—Analysis of Changes in Net Interest Income—Fully Taxable-Equivalent Basis

	Three Months Ended									Nine Months Ended
	September 30, 2005 compared to									September 30, 2005 compared to
(Dollars in thousands)	September 30, 2004									September 30, 2004
		Total		Due to change in:							Total		Due to change in:
		Change			Volume			Rate			Change			Volume			Rate
Increase (decrease) in interest income:
Investment securities *	$	(453	)	$	(298	)	$	(155	)	$	(488	)	$	(1,242	)	$	754
Federal funds sold and deposits in banks		256			18			238			663			52			611
Loans *		5,288			2,986			2,302			16,341			13,838			2,503
Total		5,091			2,706			2,385			16,516			12,648			3,868
Increase (decrease) in interest expense:
Savings and money market deposits		3,269			221			3,048			9,092			1,047			8,045
Time deposits		836			32			804			1,560			(332	)		1,892
Borrowed funds		1,435			520			915			4,915			2,714			2,201
Total		5,540			773			4,767			15,567			3,429			12,138
Net increase (decrease) in interest income	$	(449	)	$	1,933		$	(2,382	)	$	949		$	9,219		$	(8,270	)
*Tax equivalent basis using a tax rate of 35%

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The table below presents the major asset and liability categories on an average basis for the periods presented, along with interest income and expense, and key rates and yields.

Table 2—Average Balance Sheets and Interest Rates¾Fully Taxable-Equivalent Basis

(Dollars in thousands)	Three Months Ended September 30,						Three Months Ended September 30,
	2005						2004
		Average			Average			Average			Average
Assets		Balance		Interest	Rate			Balance		Interest	Rate
Earning assets:
Investment securities:
Taxable investments	$	642,405	$	5,678	3.51	%	$	709,890	$	6,448	3.61	%
Nontaxable investments (1)		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 (1) (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						.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

-17-

(Dollars in thousands)	Nine Months Ended September 30,						Nine Months Ended September 30,
	2005						2004
		Average			Average			Average			Average
Assets		Balance		Interest	Rate			Balance		Interest	Rate
Earning assets:
Investment securities:
Taxable investments	$	641,102	$	17,362	3.62	%	$	703,978	$	17,690	3.36	%
Nontaxable investments (1)		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 (1) (2)		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						.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)   The interest earned on nontaxable investment securities and loans is shown on a tax equivalent basis (tax rate of 35%).

(2)   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.

Interest income on a tax equivalent basis in the third quarter of 2005 increased $5.1 million, or 14.5% over the same period in 2004. This increase was primarily due to higher average loans of $195.3 million, or 11.4% and a 50 basis point increase in the average rate earned on loans. Interest expense increased $5.5 million during the third quarter of 2005 versus the comparable period in 2004 mainly attributed to higher deposit and borrowing rates. The average rate paid on deposits during the third quarter of 2005 of 2.50% was 76 basis points higher compared to the same period in 2004 mostly due to higher rates on money market accounts as well as interest checking and time deposits accounts. The average rate paid on borrowings for the third quarter of 2005 of 3.99% was 80 basis points higher than the comparable period in 2004 mainly due to an increase in short-term borrowing rates.

-18-

Net Interest Margin

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.

During the third quarter of 2005, the Corporation continued to manage its balance sheet in an effort to position it for potentially higher rates in the future. The Corporation continued to sell securities with longer average lives in a rising rate environment and purchased securities with more stable cash flows in such a rate environment. As a result, the balance sheet is better positioned to minimize market risk from rising rates.

Interest Rate Sensitivity Analysis

In the normal course of conducting business activities, the Corporation is exposed to market risk, principally interest rate risk through the operations of its banking subsidiary. Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and value of financial instruments.

The Corporation actively manages its interest rate sensitivity positions. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve consistent growth in net interest income. The Asset/Liability Committee, using policies and procedures approved by the Corporation’s Board of Directors, is responsible for managing the rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix and repricing characteristics of its assets and liabilities through the management of its investment securities portfolio, its offering of loan and deposit terms and through borrowings from the Federal Home Loan Bank of Pittsburgh (the FHLB). The nature of the Corporation’s current operations is such that it is not subject to foreign currency exchange or commodity price risk.

The Corporation only utilizes derivative instruments for asset/liability management, specifically, to convert variable rate debt to a fixed rate. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations and payments are based. The notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Interest rate swaps are contracts in which a series of interest-rate flows (fixed and floating) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged.

The Corporation had two interest-rate swaps with a notional value totaling $20.0 million and a positive fair value of $605,000 at September 30, 2005. During the first quarter of 2005, the Corporation terminated a swap with a notional value of $25.0 million. The gross loss related to the termination of this swap is $310,000 which is being amortized through October 2006 in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” For the three and nine months ended September 30, 2005, the Corporation amortized into net interest income $46,000 and $115,000, respectively, related to this swap.

The Corporation uses three principal reports to measure interest rate risk: (1) asset/liability simulation reports; (2) gap analysis reports; and (3) net interest margin reports. Management also simulates possible economic conditions and interest rate scenarios in order to quantify the impact on net interest income. The effect that changing interest rates have on the Corporation’s net interest income is simulated by increasing and decreasing interest rates. This simulation is known as rate shocking. The results of the September 30, 2005 net interest income rate shock simulations show that the Corporation is within guidelines set by the Corporation’s Asset/Liability Policy.

The report below forecasts changes in the Corporation’s market value of equity under alternative interest rate environments as of September 30, 2005. The market value of equity is defined as the net present value of the Corporation’s existing assets and liabilities. The Corporation is within guidelines set by the Corporation’s Asset/Liability Policy for the percentage change in the market value of equity.

Table 3—Market Value of Equity

				Change in				Asset/Liability
		Market Value		Market Value		Percentage		Approved
(Dollars in thousands)		of Equity		of Equity		Change		Percent Change
+300 Basis Points	$	331,997	$	(75,525	)	-18.53	%	+/- 35	%
+200 Basis Points		358,104		(49,418	)	-12.13		+/- 25
+100 Basis Points		386,902		(20,620	)	-5.06		+/- 15
Flat Rate		407,522		-		0.00
-100 Basis Points		408,237		715		.18		+/- 15
-200 Basis Points		397,036		(10,486	)	-2.57		+/- 25
-300 Basis Points		379,432		(28,090	)	-6.89		+/- 35

-19-

In the event the Corporation should experience a mismatch in its desired gap ranges or an excessive decline in their market value of equity resulting from changes in interest rates, it has a number of options that it could use to remedy the mismatch. The Corporation could restructure its investment portfolio through the sale or purchase of securities with more favorable repricing attributes. It could also emphasize growth in loan products with appropriate maturities or repricing attributes, or attract deposits or obtain borrowings with desired maturities.

Provision for Loan Losses

The Bank uses the reserve method of accounting for loan losses. The balance in the allowance for loan and lease losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries and losses. Increases to the allowance for loan and lease losses are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses.

While management considers the allowance for loan losses to be adequate based on information currently available, future additions to the allowance may be necessary due to changes in economic conditions or management’s assumptions as to future delinquencies, recoveries and losses and management’s intent with regard to the disposition of loans. In addition, the Office of the Comptroller of the Currency (the OCC), as an integral part of their examination process, periodically reviews the Bank’s allowance for loan losses. The OCC may require the Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

The Bank’s allowance for loan and lease losses is the accumulation of various components that are calculated based on various independent methodologies. All components of the allowance for loan losses are an estimation. Management bases its recognition and estimation of each allowance component on certain observable data that it believes is the most reflective of the underlying loan losses being estimated. The observable data and accompanying analysis is directionally consistent, based upon trends, with the resulting component amount for the allowance for loan losses. The Bank’s allowance for loan losses components includes the following: historical loss estimation by loan product type and by risk rating within each product type, payment (past due) status, industry concentrations, internal and external variables such as economic conditions, credit policy and underwriting changes and competence of the loan review process. The Bank’s historical loss component is the most significant component of the allowance for loan losses, and all other allowance components are based on the inherent loss attributes that management believes exist within the total portfolio that are not captured in the historical loss component.

The historical loss components of the allowance represent the results of analyses of historical charge-offs and recoveries within pools of homogeneous loans, within each risk rating and broken down further by segment, within the portfolio. Criticized assets are further assessed based on trends, expressed as percentages, relative to delinquency, risk rating and nonaccrual, by segment.

The historical loss components of the allowance for commercial loans is based principally on current risk ratings, historical loss rates adjusted, by adjusting the risk window, to reflect current events and conditions, as well as analyses of other factors that may have affected the collectibility of loans. The Bank analyzes all commercial loans that have been identified as having potential risk. The review is accomplished via Watchlist Memoranda, and designed to determine whether such loans are individually impaired, with impairment measured by reference to the collateral coverage and/or debt service coverage. The historical loss component of the allowance for consumer loans is based principally on loan payment status, retail classification and historical loss rates adjusted, by adjusting the risk window, to reflect current events and conditions.

The industry concentration component is recognized as a possible factor in the estimation of loan losses. Two industries represent possible concentrations: commercial real estate and automobile dealers. No specific loss-related observable data is recognized by management currently, therefore no specific factor is calculated in the reserve solely for the impact of these concentrations, although management continues to carefully consider relevant data for possible future sources of observable data.

The historic loss model includes a judgmental component (soft factors) that reflects management’s belief that there are additional inherent credit losses based on loss attributes not adequately captured in the lagging indicators. Furthermore, given that past performance indicators may not adequately capture current risk levels, allowing for a real-time adjustment enhances the validity of the loss recognition process. There are many credit risk management reports that are synthesized by credit management staff to assess the direction of credit risk and its instant affect on losses. It is important to continue to use experiential data to confirm risk as measurable losses will continue to manifest themselves at higher than normal levels even after the economic cycle has begun an upward swing and lagging indicators begin to show improvement. The judgmental component is allocated to the specific segments of the portfolio based on the historic loss component.

-20-

For the third quarter of 2005, the provision for loan losses was $650,000, compared to $499,000 for the same period in 2004. For the nine months ended September 30, 2005, the provision for loan losses was $2.1 million compared to $1.5 million for the same period in 2004. These increases in the provision were primarily due to inherent risk related to loan growth and the increase in nonperforming loans. 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 ratio of the allowance for loan losses to nonperforming loans (nonaccruing loans and loans 90 days or more past due) was 255.6% at September 30, 2005, compared to 324.6% at December 31, 2004 and 414.0% at September 30, 2004. The decrease in the ratio at September 30, 2005 compared to December 31, 2004 was primarily due to the aforementioned increase in nonperforming loans. Net loans charged off were $335,000 for the third quarter of 2005 compared to $644,000 for the same quarter in 2004. Net loans charged off for the nine months ended September 30, 2005 were $1.3 million compared to $2.1 million for the comparable period in 2004.

A summary of the activity in the allowance for loan losses is as follows:

Table 4—Allowance for Loans Losses

	Nine Months Ended
	September 30,
(Dollars in thousands)		2005			2004
Average loans	$	1,879,230		$	1,568,837
Allowance, beginning of period		18,455			16,753
Loans charged off:
Commercial and industrial		282			255
Consumer		1,467			1,567
Real estate		144			189
Lease financing		31			646
Total loans charged off		1,924			2,657
Recoveries:
Commercial and industrial		65			4
Consumer		301			371
Real estate		197			107
Lease financing		61			55
Total recoveries		624			537
Net loans charged off		1,300			2,120
Reserve from Millennium Bank acquisition		—			1,677
Provision for loan losses		2,050			1,485
Allowance, end of period	$	19,205		$	17,795
Ratio of net charge offs to average
loans outstanding (annualized)		0.14	%		0.18	%

The following table sets forth an allocation of the allowance for loan losses by loan category. The specific allocations in any particular category may be reallocated in the future to reflect then current conditions. Accordingly, management considers the entire allowance to be available to absorb losses in any category.

Table 5—Allocation of the Allowance for Loan Losses by Loan Type

	September 30, 2005				December 31, 2004
			Percent of				Percent of
(Dollars in thousands)		Amount	Reserve			Amount	Reserve
Real estate	$	5,348	28	%	$	4,923	27	%
Commercial and industrial		8,422	44	%		7,456	40	%
Consumer		5,124	26	%		5,515	30	%
Lease financing		311	2	%		561	3	%
Total	$	19,205	100	%	$	18,455	100	%

-21-

Table 6—Nonperforming Assets

(Dollars in thousands)		September 30, 2005			December 31, 2004			September 30, 2004
Nonaccrual loans	$	6,388		$	4,705		$	3,350
Loans 90 days or more past due		1,125			981			948
Total nonperforming loans		7,513			5,686			4,298
Net assets in foreclosure		469			370			347
Total nonperforming assets	$	7,982		$	6,056		$	4,645
Allowance for loan losses to nonperforming loans		255.6	%		324.6	%		414.0	%
Nonperforming loans to total net loans		0.39	%		0.31	%		0.24	%
Allowance for loan and lease losses to total loans		0.99	%		1.00	%		1.00	%
Nonperforming assets to total assets		0.26	%		0.20	%		0.16	%

Nonaccruing loans at September 30, 2005 of $6.4 million, increased $1.7 million from the December 31, 2004 level of $4.7 million, and increased $3.0 million from the September 30, 2004 level of $3.4 million. The increase in nonaccruing loans at September 30, 2005, compared to December 31, 2004 was mainly due to commercial mortgage loans, primarily attributable to one borrower totaling $1.5 million. The increase in nonaccruing loans compared to September 30, 2004 was primarily due to the previously aforementioned commercial mortgage loans of $1.5 million as well as two additional commercial mortgage loans for the same borrower totaling $867,000 and a commercial business loan for another borrower totaling $450,000.

Net assets in foreclosure of $469,000 at September 30, 2005 were relatively unchanged compared to $370,000 at December 31, 2004, and $347,000 at September 30, 2004. Efforts to liquidate assets acquired in foreclosure are proceeding as quickly as potential buyers can be located and legal constraints permit. Foreclosed assets are carried at the lower of cost (lesser of carrying value of asset or fair value at date of acquisition) or estimated fair value.

Loans past due 90 days or more and still accruing interest are loans that are generally well secured and are in the process of collection. As of September 30, 2005, loans past due 90 days or more and still accruing interest were $1.1 million, relatively level with $981,000 as of December 31, 2004, and $948,000 as of September 30, 2004.

Table 7—Impaired Loans

(Dollars in thousands)		September 30, 2005		Dec. 31, 2004		September 30, 2004
Impaired Loans	$	1,330	$	2,144	$	1,300
Average year-to-date impaired loans	$	1,285	$	1,795	$	1,277
Impaired loans with specific loss allowances	$	1,330	$	2,144	$	1,300
Loss allowances reserved on impaired loans	$	151	$	243	$	141
Year-to-date income recognized on impaired loans	$	19	$	2	$	—

The Bank’s policy for interest income recognition on nonaccrual loans is to recognize income under the cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. The Bank will not recognize income if these factors do not exist.

-22-

Noninterest Income

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, increases in death benefits and cash surrender value of company-owned life insurance 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.

The Corporation’s net security gains increased $1.8 million and $1.4 million for the three and nine months ended September 30, 2005, respectively, compared to the same periods in 2004. The increase in net security gains was primarily the result of sales of tax-exempt securities and equities securities during the third quarter of 2005 to position the balance sheet in the current interest rate environment. During the comparable periods in 2004, the Corporation sold investment securities available for sale to fund the purchase of other securities in an effort to reduce the interest rate risk and market risk within different interest rate environments.

Income from the Millenniun Wealth Management and Private Banking Division decreased $617,000, or 32.9% during the third quarter of 2005 from the same period in 2004. This decrease was attributable to the sale of Cumberland Advisors, Inc., which took place in the second quarter of this year. Management does not believe the sale of Cumberland Advisors on June 30, 2005 (discussed below) will have a material impact on the Corporation’s future results of operations. Income from the Millenniun Wealth Management and Private Banking Division increased $654,000, or 14.3% during the nine-month period ending September 30, 2005 over the comparable in 2004. This increase was mainly due to the former Cumberland Advisors subsidiary acquired with the Millennium Bank acquisition and growth in assets under management.

On April 1, 2005, the Bank completed the sale of its McAdoo branch located in Schuylkill County, Pennsylvania with deposits of $13.9 million as well as certain loans and other assets of $5.8 million to The Legacy Bank. In connection with the sale, the Bank paid net cash of $7.4 million and recorded a pre-tax profit of $690,000 during the second quarter of 2005.

Other income increased $632,000, or 12.9% for the first nine months of 2005 over the same period in 2004 mostly due to increases in death benefits and cash surrender value of company-owned life insurance of $434,000 and the gain on sale of Cumberland Advisors of $287,000 which took place in the second quarter of this year. On June 30, 2005, the Bank sold its former subsidiary, Cumberland Advisors, Inc., to David R. Kotok and Associates, Inc. in a stock sale. The sale price was $2.0 million cash and resulted in a $287,000 after-tax gain recorded in the second quarter of 2005. Cumberland Advisors had assets of $1.8 million. Cumberland Advisors, based in Vineland, New Jersey, is a SEC registered investment advisor specializing in fixed income money management and equities with approximately $700 million in assets under management at June 30, 2005.

Noninterest Expense

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 Bank 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 mandatory evaluations) and deferred compensation expense for directors and employees, as well as lower loan origination expense deferrals related to decreased loan origination volume.

Federal Income Taxes

The effective federal income tax rate for the quarter ended September 30, 2005 was 24.6% and for the nine months ended September 30, 2005 was 23.0% versus the statutory rate of 35%. The Corporation’s effective rate is lower than the statutory tax rate primarily as a result of tax-exempt income earned from state and municipal securities and loans and bank-owned life insurance as well as the non-taxable gain on the sale of Cumberland Advisors, Inc. during the second quarter of 2005. The effective income tax rate for the third quarter of 2004 was 26.3% and for the first nine months of 2004 was 24.9%.

-23-

Balance Sheet Analysis

Total assets at September 30, 2005 of $3.12 billion increased $95.6 million compared to December 31, 2004 with $96.1 million growth in loans.

Loans grew by $96.1 million to $1.94 billion at September 30, 2005 from $1.85 billion at December 31, 2004. This growth was primarily due to increases in commercial mortgage loans and consumer loans. The balance of investment securities available for sale at September 30, 2005 of $837.4 million decreased $37.3 million compared to the December 31, 2004 balance while cash increased by $33.1 million. The decrease in investment securities was primarily the result of sales of tax-exempt, trust preferred and equity securities. Total deposits increased $137.0 million to $2.35 billion at September 30, 2005 from $2.21 billion at December 31, 2004. Core deposits increased $33.7 million and certificates of deposits increased $103.3 million.

Borrowings decreased $37.7 million to $450.5 million at September 30, 2005 from $488.2 million at December 31, 2004. The decrease was the result of reductions of $83.5 million in short-term borrowings offset in part by increases of $20.0 million in long-term Federal Home Loan Bank borrowings and $25.8 million in subordinated debt. The Corporation completed a private placement of $25.0 in aggregate principal amount of fixed/floating rate preferred securities through a newly formed Delaware trust affiliate HNC Statutory Trust III (Trust III) on September 28, 2005. The trust preferred securities represent undivided beneficial interests in the assets of Trust III. The trust preferred securities mature on November 23, 2035, are redeemable at the Corporation’s option beginning after five years and require quarterly distributions by Trust III to the holders of the trust preferred securities at a fixed rate equal to 5.67% through November 2010 and then will be payable at a variable interest rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 1.40% per annum.

Capital

Capital formation is important to the Corporation's well being and future growth. Capital for the period ending September 30, 2005 was $275.6 million, an increase of $5.1 million over the end of 2004. The increase was primarily the result of the retention of the Corporation's earnings partially offset by dividends paid to the shareholders and the Corporation’s repurchase of its common stock. Management believes that the Corporation's current capital and liquidity positions are adequate to support its operations. Management is not aware of any recommendations by any regulatory authority, which, if it were to be implemented, would have a material effect on the Corporation's capital.

Table 8—Regulatory Capital

(Dollars in thousands)					For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Program
As of September 30, 2005		Actual Amount	Ratio			Amount	Ratio			Amount	Ratio
Total Capital (to risk weighted assets):
Corporation	$	316,587	13.10	%	$	193,318	8.00	%	$	241,647	-
Harleysville National Bank		256,074	10.66	%		192,170	8.00	%		240,213	10	%
Tier 1 Capital (to risk weighted assets):
Corporation		297,200	12.30	%		96,659	4.00	%		144,988	-
Harleysville National Bank		236,769	9.86	%		96,085	4.00	%		144,128	6	%
Tier 1 Capital (to average assets):
Corporation		297,200	9.83	%		120,895	4.00	%		151,118	-
Harleysville National Bank		236,769	7.92	%		119,574	4.00	%		149,468	5	%

(Dollars in thousands)					For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Program
As of December 31, 2004		Actual Amount	Ratio			Amount	Ratio			Amount	Ratio
Total Capital (to risk weighted assets):
Corporation	$	280,055	12.21	%	$	183,436	8.00	%	$	229,295	—
Harleysville National Bank		240,695	10.60	%		181,647	8.00	%		227,059	10	%
Tier 1 Capital (to risk weighted assets):
Corporation		260,480	11.36	%		91,718	4.00	%		137,577	—
Harleysville National Bank		222,140	9.78	%		90,823	4.00	%		136,235	6	%
Tier 1 Capital (to average assets):
Corporation		260,480	8.91	%		116,950	4.00	%		146,187	—
Harleysville National Bank		222,140	7.70	%		115,439	4.00	%		144,299	5	%

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Pursuant to the federal regulators’ risk-based capital adequacy guidelines, the components of capital are called Tier 1 and Tier 2 capital. For the Corporation, Tier 1 capital is the shareholders’ equity and Tier 2 capital is the allowance for loan losses. The minimum for the Tier 1 ratio is 4.0% and the total capital ratio (Tier 1 plus Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At September 30, 2005, the Corporation’s Tier 1 risk-adjusted capital ratio was 12.30%, and the total risk-adjusted capital ratio was 13.10%, both well above the regulatory requirements. The risk-based capital ratios of the Bank also exceeded regulatory requirements at September 30, 2005. The higher risk-based capital ratios of the Corporation at September 30, 2005 compared to December 31, 2004 were primarily attributable to the increase in Tier 1 capital from the issuance of $25.0 million of trust preferred securities during the third quarter of this year.

The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding intangible assets. Banking organizations are expected to have ratios of at least 4% and 5%, depending upon their particular condition and growth plans. Higher leverage ratios could be required by the particular circumstances or risk profile of a given banking organization. The Corporation’s leverage ratios were 9.83% at September 30, 2005 and 8.91% at December 31, 2004. The higher leverage ratio of the Corporation at September 30, 2005 was mainly due to the increase in Tier 1 capital from the issuance of $25.0 million of trust preferred securities during the third quarter of this year.

The year-to-date September 30, 2005 cash dividend per share of $.52 was 10.6% higher than the cash dividend for the same period in 2004 of $.47. The dividend payout ratio for the first nine months of 2005 was 50.5%, compared to 46.1% for the same period in 2004. Activity in both the Corporation’s dividend reinvestment and stock purchase plan did not have a material impact on capital during the first nine months of 2005.

Liquidity

Liquidity is a measure of the ability of the Bank to meet its needs and obligations on a timely basis. For a bank, liquidity provides the means to meet the day-to-day demands of deposit customers and the needs of borrowing customers. Generally, the Bank arranges its mix of cash, money market investments, investment securities and loans in order to match the volatility, seasonality, interest sensitivity and growth trends of its deposit funds. The liquidity measurement is based on the asset/liability model’s projection of potential sources and uses of funds for the next 120 days. The resulting projections as of September 30, 2005 show the potential sources of funds exceeding the potential uses of funds. The Corporation has external sources of funds which can be drawn upon when funds are required. The primary source of external liquidity is an available line of credit with the FHLB. As of September 30, 2005, the Bank had long-term borrowings outstanding with the FHLB of $292.8 million and pledged investment securities available for sale of $504.8 million. At September 30, 2005, the Bank had unused lines of credit at the FHLB of $446.1 million, unused federal funds lines of credit of $130.0 million and unpledged investment securities available for sale of $278.3 million.

Other Information

Pending Legislation

Management is not aware of any other current specific recommendations by regulatory authorities or proposed legislation which, if they were implemented, would have a material adverse effect upon the liquidity, capital resources, or results of operations, although the general cost of compliance with numerous and multiple federal and state laws and regulations does have, and in the future may have, a negative impact on the Corporation’s results of operations.

Effects of Inflation

Inflation has some impact on the Corporation and the Bank’s operating costs. Unlike many industrial companies, however, substantially all of the Bank’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation’s and the Bank’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.

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Effect of Government Monetary Policies

The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect rates charged on loans or paid for deposits.

The Bank is a member of the Federal Reserve and, therefore, the policies and regulations of the Federal Reserve have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Bank’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation and the Bank cannot be predicted.

Environmental Regulations

There are several federal and state statutes, which regulate the obligations and liabilities of financial institutions pertaining to environmental issues. In addition to the potential for attachment of liability resulting from its own actions, a bank may be held liable under certain circumstances for the actions of its borrowers, or third parties, when such actions result in environmental problems on properties that collateralize loans held by the bank. Further, the liability has the potential to far exceed the original amount of a loan issued by the bank. Currently, neither the Corporation nor the Bank are a party to any pending legal proceeding pursuant to any environmental statute, nor are the Corporation and the Bank aware of any circumstances that may give rise to liability under any such statute.

Branching

The Corporation is currently planning to open a new location in South Whitehall Township, Lehigh County during the fourth quarter of 2005. The location will house a retail branch as well as a Millennium Wealth Management office. We also plan to open a new retail branch in Warminster Township, Bucks County during 2006. The Corporation continues to evaluate potential new branch sites that are contiguous to our current service area and will expand the Bank’s market area and market share of loans and deposits.

Item 3 - Qualitative and Quantitative Disclosures About Market Risk

In the normal course of conducting business activities, the Corporation is exposed to market risk, principally interest risk, through the operations of its banking subsidiary. Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments. The Asset/Liability Committee, using policies and procedures approved by the Bank’s Board of Directors, is responsible for managing the rate sensitivity position.

No material changes in market risk strategy occurred during the third quarter of 2005. A detailed discussion of market risk is provided on pages 19 and 20 of this Form 10-Q.

Item 4 - Controls and Procedures

(i) Management’s Report on Disclosure Controls

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

(ii) Changes in Internal Controls

In connection with the ongoing review of the Corporation’s internal controls over financial reporting as defined in rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, and in response to the material weakness identified in the Annual Report on Form 10-K for the fiscal year end December 31, 2004, the Corporation has remediated a significant number of access control issues relative to general ledger, deposits, loans, the Bank’s Automated Clearing House, and central information files through the adjustment of menu options and/or access rights. Additional control procedures and related documentation requirements have also been implemented. The Corporation continues to implement access control remediation procedures. The Corporation initiated a Company-wide project to develop new access menus for all employees to further strengthen access controls. This project was completed during the third quarter of 2005. The new access menu controls are in the process of being tested for effectiveness.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Management, based upon discussions with the Corporation's legal counsel, is not aware of any litigation that would have a material adverse effect on the consolidated financial position of the Corporation. There are no proceedings pending other than the ordinary routine litigation incident to the business of the Corporation and its subsidiaries - the Bank, HNC Financial Company and HNC Reinsurance Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation and its subsidiaries by government authorities.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents the repurchase activity of the Corporation’s stock repurchase programs during the third quarter of 2005 (all share information has been restated retroactively for the effect of stock dividends and splits). The repurchased shares will be used for general corporate purposes.

	Total Number of Common Shares Purchased		Weighted Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that may yet be Purchased under the Plans(1	)
July 1-31, 2005	10,500	$	21.35	10,500	1,317,750
August 1-31, 2005	50,010		21.71	50,010	1,267,740
September 1-30, 2005	72,073		22.27	72,073	1,195,667
Total	132,583	$	21.72	132,583

(1)   On December 14, 2000, the Board of Directors authorized a program to purchase up to 1,311,450 shares (restated for stock dividends and splits), or 5%, of its outstanding common stock. This repurchase plan was completed during the second quarter of 2005. On May 12, 2005, the Board of Directors authorized a plan to purchase up to 1,349,250 shares (restated for five percent stock dividend paid on September 15, 2005) or 4.9%, of its outstanding common stock.

Item 3.Defaults Upon Senior Securities

Not applicable

Item 4.Submission of Matters to a Vote of Security Holders

Not applicable

Item 5.Other Information

(a)   None to report.

(b)   There were no changes in the manner shareholders may recommend nominees to the Registrant’s Board of Directors.

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Item 6.Exhibits

(a) Exhibits:

  The following exhibits are being filed as part of this Report:

Exhibit No.Description of Exhibits

(3.1)	Harleysville National Corporation Amended and Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Corporation’s Registration Statement No. 333-111709 on Form S-4, as filed on January 5, 2004.)
(3.2)	Harleysville National Corporation Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K, filed with the Commission on February 14, 2005.)
(10.1)	Amendment to Employment Agreement by and among David R. Kotok, Millennium Bank, Cumberland Advisors, Inc., Harleysville National Corporation and Harleysville National Bank and Trust Company dated October 15, 2003 (incorporated by reference to Appendix ”A” to the proxy statement/prospectus on the Corporation’s Registration Statement No. 333-111709 on Form S-4, as filed on January 5, 2004.)
(10.2)	Harleysville National Corporation 1993 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.3 of Registrant’s Registration Statement No. 33-69784 on Form S-8, filed with the Commission on October 1, 1993.)
(10.3)	Harleysville National Corporation Stock Bonus Plan. (Incorporated by reference to Exhibit 99A of Registrant’s Registration Statement No. 333-17813 on Form S-8, filed with the Commission on December 13, 1996.)
(10.4)	Supplemental Executive Retirement Plan. (Incorporated by reference to Exhibit 10.3 of Registrant’s Annual Report in Form 10-K for the year ended December 31, 1997, filed with the Commission on March 27, 1998.)
(10.5)	Walter E. Daller, Jr., Chairman and former President and Chief Executive Officer’s Employment Agreement. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 25, 1999.)
(10.6)	Consulting Agreement and General Release dated November 12, 2004 between Walter E. Daller, Jr., Harleysville National Corporation and Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on November 16, 2004.)
(10.7)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Walter E. Daller, Jr. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.8)	Employment Agreement dated October 26, 1998 by and among Harleysville National Corporation, Harleysville National Bank and Trust Company and Demetra M. Takes, President and Chief Executive Officer of Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 25, 1999.)
(10.9)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Demetra M. Takes, President and Chief Executive Officer of Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.10)	Harleysville National Corporation 1998 Stock Incentive Plan. (Incorporated by reference to Registrant’s Registration Statement No. 333-79971 on Form S-8, filed with the Commission on June 4, 1999.)
(10.11)	Harleysville National Corporation 1998 Independent Directors Stock Option Plan. (Incorporated by reference to Registrant’s Registration Statement No. 333-79973 on Form S-8, filed with the Commission on June 4, 1999.)
(10.12)	Supplemental Executive Retirement Benefit Agreement dated February 23, 2004 between Michael B. High, Executive Vice President and former Chief Financial Officer, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2004.)
(10.13)	Employment Agreement effective April 1, 2005 between Michael B. High, Executive Vice President and Chief Operating Officer of the Corporation, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on November 16, 2004.)
(10.14)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Michael B. High, Executive Vice President and Chief Operating Officer of the Corporation. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.15)	Employment Agreement dated March 9, 2004 between Mikkalya Murray, Executive Vice President and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2004.)
(10.16)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Mikkalya Murray, Executive Vice President. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)

(10.17)   Harleysville National Corporation 2004 Omnibus Stock Incentive Plan. (Incorporated by reference to Exhibit 4 of Registrant’s Registration Statement No. 333-116183 on Form S-8, filed with the Commission on June 4, 2004).  

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(10.18)	Employment Agreement dated August 23, 2004 between James F. McGowan, Jr., Executive Vice President & Chief Credit Officer and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on August 25, 2004.)
(10.19)	Supplemental Executive Retirement Benefit Agreement dated August 23, 2004 between James F. McGowan, Jr., Executive Vice President & Chief Credit Officer, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on August 25, 2004.)
(10.20)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and James F. McGowan, Jr., Executive Vice President & Chief Credit Officer. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.21)	Employment Agreement dated September 27, 2004 between John Eisele, Executive Vice President & President of Millennium Wealth Management and Private Banking, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on September 29, 2004.)
(10.22)	Supplemental Executive Retirement Benefit Agreement dated September 27, 2004 between John Eisele, Executive Vice President & President of Millennium Wealth Management and Private Banking, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on September 29, 2004.)
(10.23)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and John Eisele, Executive Vice President & President of Millennium Wealth Management and Private Banking. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.24)	Employment Agreement effective January 1, 2005 between Gregg J. Wagner, President and Chief Executive Officer of the Corporation, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on November 16, 2004.)
(10.25)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Gregg J. Wagner, the current President and Chief Executive Officer of the Corporation. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.26)	Employment Agreement dated May 18, 2005, between George S. Rapp, Senior Vice President and Chief Financial Officer, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on May 20, 2005.)
(10.27)	Stock Purchase Agreement dated June 30, 2005, between David R. Kotok & Associates, Inc., Harleysville National Corporation and Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on July 1, 2005.)
(10.28)	Amended and Restated Declaration of Trust for HNC Statutory Trust III by and among Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, Harleysville National Corporation, as Sponsor, and the Administrators named therein, dated as of September 28, 2005.
(10.29)	Indenture between Harleysville National Corporation, as Issuer, and Wilmington Trust Company, as Trustee, for Fixed/Floating Rate Junior Subordinated Debt Securities, dated as of September 28, 2005.
(10.30)	Guarantee Agreement between Harleysville National Corporation and Wilmington Trust Company, dated as of September 28, 2005.
(11)	Computation of Earnings per Common Share, incorporated by reference to Note 6 of the Consolidated Financial Statements of this Report on Form 10-Q.
(31.1)	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.2)	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HARLEYSVILLE NATIONAL CORPORATION

Date: November 8, 2005                                /s/ Gregg J. Wagner                        

         Gregg J. Wagner, President, Chief Executive Officer and Director

   (Principal executive officer)

Date: November 8, 2005                             /s/ George S. Rapp       

 George S. Rapp, Senior Vice President and Chief Financial Officer

(Principal financial and accounting officer)

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EXHIBIT INDEX

Exhibit NoDescription of Exhibits

(3.1)	Harleysville National Corporation Amended and Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Corporation’s Registration Statement No. 333-111709 on Form S-4, as filed on January 5, 2004.)
(3.2)	Harleysville National Corporation Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K, filed with the Commission on February 14, 2005.)
(10.1)	Amendment to Employment Agreement by and among David R. Kotok, Millennium Bank, Cumberland Advisors, Inc., Harleysville National Corporation and Harleysville National Bank and Trust Company dated October 15, 2003 (incorporated by reference to Appendix ”A” to the proxy statement/prospectus on the Corporation’s Registration Statement No. 333-111709 on Form S-4, as filed on January 5, 2004.)
(10.2)	Harleysville National Corporation 1993 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.3 of Registrant’s Registration Statement No. 33-69784 on Form S-8, filed with the Commission on October 1, 1993.)
(10.3)	Harleysville National Corporation Stock Bonus Plan. (Incorporated by reference to Exhibit 99A of Registrant’s Registration Statement No. 333-17813 on Form S-8, filed with the Commission on December 13, 1996.)
(10.4)	Supplemental Executive Retirement Plan. (Incorporated by reference to Exhibit 10.3 of Registrant’s Annual Report in Form 10-K for the year ended December 31, 1997, filed with the Commission on March 27, 1998.)
(10.5)	Walter E. Daller, Jr., Chairman and former President and Chief Executive Officer’s Employment Agreement. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 25, 1999.)
(10.6)	Consulting Agreement and General Release dated November 12, 2004 between Walter E. Daller, Jr., Harleysville National Corporation and Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on November 16, 2004.)
(10.7)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Walter E. Daller, Jr. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.8)	Employment Agreement dated October 26, 1998 by and among Harleysville National Corporation, Harleysville National Bank and Trust Company and Demetra M. Takes, President and Chief Executive Officer of Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 25, 1999.)
(10.9)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Demetra M. Takes, President and Chief Executive Officer of Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.10)	Harleysville National Corporation 1998 Stock Incentive Plan. (Incorporated by reference to Registrant’s Registration Statement No. 333-79971 on Form S-8, filed with the Commission on June 4, 1999.)
(10.11)	Harleysville National Corporation 1998 Independent Directors Stock Option Plan. (Incorporated by reference to Registrant’s Registration Statement No. 333-79973 on Form S-8, filed with the Commission on June 4, 1999.)
(10.12)	Supplemental Executive Retirement Benefit Agreement dated February 23, 2004 between Michael B. High, Executive Vice President and former Chief Financial Officer, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2004.)
(10.13)	Employment Agreement effective April 1, 2005 between Michael B. High, Executive Vice President and Chief Operating Officer of the Corporation, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on November 16, 2004.)
(10.14)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Michael B. High, Executive Vice President and Chief Operating Officer of the Corporation. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.15)	Employment Agreement dated March 9, 2004 between Mikkalya Murray, Executive Vice President and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2004.)
(10.16)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Mikkalya Murray, Executive Vice President. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.17)	Harleysville National Corporation 2004 Omnibus Stock Incentive Plan. (Incorporated by reference to Exhibit 4 of Registrant’s Registration Statement No. 333-116183 on Form S-8, filed with the Commission on June 4, 2004).

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(10.18)	Employment Agreement dated August 23, 2004 between James F. McGowan, Jr., Executive Vice President & Chief Credit Officer and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on August 25, 2004.)
(10.19)	Supplemental Executive Retirement Benefit Agreement dated August 23, 2004 between James F. McGowan, Jr., Executive Vice President & Chief Credit Officer, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on August 25, 2004.)
(10.20)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and James F. McGowan, Jr., Executive Vice President & Chief Credit Officer. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.21)	Employment Agreement dated September 27, 2004 between John Eisele, Executive Vice President & President of Millennium Wealth Management and Private Banking, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on September 29, 2004.)
(10.22)	Supplemental Executive Retirement Benefit Agreement dated September 27, 2004 between John Eisele, Executive Vice President & President of Millennium Wealth Management and Private Banking, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on September 29, 2004.)
(10.23)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and John Eisele, Executive Vice President & President of Millennium Wealth Management and Private Banking. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.24)	Employment Agreement effective January 1, 2005 between Gregg J. Wagner, President and Chief Executive Officer of the Corporation, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on November 16, 2004.)
(10.25)	Amendment to Supplemental Executive Retirement Benefit Agreement dated March 14, 2005 by and among Harleysville Management Services, LLC and Gregg J. Wagner, the current President and Chief Executive Officer of the Corporation. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on March 14, 2005.)
(10.26)	Employment Agreement dated May 18, 2005, between George S. Rapp, Senior Vice President and Chief Financial Officer, and Harleysville Management Services, LLC. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on May 20, 2005.)
(10.27)	Stock Purchase Agreement dated June 30, 2005, between David R. Kotok & Associates, Inc., Harleysville National Corporation and Harleysville National Bank and Trust Company. (Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Commission on July 1, 2005.)
(10.28)	Amended and Restated Declaration of Trust for HNC Statutory Trust III by and among Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, Harleysville National Corporation, as Sponsor, and the Administrators named therein, dated as of September 28, 2005.
(10.29)	Indenture between Harleysville National Corporation, as Issuer, and Wilmington Trust Company, as Trustee, for Fixed/Floating Rate Junior Subordinated Debt Securities, dated as of September 28, 2005.
(10.30)	Guarantee Agreement between Harleysville National Corporation and Wilmington Trust Company, dated as of September 28, 2005.
(11)	Computation of Earnings per Common Share, incorporated by reference to Note 6 of the Consolidated Financial Statements of this Report on Form 10-Q.
(31.1)	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.2)	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Exhibit 31.1

CERTIFICATION

I, Gregg J. Wagner, President, Chief Executive Officer and Director, certify, that:

1. I have reviewed this quarterly report on Form 10-Q of Harleysville National Corporation.

2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2005                             /s/ Gregg J. Wagner                

Gregg J. Wagner

President, Chief Executive Officer and Director

    Harleysville National Corporation

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Exhibit 31.2

CERTIFICATION

I, George S. Rapp, Senior Vice President and Chief Financial Officer certify, that:

1.I have reviewed this quarterly report on Form 10-Q of Harleysville National Corporation.

2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2005                     /s/ George S. Rapp     

George S. Rapp

Senior Vice President and Chief Financial Officer

Harleysville National Corporation

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Exhibit 32.1

HARLEYSVILLE NATIONAL CORPORATION

CERTIFICATION

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Harleysville National Corporation (the “Corporation”) Quarterly Report on Form 10-Q for the period ending September 30, 2005, as filed with the Securities and Exchange Commission (the "Report"), I, Gregg J. Wagner, President, Chief Executive Officer and Director of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.To my knowledge the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of and for the period covered by the Report.

/s/ Gregg J. Wagner    

Gregg J. Wagner

President, Chief Executive Officer and Director

Harleysville National Corporation

Date: November 8, 2005

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Harleysville National Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2

HARLEYSVILLE NATIONAL CORPORATION

CERTIFICATION

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Harleysville National Corporation (the "Corporation") Quarterly Report on Form 10-Q for the period ending September 30, 2005, as filed with the Securities and Exchange Commission (the "Report"), I, George S. Rapp, Senior Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as added Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of and for the period covered by the Report.

/s/ George S. Rapp     

George S. Rapp

Senior Vice President and Chief Financial Officer

Harleysville National Corporation

Date: November 8, 2005

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Harleysville National Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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