Harleysville National Corporation Reports First Quarter Earnings Up 19.1%

HARLEYSVILLE, Pa., April 17 /PRNewswire-FirstCall/ -- 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."
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 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(R). For more information,
visit the Harleysville National Corporation website at www.hncbank.com
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.

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 1Q 4Q 3Q 2Q 1Q
(annualized):
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%

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
Average Average
Balance Interest Rate
Assets
Earning assets:
Investment securities
Taxable investments $753,468 $9,754 5.21%
Non-taxable investments (2) 290,098 4,356 6.04%
Total investment securities 1,043,566 14,110 5.44%
Federal funds sold and deposits in
banks 84,157 694 3.32%
Loans(2) (3) 2,463,242 39,405 6.43%
Total earning assets 3,590,965 54,209 6.07%
Noninterest-earning assets 299,994
Total assets $3,890,959

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market $1,415,450 8,095 2.30%
Time 1,237,482 14,501 4.71%
Total interest-bearing deposits 2,652,932 22,596 3.43%
Borrowed funds 499,064 5,613 4.52%
Total interest-bearing
liabilities 3,151,996 28,209 3.60%
Noninterest-bearing liabilities:
Demand deposits 324,120
Other liabilities 71,443
Total noninterest-bearing
liabilities 395,563
Total liabilities 3,547,559
Shareholders' equity 343,400
Total liabilities and
shareholders' equity $3,890,959

Net interest spread 2.47%
Effect of noninterest-bearing sources 0.44%
Net interest income/margin on earning
assets $26,000 2.91%
Less tax equivalent adjustment 1,793
Net interest income $24,207

Three Months Ended March 31, 2007
Average Average
Balance Interest Rate
Assets
Earning assets:
Investment securities
Taxable investments $684,651 $8,564 5.07%
Non-taxable investments (2) 260,007 3,937 6.14%
Total investment securities 944,658 12,501 5.37%
Federal funds sold and deposits in
banks 62,837 806 5.20%
Loans(2) (3) 2,059,871 34,905 6.87%
Total earning assets 3,067,366 48,212 6.37%
Noninterest-earning assets 213,488
Total assets $3,280,854

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and money market $1,376,074 12,106 3.57%
Time 831,489 9,716 4.74%
Total interest-bearing deposits 2,207,563 21,822 4.01%
Borrowed funds 422,415 5,036 4.84%
Total interest-bearing
liabilities 2,629,978 26,858 4.14%
Noninterest-bearing liabilities:
Demand deposits 308,095
Other liabilities 48,986
Total noninterest-bearing
liabilities 357,081
Total liabilities 2,987,059
Shareholders' equity 293,795
Total liabilities and
shareholders' equity $3,280,854

Net interest spread 2.23%
Effect of noninterest-bearing sources 0.59%
Net interest income/margin on earning
assets $21,354 2.82%
Less tax equivalent adjustment 1,517
Net interest income $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.

SOURCE Harleysville National Corporation

Paul D. Geraghty, President and CEO of Harleysville National Corporation,
+1-215-513-2391