form8-k1stqtr08.htm

FOR IMMEDIATE RELEASE

CONTACT: Paul D. Geraghty, President and CEO

PHONE: 215-513-2391

HARLEYSVILLE NATIONAL CORPORATION REPORTS

FIRST QUARTER EARNINGS UP 19.1%

HARLEYSVILLE, PA (April 17, 2008) - Harleysville National Corporation (NASDAQ: HNBC) today reported net income of $7.3 million or $.23 per diluted share for the first quarter of 2008, up 19.1% and 9.5%, respectively, compared to $6.1 million or $.21 per diluted share for the first quarter of 2007. Results were favorably impacted by an increase in the net interest margin, the impact of cost reduction actions taken in 2007 as well as the recent acquisition of East Penn Financial Corporation.

“There were a number of positive indicators in our first quarter results,” said Paul D. Geraghty, President and CEO, Harleysville National Corporation. “Net interest margin increased to its highest level in over a year, and we benefited from a strong increase in fee income as well as healthy loan and deposit growth. All told, the first quarter was a step in the right direction and we made good progress in a challenging environment for banking.”

Geraghty continued, “While our credit quality remained stable at quarter end, we are carefully watching our portfolio and continuing to take a conservative approach to our lending and loan review practices. Nonperforming assets increased by $7.5 million year over year and $5.1 million from December 31, 2007, with the increase substantially concentrated in our commercial real estate portfolio. We responded by increasing our reserve coverage on loans to 1.15% at March 31, 2008 versus 1.01% during the same period in 2007. That said, at quarter end nonperforming assets as a percentage of total assets were 0.69%, well within our peer group. Harleysville’s portfolio has virtually no exposure to subprime borrowers - a benefit of our historically careful approach to residential mortgage lending.”

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

·	Total assets were $3.9 billion at March 31, 2008, an increase of 17.1% from $3.3 billion at March 31, 2007. East Penn Financial had assets of approximately $451 million at the acquisition date of November 16, 2007.

·	Loans were $2.48 million, an increase of 20.1% from $2.07 million at March 31, 2007. Deposits were $2.99 million, up 18.2% from $2.53 million last year.

Net interest income on a tax equivalent basis in the first quarter of 2008 increased $4.6 million or 21.8% from the same period in 2007 mainly as a result of the East Penn acquisition as well as organic loan growth and a decrease in customer deposit costs. First quarter net interest margin of 2.91% was the highest since the third quarter of 2006, and was up 9 basis points year over year and 15 basis points sequentially.

Nonperforming assets were $27.1 million at March 31, 2008. Nonperforming assets as a percentage of total assets were 0.69% at March 31, 2008 compared to 0.56% at December 31, 2007 and 0.59% in last year’s first quarter. Net charge-offs were $0.8 million, compared to $2.7 million in the first quarter of 2007. The allowance for credit losses increased to $28.5 million at quarter end, compared to $27.3 million at December 31, 2007 and $20.9 million at March 31, 2007. Provision for loan losses was $2.0 million, a decrease of 19.2% from $2.4 million in the first quarter of 2007.

Noninterest income was $10.8 million during the quarter, an increase of 18.4% from $9.1 million in last year’s first quarter, driven by growth in service charges on deposits. Service charges on deposits increased by $1.2 million or 62.3% primarily from increased return check and overdraft fees as well as East Penn deposit accounts. Other income included a gain of $302,000 from the mandatory redemption of Visa Class B stock in conjunction with Visa’s initial public offering.

Noninterest expense was $23.7 million, an increase of 26.3% from $18.8 million in the first quarter of 2007, driven by the acquisition of East Penn as well as branch expansion. Occupancy expenses increased due to the addition of the East Penn branches as well as rent expense on the bank properties in the sale-leaseback transaction completed in the fourth quarter of 2007. Other expenses increased mostly due to additional professional

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and consulting fees and identifiable intangible asset amortization related to the East Penn acquisition.

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 $3.0 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.

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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)
March 31, 2008
(unaudited)

For the period:				Three Months Ended
	Mar. 31,			Dec. 31,			Sep. 30,			Jun. 30,			Mar. 31,
	2008			2007			2007			2007			2007
Interest Income	$	52,416		$	51,133		$	49,022		$	47,711		$	46,695
Interest Expense		28,209			29,555			28,158			27,556			26,858
Net Interest Income		24,207			21,578			20,864			20,155			19,837
Provision for Loan Losses		1,960			4,475			2,525			1,125			2,425
Net Interest Income after
Provision for Loan Losses		22,247			17,103			18,339			19,030			17,412

Service Charges		3,113			2,870			2,460			2,442			1,918
Gains/(Losses) on Sales of Investment Securities, Net		128			657			(58	)		2			531
Gain on Sale-Leaseback of Bank Properties		-			2,788			-			-			-
Wealth Management Income		4,277			5,019			4,525			4,831			4,267
Bank-Owned Life Insurance Income		684			656			648			603			582
Other Income		2,630			2,181			2,190			2,377			1,849
Total Noninterest Income		10,832			14,171			9,765			10,255			9,147

Salaries, Wages and Employee Benefits		13,859			13,050			11,735			12,450			11,597
Occupancy		2,585			2,043			1,731			1,688			1,546
Furniture and Equipment		1,094			1,051			897			1,076			917
Other Expenses		6,180			7,435			4,493			4,927			4,719
Total Noninterest Expense		23,718			23,579			18,856			20,141			18,779

Income Before Income Taxes		9,361			7,695			9,248			9,144			7,780
Income Tax Expense		2,057			1,514			2,047			2,065			1,646
Net Income	$	7,304		$	6,181		$	7,201		$	7,079		$	6,134

Per Common Share Data:
Weighted Average Common Shares - Basic		31,346,833			30,075,054			28,881,006			28,944,643			28,965,500
Weighted Average Common Shares - Diluted		31,522,736			30,278,743			29,107,274			29,190,602			29,255,820
Net Income Per Share - Basic	$	0.23		$	0.20		$	0.25		$	0.25		$	0.21
Net Income Per Share - Diluted	$	0.23		$	0.20		$	0.25		$	0.24		$	0.21
Cash Dividend Per Share	$	0.20		$	0.20		$	0.20		$	0.20		$	0.20
Book Value	$	10.95		$	10.83		$	10.19		$	9.93		$	10.23
Market Value	$	14.42		$	14.57		$	15.89		$	16.12		$	17.82


	2008			2007			2007			2007			2007
Asset Quality Data:		1Q			4Q			3Q			2Q			1Q
Nonaccrual Loans	$	23,819		$	21,091		$	14,507		$	17,389		$	17,519
90 + Days Past Due Loans		1,702			857			1,119			1,283			2,001
Nonperforming Loans		25,521			21,948			15,626			18,672			19,520
Net Assets in Foreclosure		1,536			28			28			41			10
Nonperforming Assets	$	27,057		$	21,976		$	15,654		$	18,713		$	19,530
Loan Loss Reserve	$	28,490		$	27,328		$	22,622		$	21,646		$	20,929
Loan Loss Reserve / Loans		1.15	%		1.11	%		1.08	%		1.04	%		1.01	%
Loan Loss Reserve / Nonperforming Loans		111.6	%		124.5	%		144.8	%		115.9	%		107.2	%
Nonperforming Assets / Total Assets		0.69	%		0.56	%		0.46	%		0.57	%		0.59	%
Net Loan Charge-offs	$	798		$	3,019		$	1,549		$	408		$	2,650
Net Loan Charge-offs (annualized)
/ Average Loans		0.13	%		0.53	%		0.29	%		0.08	%		0.52	%


	2008			2007			2007			2007			2007
Selected Ratios (annualized):		1Q			4Q			3Q			2Q			1Q
Return on Average Assets		0.75	%		0.68	%		0.86	%		0.86	%		0.76	%
Return on Average Shareholders' Equity		8.55	%		7.74	%		9.86	%		9.69	%		8.47	%
Yield on Earning Assets (FTE)		6.07	%		6.28	%		6.50	%		6.40	%		6.37	%
Cost of Interest Bearing Funds		3.60	%		4.02	%		4.19	%		4.17	%		4.14	%
Net Interest Margin (FTE)		2.91	%		2.76	%		2.88	%		2.82	%		2.82	%
Leverage Ratio		8.07	%		8.72	%		9.98	%		9.27	%		9.32	%

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Balance Sheet (Period End):	2008		2007		2007			2007		2007
		1Q		4Q		3Q			2Q		1Q
Assets	$	3,894,019	$	3,903,001	$	3,380,519		$	3,303,244	$	3,324,967
Earning Assets		3,569,040		3,579,211		3,143,019			3,061,300		3,100,047
Investment Securities		1,048,915		982,915		929,103			943,924		928,547
Loans		2,481,930		2,460,823		2,095,800			2,081,991		2,065,777
Other Earning Assets		38,195		135,473		118,116			35,385		105,723
Interest-Bearing Liabilities		3,129,316		3,135,085		2,737,079			2,637,615		2,654,182
Total Deposits		2,987,907		2,985,058		2,544,340			2,503,554		2,526,841
Noninterest-Bearing Deposits		355,027		358,258		309,489			339,618		328,096
Interest-Bearing Checking		399,178		482,104		494,653			516,600		524,429
Money Market		854,831		796,325		727,486			759,905		711,969
Savings		171,337		145,681		106,890			121,874		130,981
Time Deposits		1,207,534		1,202,690		905,822			765,557		831,366
Total Borrowed Funds		496,436		508,285		502,228			473,679		455,437
Federal Home Loan Bank		208,774		216,785		204,750			192,750		224,750
Other Borrowings		287,662		291,500		297,478			280,929		230,687
Shareholders' Equity		343,282		339,310		294,394			286,906		296,246

Balance Sheet (Average):	2008		2007		2007			2007		2007
		1Q		4Q		3Q			2Q		1Q
Assets	$	3,890,959	$	3,589,139	$	3,309,516		$	3,303,020	$	3,280,854
Earning Assets		3,590,965		3,326,663		3,081,953			3,080,691		3,067,366
Investment Securities		1,043,566		962,918		933,672			936,526		944,658
Loans		2,463,242		2,278,188		2,090,440			2,062,144		2,059,871
Other Earning Assets		84,157		85,557		57,841			82,021		62,837
Interest-Bearing Liabilities		3,151,996		2,914,269		2,666,889			2,653,605		2,629,978
Total Deposits		2,977,052		2,718,625		2,477,260			2,517,291		2,515,658
Noninterest-Bearing Deposits		324,120		313,556		312,123			314,215		308,095
Interest-Bearing Checking		436,828		480,003		509,168			552,666		528,874
Money Market		822,411		768,596		740,678			737,463		716,266
Savings		156,211		122,442		113,957			125,528		130,934
Time Deposits		1,237,482		1,034,028		801,334			787,419		831,489
Total Borrowed Funds		499,064		509,200		501,752			450,529		422,415
Federal Home Loan Bank		211,607		211,043		191,141			207,981		228,750
Other Borrowings		287,457		298,157		310,611			242,548		193,665
Shareholders' Equity		343,400		316,778		289,828			293,032		293,795

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

	Three Months Ended March 31, 2008							Three Months Ended March 31, 2007
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	753,468	$	9,754		5.21	%	$	684,651	$	8,564		5.07	%
Non-taxable investments (2)		290,098		4,356		6.04	%		260,007		3,937		6.14	%
Total investment securities		1,043,566		14,110		5.44	%		944,658		12,501		5.37	%
Federal funds sold and deposits in banks		84,157		694		3.32	%		62,837		806		5.20	%
Loans(2) (3)		2,463,242		39,405		6.43	%		2,059,871		34,905		6.87	%
Total earning assets		3,590,965		54,209		6.07	%		3,067,366		48,212		6.37	%
Noninterest-earning assets		299,994							213,488
Total assets	$	3,890,959						$	3,280,854

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,415,450		8,095		2.30	%	$	1,376,074		12,106		3.57	%
Time		1,237,482		14,501		4.71	%		831,489		9,716		4.74	%
Total interest-bearing deposits		2,652,932		22,596		3.43	%		2,207,563		21,822		4.01	%
Borrowed funds		499,064		5,613		4.52	%		422,415		5,036		4.84	%
Total interest-bearing liabilities		3,151,996		28,209		3.60	%		2,629,978		26,858		4.14	%
Noninterest-bearing liabilities:
Demand deposits		324,120							308,095
Other liabilities		71,443							48,986
Total noninterest-bearing liabilities		395,563							357,081
Total liabilities		3,547,559							2,987,059
Shareholders' equity		343,400							293,795
Total liabilities and shareholders' equity	$	3,890,959						$	3,280,854

Net interest spread						2.47	%						2.23	%
Effect of noninterest-bearing sources						0.44	%						0.59	%
Net interest income/margin on earning assets			$	26,000		2.91	%			$	21,354		2.82	%
Less tax equivalent adjustment				1,793							1,517
Net interest income			$	24,207						$	19,837

(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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