EX-99.1 2 ex991.htm QUARTERLY SHAREHOLDER LETTER ex991.htm



Dear Shareholder:
 
Financial results remained stable in the second quarter despite a continued challenging environment for the banking industry.  Commercial and retail customers are tightening their belts in the face of economic uncertainty.  While this makes internal growth difficult to achieve, we have made steady progress toward meeting key initiatives which position us well for future growth.
 
We announced the acquisition of Willow Financial Bancorp and its banking subsidiary, Willow Financial Bank, during the quarter.  With Willow Financial, Harleysville will immediately become the third-largest banking institution headquartered in the Philadelphia region, with $5.5 billion in assets and 84 branches in some of the most attractive banking markets in the region.  This acquisition, which we expect to close in the fourth quarter, is consistent with our stated strategy to grow through disciplined in-market acquisitions.
 
Our aspiration is to become The Best Community Bank Anywhere, and as I’ve said before, there is no ‘silver bullet’ that will bring that vision to fulfillment overnight.  However, the acquisition of Willow Financial represents a critical step toward that goal.  It provides numerous opportunities for us to improve performance through expansion, empowerment, and effectiveness:
 
Expansion:  With Willow Financial, our branch network will stretch from Northeast Philadelphia through Western Chester County and into the Lehigh Valley, providing expanded presence and access to a larger pool of customers.  We will be able to provide a greater share of our commercial customers’ borrowing needs and do business with larger commercial customers.  The combined bank will have an extensive set of fee-generating products and services such as cash management, wealth management, and employee benefits programs which can be cross-sold to customers of both organizations.
 
Empowerment:  Working side-by-side, our talented teams will have numerous opportunities to suggest changes, propose new products, implement powerful selling programs to leverage our respective product sets, and deliver on the promise that this merger provides.  We truly believe that the combined Harleysville/Willow Financial team will be the most talented group of community bankers in Southeastern Pennsylvania, providing a significant competitive advantage for Harleysville National.
 
Effectiveness:  With increased scale, we gain operating leverage.  Last year’s proactive expansion of our operations center in Harleysville, PA will deliver immediate results as the combined bank will be able to operate out of that one facility.  Increased scale enables us to evaluate new technology that will improve efficiency, the customer experience, or both.
 
In total, we believe that completion of the Willow Financial Bancorp acquisition will provide numerous organic growth opportunities in the years to come.
 
We are keeping a watchful eye on the credit environment, as during the second quarter loans classified as nonaccrual increased $12.5 million, primarily attributable to residential real estate development.  We have taken steps in response to the situation by increasing allowance for
 
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loan losses to approximately 1.25% of outstanding loans at June 30, 2008, and we continue to evaluate appraisals, financial reviews and inspections. In addition, Harleysville remains well-capitalized at June 30, 2008, with virtually no exposure to the sub-prime residential mortgage lending market.
 
In conclusion, while the current market is challenging, we have never been more excited about the future.  The Willow Financial acquisition is a significant event in our history and will transform Harleysville into one of the most visible and powerful banks in our region.  We hope that you are as excited about this coming event as we are, and we thank you for your continued support.
 
 
 Sincerely,
 
 /s/ Paul Geraghty        
Paul Geraghty
President and CEO
 

 
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Harleysville National Corporation
              
               
Condensed Consolidated Balance Sheets (Unaudited)
            
               
(Dollars in thousands)
June 30, 2008
  
June 30, 2007
        
               
Assets
              
Cash and due from banks
 $                 75,484
  
 $                 62,915
        
Federal funds sold and securities purchased
            
  under agreements to resell
                    25,000
  
                   30,000
        
Interest-bearing deposits in banks
                     3,485
  
                     5,385
        
Investment securities available for sale
                  959,912
  
                  885,067
        
Investment securities held to maturity
                    54,222
  
                   58,857
        
   (fair value $54,307 and $58,233)
              
Net loans
               2,470,794
  
               2,060,345
        
Bank-owned life insurance
                    73,610
  
                   62,905
        
Other assets
                  219,725
  
                  137,770
        
Total assets
 $            3,882,232
  
 $            3,303,244
        
               
Liabilities and Shareholders' Equity
              
Noninterest-bearing deposits
 $               362,750
  
 $               339,618
        
Interest-bearing deposits
               2,502,398
  
               2,163,936
        
Borrowed funds
                  612,595
  
                  473,679
        
Other liabilities
                    76,579
  
                   39,105
        
Shareholders' equity
                  327,910
  
                  286,906
        
Total liabilities and shareholders' equity
 $            3,882,232
  
 $            3,303,244
        
               
               
               
Condensed Consolidated Statements of Income (Unaudited)
            
               
(Dollars in thousands, except per share data)
Six months ended June 30
  
Three months ended June 30
 
2008
  
2007
  
2008
  
2007
Income and Expense
              
Interest income
 $               101,769
  
 $                 94,406
  
 $             49,353
  
 $                47,711
Interest expense
                    52,373
  
                   54,414
  
                24,164
  
                  27,556
Net interest income
                    49,396
  
                   39,992
  
                25,189
  
                  20,155
Provision for loan losses
                     5,067
  
                     3,550
  
                  3,107
  
                    1,125
Net interest income after provision for loan losses
                    44,329
  
                   36,442
  
                22,082
  
                  19,030
Noninterest income
                    22,428
  
                   19,402
  
                11,596
  
                  10,255
Noninterest expense
                    48,176
  
                   38,920
  
                24,458
  
                  20,141
Income before income taxes
                    18,581
  
                   16,924
  
                  9,220
  
                    9,144
Income tax expense
                     3,950
  
                     3,711
  
                  1,893
  
                    2,065
Net income
 $                 14,631
  
 $                 13,213
  
 $               7,327
  
 $                 7,079
               
Financial Highlights
              
Net income per share - Basic
 $                    0.47
  
 $                    0.46
  
 $                 0.24
  
 $                   0.25
Net income per share - Diluted
 $                    0.46
  
 $                    0.45
  
 $                 0.23
  
 $                   0.24
Cash dividends per share
 $                    0.40
  
 $                    0.40
  
 $                 0.20
  
 $                   0.20
Weighted average shares - Basic
             31,352,922
  
             28,955,014
  
          31,359,011
  
            28,944,643
Weighted average shares - Diluted
             31,522,029
  
             29,222,626
  
          31,521,608
  
            29,190,602
Return on average assets
0.76%
  
0.81%
  
0.76%
  
0.86%
Return on average equity
8.67%
  
9.08%
  
8.79%
  
9.69%
               
               
This report 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 Company's financial services and products may not occur, changing economic and competitive conditions, technological
developments, and other risks and uncertainities including those detailed in the Company's filings with the Securities and Exchange Commission.
               
The following disclosure is made in accordance with Rule 165 of the Securities and Exchange Commission.
Harleysville National Corporation and Willow Financial Bancorp, Inc. have or will be filing documents concerning the merger with the Securities and Exchange Commission, including a registration statement on Form S-4 (Registration No. 333-152007) containing a joint proxy statement/prospectus, has been distributed to shareholders of Harleysville National Corporation and Willow Financial Bancorp, Inc. Investors are urged to read the registration statement and the joint proxy statement/prospectus regarding the proposed transaction and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. Investors can obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Harleysville National Corporation and Willow Financial Bancorp, Inc., free of charge on the SEC's Internet site (www.sec.gov), by contacting Harleysville National Corporation, 483 Main Street, Harleysville, PA 19438, (Telephone No. 215-256-8851), or by contacting Willow Financial Bancorp, Inc. at 170 South Warner Road, Wayne, PA 19087, (Telephone No. 610-995-1700). Directors and executive officers of Harleysville National Corporation and Willow Financial Bancorp, Inc. may be deemed to be participants in the solicitation of proxies from the shareholders of Harleysville National Corporation and Willow Financial Bancorp, Inc, respectively, in connection with the merger. Information about the directors and executive officers of Willow Financial Bancorp, Inc. and their ownership of Willow Financial Bancorp, Inc. common stock is set forth in Willow Financial Bancorp, Inc.'s proxy statement for its 2007 annual meeting of shareholders and can be obtained from Willow Financial Bancorp, Inc.  Information about the directors and executive officers of Harleysville National Corporation and their ownership of Harleysville National Corporation common stock is set forth in Harleysville National Corporation’s proxy statement for its 2008 annual meeting of shareholders and can be obtained from Harleysville National Corporation.  Additional information regarding the interests of those participants may be obtained by reading the prospectus/proxy statement regarding the proposed merger transaction. INVESTORS SHOULD READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS TO BE FILED WITH THE SEC CAREFULLY BEFORE MAKING A DECISION CONCERNING THE MERGER.


 


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