exhibit991.htm

FOR IMMEDIATE RELEASE

MEDIA CONTACT:

Joseph J. Crivelli

Gregory FCA Communications

PHONE:

610-228-2100

COMPANY CONTACT:

Paul D. Geraghty, President and CEO

PHONE:

215-513-2391

HARLEYSVILLE NATIONAL CORPORATION REPORTS

SECOND QUARTER RESULTS

NON-CASH GOODWILL CHARGE NEGATIVELY IMPACTS EARNINGS

HARLEYSVILLE, PA (July 30, 2009) - Harleysville National Corporation (NASDAQ:HNBC) reported today a net loss of $8.0 million or $.18 per diluted share excluding the non-cash goodwill charge of $214.5 million for the second quarter of 2009. This compares to net income of $7.3 million, or $.23 per diluted share, for the second quarter of 2008. For the six months ended June 30, 2009, the net loss was $3.4 million or $.08 per diluted share excluding the non-cash goodwill charge compared to net income of $14.6 million or $.46 per diluted share during the comparable period in 2008. Reported net loss including the non-cash goodwill charge was $222.5 million or $5.17 per diluted share for the second quarter of 2009. For the six months ended June 30, 2009, reported net loss including the non-cash goodwill charge was $217.9 million or $5.06 per diluted share.

The second quarter loss was driven by a non-cash goodwill impairment charge of $214.5 million, resulting from the decrease in the market value of the company’s stock. This effectively constitutes the difference between the announced sale price of the company to First Niagara Financial Group for $5.50 per share, which was a 37.5% premium to the pre-announcement market price of the stock, and the company’s book value per share of $10.75 prior to the announcement of the sale of the company to First Niagara Financial Group. The impairment charge was evaluated as part of the company’s annual goodwill analysis. Also contributing to the loss was a provision for credit losses of $32.0 million and a one-time FDIC special assessment of $2.6 million, which were partially offset by a $4.9 million gain on the sale of investment securities.

Harleysville’s second quarter financial results were anticipated, were made known to First Niagara during due diligence and will not impact the exchange ratio as outlined in the merger agreement with First Niagara.

Paul D. Geraghty, President and CEO, Harleysville National Corporation, said, “Second quarter results were disappointing for Harleysville National Corporation. Credit quality continued to be a challenge in our commercial real estate and home equity portfolios, necessitating a significant increase in loan loss reserves. In addition, the announced sale of the company to First Niagara earlier this week resulted in the writeoff of goodwill. That said, we look optimistically to the future. Our merger with First Niagara will make Harleysville part of a $20 billion community bank with a strong franchise stretching from Upstate New York through the Philadelphia suburbs and west to the Pittsburgh region. First Niagara is well capitalized and profitable, and our partnership with them will bring additional products and services to benefit all of our customers.”

Mr. Geraghty continued, “As noted in our merger announcement, First Niagara does not plan to close any branches with the completion of the merger transaction, and is looking to leverage its acquisitions of Harleysville in the Philadelphia suburbs and National City branches in Pittsburgh as a springboard for growth throughout Pennsylvania.”

Mr. Geraghty added, “From a credit standpoint, the Willow loan portfolio has performed extremely well during the recession, and while legacy Willow loans represent 27.8% of our total loan portfolio at June 30, 2009, they represent only 2.11% of chargeoffs. The addition of the Willow franchise, its branches in high-value, high-growth markets, its strong fee-generating product portfolio, and its expertise in credit management and administration made Harleysville a better bank and a more attractive acquisition target for First Niagara.”

Provision for Loan Losses

During the second quarter of 2009, provision for loan losses was $32.0 million, compared to $3.1 million in the second quarter of 2008. The increase in provision for loan losses reflects an increase in nonperforming assets to $138.9 million at June 30, 2009, up from $89.5 million at March 31, 2009 and $39.1 million from a year ago.

Geraghty continued, “Our single biggest challenge over the past several quarters has been our exposure to the real estate markets, and in particular our legacy loans to commercial real estate developers as well as consumer home equity loans. We have taken several steps to triage and manage this exposure,

but as the recession persisted, credit quality continued to deteriorate. We believe the loan loss reserves booked in the second quarter will position us to move forward as we work towards the completion of our merger with First Niagara.”

During the first quarter of 2009, the company reported that its Total Capital to Risk-Weighted Assets at December 31, 2008 fell below the well-capitalized level to adequately capitalized. As of June 30, 2009, this ratio increased to 9.39% from 8.88% at December 31, 2008.

Key Financial Metrics

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

·	Total assets were $5.2 billion at June 30, 2009, an increase of 34.2% or $1.3 billion over $3.9 billion at June 30, 2008. Willow Financial had assets of approximately $1.6 billion at the acquisition date of December 5, 2008.

Loans increased $937.3 million and deposits grew $1.1 billion from June 30, 2008. Adjusted for the Willow Financial acquisition and non-recurring loan sales during the second quarter of 2009 totaling approximately $117.2 million, organic loan growth was approximately $83.6 million or 3.3%, and organic deposits grew by $183.6 million or 6.4%.

Net interest income on a tax equivalent basis in the second quarter of 2009 increased $8.6 million or 31.6% from the same period in 2008 mainly as a result of the Willow Financial acquisition. The net interest margin for the second quarter of 2009 was 2.82% compared to 3.06% for the same period in 2008.

Nonperforming assets were $138.9 million at June 30, 2009. Nonperforming assets as a percentage of total assets increased to 2.67% from 1.58% at March 31, 2009, and 1.01% at June 30, 2008. Net charge-offs were $14.7 million compared to $423,000 in the second quarter of 2008. The allowance for credit losses increased to $70.3 million at quarter end, compared to $53.1 million at March 31, 2009, and $31.2 million at June 30, 2008. Provision for loan losses increased to $32.0 million from $3.1 million during the second quarter of 2008. Total loans delinquent 30 to 89 days totaled $34.4 million at June 30, 2009 compared to $139.3 million at March 31, 2009 and $25.1 million at June 30, 2008. The company’s nonperforming assets combined with loans 30 to 89 days delinquent totaled $173.3 million at June 30, 2009. This is the measurement that corresponds to the Adjustment of Exchange Ratio included in the merger agreement.

Quarterly noninterest income was up $10.1 million from the second quarter of 2008. Gains on sales of investment securities increased by $4.8 million over last year’s quarter. Service charges on deposits increased $1.0 million, or 30.0% mainly from the acquired Willow Financial deposit accounts. Wealth management fee growth was $.4 million or 7.8%. Gains from mortgage banking loan sales totaled $2.6 million, an increase of $2.4 million over last year’s quarter. Other income increased $1.9 million over the second quarter of 2008 primarily from increases in automated teller machine and point of sale revenue as well as fees and valuation adjustments on derivative instruments. A non-cash other-than-temporary impairment charge of $.5 million on two private label collateralized mortgage obligations was also recorded during the second quarter of 2009.

Quarterly noninterest expenses were up $228.3 million over the same period in the prior year, primarily due to the aforementioned goodwill impairment charge of $214.5 million and the Willow Financial acquisition. In addition, FDIC insurance assessments increased by $4.9 million inclusive of the $2.6 million one-time FDIC special assessment previously mentioned. Other expenses were $3.4 million higher during the second quarter of 2009 mostly due to Willow Financial including increased professional, consulting and data processing expenses.

Non-GAAP Measures

Net loss excluding a non cash goodwill charge is not a defined term under U.S. generally accepted accounting principles (non-GAAP measure). A Non-GAAP measure should not be considered in isolation or as a substitute for net loss prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. Management of the company believes that net loss excluding a non cash goodwill charge is a useful measure and can be used to evaluate the company’s operations.

###

Harleysville National Corporation, with assets of $5.2 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 $2.7 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 contains 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 risks, uncertainties and other factors. Such risks, uncertainties and other factors that could cause actual results and experience to differ include, but are not limited to, the following: the Corporation’s merger with First Niagara Financial Group, Inc. is subject to a number of conditions and approvals and the final consideration to be paid to Harleysville stockholders is subject to adjustment, the strategic initiatives may not be completed on satisfactory terms or at all; increased demand or prices for the Corporation’s financial services and products may not occur; changing economic and competitive conditions; technological developments; the effectiveness of the Corporation’s business strategy due to changes in current or future market conditions; effects of deterioration of economic conditions on customers specifically the effect on loan customers to repay loans; inability of the Corporation to raise or achieve desired or required levels of capital; the effects of competition, and of changes in laws and regulations, including industry consolidation and development of competing financial products and services; interest rate movements; relationships with customers and employees; challenges in establishing and maintaining operations in new markets; volatilities in the securities markets; and deteriorating economic conditions and other risks and uncertainties, including those detailed under the caption “Forward-Looking Statements” in the Corporation’s Form 10-K Annual Report for the year ended December 31, 2008 and subsequent filings made with the Securities and Exchange Commission.

Harleysville National Corporation
Consolidated Selected Financial Data (1)
(Dollars in thousands, except per share data)
June 30, 2009
(unaudited)

For the period:				Three Months Ended
	Jun. 30,			Mar. 31,			Dec. 31,			Sep. 30,			Jun. 30,
	2009			2009			2008			2008			2008
Interest Income	$	60,045		$	63,638		$	54,583		$	49,942		$	49,353
Interest Expense		26,592			28,334			25,136			24,645			24,164
Net Interest Income		33,453			35,304			29,447			25,297			25,189
Provision for Loan Losses		32,000			7,121			7,920			2,580			3,107
Net Interest Income after
Provision for Loan Losses		1,453			28,183			21,527			22,717			22,082

Service Charges		4,304			4,194			3,666			3,424			3,312
Gain on Sales of Investment Securities, Net		4,945			1,952			2,417			-			97
Other-than-temporary Impairment of Available for Sale Securities		(530	)		(1,344	)		(1,923	)		-			-
Gain (Loss) on Mortgage Banking Sales, Net		2,703			1,698			136			(5	)		219
Wealth Management Income		4,975			4,322			5,888			3,862			4,615
Bank-Owned Life Insurance Income		770			778			730			706			657
Other Income		4,544			4,559			2,430			2,458			2,696
Total Noninterest Income		21,711			16,159			13,344			10,445			11,596

Salaries, Wages and Employee Benefits		17,991			20,279			14,509			13,539			14,201
Occupancy		3,709			4,206			2,663			2,412			2,441
Furniture and Equipment		1,483			1,608			1,181			1,074			1,083
Intangibles Expense		696			948			2,211			678			631
FDIC Deposit Insurance		5,056			2,787			1,164			551			204
Goodwill impairment		214,536			-			-			-			-
Merger Charges		-			-			2,456			974			-
Other Expenses		9,279			8,793			7,109			5,925			5,898
Total Noninterest Expense		252,750			38,621			31,293			25,153			24,458

(Loss) Income Before Income Taxes		(229,586	)		5,721			3,578			8,009			9,220
Income Tax (Benefit) Expense		(7,083	)		1,126			(245	)		1,370			1,893
Net (Loss) Income	$	(222,503	)	$	4,595		$	3,823		$	6,639		$	7,327

Per Common Share Data:
Weighted Average Common Shares - Basic		43,080,849			42,990,542			34,695,062			31,385,257			31,359,011
Weighted Average Common Shares - Diluted		43,080,849			43,018,233			34,843,058			31,551,026			31,521,608
Net (Loss) Income Per Share - Basic	$	(5.17	)	$	0.11		$	0.11		$	0.21		$	0.24
Net (Loss) Income Per Share - Diluted	$	(5.17	)	$	0.11		$	0.11		$	0.21		$	0.23
Cash Dividend Per Share	$	0.01		$	0.10		$	0.20		$	0.20		$	0.20
Book Value	$	5.77		$	11.00		$	11.05		$	9.90		$	10.45
Market Value	$	4.73		$	6.06		$	14.44		$	16.98		$	11.16


For the period:	Six Months Ended
	June 30,
		2009			2008
Interest Income	$	123,683		$	101,769
Interest Expense		54,926			52,373
Net Interest Income		68,757			49,396
Provision for Loan Losses		39,121			5,067
Net Interest Income after
Provision for Loan Losses		29,636			44,329

Service Charges		8,498			6,425
Gain on Sales of Investment Securities, Net		6,897			225
Other-than-temporary Impairment of Available for Sale Securities		(1,874	)		-
Gain on Mortgage Banking Sales, Net		4,401			426
Wealth Management Income		9,297			8,894
Bank-Owned Life Insurance Income		1,548			1,341
Other Income		9,103			5,117
Total Noninterest Income		37,870			22,428

Salaries, Wages and Employee Benefits		38,270			28,060
Occupancy		7,915			5,026
Furniture and Equipment		3,091			2,177
Intangibles Expense		1,644			1,319
FDIC Deposit Insurance		7,843			367
Goodwill Impairment		214,536			-
Other Expenses		18,072			11,227
Total Noninterest Expense		291,371			48,176

(Loss) Income Before Income Taxes		(223,865	)		18,581
Income Tax (Benefit) Expense		(5,957	)		3,950
Net (Loss) Income	$	(217,908	)	$	14,631


	Six Months Ended
	June 30,
Per Common Share Data:		2009			2008
Weighted Average Common Shares - Basic		43,035,945			31,352,922
Weighted Average Common Shares - Diluted		43,035,945			31,522,029
Net (Loss) Income Per Share - Basic	$	(5.06	)	$	0.47
Net (Loss) Income Per Share - Diluted	$	(5.06	)	$	0.46
Cash Dividend Per Share	$	0.11		$	0.40


		2009			2009			2008			2008			2008
Asset Quality Data:		2Q			1Q			4Q			3Q			2Q
Nonaccrual Loans	$	132,598		$	85,393		$	75,060		$	36,278		$	36,284
90 + Days Past Due Loans		4,090			2,073			1,849			1,275			1,676
Nonperforming Loans		136,688			87,466			76,909			37,553			37,960
Net Assets in Foreclosure		2,168			2,008			1,626			1,221			1,189
Nonperforming Assets	$	138,856		$	89,474		$	78,535		$	38,774		$	39,149
Loan Loss Reserve	$	70,341		$	53,062		$	49,955		$	31,668		$	31,174
Loan Loss Reserve / Loans		2.05	%		1.47	%		1.36	%		1.25	%		1.25	%
Loan Loss Reserve / Nonperforming Loans		51.5	%		60.7	%		65.0	%		84.3	%		82.1	%
Nonperforming Assets / Total Assets		2.67	%		1.58	%		1.43	%		0.98	%		1.01	%
Net Loan Charge-offs	$	14,721		$	4,014		$	2,558		$	2,086		$	423
Net Loan Charge-offs (annualized)
/ Average Loans		1.68	%		0.44	%		0.36	%		0.33	%		0.07	%


		2009			2009			2008			2008			2008
Selected Ratios (annualized):		2Q			1Q			4Q			3Q			2Q
Return on Average Assets		-15.92	%		0.33	%		0.35	%		0.68	%		0.76	%
Return on Average Shareholders' Equity		-186.57	%		3.88	%		4.40	%		8.20	%		8.79	%
Yield on Earning Assets (FTE)		4.92	%		5.29	%		5.69	%		5.76	%		5.80	%
Cost of Interest Bearing Funds		2.35	%		2.53	%		2.82	%		3.10	%		3.12	%
Net Interest Margin (FTE)		2.82	%		3.02	%		3.16	%		3.02	%		3.06	%
Leverage Ratio		5.91	%		6.33	%		8.19	%		8.13	%		8.18	%

		2009			2008
Selected Ratios (annualized):	Year-to-date			Year-to-date
Return on Average Assets		-7.86	%		0.76	%
Return on Average Shareholders' Equity		-91.66	%		8.67	%
Yield on Earning Assets (FTE)		5.09	%		5.93	%
Cost of Interest Bearing Funds		2.43	%		3.36	%
Net Interest Margin (FTE)		2.90	%		2.99	%


Balance Sheet (Period End):		2009			2009			2008			2008			2008
		2Q			1Q			4Q			3Q			2Q
Assets	$	5,210,327		$	5,646,195		$	5,490,509		$	3,949,730		$	3,882,232
Earning Assets		4,909,443			5,109,083			4,944,126			3,626,352			3,544,587
Investment Securities		1,110,123			1,179,213			1,231,661			983,349			1,014,134
Loans		3,439,267			3,615,775			3,685,244			2,539,037			2,501,968
Other Earning Assets		360,053			314,095			27,221			103,966			28,485
Interest-Bearing Liabilities		4,353,600			4,585,275			4,449,461			3,221,921			3,114,993
Total Deposits		3,998,155			4,147,418			3,938,432			3,018,276			2,865,148
Noninterest-Bearing Deposits		517,108			497,921			479,469			343,308			362,750
Interest-Bearing Checking		597,831			579,922			556,855			430,607			422,850
Money Market		991,476			1,074,892			1,042,302			727,693			756,588
Savings		317,196			309,767			270,885			182,342			183,226
Time Deposits		1,574,544			1,684,916			1,588,921			1,334,326			1,139,734
Total Borrowed Funds		872,553			935,778			990,498			546,953			612,595
Federal Home Loan Bank		475,087			515,993			522,671			213,755			223,764
Other Borrowings		397,466			419,785			467,827			333,198			388,831
Shareholders' Equity		248,685			473,713			474,707			310,994			327,910

Balance Sheet (Average):		2009			2008			2008			2008			2008
		2Q			1Q			4Q			3Q			2Q
Assets	$	5,605,475		$	5,580,099		$	4,341,741		$	3,899,593		$	3,856,900
Earning Assets		5,080,393			5,047,766			3,956,963			3,580,454			3,552,208
Investment Securities		1,199,597			1,209,012			1,072,468			1,002,901			1,029,502
Loans		3,511,623			3,666,744			2,860,891			2,522,034			2,491,894
Other Earning Assets		369,173			172,010			23,604			55,519			30,812
Interest-Bearing Liabilities		4,547,522			4,543,033			3,550,359			3,158,464			3,114,520
Total Deposits		4,121,543			4,062,577			3,289,483			2,923,815			2,900,523
Noninterest-Bearing Deposits		493,142			472,687			445,495			348,183			340,802
Interest-Bearing Checking		601,230			560,239			444,141			428,078			415,398
Money Market		1,064,346			1,060,299			820,395			739,931			804,890
Savings		315,856			286,317			212,081			182,403			176,917
Time Deposits		1,646,969			1,683,035			1,367,371			1,225,220			1,162,516
Total Borrowed Funds		919,121			953,143			706,371			582,832			554,799
Federal Home Loan Bank		504,903			520,592			289,245			217,717			213,860
Other Borrowings		414,218			432,551			417,126			365,115			340,939
Shareholders' Equity		478,338			480,491			345,887			322,077			335,311

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

	Three Months Ended June 30, 2009								Three Months Ended June 30, 2008
	Average					Average			Average				Average
	Balance		Interest			Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	890,582	$	10,451			4.72	%	$	740,847	$	9,622		5.22	%
Non-taxable investments (2)		309,015		4,957			6.45	%		288,655		4,380		6.10	%
Total investment securities		1,199,597		15,408			5.17	%		1,029,502		14,002		5.47	%
Federal funds sold and deposits in banks		369,173		239			0.26	%		30,812		119		1.55	%
Loans(2) (3)		3,511,623		46,522			5.33	%		2,491,894		37,067		5.98	%
Total earning assets		5,080,393		62,169			4.92	%		3,552,208		51,188		5.80	%
Noninterest-earning assets		525,082								304,692
Total assets	$	5,605,475							$	3,856,900

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,981,432		5,335			1.08	%	$	1,397,205		5,661		1.63	%
Time		1,646,969		13,936			3.40	%		1,162,516		12,937		4.48	%
Total interest-bearing deposits		3,628,401		19,271			2.14	%		2,559,721		18,598		2.92	%
Borrowed funds		919,121		7,321			3.20	%		554,799		5,566		4.04	%
Total interest-bearing liabilities		4,547,522		26,592			2.35	%		3,114,520		24,164		3.12	%
Noninterest-bearing liabilities:
Demand deposits		493,142								340,802
Other liabilities		86,473								66,267
Total noninterest-bearing liabilities		579,615								407,069
Total liabilities		5,127,137								3,521,589
Shareholders' equity		478,338								335,311
Total liabilities and shareholders' equity	$	5,605,475							$	3,856,900

Net interest spread							2.57	%						2.68	%
Effect of noninterest-bearing sources							0.25	%						0.38	%
Net interest income/margin on earning assets			$	35,577			2.82	%			$	27,024		3.06	%
Less tax equivalent adjustment				2,126								1,835
Net interest income			$	33,451							$	25,189

	Six Months Ended June 30, 2009								Six Months Ended June 30, 2008
	Average					Average			Average				Average
	Balance		Interest			Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	888,214	$	22,237			5.03	%	$	747,157	$	19,376		5.22	%
Non-taxable investments (2)		316,064		10,282			6.54	%		289,377		8,736		6.07	%
Total investment securities		1,204,278		32,519			5.43	%		1,036,534		28,112		5.45	%
Federal funds sold and deposits in banks		271,136		366			0.27	%		57,485		813		2.84	%
Loans(2) (3)		3,588,754		95,180			5.33	%		2,477,569		76,472		6.21	%
Total earning assets		5,064,168		128,065			5.09	%		3,571,588		105,397		5.93	%
Noninterest-earning assets		528,687								302,341
Total assets	$	5,592,855							$	3,873,929

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,944,350		11,506			1.19	%	$	1,406,329		13,756		1.97	%
Time		1,664,903		28,629			3.46	%		1,199,999		27,438		4.60	%
Total interest-bearing deposits		3,609,253		40,135			2.24	%		2,606,328		41,194		3.18	%
Borrowed funds		936,038		14,791			3.18	%		526,932		11,179		4.27	%
Total interest-bearing liabilities		4,545,291		54,926			2.43	%		3,133,260		52,373		3.36	%
Noninterest-bearing liabilities:
Demand deposits		482,970								332,460
Other liabilities		85,188								68,854
Total noninterest-bearing liabilities		568,158								401,314
Total liabilities		5,113,449								3,534,574
Shareholders' equity		479,406								339,355
Total liabilities and shareholders' equity	$	5,592,855							$	3,873,929

Net interest spread							2.66	%						2.57	%
Effect of noninterest-bearing sources							0.24	%						0.42	%
Net interest income/margin on earning assets			$	73,139			2.90	%			$	53,024		2.99	%
Less tax equivalent adjustment				4,384								3,628
Net interest income			$	68,755							$	49,396

Regulatory Capital


	Actual
As of June 30, 2009	Amount		Ratio

Total Capital (to risk weighted assets):
Corporation	$	379,698		9.39	%
Harleysville National Bank		361,488		8.95	%
Tier 1 Capital (to risk weighted assets):
Corporation		328,928		8.14	%
Harleysville National Bank		310,779		7.70	%
Tier 1 Capital (to average assets):
Corporation		328,928		5.91	%
Harleysville National Bank		310,779		5.60	%

As of December 31, 2008

Total Capital (to risk weighted assets):
Corporation	$	384,522		8.88	%
Harleysville National Bank		370,552		8.58	%
Tier 1 Capital (to risk weighted assets):
Corporation		334,467		7.73	%
Harleysville National Bank		320,497		7.42	%
Tier 1 Capital (to average assets):
Corporation		334,467		8.19	%
Harleysville National Bank		320,497		7.88	%


(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.