Form 8-K Harleysville National Corp. announces 2006 Earnings

FOR IMMEDIATE RELEASE

CONTACT: Deb M. Takes, President and CEO

PHONE: 215-513-2304

HARLEYSVILLE NATIONAL CORPORATION

REPORTS RECORD 2006 EARNINGS

31 Consecutive Years of Earning Growth and 32 Consecutive Years of Dividend Increases

HARLEYSVILLE, PA (January 23, 2007) - Harleysville National Corporation (NASDAQ: HNBC), today announced fourth quarter 2006 diluted and basic earnings per share of $.45 and $.46, respectively, compared to $.34 for the fourth quarter of 2005. Net income was $13.3 million for the fourth quarter of 2006 compared to $9.8 million during the same period in 2005.

For the year ended December 31, 2006, diluted earnings per share were $1.34 compared to $1.32 for 2005 and basic earnings per share were $1.36 for 2006 compared to $1.34 in 2005. Net income for 2006 was $39.4 million compared to $38.8 million during 2005.

“We are pleased to continue our tradition of achieving increased earnings year over year. This is the 31^st year we have been able to do so and the 32^ndstraight year that we have distributed record dividends to our shareholders. Maintaining our strong performance and providing value to our shareholders, customers and the communities we serve will be our dedicated focus throughout 2007,” said Deb M. Takes, President and Chief Executive Officer.

The Corporation’s consolidated total assets were $3.2 billion at December 31, 2006, an increase of 4.2% or $132.5 million over $3.1 billion in total assets reported at December 31, 2005. This increase was primarily attributable to loan growth of $61.9 million and an increase in cash and investments of $40.3 million. The growth in loans took place mainly in the Bank’s real estate portfolio.

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The year-to-date financial results for 2006 include the favorable impact on operations from the acquisition of the Cornerstone Companies effective January 1, 2006, and the $6.9 million after-tax gain on the sale of the Bank’s Honesdale branch during the fourth quarter of 2006, partially offset by lower net interest income due to the continued margin compression during the same year. The results also reflect the issuance of 1,382,000 shares of the Corporation’s common stock for a 5% stock dividend payable September 15, 2006. All share and per share information has been restated to reflect this stock dividend.

DETAILED REVIEW OF FINANCIAL RESULTS

Net interest income on a tax equivalent basis in the fourth quarter of 2006 decreased $2.0 million or 8.7% from the same period in 2005 and decreased $4.3 million or 4.6% from the year ended December 31, 2005. These decreases during 2006 were mainly attributable to higher deposit and borrowing costs offset in part by higher loan and investment rates. The net interest margin for the fourth quarter of 2006 was 2.75%, compared to 2.89% for the third quarter of 2006 and 3.16% for the fourth quarter of 2005. Due to market conditions, deposit and short-term borrowing rates have increased at a faster rate than loan rates, resulting in a lower net interest margin. Average earning assets increased $145.9 million or 5.0% during the fourth quarter of 2006 versus the comparable period in 2005. Average loans grew by $72.8 million or 3.7% during the same period with average federal funds sold to correspondent banks increasing $58.2 million. Average interest-bearing deposits were up $211.3 million or 10.5% primarily as a result of growth in interest-bearing checking accounts and time deposits.

Nonperforming assets (including nonaccrual loans, net assets in foreclosure and loans 90 days or more past due) were .54% of total assets at December 31, 2006, compared to .27% at December 31, 2005. The higher level of nonperforming assets was mainly due to an increase in nonaccrual commercial mortgage loans during 2006: three borrowers totaling $2.8 million during the first quarter, one borrower for $803,000 in the second quarter and two borrowers totaling $2.4 million during the fourth quarter. In addition, real estate loans delinquent 90 days or more increased $1.6 million since December 31, 2005. The increase in the provision of $799,000 for the year ended December 31, 2006, as compared to 2005 was primarily a result of inherent risk related to loan growth and the increase in nonperforming loans.

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Total deposits increased 6.4% or $151.4 million to $2.52 billion at December 31, 2006, up from $2.37 billion at December 31, 2005. This was primarily attributable to growth in time deposits and interest-bearing checking accounts. Core deposits (total deposits less time deposits) increased 3.4% or $55.5 million to $1.67 billion for the same periods.

Noninterest income of $18.2 million for the fourth quarter of 2006 reflects an increase of $10.6 million from the comparable period in 2005. For the year ended December 31, 2006, noninterest income rose to $45.4 million, up $15.5 million from 2005. During the fourth quarter of 2006, the Bank recognized a pre-tax gain of $10.7 million on the sale of its Honesdale branch. The sale of this single Wayne County location included $74.2 million in deposits, as well as approximately $22.5 million in loans and other assets. The acquisition of the Cornerstone Companies was the primary driver of increases in wealth management income of $2.1 million during the fourth quarter of 2006 and $8.0 million for the year of 2006, over the comparable periods last year, partially offset by the sale of Cumberland Advisors, which was divested in the second quarter of 2005. In addition, noninterest income for 2006 included the pre-tax gain of $1.4 million on the sale of the Bank’s $15.3 million credit card portfolio during the second quarter as well as increases in net revenue resulting from credit card operations. Losses on sales of investment securities for the fourth quarter and year of 2006 were $674,000 as compared to gains of $1.7 million during the fourth quarter of 2005 and $4.8 million for 2005. Noninterest income for 2005 included 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.

Noninterest expense of $18.5 million for the fourth quarter of 2006 increased $3.7 million from $14.8 million in the fourth quarter of 2005, and $8.4 million for the year ended December 31, 2006, over 2005. Salaries and benefits expense rose $3.2 million during the fourth quarter of 2006 and $7.2 million during the year of 2006 from the comparable periods in 2005, primarily related to the acquisition of the Cornerstone Companies, partially offset by the sale of Cumberland Advisors in the second quarter of 2005, higher staffing levels resulting from growth, increased incentives, non-recurring compensation and severance charges primarily related to the former Chief Executive Officer’s contract, and compensation expense of $95,000 for the quarter and $440,000 for the year resulting from recording the Corporation’s stock option expense in conformance with FAS 123(R), “Stock Based Compensation.” Occupancy expense

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increased $494,000 for the year ended December 31, 2006, over 2005 mostly due to the Cornerstone Companies acquisition and a new branch opening. Other expense increased $1.3 million during 2006 mainly as a result of the Cornerstone Companies acquisition including amortization of intangible assets of $448,000 partially offset by decreased marketing expenses during 2006.

Harleysville National Corporation, with assets of $3.2 billion, is the holding company for Harleysville National Bank (HNB). Investment Management and Trust Services are provided through Millennium Wealth Management, a division of HNB, with assets under management of $3.0 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted under Nasdaq Global Market Issues. For more information, visit the Harleysville National Corporation website at www.hncbank.com

This press release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. Such factors include the possibility that increased demand or prices for the Corporation’s financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Corporation’s filings with the Securities and Exchange Commission.

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Harleysville National Corporation
Consolidated Selected Financial Data ⁽¹⁾
(Dollars in thousands, except per share data)
December 31, 2006
(unaudited)

For the period:					Three Months Ended
		Dec. 31,			Sep. 30,		Jun. 30,		Mar. 31,		Dec. 31,
		2006			2006		2006		2006		2005
Interest Income	$	46,661		$	45,961	$	44,223	$	42,096	$	41,008
Interest Expense		26,849			25,347		22,947		20,625		19,148
Net Interest Income		19,812			20,614		21,276		21,471		21,860
Provision for Loan Losses		1,200			900		900		1,200		1,351
Net Interest Income after
Provision for Loan Losses		18,612			19,714		20,376		20,271		20,509

Service Charges		1,994			2,092		2,026		1,890		2,089
Gains/(Losses) on Sales of Investment Securities, Net		(674	)		-		-		-		1,747
Gain on Sale of Credit Card Portfolio		-			-		1,444		-		-
Gain on Sale of Branch		10,650			-		-		-		-
Wealth Management Income		3,474			3,372		3,378		4,474		1,410
Bank-Owned Life Insurance Income		594			591		601		600		599
Other Income		2,168			2,231		2,571		1,969		1,720
Total Noninterest Income		18,206			8,286		10,020		8,933		7,565

Salaries, Wages and Employee Benefits		11,787			11,487		10,854		10,519		8,572
Occupancy		1,392			1,379		1,401		1,498		1,265
Furniture and Equipment		956			917		900		891		947
Other Expenses		4,332			3,777		4,620		4,217		3,986
Total Noninterest Expense		18,467			17,560		17,775		17,125		14,770

Income Before Income Taxes		18,351			10,440		12,621		12,079		13,304
Income Tax Expense		5,079			2,533		3,336		3,128		3,493
Net Income	$	13,272		$	7,907	$	9,285	$	8,951	$	9,811

Per Common Share Data:
Weighted Average Common Shares - Basic		28,966,810			29,011,903		28,933,741		28,873,187		28,801,791
Weighted Average Common Shares - Diluted		29,291,521			29,384,310		29,351,584		29,379,870		29,332,350
Net Income Per Share - Basic	$	0.46		$	0.27	$	0.32	$	0.31	$	0.34
Net Income Per Share - Diluted	$	0.45		$	0.27	$	0.32	$	0.30	$	0.34
Cash Dividend Per Share	$	0.20		$	0.19	$	0.18	$	0.18	$	0.22
Book Value	$	10.18		$	9.89	$	9.58	$	9.67	$	9.48
Market Value	$	19.31		$	20.10	$	20.20	$	21.66	$	18.19


For the period:		Twelve Months Ended
		December 31,
		2006			2005
Interest Income	$	178,941		$	151,739
Interest Expense		95,768			64,618
Net Interest Income		83,173			87,121
Provision for Loan Losses		4,200			3,401
Net Interest Income after
Provision for Loan Losses		78,973			83,720

Service Charges		8,002			8,202
Gains/(Losses) on Sales of Investment Securities, Net		(674	)		4,794
Gain on Sale of Credit Card Portfolio		1,444			-
Gain on Sale of Branch		10,650			690
Wealth Management Income		14,698			6,651
Bank-Owned Life Insurance Income		2,386			2,234
Income on Life Insurance		-			177
Other Income		8,939			7,242
Total Noninterest Income		45,445			29,990

Salaries, Wages and Employee Benefits		44,647			37,441
Occupancy		5,670			5,176
Furniture and Equipment		3,664			4,231
Other Expenses		16,946			15,631
Total Noninterest Expense		70,927			62,479

Income Before Income Taxes		53,491			51,231
Income Tax Expense		14,076			12,403
Net Income	$	39,415		$	38,828

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		Twelve Months Ended
		December 31,
Per Common Share Data:		2006			2005
Weighted Average Common Shares - Basic		28,946,847			28,891,412
Weighted Average Common Shares - Diluted		29,353,128			29,490,216
Net Income Per Share - Basic	$	1.36		$	1.34
Net Income Per Share - Diluted	$	1.34		$	1.32
Cash Dividend Per Share	$	0.75		$	0.72


		2006			2006			2006			2006			2005
Asset Quality Data:		4Q			3Q			2Q			1Q			4Q
Nonaccrual Loans	$	15,201		$	10,806		$	10,164		$	9,430		$	7,493
90 + Days Past Due Loans		2,444			2,262			1,279			1,093			846
Nonperforming Loans		17,645			13,068			11,443			10,523			8,339
Net Assets in Foreclosure		-			87			64			78			29
Nonperforming Assets	$	17,645		$	13,155		$	11,507		$	10,601		$	8,368
Loan Loss Reserve	$	21,154		$	21,303		$	20,617		$	19,895		$	19,865
Loan Loss Reserve / Loans		1.03	%		1.05	%		1.02	%		0.99	%		1.00	%
Loan Loss Reserve / Nonperforming Loans		119.9	%		163.0	%		180.2	%		189.1	%		238.2	%
Nonperforming Assets / Total Assets		0.54	%		0.39	%		0.36	%		0.33	%		0.27	%
Net Loan Charge-offs	$	1,349		$	214		$	178		$	1,170		$	691
Net Loan Charge-offs (annualized)
/ Average Loans		0.26	%		0.04	%		0.04	%		0.24	%		0.14	%


		2006			2006			2006			2006			2005
Selected Ratios (annualized):		4Q			3Q			2Q			1Q			4Q
Return on Average Assets		1.61	%		0.96	%		1.16	%		1.15	%		1.25	%
Return on Average Shareholders' Equity		18.18	%		11.10	%		13.44	%		13.06	%		14.25	%
Yield on Earning Assets (FTE)		6.22	%		6.20	%		6.10	%		5.97	%		5.76	%
Cost of Interest Bearing Funds		4.05	%		3.88	%		3.60	%		3.34	%		3.09	%
Net Interest Margin (FTE)		2.75	%		2.89	%		3.04	%		3.15	%		3.16	%
Leverage Ratio		9.36	%		9.24	%		9.31	%		9.33	%		9.69	%

		2006			2005
Selected Ratios (annualized):		Year-to-date			Year-to-date
Return on Average Assets		1.22	%		1.28	%
Return on Average Shareholders' Equity		13.98	%		14.22	%
Yield on Earning Assets (FTE)		6.13	%		5.54	%
Cost of Interest Bearing Funds		3.72	%		2.71	%
Net Interest Margin (FTE)		2.95	%		3.27	%


Balance Sheet (Period End):		2006			2006			2006			2006			2005
		4Q			3Q			2Q			1Q			4Q
Assets	$	3,249,828		$	3,363,003		$	3,217,018		$	3,201,693		$	3,117,359
Earning Assets		3,022,219			3,136,487			2,991,628			2,979,595			2,924,156
Investment Securities		911,889			922,251			925,545			936,665			901,208
Loans		2,047,355			2,034,273			2,032,625			2,003,450			1,985,493
Other Earning Assets		62,975			179,963			33,458			39,480			37,455
Interest-Bearing Liabilities		2,578,377			2,707,217			2,541,713			2,534,165			2,441,185
Total Deposits		2,516,855			2,628,246			2,479,658			2,425,673			2,365,457
Noninterest-Bearing Deposits		327,973			326,851			356,043			345,118			363,440
Interest-Bearing Checking		539,974			571,444			419,312			382,199			387,374
Money Market		662,966			675,904			664,392			678,276			667,952
Savings		133,370			150,889			175,071			187,534			190,033
Time Deposits		852,572			903,158			864,840			832,546			756,658
Total Borrowed Funds		389,495			405,822			418,098			453,610			439,168
Federal Home Loan Bank		239,750			239,750			257,750			297,750			297,750
Other Borrowings		149,745			166,072			160,348			155,860			141,418
Shareholders' Equity		294,751			286,605			277,737			279,989			273,232

Balance Sheet (Average):		2006			2006			2006			2006			2005
		4Q			3Q			2Q			1Q			4Q
Assets	$	3,279,260		$	3,253,616		$	3,218,481		$	3,164,007		$	3,117,686
Earning Assets		3,071,093			3,037,009			3,005,888			2,963,541			2,925,231
Investment Securities		919,848			917,103			929,002			936,867			897,032
Loans		2,034,515			2,027,028			2,006,723			1,988,778			1,961,722
Other Earning Assets		116,730			92,878			70,163			37,896			66,477
Interest-Bearing Liabilities		2,629,023			2,593,694			2,555,544			2,504,301			2,458,400
Total Deposits		2,543,658			2,518,958			2,459,453			2,353,353			2,353,430
Noninterest-Bearing Deposits		317,673			334,847			342,654			338,666			338,768
Interest-Bearing Checking		541,676			466,447			415,426			375,470			385,985
Money Market		672,458			676,035			661,444			666,722			680,365
Savings		140,181			163,136			180,968			187,245			192,961
Time Deposits		871,670			878,493			858,961			785,250			755,351
Total Borrowed Funds		403,038			409,583			438,745			489,614			443,738
Federal Home Loan Bank		239,750			241,685			285,904			297,750			294,435
Other Borrowings		163,288			167,898			152,841			191,864			149,303
Shareholders' Equity		289,618			282,678			277,064			277,892			273,135

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Average Balance Sheets and Interest Rates - Fully-Taxable Equivalent Basis

	Three Months Ended December 31, 2006							Three Months Ended December 31, 2005
		Average			Average			Average			Average
		Balance		Interest	Rate			Balance		Interest	Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	665,256	$	7,884	4.70	%	$	670,968	$	6,561	3.88	%
Non-taxable investments⁽²⁾		254,592		3,848	6.00	%		226,064		3,508	6.16	%
Total investment securities		919,848		11,732	5.06	%		897,032		10,069	4.45	%
Federal funds sold and deposits in banks		116,730		1,546	5.25	%		66,477		643	3.84	%
Loans^{(2) (3)}		2,034,515		34,864	6.80	%		1,961,722		31,752	6.42	%
Total earning assets		3,071,093		48,142	6.22	%		2,925,231		42,464	5.76	%
Noninterest-earning assets		208,167						192,455
Total assets	$	3,279,260					$	3,117,686

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,354,315		11,845	3.47	%	$	1,259,311		7,084	2.23	%
Time		871,670		10,119	4.61	%		755,351		7,200	3.78	%
Total interest-bearing deposits		2,225,985		21,964	3.91	%		2,014,662		14,284	2.81	%
Borrowed funds		403,038		4,885	4.81	%		443,738		4,864	4.35	%
Total interest-bearing liabilities		2,629,023		26,849	4.05	%		2,458,400		19,148	3.09	%
Noninterest-bearing liabilities:
Demand deposits		317,673						338,768
Other liabilities		42,946						47,383
Total noninterest-bearing liabilities		360,619						386,151
Total liabilities		2,989,642						2,844,551
Shareholders' equity		289,618						273,135
Total liabilities and shareholders' equity	$	3,279,260					$	3,117,686

Net interest spread					2.17	%					2.67	%
Effect of noninterest-bearing sources					0.58	%					0.49	%
Net interest income/margin on earning assets			$	21,293	2.75	%			$	23,316	3.16	%
Less tax equivalent adjustment				1,481						1,456
Net interest income			$	19,812					$	21,860

		Twelve Months Ended December 31, 2006						Twelve Months Ended December 31, 2005
		Average			Average			Average			Average
		Balance		Interest	Rate			Balance		Interest	Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	672,648	$	30,296	4.50	%	$	648,630	$	23,923	3.69	%
Nontaxable investments⁽²⁾		252,987		15,421	6.10	%		254,433		16,183	6.36	%
Total investment securities		925,635		45,717	4.94	%		903,063		40,106	4.44	%
Federal funds sold and deposits in banks		79,670		4,053	5.09	%		51,740		1,637	3.16	%
Loans^{(2) (3)}		2,014,420		135,197	6.71	%		1,900,023		116,354	6.12	%
Total earning assets		3,019,725		184,967	6.13	%		2,854,826		158,097	5.54	%
Noninterest-earning assets		209,499						184,360
Total assets	$	3,229,224					$	3,039,186

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,287,196		38,906	3.02	%	$	1,240,403		22,319	1.80	%
Time		848,912		36,460	4.29	%		683,466		24,330	3.56	%
Total interest-bearing deposits		2,136,108		75,366	3.53	%		1,923,869		46,649	2.42	%
Borrowed funds		434,938		20,402	4.69	%		456,599		17,969	3.94	%
Totalinterest-bearing liabilities		2,571,046		95,768	3.72	%		2,380,468		64,618	2.71	%
Noninterest-bearing liabilities:
Demand deposits		333,406						335,962
Other liabilities		42,925						49,782
Total noninterest-bearing liabilities		376,331						385,744
Total liabilities		2,947,377						2,766,212
Shareholders' equity		281,847						272,974
Total liabilities and shareholders' equity	$	3,229,224					$	3,039,186

Net interest spread					2.41	%					2.83	%
Effect of noninterest-bearing sources					0.54	%					0.44	%
Net interest income/margin on earning assets			$	89,199	2.95	%			$	93,479	3.27	%
Less tax equivalent adjustment				6,026						6,358
Net interest income			$	83,173					$	87,121

(1) Certain prior period amounts have been reclassified to conform to current period presentation.
(2) The interest earned on nontaxable investment securities and loans is shown on a tax equivalent basis (tax rate of 35%).
(3) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income.

Pennsylvania	0-15237	23-2210237
(State or other jurisdiction of incorporation or organization)	Commission File Number	(IRS Employer Identification No.)

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Exhibit 99.1 Press Release, dated January 23, 2007, of Harleysville National Corporation (filed pursuant to Item 2.02 hereof).	5