exhibit991.htm

FOR IMMEDIATE RELEASE

CONTACT: Paul D. Geraghty, President and CEO

PHONE: 215-513-2391

HARLEYSVILLE NATIONAL CORPORATION REPORTS

SECOND QUARTER EARNINGS OF $7.3 MILLION

HARLEYSVILLE, PA (July 17, 2008) - Harleysville National Corporation (NASDAQ: HNBC) today reported net income of $7.3 million for the second quarter of 2008, up 3.5% compared to $7.1 million for the second quarter of 2007. Diluted earnings per share were $.23, down $.01 from $.24 the same period last year. For the six months ended June 30, 2008, net income was $14.6 million or $.46 per diluted share compared to $13.2 million or $.45 per diluted share during the comparable period in 2007.

Paul D. Geraghty, president and CEO, said, “Earnings were stable on a sequential basis this quarter despite a continued challenging macroeconomic environment for banking. Commercial and retail customers in our market territory are definitely feeling the impact of higher gas prices and a slowing economy, making our growth initiatives difficult to execute. Accordingly, the year over year growth we experienced was primarily a result of the East Penn Financial acquisition, which closed in November 2007, as well as $90 million in organic loan growth.”

Mr. Geraghty continued, “The credit environment remains challenging, and the industry-wide deterioration in credit quality that began last summer continues. During the quarter, loans classified as nonaccrual increased $12.5 million, primarily attributable to residential real estate. All of the borrowers associated with these nonaccrual loans are located in our market territory and in most cases our collateral is local land that has been subdivided for residential development in the growing counties of the Philadelphia suburbs and the Lehigh Valley. We understand these markets and are confident we can manage the collateral, if necessary. We have also taken steps in response to the situation. The bank increased its allowance for loan losses to approximately 1.25% of outstanding loans at June 30, 2008, and we continue to evaluate appraisals, financial reviews and inspections. All mortgage loans within our portfolio were

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booked with traditional bank customers through our branch network and we have virtually no exposure to subprime borrowers – a benefit of our historically careful approach to residential mortgage lending.”

Mr. Geraghty continued, “We are moving toward our goal to become the Best Community Bank Anywhere. However, there is no single initiative that will drive us to this goal overnight. That said, we are excited about our recently-announced acquisition of Willow Financial Bancorp and its banking subsidiary, Willow Financial Bank. The acquisition of Willow Financial, which is expected to close in the fourth quarter, will make Harleysville the third-largest bank holding company headquartered in the region, and is expected to be accretive to earnings in 2009. Willow Financial provides a complementary branch footprint that fits with our current branch platform; a significant presence in Chester County, the fastest growing county in Pennsylvania; and exciting fee-generating businesses that deliver added value for Harleysville customers and shareholders. Additionally, as a larger bank we will have more opportunities to use advanced technology and create synergies through our combined resources to reduce cost and improve the customer experience. Harleysville’s recent investment in our operations center will enable us to execute the Willow Financial acquisition and deliver these significant synergies. The combined bank will have the scale, capital base, and product set to enhance shareholder value, serve customers, and be a major force in the banking industry, without significant increases in staff or facilities. We view the acquisition as a significant event in Harleysville’s history and look forward to its closing later this year.”

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

·	Total assets were $3.9 billion at June 30, 2008, an increase of 17.5% from $3.3 billion at June 30, 2007.

·	Loans were $2.5 billion, an increase of 20.2% from $2.08 billion at June 30, 2007. Deposits were $2.87 billion, up 14.4% from $2.50 billion last year.

Net interest income on a tax equivalent basis in the second quarter of 2008 increased $5.4 million or 24.9% from the same period in 2007 mainly as a result of a decrease in customer deposit costs and the East Penn acquisition as well as organic loan growth. Second quarter net interest margin of 3.06% was up for the second consecutive quarter, increasing 24 basis points year over year and 15 basis points sequentially.

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Nonperforming assets were $39.1 million at June 30, 2008. Nonperforming assets as a percentage of total assets were 1.01% at June 30, 2008, compared to 0.69% at March 31, 2008 and 0.57% at June 30, 2007. Net charge-offs were $423,000, compared to $408,000 in the second quarter of 2007. The allowance for credit losses increased to $31.2 million at quarter end, compared to $28.5 million at March 31, 2008, and $21.6 million at June 30, 2007. Provision for loan losses increased to $3.1 million from $1.1 million during the second quarter of 2007.

·	Noninterest income was $11.6 million during the quarter, an increase of 13.1% from $10.3 million in last year’s second quarter, driven by growth in service charges on deposits of $870,000.

Noninterest expense was $24.5 million, an increase of 21.4% from $20.1 million in the second 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 and consulting fees and the 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 $2.8 billion. Harleysville National Corporation stock is traded under the symbol "HNBC" and is commonly quoted on the NASDAQ Global Select Market®. For more information, visit the Harleysville National Corporation website at www.hncbank.com.

Harleysville National Corporation will file a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents Harleysville has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Harleysville will arrange to send you the prospectus if you request

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it by calling toll-free 1-800-423-3955, Extension 62305. You may also request these documents by e-mail addressed to Harleysville at lchemnitz@hncbank. These documents are also available by accessing Harleysville’s website at www.hncbank.com and clicking “Investor Information,” then clicking “Documents,” and clicking the most recent Registration Statement under “Other Filings.”

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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)
June 30, 2008
(unaudited)

For the period:			Three Months Ended
	Jun. 30,		Mar. 31,		Dec. 31,		Sep. 30,			Jun. 30,
	2008		2008		2007		2007			2007
Interest Income	$	49,353	$	52,416	$	51,133	$	49,022		$	47,711
Interest Expense		24,164		28,209		29,555		28,158			27,556
Net Interest Income		25,189		24,207		21,578		20,864			20,155
Provision for Loan Losses		3,107		1,960		4,475		2,525			1,125
Net Interest Income after
Provision for Loan Losses		22,082		22,247		17,103		18,339			19,030

Service Charges		3,312		3,113		2,870		2,460			2,442
Gains/(Losses) on Sales of Investment Securities, Net		97		128		657		(58	)		2
Gain on Sale-Leaseback of Bank Properties		-		-		2,788		-			-
Wealth Management Income		4,567		4,277		5,019		4,525			4,831
Bank-Owned Life Insurance Income		657		684		656		648			603
Other Income		2,963		2,630		2,181		2,190			2,377
Total Noninterest Income		11,596		10,832		14,171		9,765			10,255

Salaries, Wages and Employee Benefits		14,201		13,859		13,050		11,735			12,450
Occupancy		2,441		2,585		2,043		1,731			1,688
Furniture and Equipment		1,083		1,094		1,051		897			1,076
Other Expenses		6,733		6,180		7,435		4,493			4,927
Total Noninterest Expense		24,458		23,718		23,579		18,856			20,141

Income Before Income Taxes		9,220		9,361		7,695		9,248			9,144
Income Tax Expense		1,893		2,057		1,514		2,047			2,065
Net Income	$	7,327	$	7,304	$	6,181	$	7,201		$	7,079

Per Common Share Data:
Weighted Average Common Shares - Basic		31,359,011		31,346,833		30,075,054		28,881,006			28,944,643
Weighted Average Common Shares - Diluted		31,521,608		31,522,736		30,278,743		29,107,274			29,190,602
Net Income Per Share - Basic	$	0.24	$	0.23	$	0.20	$	0.25		$	0.25
Net Income Per Share - Diluted	$	0.23	$	0.23	$	0.20	$	0.25		$	0.24
Cash Dividend Per Share	$	0.20	$	0.20	$	0.20	$	0.20		$	0.20
Book Value	$	10.45	$	10.95	$	10.83	$	10.19		$	9.93
Market Value	$	11.16	$	14.42	$	14.57	$	15.89		$	16.12


For the period:	Six Months Ended
	June 30,
	2008		2007
Interest Income	$	101,769	$	94,406
Interest Expense		52,373		54,414
Net Interest Income		49,396		39,992
Provision for Loan Losses		5,067		3,550
Net Interest Income after
Provision for Loan Losses		44,329		36,442

Service Charges		6,425		4,360
Gains on Sales of Investment Securities, Net		225		533
Wealth Management Income		8,844		9,098
Bank-Owned Life Insurance Income		1,341		1,185
Other Income		5,593		4,226
Total Noninterest Income		22,428		19,402

Salaries, Wages and Employee Benefits		28,060		24,047
Occupancy		5,026		3,234
Furniture and Equipment		2,177		1,993
Other Expenses		12,913		9,646
Total Noninterest Expense		48,176		38,920

Income Before Income Taxes		18,581		16,924
Income Tax Expense		3,950		3,711
Net Income	$	14,631	$	13,213

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	Six Months Ended
	June 30,
Per Common Share Data:	2008			2007
Weighted Average Common Shares - Basic		31,352,922			28,955,014
Weighted Average Common Shares - Diluted		31,522,029			29,222,626
Net Income Per Share - Basic	$	0.47		$	0.46
Net Income Per Share - Diluted	$	0.46		$	0.45
Cash Dividend Per Share	$	0.40		$	0.40


	2008			2008			2007			2007			2007
Asset Quality Data:		2Q			1Q			4Q			3Q			2Q
Nonaccrual Loans	$	36,284		$	23,819		$	21,091		$	14,507		$	17,389
90 + Days Past Due Loans		1,676			1,702			857			1,119			1,283
Nonperforming Loans		37,960			25,521			21,948			15,626			18,672
Net Assets in Foreclosure		1,189			1,536			28			28			41
Nonperforming Assets	$	39,149		$	27,057		$	21,976		$	15,654		$	18,713
Loan Loss Reserve	$	31,174		$	28,490		$	27,328		$	22,622		$	21,646
Loan Loss Reserve / Loans		1.25	%		1.15	%		1.11	%		1.08	%		1.04	%
Loan Loss Reserve / Nonperforming Loans		82.1	%		111.6	%		124.5	%		144.8	%		115.9	%
Nonperforming Assets / Total Assets		1.01	%		0.69	%		0.56	%		0.46	%		0.57	%
Net Loan Charge-offs	$	423		$	798		$	3,019		$	1,549		$	408
Net Loan Charge-offs (annualized)
/ Average Loans		0.07	%		0.13	%		0.53	%		0.29	%		0.08	%


	2008			2008			2007			2007			2007
Selected Ratios (annualized):		2Q			1Q			4Q			3Q			2Q
Return on Average Assets		0.76	%		0.75	%		0.68	%		0.86	%		0.86	%
Return on Average Shareholders' Equity		8.79	%		8.55	%		7.74	%		9.86	%		9.69	%
Yield on Earning Assets (FTE)		5.80	%		6.07	%		6.28	%		6.50	%		6.40	%
Cost of Interest Bearing Funds		3.12	%		3.60	%		4.02	%		4.19	%		4.17	%
Net Interest Margin (FTE)		3.06	%		2.91	%		2.76	%		2.88	%		2.82	%
Leverage Ratio		8.18	%		8.07	%		8.72	%		9.98	%		9.27	%

	2008			2007
Selected Ratios (annualized):	Year-to-date			Year-to-date
Return on Average Assets		0.76	%		0.81	%
Return on Average Shareholders' Equity		8.67	%		9.08	%
Yield on Earning Assets (FTE)		5.93	%		6.39	%
Cost of Interest Bearing Funds		3.36	%		4.15	%
Net Interest Margin (FTE)		2.99	%		2.82	%


Balance Sheet (Period End):	2008			2008			2007			2007			2007
		2Q			1Q			4Q			3Q			2Q
Assets	$	3,882,232		$	3,894,019		$	3,903,001		$	3,380,519		$	3,303,244
Earning Assets		3,544,587			3,569,040			3,579,211			3,143,019			3,061,300
Investment Securities		1,014,134			1,048,915			982,915			929,103			943,924
Loans		2,501,968			2,481,930			2,460,823			2,095,800			2,081,991
Other Earning Assets		28,485			38,195			135,473			118,116			35,385
Interest-Bearing Liabilities		3,114,993			3,129,316			3,135,085			2,737,079			2,637,615
Total Deposits		2,865,148			2,987,907			2,985,058			2,544,340			2,503,554
Noninterest-Bearing Deposits		362,750			355,027			358,258			309,489			339,618
Interest-Bearing Checking		422,850			399,178			482,104			494,653			516,600
Money Market		756,588			854,831			796,325			727,486			759,905
Savings		183,226			171,337			145,681			106,890			121,874
Time Deposits		1,139,734			1,207,534			1,202,690			905,822			765,557
Total Borrowed Funds		612,595			496,436			508,285			502,228			473,679
Federal Home Loan Bank		223,764			208,774			216,785			204,750			192,750
Other Borrowings		388,831			287,662			291,500			297,478			280,929
Shareholders' Equity		327,910			343,282			339,310			294,394			286,906

Balance Sheet (Average):	2008			2008			2007			2007			2007
		2Q			1Q			4Q			3Q			2Q
Assets	$	3,856,900		$	3,890,959		$	3,589,139		$	3,309,516		$	3,303,020
Earning Assets		3,552,208			3,590,965			3,326,663			3,081,953			3,080,691
Investment Securities		1,029,502			1,043,566			962,918			933,672			936,526
Loans		2,491,894			2,463,242			2,278,188			2,090,440			2,062,144
Other Earning Assets		30,812			84,157			85,557			57,841			82,021
Interest-Bearing Liabilities		3,114,520			3,151,996			2,914,269			2,666,889			2,653,605
Total Deposits		2,900,523			2,977,052			2,718,625			2,477,260			2,517,291
Noninterest-Bearing Deposits		340,802			324,120			313,556			312,123			314,215
Interest-Bearing Checking		415,398			436,828			480,003			509,168			552,666
Money Market		804,890			822,411			768,596			740,678			737,463
Savings		176,917			156,211			122,442			113,957			125,528
Time Deposits		1,162,516			1,237,482			1,034,028			801,334			787,419
Total Borrowed Funds		554,799			499,064			509,200			501,752			450,529
Federal Home Loan Bank		213,860			211,607			211,043			191,141			207,981
Other Borrowings		340,939			287,457			298,157			310,611			242,548
Shareholders' Equity		335,311			343,400			316,778			289,828			293,032

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

	Three Months Ended June 30, 2008							Three Months Ended June 30, 2007
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	740,847	$	9,622		5.22	%	$	676,830	$	8,488		5.03	%
Non-taxable investments (2)		288,655		4,380		6.10	%		259,696		3,908		6.04	%
Total investment securities		1,029,502		14,002		5.47	%		936,526		12,396		5.31	%
Federal funds sold and deposits in banks		30,812		119		1.55	%		82,021		1,086		5.31	%
Loans(2) (3)		2,491,894		37,067		5.98	%		2,062,144		35,709		6.95	%
Total earning assets		3,552,208		51,188		5.80	%		3,080,691		49,191		6.40	%
Noninterest-earning assets		304,692							222,329
Total assets	$	3,856,900						$	3,303,020

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,397,205		5,661		1.63	%	$	1,415,657		12,830		3.64	%
Time		1,162,516		12,937		4.48	%		787,419		9,302		4.74	%
Total interest-bearing deposits		2,559,721		18,598		2.92	%		2,203,076		22,132		4.03	%
Borrowed funds		554,799		5,566		4.04	%		450,529		5,424		4.83	%
Total interest-bearing liabilities		3,114,520		24,164		3.12	%		2,653,605		27,556		4.17	%
Noninterest-bearing liabilities:
Demand deposits		340,802							314,215
Other liabilities		66,267							42,168
Total noninterest-bearing liabilities		407,069							356,383
Total liabilities		3,521,589							3,009,988
Shareholders' equity		335,311							293,032
Total liabilities and shareholders' equity	$	3,856,900						$	3,303,020

Net interest spread						2.68	%						2.23	%
Effect of noninterest-bearing sources						0.38	%						0.59	%
Net interest income/margin on earning assets			$	27,024		3.06	%			$	21,635		2.82	%
Less tax equivalent adjustment				1,835							1,480
Net interest income			$	25,189						$	20,155

	Six Months Ended June 30, 2008							Six Months Ended June 30, 2007
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	747,157	$	19,376		5.22	%	$	680,719	$	17,052		5.05	%
Non-taxable investments (2)		289,377		8,736		6.07	%		259,851		7,845		6.09	%
Total investment securities		1,036,534		28,112		5.45	%		940,570		24,897		5.34	%
Federal funds sold and deposits in banks		57,485		813		2.84	%		72,482		1,892		5.26	%
Loans(2) (3)		2,477,569		76,472		6.21	%		2,061,014		70,614		6.91	%
Total earning assets		3,571,588		105,397		5.93	%		3,074,066		97,403		6.39	%
Noninterest-earning assets		302,341							217,922
Total assets	$	3,873,929						$	3,291,988

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,406,329		13,756		1.97	%	$	1,395,976		24,936		3.60	%
Time		1,199,999		27,438		4.60	%		809,334		19,018		4.74	%
Total interest-bearing deposits		2,606,328		41,194		3.18	%		2,205,310		43,954		4.02	%
Borrowed funds		526,932		11,179		4.27	%		436,550		10,460		4.83	%
Total interest-bearing liabilities		3,133,260		52,373		3.36	%		2,641,860		54,414		4.15	%
Noninterest-bearing liabilities:
Demand deposits		332,460							311,169
Other liabilities		68,854							45,558
Total noninterest-bearing liabilities		401,314							356,727
Total liabilities		3,534,574							2,998,587
Shareholders' equity		339,355							293,401
Total liabilities and shareholders' equity	$	3,873,929						$	3,291,988

Net interest spread						2.57	%						2.24	%
Effect of noninterest-bearing sources						0.42	%						0.58	%
Net interest income/margin on earning assets			$	53,024		2.99	%			$	42,989		2.82	%
Less tax equivalent adjustment				3,628							2,997
Net interest income			$	49,396						$	39,992

(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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