form8-ka.htm

HARLEYSVILLE, PA (October 18, 2007) - Harleysville National Corporation (NASDAQ: HNBC), today announced third quarter 2007 diluted earnings per share of $.25 compared to $.27 for the third quarter of 2006. Net income was $7.2 million for the third quarter of 2007 compared to $7.9 million during the same period in 2006.

For the nine months ended September 30, 2007, diluted earnings per share was $.70 compared to $.89 in the comparable period of 2006. Net income for the nine-month period ended September 30, 2007, was $20.4 million compared to $26.1 million during the comparable nine-month period in 2006.

“Earnings growth has been difficult during the quarter. However, we continue to report higher levels of noninterest income with wealth management revenue up 34% and bank service charges increasing 18% during the third quarter of 2007 over last year. We achieved loan growth of $61 million or 3.0% primarily from commercial customers over last year. We also recognized some credit deterioration in the quarter and continue to be concerned with overall credit quality,” said Paul D. Geraghty, President and Chief Executive Officer.

The Corporation’s consolidated total assets were $3.4 billion at September 30, 2007, remaining level with total assets reported at September 30, 2006. Loans increased by $61.5 million over September 30, 2006 mainly due to growth in the real estate and commercial loan portfolios.

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DETAILED REVIEW OF FINANCIAL RESULTS

Net interest income on a tax equivalent basis in the third quarter of 2007 increased $237,000 or 1.1% from the same period in 2006 and decreased $2.5 million or 3.8% from the nine-month period ending September 30, 2006. The year-to-date decrease during 2007 was mainly attributable to higher deposit costs offset in part by increased loan and investment rates. The net interest margin for the third and second quarters of 2007 was 2.88% and 2.82%, respectively, compared to 2.89% for the third quarter of 2006. Due to market conditions, deposit rates increased faster than loan rates, resulting in a lower net interest margin compared to the third quarter of 2006, partially offset by an increase in loan prepayment penalties during the third quarter of 2007. Average earning assets increased $44.9 million or 1.5% during the third quarter of 2007 versus the comparable period in 2006. Average loans grew by $63.4 million or 3.1% during the same period with average cash and investment securities decreasing $18.5 million. Average interest-bearing deposits were down slightly by $19.0 million or 1.0%, due to reductions in time deposits and savings accounts offset by growth in interest-bearing checking and money market accounts. Average borrowings increased $92.2 million or 22.5% with a higher level of long-term securities sold under agreement to repurchase and overnight borrowings offset in part by long-term Federal Home Loan Bank maturities.

Nonperforming assets (including nonaccrual loans, net assets in foreclosure and loans 90 days or more past due) were .46% of total assets at September 30, 2007, compared to .54% at December 31, 2006, and .39% at September 30, 2006. The decrease in nonperforming assets at September 30, 2007, in relation to December 31, 2006, of $2.0 million was mainly due to a lower level of commercial real estate loans 90 days past due. The increase of nonperforming assets in relation to September 30, 2006, of $2.5 million was largely due to a higher level of residential mortgage loans and commercial loans on non-accrual of interest partially offset by a lower level of loans 90 days past due in all loan categories. The increase in the provision for the three and nine-month periods ending September 30, 2007, compared to the same periods in 2006, of $1.6 million and $3.1 million, respectively was as a result of decreased quality of the loan portfolio, as well as charge-offs during 2007. The charge-offs were principally related to real estate construction loans for one borrower which were disposed of subsequent to September 30, 2007.

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Total deposits decreased $83.9 million or 3.2% to $2.54 billion at September 30, 2007, from $2.63 billion at September 30, 2006. This was mainly attributable to a decline in public fund deposits and regular savings accounts partially offset by growth in money market accounts.

Noninterest income of $9.8 million for the third quarter of 2007 reflects an increase of $1.5 million or 17.8% from the third quarter of 2006. Wealth management income rose $1.2 million or 34.2% during the third quarter of 2007 over the comparable quarter in 2006, primarily driven by a higher level of life insurance and advisory business at Cornerstone as well as growth in trust assets. The Bank experienced an increase in deposit service charges of $368,000 during the third quarter of 2007 as compared to the third quarter of 2006 mainly from return check and overdraft fees. For the nine-month period ended September 30, 2007, noninterest income was $29.2 million, an increase of $2.0 million from the same period in 2006. This increase was primarily due to the previously aforementioned increases in wealth management income and service charges on deposits with year-to-date increases of $2.3 million and $812,000, respectively, partially offset by the $1.4 million pre-tax gain on the sale of the credit card portfolio during 2006. In addition, gains on sales of investment securities for the nine months ended September 30, 2007 were $475,000. During the comparable period in 2006, there were no investment securities gains recognized.

Noninterest expense of $18.9 million for the third quarter of 2007 increased $1.3 million from the third quarter of 2006 and increased $5.4 million for the nine months ended September 30, 2007, over the comparable period in 2006. Salaries and benefits expense rose $248,000 during the third quarter of 2007 and $2.9 million during the first nine months of 2007 from the comparable periods in 2006, primarily due to higher staffing levels resulting from new branch openings, increased incentives associated with higher wealth management revenue and higher cost of medical benefits partially offset by non-recurring compensation and severance charges mainly related to the former Chief Executive Officer’s contract during 2006. Occupancy expense increased $352,000 and $687,000 for the three and nine months ended September 30, 2007 over the same periods in 2006 mostly due to several new office locations including the new operations center building in Harleysville and three new branch openings along with additional increases in rent. Other expense increased $716,000 and $1.6 million for the three and nine

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months ended September 30, 2007, respectively over the comparable periods in 2006, mainly as a result of increased computer software costs and professional and consulting expenses as well as lower deferred loan origination costs resulting from lower loan volume.

Harleysville National Corporation, with assets of $3.4 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 $3.3 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted under NASDAQ Global Select Market^®. 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)
September 30, 2007
(unaudited)

For the period:				Three Months Ended
	Sep. 30,			Jun. 30,		Mar. 31,		Dec. 31,			Sep. 30,
	2007			2007		2007		2006			2006
Interest Income	$	49,022		$	47,711	$	46,695	$	46,661		$	45,961
Interest Expense		28,158			27,556		26,858		26,849			25,347
Net Interest Income		20,864			20,155		19,837		19,812			20,614
Provision for Loan Losses		2,525			1,125		2,425		1,200			900
Net Interest Income after
Provision for Loan Losses		18,339			19,030		17,412		18,612			19,714

Service Charges		2,460			2,442		1,918		1,994			2,092
(Losses)/Gains on Sales of Investment Securities, Net		(58	)		2		531		(674	)		-
Gain on Sale of Branch		-			-		-		10,650			-
Wealth Management Income		4,525			4,831		4,267		3,474			3,372
Bank-Owned Life Insurance Income		648			603		582		594			591
Other Income		2,190			2,377		1,849		2,168			2,231
Total Noninterest Income		9,765			10,255		9,147		18,206			8,286

Salaries, Wages and Employee Benefits		11,735			12,450		11,597		11,787			11,487
Occupancy		1,731			1,688		1,546		1,392			1,379
Furniture and Equipment		897			1,076		917		956			917
Other Expenses		4,493			4,927		4,719		4,332			3,777
Total Noninterest Expense		18,856			20,141		18,779		18,467			17,560

Income Before Income Taxes		9,248			9,144		7,780		18,351			10,440
Income Tax Expense		2,047			2,065		1,646		5,079			2,533
Net Income	$	7,201		$	7,079	$	6,134	$	13,272		$	7,907

Per Common Share Data:
Weighted Average Common Shares - Basic		28,881,006			28,944,643		28,965,500		28,966,810			29,011,903
Weighted Average Common Shares - Diluted		29,107,274			29,190,602		29,255,820		29,291,521			29,384,310
Net Income Per Share - Basic	$	0.25		$	0.25	$	0.21	$	0.46		$	0.27
Net Income Per Share - Diluted	$	0.25		$	0.24	$	0.21	$	0.45		$	0.27
Cash Dividend Per Share	$	0.20		$	0.20	$	0.20	$	0.20		$	0.19
Book Value	$	10.19		$	9.93	$	10.23	$	10.18		$	9.89
Market Value	$	15.89		$	16.12	$	17.82	$	19.31		$	20.10


For the period:	Nine Months Ended
	September 30,
	2007			2006
Interest Income	$	143,428		$	132,280
Interest Expense		82,572			68,919
Net Interest Income		60,856			63,361
Provision for Loan Losses		6,075			3,000
Net Interest Income after
Provision for Loan Losses		54,781			60,361

Service Charges		6,820			6,008
Gains on Sales of Investment Securities, Net		475			-
Gain on Sale of Credit Card Portfolio		-			1,444
Wealth Management Income		13,623			11,314
Bank-Owned Life Insurance Income		1,833			1,792
Other Income		6,416			6,584
Total Noninterest Income		29,167			27,142

Salaries, Wages and Employee Benefits		35,782			32,860
Occupancy		4,965			4,278
Furniture and Equipment		2,890			2,708
Other Expenses		14,139			12,517
Total Noninterest Expense		57,776			52,363

Income Before Income Taxes		26,172			35,140
Income Tax Expense		5,758			8,997
Net Income	$	20,414		$	26,143


	Nine Months Ended
	September 30,
Per Common Share Data:	2007			2006
Weighted Average Common Shares - Basic		28,930,073			28,940,119
Weighted Average Common Shares - Diluted		29,183,811			29,373,646
Net Income Per Share - Basic	$	0.71		$	0.90
Net Income Per Share - Diluted	$	0.70		$	0.89
Cash Dividend Per Share	$	0.60		$	0.55


	2007			2007			2007			2006			2006
Asset Quality Data:	3Q			2Q			1Q			4Q			3Q
Nonaccrual Loans	$	14,507		$	17,389		$	17,519		$	15,201		$	10,806
90 + Days Past Due Loans		1,119			1,283			2,001			2,444			2,262
Nonperforming Loans		15,626			18,672			19,520			17,645			13,068
Net Assets in Foreclosure		28			41			10			-			87
Nonperforming Assets	$	15,654		$	18,713		$	19,530		$	17,645		$	13,155
Loan Loss Reserve	$	22,622		$	21,646		$	20,929		$	21,154		$	21,303
Loan Loss Reserve / Loans		1.08	%		1.04	%		1.01	%		1.03	%		1.05	%
Loan Loss Reserve / Nonperforming Loans		144.8	%		115.9	%		107.2	%		119.9	%		163.0	%
Nonperforming Assets / Total Assets		0.46	%		0.57	%		0.59	%		0.54	%		0.39	%
Net Loan Charge-offs	$	1,549		$	408		$	2,650		$	1,349		$	214
Net Loan Charge-offs (annualized)
/ Average Loans		0.29	%		0.08	%		0.52	%		0.26	%		0.04	%


	2007			2007			2007			2006			2006
Selected Ratios (annualized):	3Q			2Q			1Q			4Q			3Q
Return on Average Assets		0.86	%		0.86	%		0.76	%		1.61	%		0.96	%
Return on Average Shareholders' Equity		9.86	%		9.69	%		8.47	%		18.18	%		11.10	%
Yield on Earning Assets (FTE)		6.50	%		6.40	%		6.37	%		6.22	%		6.20	%
Cost of Interest Bearing Funds		4.19	%		4.17	%		4.14	%		4.05	%		3.88	%
Net Interest Margin (FTE)		2.88	%		2.82	%		2.82	%		2.75	%		2.89	%
Leverage Ratio		9.98	%		9.27	%		9.32	%		9.36	%		9.24	%

	2007			2006
Selected Ratios (annualized):	Year-to-date			Year-to-date
Return on Average Assets		0.83	%		1.09	%
Return on Average Shareholders' Equity		9.34	%		12.52	%
Yield on Earning Assets (FTE)		6.43	%		6.09	%
Cost of Interest Bearing Funds		4.17	%		3.61	%
Net Interest Margin (FTE)		2.84	%		3.02	%


Balance Sheet (Period End):	2007			2007			2007			2006			2006
	3Q			2Q			1Q			4Q			3Q
Assets	$	3,380,519		$	3,303,244		$	3,324,967		$	3,249,828		$	3,363,003
Earning Assets		3,143,019			3,061,300			3,100,047			3,022,219			3,136,487
Investment Securities		929,103			943,924			928,547			911,889			922,251
Loans		2,095,800			2,081,991			2,065,777			2,047,355			2,034,273
Other Earning Assets		118,116			35,385			105,723			62,975			179,963
Interest-Bearing Liabilities		2,737,079			2,637,615			2,654,182			2,578,377			2,707,217
Total Deposits		2,544,340			2,503,554			2,526,841			2,516,855			2,628,246
Noninterest-Bearing Deposits		309,489			339,618			328,096			327,973			326,851
Interest-Bearing Checking		494,653			516,600			524,429			539,974			571,444
Money Market		727,486			759,905			711,969			662,966			675,904
Savings		106,890			121,874			130,981			133,370			150,889
Time Deposits		905,822			765,557			831,366			852,572			903,158
Total Borrowed Funds		502,228			473,679			455,437			389,495			405,822
Federal Home Loan Bank		204,750			192,750			224,750			239,750			239,750
Other Borrowings		297,478			280,929			230,687			149,745			166,072
Shareholders' Equity		294,394			286,906			296,246			294,751			286,605

Balance Sheet (Average):	2007			2007			2007			2006			2006
	3Q			2Q			1Q			4Q			3Q
Assets	$	3,309,516		$	3,303,020		$	3,280,854		$	3,279,260		$	3,253,616
Earning Assets		3,081,953			3,080,691			3,067,366			3,071,093			3,037,009
Investment Securities		933,672			936,526			944,658			919,848			917,103
Loans		2,090,440			2,062,144			2,059,871			2,034,515			2,027,028
Other Earning Assets		57,841			82,021			62,837			116,730			92,878
Interest-Bearing Liabilities		2,666,889			2,653,605			2,629,978			2,629,023			2,593,694
Total Deposits		2,477,260			2,517,291			2,515,658			2,543,658			2,518,958
Noninterest-Bearing Deposits		312,123			314,215			308,095			317,673			334,847
Interest-Bearing Checking		509,168			552,666			528,874			541,676			466,447
Money Market		740,678			737,463			716,266			672,458			676,035
Savings		113,957			125,528			130,934			140,181			163,136
Time Deposits		801,334			787,419			831,489			871,670			878,493
Total Borrowed Funds		501,752			450,529			422,415			403,038			409,583
Federal Home Loan Bank		191,141			207,981			228,750			239,750			241,685
Other Borrowings		310,611			242,548			193,665			163,288			167,898
Shareholders' Equity		289,828			293,032			293,795			289,618			282,678


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

	Three Months Ended September 30, 2007							Three Months Ended September 30, 2006
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	669,051	$	8,769		5.20	%	$	661,976	$	7,538		4.52	%
Non-taxable investments⁽²⁾		264,621		4,004		6.00	%		255,127		3,892		6.05	%
Total investment securities		933,672		12,773		5.43	%		917,103		11,430		4.94	%
Federal funds sold and deposits in banks		57,841		661		4.53	%		92,878		1,227		5.24	%
Loans^{(2) (3)}		2,090,440		37,094		7.04	%		2,027,028		34,823		6.82	%
Total earning assets		3,081,953		50,528		6.50	%		3,037,009		47,480		6.20	%
Noninterest-earning assets		227,563							216,607
Total assets	$	3,309,516						$	3,253,616

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,363,803		12,276		3.57	%	$	1,305,618		10,630		3.23	%
Time		801,334		9,652		4.78	%		878,493		9,732		4.40	%
Total interest-bearing deposits		2,165,137		21,928		4.02	%		2,184,111		20,362		3.70	%
Borrowed funds		501,752		6,230		4.93	%		409,583		4,985		4.83	%
Total interest-bearing liabilities		2,666,889		28,158		4.19	%		2,593,694		25,347		3.88	%
Noninterest-bearing liabilities:
Demand deposits		312,123							334,847
Other liabilities		40,676							42,397
Total noninterest-bearing liabilities		352,799							377,244
Total liabilities		3,019,688							2,970,938
Shareholders' equity		289,828							282,678
Total liabilities and shareholders' equity	$	3,309,516						$	3,253,616

Net interest spread						2.31	%						2.32	%
Effect of noninterest-bearing sources						0.57	%						0.57	%
Net interest income/margin on earning assets			$	22,370		2.88	%			$	22,133		2.89	%
Less tax equivalent adjustment				1,506							1,519
Net interest income			$	20,864						$	20,614

	Nine Months Ended September 30, 2007							Nine Months Ended September 30, 2006
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	676,787	$	25,821		5.10	%	$	675,138	$	22,412		4.44	%
Non-taxable investments⁽²⁾		261,458		11,849		6.06	%		252,447		11,573		6.13	%
Total investment securities		938,245		37,670		5.37	%		927,585		33,985		4.90	%
Federal funds sold and deposits in banks		67,548		2,553		5.05	%		67,181		2,507		4.99	%
Loans^{(2) (3)}		2,070,931		107,708		6.95	%		2,007,650		100,333		6.68	%
Total earning assets		3,076,724		147,931		6.43	%		3,002,416		136,825		6.09	%
Noninterest-earning assets		221,173							209,946
Total assets	$	3,297,897						$	3,212,362

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,385,133		37,212		3.59	%	$	1,264,577		27,061		2.86	%
Time		806,638		28,670		4.75	%		841,242		26,341		4.19	%
Total interest-bearing deposits		2,191,771		65,882		4.02	%		2,105,819		53,402		3.39	%
Borrowed funds		458,523		16,690		4.87	%		445,688		15,517		4.65	%
Total interest-bearing liabilities		2,650,294		82,572		4.17	%		2,551,507		68,919		3.61	%
Noninterest-bearing liabilities:
Demand deposits		311,491							338,709
Other liabilities		43,915							42,918
Total noninterest-bearing liabilities		355,406							381,627
Total liabilities		3,005,700							2,933,134
Shareholders' equity		292,197							279,228
Total liabilities and shareholders' equity	$	3,297,897						$	3,212,362

Net interest spread						2.26	%						2.48	%
Effect of noninterest-bearing sources						0.58	%						0.54	%
Net interest income/margin on earning assets			$	65,359		2.84	%			$	67,906		3.02	%
Less tax equivalent adjustment				4,503							4,545
Net interest income			$	60,856						$	63,361

(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.