form8k.htm

FOR IMMEDIATE RELEASE

CONTACT: Paul D. Geraghty, President and CEO

PHONE: 215-513-2391

HARLEYSVILLE NATIONAL CORPORATION REPORTS

2007 EARNINGS OF $26.6 MILLION AND FOURTH QUARTER

EARNINGS OF $6.2 MILLION

HARLEYSVILLE, PA (January 24, 2008) - Harleysville National Corporation (NASDAQ: HNBC) today reported net income of $6.2 million or $.20 per diluted share for the fourth quarter of 2007, compared to $13.3 million or $.45 per diluted share for the fourth quarter of 2006. The fourth quarter 2006 results were impacted by a one-time gain on the sale of a branch office location of approximately $6.9 million (net of tax) or $.24 per share. Several significant items impacted the Corporation’s fourth quarter 2007 results, including a $2.3 million pre-tax gain on a real estate sale-leaseback transaction, a pre-tax gain on the sale of surplus office space of $473,000, and pre-tax security sale gains of $657,000. These items were partially offset by a pre-tax charge of $1.9 million relating to the termination of the Corporation’s pension plan and merger expenses of $339,000.

For the year ended December 31, 2007, net income was $26.6 million or $.90 per diluted share compared to $39.4 million or $1.34 per diluted share for the year ended 2006. Adjusting both periods for gains and losses related to branch sales, security gains, pension termination expenses, and merger costs, net income decreased $6.2 million or $.22 per share year over year. The 2007 full year provision for loan losses of $10.6 million was up $6.4 million from the full year 2006. The provision for the fourth quarter of 2007 was $4.5 million and increased $2.0 million over the linked third quarter of 2007.

“Our fourth quarter and year end earnings were largely impacted by an increase in the provision for loan losses,” stated Paul D. Geraghty, President and CEO, Harleysville National Corporation. “Early warning signs in the industry indicated weakening in the commercial credit market and as such, we have responded accordingly by increasing the allowance for loan losses. Although we have extensively reviewed our credit quality, it is difficult to predict the effect of

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the potential economic downturn. Harleysville’s portfolio has virtually no exposure to subprime borrowers - a benefit of our historically conservative approach to residential mortgage lending.

Geraghty continued, “The market has been challenging for banks in general this year. That said, Harleysville has a differentiated service model that benefits from strong branch locations in some of the best and fastest-growing markets in Pennsylvania. We believe we can deliver better results. To this end we are taking decisive action to reduce costs and position the bank to deliver improved results in 2008 which we believe will enhance long-term shareholder value. Despite the credit issues, the fourth quarter as well as the full year 2007 reflects a number of positives, including healthy growth in fee income stemming from our wealth management business and service charges on deposit accounts, strong capital levels, and the success of our East Penn acquisition.”

The following is an overview of the key financial highlights for the quarter:

Total assets were $3.9 billion at December 31, 2007, an increase of 20.1% or $653.2 million over $3.2 billion at December 31, 2006. On November 16, 2007, the Corporation completed its acquisition of East Penn Financial Corporation and its subsidiary, East Penn Bank, expanding the branch network the Corporation has in the Lehigh Valley, PA. Upon the completion of the acquisition, East Penn had assets of approximately $448 million with loans of approximately $338 million and deposits of approximately $382 million. The Company recorded approximately $66 million of purchase accounting adjustments.

·	The Corporation finalized a sale-leaseback transaction involving fifteen bank properties as well as a separate sale of unoccupied office space. The Corporation received net proceeds of $39.7 million and recorded a pre-tax gain of $2.8 million on the two transactions.

The Corporation changed the structure of its retirement programs by announcing its intention to terminate the defined benefit pension plan while enhancing the 401(k) defined contribution savings plan. The Corporation recorded a one-time pre-tax charge related to the pension plan curtailment of $1.9 million. Going forward, we anticipate that pension and 401(k) expenses will be reduced by approximately $600,000 annually.

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·	Loans increased approximately $413.5 million and deposits increased $468.2 million from the prior year. Adjusted for the East Penn acquisition, organic loan growth was $81.9 million or 4.0% and deposit growth was $63.5 million or 2.5%.

Net interest income on a tax equivalent basis in the fourth quarter of 2007 increased $1.8 million or 8.7% from the same period in 2006. Net interest income on a tax equivalent basis decreased $698,000 or .8% for the year ended December 31, 2007, as compared to 2006. The net interest margin for the fourth quarter at 2.76% was down 12 basis points from the linked third quarter and remained flat as compared to 2.75% for the fourth quarter of 2006.

Nonperforming assets increased $4.4 million to $22.0 million at December 31, 2007, from $17.6 million at the end of 2006. However, nonperforming assets as a percentage of total assets remained relatively stable at 0.56%, compared to 0.54% at the end of 2006. Net charge-offs increased by $4.7 million during 2007 over 2006 largely related to one large real estate loan charge-off.

Quarterly noninterest income growth adjusted for the 2006 branch sale gain, security gains and losses, and sale leaseback gains increased $2.8 million over the same period in 2006 and was driven by wealth management fee growth of $1.5 million or 44.4% and an increase in service charges on deposits of $876,000 or 44.0%. Linked quarter growth adjusting for these one-time items was $903,000 or 9.2%. Growth was achieved through a $494,000 or 10.9% increase in wealth management fees and a $410,000 or 16.7% increase in service charges on deposits.

Quarterly noninterest expenses adjusted for pension termination costs and merger expenses were up $2.9 million over the same period in the prior year. Adjusted noninterest expenses were up $2.5 million over the linked third quarter. Driving these increases were salaries and benefits expenses primarily due to higher staffing levels resulting from new branch openings and the East Penn acquisition. In addition, occupancy expenses increased due to several new office locations including the new operations center building in Harleysville and four new branch openings as well as the addition of the East Penn branches. Other expenses increased due to increased professional and consulting fees.

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Harleysville National Corporation, with assets of $3.9 billion, is the holding company for Harleysville National Bank (HNB). Investment Management and Trust Services are provided through Millennium Wealth Management and Cornerstone, divisions of HNB, with assets under management of $3.2 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)
December 31, 2007
(unaudited)

For the period:			Three Months Ended
	Dec. 31,		Sep. 30,			Jun. 30,		Mar. 31,		Dec. 31,
	2007		2007			2007		2007		2006
Interest Income	$	51,133	$	49,022		$	47,711	$	46,695	$	46,661
Interest Expense		29,555		28,158			27,556		26,858		26,849
Net Interest Income		21,578		20,864			20,155		19,837		19,812
Provision for Loan Losses		4,475		2,525			1,125		2,425		1,200
Net Interest Income after
Provision for Loan Losses		17,103		18,339			19,030		17,412		18,612

Service Charges		2,870		2,460			2,442		1,918		1,994
Gains/(Losses) on Sales of Investment Securities, Net		657		(58	)		2		531		(674	)
Gain on Sale-Leaseback of Bank Properties		2,788		-			-		-		-
Gain on Sale of Branch		-		-			-		-		10,650
Wealth Management Income		5,019		4,525			4,831		4,267		3,474
Bank-Owned Life Insurance Income		656		648			603		582		594
Other Income		2,181		2,190			2,377		1,849		2,168
Total Noninterest Income		14,171		9,765			10,255		9,147		18,206

Salaries, Wages and Employee Benefits		13,050		11,735			12,450		11,597		11,787
Occupancy		2,043		1,731			1,688		1,546		1,392
Furniture and Equipment		1,051		897			1,076		917		956
Other Expenses		7,435		4,493			4,927		4,719		4,332
Total Noninterest Expense		23,579		18,856			20,141		18,779		18,467

Income Before Income Taxes		7,695		9,248			9,144		7,780		18,351
Income Tax Expense		1,514		2,047			2,065		1,646		5,079
Net Income	$	6,181	$	7,201		$	7,079	$	6,134	$	13,272

Per Common Share Data:
Weighted Average Common Shares - Basic		30,075,054		28,881,006			28,944,643		28,965,500		28,966,810
Weighted Average Common Shares - Diluted		30,278,743		29,107,274			29,190,602		29,255,820		29,291,521
Net Income Per Share - Basic	$	0.20	$	0.25		$	0.25	$	0.21	$	0.46
Net Income Per Share - Diluted	$	0.20	$	0.25		$	0.24	$	0.21	$	0.45
Cash Dividend Per Share	$	0.20	$	0.20		$	0.20	$	0.20	$	0.20
Book Value	$	10.83	$	10.19		$	9.93	$	10.23	$	10.18
Market Value	$	14.57	$	15.89		$	16.12	$	17.82	$	19.31


For the period:	Twelve Months Ended
	December 31,
	2007		2006
Interest Income	$	194,561	$	178,941
Interest Expense		112,127		95,768
Net Interest Income		82,434		83,173
Provision for Loan Losses		10,550		4,200
Net Interest Income after
Provision for Loan Losses		71,884		78,973

Service Charges		9,690		8,002
Gains/(Losses) on Sales of Investment Securities, Net		1,132		(674	)
Gain on Sale-Leaseback of Bank Properties		2,788		-
Gain on Sale of Branch		-		10,650
Gain on Sale of Credit Card Portfolio		-		1,444
Wealth Management Income		18,642		14,788
Bank-Owned Life Insurance Income		2,489		2,386
Other Income		8,597		8,752
Total Noninterest Income		43,338		45,348

Salaries, Wages and Employee Benefits		48,832		44,647
Occupancy		7,008		5,670
Furniture and Equipment		3,941		3,664
Other Expenses		21,574		16,849
Total Noninterest Expense		81,355		70,830

Income Before Income Taxes		33,867		53,491
Income Tax Expense		7,272		14,076
Net Income	$	26,595	$	39,415

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	Twelve Months Ended
	December 31,
Per Common Share Data:	2007			2006
Weighted Average Common Shares - Basic		29,218,671			28,946,847
Weighted Average Common Shares - Diluted		29,459,898			29,353,128
Net Income Per Share - Basic	$	0.91		$	1.36
Net Income Per Share - Diluted	$	0.90		$	1.34
Cash Dividend Per Share	$	0.80		$	0.75


	2007			2007			2007			2007			2006
Asset Quality Data:		4Q			3Q			2Q			1Q			4Q
Nonaccrual Loans	$	21,091		$	14,507		$	17,389		$	17,519		$	15,201
90 + Days Past Due Loans		857			1,119			1,283			2,001			2,444
Nonperforming Loans		21,948			15,626			18,672			19,520			17,645
Net Assets in Foreclosure		28			28			41			10			-
Nonperforming Assets	$	21,976		$	15,654		$	18,713		$	19,530		$	17,645
Loan Loss Reserve	$	27,328		$	22,622		$	21,646		$	20,929		$	21,154
Loan Loss Reserve / Loans		1.11	%		1.08	%		1.04	%		1.01	%		1.03	%
Loan Loss Reserve / Nonperforming Loans		124.5	%		144.8	%		115.9	%		107.2	%		119.9	%
Nonperforming Assets / Total Assets		0.56	%		0.46	%		0.57	%		0.59	%		0.54	%
Net Loan Charge-offs	$	3,019		$	1,549		$	408		$	2,650		$	1,349
Net Loan Charge-offs (annualized)
/ Average Loans		0.53	%		0.29	%		0.08	%		0.52	%		0.26	%


	2007			2007			2007			2007			2006
Selected Ratios (annualized):		4Q			3Q			2Q			1Q			4Q
Return on Average Assets		0.68	%		0.86	%		0.86	%		0.76	%		1.61	%
Return on Average Shareholders' Equity		7.74	%		9.86	%		9.69	%		8.47	%		18.18	%
Yield on Earning Assets (FTE)		6.28	%		6.50	%		6.40	%		6.37	%		6.22	%
Cost of Interest Bearing Funds		4.02	%		4.19	%		4.17	%		4.14	%		4.05	%
Net Interest Margin (FTE)		2.76	%		2.88	%		2.82	%		2.82	%		2.75	%
Leverage Ratio		8.72	%		9.98	%		9.27	%		9.32	%		9.36	%

	2007			2006
Selected Ratios (annualized):	Year-to-date				Year-to-date
Return on Average Assets		0.79	%		1.22	%
Return on Average Shareholders' Equity		8.91	%		13.98	%
Yield on Earning Assets (FTE)		6.39	%		6.13	%
Cost of Interest Bearing Funds		4.13	%		3.72	%
Net Interest Margin (FTE)		2.82	%		2.95	%


Balance Sheet (Period End):	2007			2007			2007			2007			2006
		4Q			3Q			2Q			1Q			4Q
Assets	$	3,903,001		$	3,380,519		$	3,303,244		$	3,324,967		$	3,249,828
Earning Assets		3,579,211			3,143,019			3,061,300			3,100,047			3,022,219
Investment Securities		982,915			929,103			943,924			928,547			911,889
Loans		2,460,823			2,095,800			2,081,991			2,065,777			2,047,355
Other Earning Assets		135,473			118,116			35,385			105,723			62,975
Interest-Bearing Liabilities		3,135,085			2,737,079			2,637,615			2,654,182			2,578,377
Total Deposits		2,985,058			2,544,340			2,503,554			2,526,841			2,516,855
Noninterest-Bearing Deposits		358,258			309,489			339,618			328,096			327,973
Interest-Bearing Checking		482,104			494,653			516,600			524,429			539,974
Money Market		796,325			727,486			759,905			711,969			662,966
Savings		145,681			106,890			121,874			130,981			133,370
Time Deposits		1,202,690			905,822			765,557			831,366			852,572
Total Borrowed Funds		508,285			502,228			473,679			455,437			389,495
Federal Home Loan Bank		216,785			204,750			192,750			224,750			239,750
Other Borrowings		291,500			297,478			280,929			230,687			149,745
Shareholders' Equity		339,310			294,394			286,906			296,246			294,751

Balance Sheet (Average):	2007			2007			2007			2007			2006
		4Q			3Q			2Q			1Q			4Q
Assets	$	3,589,139		$	3,309,516		$	3,303,020		$	3,280,854		$	3,279,260
Earning Assets		3,326,663			3,081,953			3,080,691			3,067,366			3,071,093
Investment Securities		962,918			933,672			936,526			944,658			919,848
Loans		2,278,188			2,090,440			2,062,144			2,059,871			2,034,515
Other Earning Assets		85,557			57,841			82,021			62,837			116,730
Interest-Bearing Liabilities		2,914,269			2,666,889			2,653,605			2,629,978			2,629,023
Total Deposits		2,718,625			2,477,260			2,517,291			2,515,658			2,543,658
Noninterest-Bearing Deposits		313,556			312,123			314,215			308,095			317,673
Interest-Bearing Checking		480,003			509,168			552,666			528,874			541,676
Money Market		768,596			740,678			737,463			716,266			672,458
Savings		122,442			113,957			125,528			130,934			140,181
Time Deposits		1,034,028			801,334			787,419			831,489			871,670
Total Borrowed Funds		509,200			501,752			450,529			422,415			403,038
Federal Home Loan Bank		211,043			191,141			207,981			228,750			239,750
Other Borrowings		298,157			310,611			242,548			193,665			163,288
Shareholders' Equity		316,778			289,828			293,032			293,795			289,618

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

	Three Months Ended December 31, 2007							Three Months Ended December 31, 2006
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	696,628	$	8,982		5.12	%	$	665,256	$	7,884		4.70	%
Non-taxable investments(2)		266,290		4,000		5.96	%		254,592		3,848		6.00	%
Total investment securities		962,918		12,982		5.35	%		919,848		11,732		5.06	%
Federal funds sold and deposits in banks		85,557		1,023		4.74	%		116,730		1,546		5.25	%
Loans(2) (3)		2,278,188		38,692		6.74	%		2,034,515		34,864		6.80	%
Total earning assets		3,326,663		52,697		6.28	%		3,071,093		48,142		6.22	%
Noninterest-earning assets		262,476							208,167
Total assets	$	3,589,139						$	3,279,260

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,371,041		10,768		3.12	%	$	1,354,315		11,845		3.47	%
Time		1,034,028		12,639		4.85	%		871,670		10,119		4.61	%
Total interest-bearing deposits		2,405,069		23,407		3.86	%		2,225,985		21,964		3.91	%
Borrowed funds		509,200		6,148		4.79	%		403,038		4,885		4.81	%
Total interest-bearing liabilities		2,914,269		29,555		4.02	%		2,629,023		26,849		4.05	%
Noninterest-bearing liabilities:
Demand deposits		313,556							317,673
Other liabilities		44,536							42,946
Total noninterest-bearing liabilities		358,092							360,619
Total liabilities		3,272,361							2,989,642
Shareholders' equity		316,778							289,618
Total liabilities and shareholders' equity	$	3,589,139						$	3,279,260

Net interest spread						2.26	%						2.17	%
Effect of noninterest-bearing sources						0.50	%						0.58	%
Net interest income/margin on earning assets			$	23,142		2.76	%			$	21,293		2.75	%
Less tax equivalent adjustment				1,564							1,481
Net interest income			$	21,578						$	19,812

	Twelve Months Ended December 31, 2007							Twelve Months Ended December 31, 2006
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	681,788	$	34,803		5.10	%	$	672,648	$	30,296		4.50	%
Non-taxable investments(2)		262,676		15,849		6.03	%		252,987		15,421		6.10	%
Total investment securities		944,464		50,652		5.36	%		925,635		45,717		4.94	%
Federal funds sold and deposits in banks		72,087		3,576		4.96	%		79,670		4,053		5.09	%
Loans(2) (3)		2,123,170		146,400		6.90	%		2,014,420		135,197		6.71	%
Total earning assets		3,139,721		200,628		6.39	%		3,019,725		184,967		6.13	%
Noninterest-earning assets		231,583							209,499
Total assets	$	3,371,304						$	3,229,224

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,381,582		47,980		3.47	%	$	1,287,196		38,906		3.02	%
Time		863,953		41,309		4.78	%		848,912		36,460		4.29	%
Total interest-bearing deposits		2,245,535		89,289		3.98	%		2,136,108		75,366		3.53	%
Borrowed funds		471,296		22,838		4.85	%		434,938		20,402		4.69	%
Total interest-bearing liabilities		2,716,831		112,127		4.13	%		2,571,046		95,768		3.72	%
Noninterest-bearing liabilities:
Demand deposits		312,011							333,406
Other liabilities		44,069							42,925
Total noninterest-bearing liabilities		356,080							376,331
Total liabilities		3,072,911							2,947,377
Shareholders' equity		298,393							281,847
Total liabilities and shareholders' equity	$	3,371,304						$	3,229,224

Net interest spread						2.26	%						2.41	%
Effect of noninterest-bearing sources						0.56	%						0.54	%
Net interest income/margin on earning assets			$	88,501		2.82	%			$	89,199		2.95	%
Less tax equivalent adjustment				6,067							6,026
Net interest income			$	82,434						$	83,173

(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.

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