form8k.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

FOURTH QUARTER RESULTS

HARLEYSVILLE, PA (January 28, 2010) - Harleysville National Corporation (NASDAQ:HNBC) reported today net income of $2.8 million or $.07 per diluted share for the fourth quarter of 2009. This compares to net income of $3.8 million, or $.11 per diluted share, for the fourth quarter of 2008.

For the year 2009, the net loss was $219.5 million or $5.09 per diluted share. Excluding the non-cash goodwill impairment charge of $214.5 million recorded in the second quarter, the net loss was $4.9 million or $.11 per diluted share, compared to net income of $25.1 million or $.78 per diluted share during the comparable period in 2008.

Fourth quarter results included a $4.5 million provision for credit losses; a $2.9 million non-cash other-than-temporary impairment (OTTI) charge on investment securities; as well as professional fees of $2.5 million associated with recent corporate finance activities, including the pending merger with First Niagara Financial Group, Inc. (“First Niagara”).

Paul D. Geraghty, President and CEO, Harleysville National Corporation, said, “We continue to manage our loan portfolio to protect the bank’s capital base and minimize increases in delinquencies and non-performing assets, while building a stronger balance sheet. To this end, during the fourth quarter we increased our penetration of retail and business deposit accounts and grew non-municipal core deposits. We were also encouraged by the full payoffs of two nonperforming loans totaling $18 million during the fourth quarter contributing to a $20 million decline in nonperforming assets over the linked quarter.”

During the fourth quarter of 2009, provision for loan losses was $4.5 million, compared to $14.8 million in the third quarter of 2009 and $7.9 million in the fourth quarter of 2008. The decrease in provision for loan losses reflects a decrease in nonperforming assets to $133.6 million at December 31, 2009, from

$153.7 million at September 30, 2009 as well as a decline in outstanding loans of $256.7 million. The increase in the provision compared to the fourth quarter of 2008 was mainly due to the increase in non-performing assets from $78.5 million from a year ago. Total Capital to Risk-Weighted Assets improved to 10.64% at December 31, 2009 from 9.51% at September 30, 2009 and 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 December 31, 2009, a decrease of 5.5% or $302.7 million over $5.5 billion at December 31, 2008, primarily the result of the $214.5 million goodwill impairment charge during the second quarter of 2009.

Loans decreased $691.9 million from December 31, 2008, mainly due to increased refinancing activity and reduced origination volume as well as the sale of first mortgage residential loans totaling $106.3 million and indirect consumer installment loans and commercial loans totaling $67.2 million. In addition, $63.2 million of commercial loans were participated to First Niagara. Deposits at December 31, 2009 remained level with the prior year.

Net interest income on a tax equivalent basis in the fourth quarter of 2009 remained level with the same period in 2008. Net interest income on a tax equivalent basis increased $25.7 million for the year ended December 31, 2009 mainly as a result of the Willow Financial acquisition. The net interest margin for the fourth quarter of 2009 was 2.56% compared to 3.16% for the same period in 2008 reflecting lower yields on a higher level of short term interest earning assets intended to increase the company’s liquidity position.

Nonperforming assets were $133.6 million at December 31, 2009. Nonperforming assets as a percentage of total assets decreased to 2.58% from 2.98% at September 30, 2009, and increased from 1.43% at December 31, 2008. Net charge-offs were $15.1 million compared to $2.6 million in the fourth quarter of 2008. The allowance for credit losses decreased to $66.6 million at December 31, 2009, compared to $77.3 million at September 30, 2009, and increased from $50.0 million at December 31, 2008. The provision for loan losses decreased to $4.5 million from $14.8 million during the third quarter of 2009 and $7.9 million during the fourth quarter of 2008. Total loans

delinquent 30 to 89 days totaled $26.2 million at December 31, 2009 compared to $31.8 million at September 30, 2009 and $97.0 million at December 31, 2008.

The merger agreement with First Niagara, as filed with the SEC on July 28, 2009, calls for a downward adjustment to the merger consideration to be received by Harleysville National Corporation shareholders if the amount of our delinquent loans equals or exceeds $237.5 million as of any month end prior to the closing date of the merger. For purposes of this calculation, “delinquent loans” is defined as the sum of non-performing assets, loans 30 to 89 days delinquent, and cumulative charge-offs subsequent to the signing of the agreement. By this definition, at December 31, 2009, delinquent loans were $182.8 million compared to $193.3 million at September 30, 2009.

Quarterly noninterest income was level with the fourth quarter of 2008. Service charges on deposits increased $0.8 million or 20.7% over last year’s quarter mainly from the acquired Willow Financial deposit accounts. Gains on sales of investment securities increased by $0.7 million and gains from mortgage banking loan sales increased $2.1 million compared to the same period in 2008. These increases were partially offset by an increase in non-cash OTTI charges of $1.0 million during the fourth quarter of 2009 on investment securities. During the fourth quarter of 2009, OTTI charges of $2.9 million were recorded on collateralized debt obligation investments in pooled trust preferred securities, equity securities and a private label collateralized mortgage obligation. During the fourth quarter of 2008, an OTTI charge of $1.9 million was recorded on one pooled trust preferred security. In addition, wealth management income decreased $1.7 million over last year’s quarter primarily the result of a lower level of life insurance revenue.

Quarterly noninterest expense was up $4.9 million over the same period in the prior year, primarily due to the Willow Financial acquisition and the previously-mentioned professional fees of $2.5 million. In addition, FDIC insurance assessments increased by $1.2 million. Other expense was $2.0 million higher during the fourth quarter of 2009 mostly due to the Willow Financial acquisition.

Non-GAAP Measures

Net loss excluding a non-cash goodwill impairment 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 impairment 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 $3.3 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, including regulatory approvals, the receipt of which are required to close the merger, 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)
December 31, 2009
(unaudited)

For the period:				Three Months Ended
	Dec. 31,			Sep. 30,			Jun. 30,			Mar. 31,			Dec. 31,
	2009			2009			2009			2009			2008
Interest Income	$	52,123		$	55,005		$	60,045		$	63,638		$	54,583
Interest Expense		22,445			23,567			26,592			28,334			25,136
Net Interest Income		29,678			31,438			33,453			35,304			29,447
Provision for Loan Losses		4,450			14,750			32,000			7,121			7,920
Net Interest Income after
Provision for Loan Losses		25,228			16,688			1,453			28,183			21,527

Service Charges		4,425			4,361			4,304			4,194			3,666
Gain on Sales of Investment Securities, Net		3,138			1,383			4,945			1,952			2,417
Other-than-temporary Impairment of Available for Sale Securities		(2,875	)		(4,650	)		(530	)		(1,344	)		(1,923	)
Gain on Mortgage Banking Sales, Net		2,265			2,352			2,703			1,698			136
Wealth Management Income		4,143			4,656			4,975			4,322			5,888
Bank-Owned Life Insurance Income		796			789			770			778			730
Other Income		1,621			3,384			4,544			4,559			2,430
Total Noninterest Income		13,513			12,275			21,711			16,159			13,344

Salaries, Wages and Employee Benefits		15,262			17,561			17,991			20,279			14,509
Occupancy		3,828			3,752			3,709			4,206			2,663
Furniture and Equipment		1,355			1,286			1,483			1,608			1,181
Professional Fees		4,708			4,491			1,827			1,569			1,520
Intangibles Expense		1,002			1,669			696			948			2,211
FDIC Deposit Insurance		2,403			3,227			5,056			2,787			1,164
Goodwill impairment		-			-			214,536			-			-
Merger Charges		-			-			-			-			2,456
Other Expenses		7,592			8,235			7,452			7,224			5,589
Total Noninterest Expense		36,150			40,221			252,750			38,621			31,293

Income (Loss) Before Income Taxes		2,591			(11,258	)		(229,586	)		5,721			3,578
Income Tax (Benefit) Expense		(211	)		(6,889	)		(7,083	)		1,126			(245	)
Net Income (Loss)	$	2,802		$	(4,369	)	$	(222,503	)	$	4,595		$	3,823

Per Common Share Data:
Weighted Average Common Shares - Basic		43,138,050			43,102,844			43,080,849			42,990,542			34,695,062
Weighted Average Common Shares - Diluted		43,138,291			43,102,844			43,080,849			43,018,233			34,843,058
Net Income (Loss) Per Share - Basic	$	0.07		$	(0.10	)	$	(5.17	)	$	0.11		$	0.11
Net Income (Loss) Per Share - Diluted	$	0.07		$	(0.10	)	$	(5.17	)	$	0.11		$	0.11
Cash Dividend Per Share	$	-		$	-		$	0.01		$	0.10		$	0.20
Book Value	$	6.06		$	6.04		$	5.77		$	11.00		$	11.05
Market Value	$	6.43		$	5.33		$	4.73		$	6.06		$	14.44


For the period:	Twelve Months Ended
	December 31,
		2009			2008
Interest Income	$	230,811		$	206,294
Interest Expense		100,938			102,154
Net Interest Income		129,873			104,140
Provision for Loan Losses		58,321			15,567
Net Interest Income after
Provision for Loan Losses		71,552			88,573

Service Charges		17,284			13,515
Gain on Sales of Investment Securities, Net		11,418			2,642
Other-than-temporary Impairment of Available for Sale Securities		(9,399	)		(1,923	)
Gain on Mortgage Banking Sales, Net		9,018			557
Wealth Management Income		18,096			18,644
Bank-Owned Life Insurance Income		3,133			2,777
Other Income		14,108			10,005
Total Noninterest Income		63,658			46,217

Salaries, Wages and Employee Benefits		71,093			56,108
Occupancy		15,495			10,101
Furniture and Equipment		5,732			4,432
Professional Fees		12,595			4,939
Intangibles Expense		4,315			4,208
FDIC Deposit Insurance		13,473			2,082
Goodwill Impairment		214,536			-
Merger Charges		-			3,430
Other Expenses		30,503			19,322
Total Noninterest Expense		367,742			104,622

(Loss) Income Before Income Taxes		(232,532	)		30,168
Income Tax (Benefit) Expense		(13,057	)		5,075
Net (Loss) Income	$	(219,475	)	$	25,093


	Twelve Months Ended
	December 31,
Per Common Share Data:		2009			2008
Weighted Average Common Shares - Basic		43,078,543			32,201,150
Weighted Average Common Shares - Diluted		43,078,543			32,364,137
Net (Loss) Income Per Share - Basic	$	(5.09	)	$	0.78
Net (Loss) Income Per Share - Diluted	$	(5.09	)	$	0.78
Cash Dividend Per Share	$	0.11		$	0.80


		2009			2009			2009			2009			2008
Asset Quality Data:		4Q			3Q			2Q			1Q			4Q
Nonaccrual Loans	$	129,932		$	133,737		$	132,598		$	85,393		$	75,060
90 + Days Past Due Loans		1,396			18,117			4,090			2,073			1,849
Nonperforming Loans		131,328			151,854			136,688			87,466			76,909
Net Assets in Foreclosure		2,286			1,824			2,168			2,008			1,626
Nonperforming Assets	$	133,614		$	153,678		$	138,856		$	89,474		$	78,535
Loan Loss Reserve	$	66,620		$	77,276		$	70,341		$	53,062		$	49,955
Loan Loss Reserve / Loans		2.23	%		2.38	%		2.05	%		1.47	%		1.36	%
Loan Loss Reserve / Nonperforming Loans		50.7	%		50.9	%		51.5	%		60.7	%		65.0	%
Nonperforming Assets / Total Assets		2.58	%		2.98	%		2.67	%		1.58	%		1.43	%
Net Loan Charge-offs	$	15,106		$	7,814		$	14,721		$	4,014		$	2,558
Net Loan Charge-offs (annualized)
/ Average Loans		1.91	%		0.93	%		1.68	%		0.44	%		0.36	%


		2009			2009			2009			2009			2008
Selected Ratios (annualized):		4Q			3Q			2Q			1Q			4Q
Return on Average Assets		0.21	%		-0.34	%		-15.92	%		0.33	%		0.35	%
Return on Average Shareholders' Equity		4.22	%		-6.73	%		-186.57	%		3.88	%		4.40	%
Yield on Earning Assets (FTE)		4.37	%		4.69	%		4.92	%		5.29	%		5.69	%
Cost of Interest Bearing Funds		2.05	%		2.18	%		2.35	%		2.53	%		2.82	%
Net Interest Margin (FTE)		2.56	%		2.75	%		2.82	%		3.02	%		3.16	%
Leverage Ratio		6.33	%		6.10	%		5.91	%		6.33	%		8.19	%

		2009			2008
Selected Ratios (annualized):	Year-to-date			Year-to-date
Return on Average Assets		-4.08	%		0.63	%
Return on Average Shareholders' Equity		-59.48	%		7.45	%
Yield on Earning Assets (FTE)		4.81	%		5.83	%
Cost of Interest Bearing Funds		2.28	%		3.15	%
Net Interest Margin (FTE)		2.78	%		3.04	%


Balance Sheet (Period End):		2009			2009			2009			2009			2008
		4Q			3Q			2Q			1Q			4Q
Assets	$	5,187,796		$	5,163,359		$	5,210,327		$	5,646,195		$	5,490,509
Earning Assets		4,889,224			4,870,316			4,909,443			5,109,083			4,944,126
Investment Securities		1,108,124			1,082,032			1,110,123			1,179,213			1,231,661
Loans		2,993,378			3,250,095			3,439,267			3,615,775			3,685,244
Other Earning Assets		787,722			538,189			360,053			314,095			27,221
Interest-Bearing Liabilities		4,317,949			4,320,928			4,353,600			4,585,275			4,449,461
Total Deposits		3,944,847			3,941,908			3,998,155			4,147,418			3,938,432
Noninterest-Bearing Deposits		523,475			495,644			517,108			497,921			479,469
Interest-Bearing Checking		665,039			629,378			597,831			579,922			556,855
Money Market		887,423			895,463			991,476			1,074,892			1,042,302
Savings		319,293			309,586			317,196			309,767			270,885
Time Deposits		1,549,617			1,611,837			1,574,544			1,684,916			1,588,921
Total Borrowed Funds		896,577			874,664			872,553			935,778			990,498
Federal Home Loan Bank		461,024			471,948			475,087			515,993			522,671
Other Borrowings		435,553			402,716			397,466			419,785			467,827
Shareholders' Equity		261,571			260,656			248,685			473,713			474,707

Balance Sheet (Average):		2009			2009			2009			2008			2008
		4Q			3Q			2Q			1Q			4Q
Assets	$	5,194,041		$	5,153,024		$	5,605,475		$	5,580,099		$	4,341,741
Earning Assets		4,900,320			4,845,099			5,080,393			5,047,766			3,956,963
Investment Securities		1,054,990			1,095,611			1,199,597			1,209,012			1,072,468
Loans		3,141,745			3,332,059			3,511,623			3,666,744			2,860,891
Other Earning Assets		703,585			417,429			369,173			172,010			23,604
Interest-Bearing Liabilities		4,335,880			4,298,522			4,547,522			4,543,033			3,550,359
Total Deposits		3,964,366			3,938,675			4,121,543			4,062,577			3,289,483
Noninterest-Bearing Deposits		510,426			511,802			493,142			472,687			445,495
Interest-Bearing Checking		643,003			612,674			601,230			560,239			444,141
Money Market		911,209			943,047			1,064,346			1,060,299			820,395
Savings		312,192			314,911			315,856			286,317			212,081
Time Deposits		1,587,536			1,556,241			1,646,969			1,683,035			1,367,371
Total Borrowed Funds		881,940			871,649			919,121			953,143			706,371
Federal Home Loan Bank		470,747			472,705			504,903			520,592			289,245
Other Borrowings		411,193			398,944			414,218			432,551			417,126
Shareholders' Equity		263,203			257,435			478,338			480,491			345,887


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

	Three Months Ended December 31, 2009							Three Months Ended December 31, 2008
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	796,324	$	8,254		4.11	%	$	758,807	$	10,301		5.40	%
Non-taxable investments (2)		258,666		4,175		6.40	%		313,661		4,820		6.11	%
Total investment securities		1,054,990		12,429		4.67	%		1,072,468		15,121		5.61	%
Federal funds sold and deposits in banks		703,585		380		0.21	%		23,604		52		0.88	%
Loans(2) (3)		3,141,745		41,190		5.20	%		2,860,891		41,434		5.76	%
Total earning assets		4,900,320		53,999		4.37	%		3,956,963		56,607		5.69	%
Noninterest-earning assets		293,721							384,778
Total assets	$	5,194,041						$	4,341,741

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,866,404		4,158		0.88	%	$	1,476,617		5,604		1.51	%
Time		1,587,536		11,168		2.79	%		1,367,371		13,357		3.89	%
Total interest-bearing deposits		3,453,940		15,326		1.76	%		2,843,988		18,961		2.65	%
Borrowed funds		881,940		7,119		3.20	%		706,371		6,175		3.48	%
Total interest-bearing liabilities		4,335,880		22,445		2.05	%		3,550,359		25,136		2.82	%
Noninterest-bearing liabilities:
Demand deposits		510,426							369,480
Other liabilities		84,532							76,015
Total noninterest-bearing liabilities		594,958							445,495
Total liabilities		4,930,838							3,995,854
Shareholders' equity		263,203							345,887
Total liabilities and shareholders' equity	$	5,194,041						$	4,341,741

Net interest spread						2.32	%						2.87	%
Effect of noninterest-bearing sources						0.24	%						0.29	%
Net interest income/margin on earning assets			$	31,554		2.56	%			$	31,471		3.16	%
Less tax equivalent adjustment				1,876							2,024
Net interest income			$	29,678						$	29,447

	Twelve Months Ended December 31, 2009							Twelve Months Ended December 31, 2008
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Earning assets:
Investment securities
Taxable investments	$	842,534	$	39,254		4.66	%	$	738,640	$	39,195		5.31	%
Non-taxable investments (2)		296,725		19,239		6.48	%		298,472		18,110		6.07	%
Total investment securities		1,139,259		58,493		5.13	%		1,037,112		57,305		5.53	%
Federal funds sold and deposits in banks		417,011		1,027		0.25	%		48,474		1,097		2.26	%
Loans(2) (3)		3,411,383		179,640		5.27	%		2,585,101		155,447		6.01	%
Total earning assets		4,967,653		239,160		4.81	%		3,670,687		213,849		5.83	%
Noninterest-earning assets		413,817							327,285
Total assets	$	5,381,470						$	3,997,972

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market	$	1,906,121		20,036		1.05	%	$	1,409,941		25,140		1.78	%
Time		1,618,014		51,986		3.21	%		1,248,412		53,771		4.31	%
Total interest-bearing deposits		3,524,135		72,022		2.04	%		2,658,353		78,911		2.97	%
Borrowed funds		906,172		28,916		3.19	%		586,088		23,243		3.97	%
Total interest-bearing liabilities		4,430,307		100,938		2.28	%		3,244,441		102,154		3.15	%
Noninterest-bearing liabilities:
Demand deposits		497,159							345,717
Other liabilities		85,042							71,160
Total noninterest-bearing liabilities		582,201							416,877
Total liabilities		5,012,508							3,661,318
Shareholders' equity		368,962							336,654
Total liabilities and shareholders' equity	$	5,381,470						$	3,997,972

Net interest spread						2.53	%						2.68	%
Effect of noninterest-bearing sources						0.25	%						0.36	%
Net interest income/margin on earning assets			$	138,222		2.78	%			$	111,695		3.04	%
Less tax equivalent adjustment				8,349							7,555
Net interest income			$	129,873						$	104,140


Regulatory Capital


	Actual
As of December 31, 2009	Amount		Ratio

Total Capital (to risk weighted assets):
Corporation	$	369,864		10.64	%
Harleysville National Bank		403,732		11.65	%
Tier 1 Capital (to risk weighted assets):
Corporation		326,121		9.38	%
Harleysville National Bank		360,115		10.39	%
Tier 1 Capital (to average assets):
Corporation		326,121		6.33	%
Harleysville National Bank		360,115		7.01	%

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.

Pennsylvania		0-15237		23-2210237
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

483 Main Street, Harleysville, PA		19438
(Address of principal executive offices)		(Zip Code)

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Exhibit Number		Description
99.1		Press Release issued by Harleysville National Corporation dated January 28, 2010, titled, “Harleysville National Corporation Reports Fourth Quarter Results.”

		HARLEYSVILLE NATIONAL CORPORATION
Dated: January 28, 2010		/s/ George S. Rapp
		George S. Rapp, EVP and Chief Financial Officer