FINANCIAL RATIOS AND SUMMARY OF KEY INFORMATION
     HARLEYSVILLE  NATIONAL  CORPORATION  AND  SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                              -------------------------------------
(Dollars in thousands, except per share data and average shares outstanding)       2000         1999        1998
                                                                              -------------------------------------
<S>                                                                           <C>          <C>          <C>

Per Share Information
Basic* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     2.76   $     2.51   $     2.24
Diluted* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        2.76   $     2.50   $     2.24
Cash dividends paid* . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1.13         1.02         0.90
Book value (at year-end) . . . . . . . . . . . . . . . . . . . . . . . . . .       18.75        16.60        17.69

Market Value
Bid price of common stock (high)*. . . . . . . . . . . . . . . . . . . . . .  $    34.69        36.28        39.46
Bid price of common stock (low)* . . . . . . . . . . . . . . . . . . . . . .       22.62        30.00        29.48
Average basic shares outstanding*. . . . . . . . . . . . . . . . . . . . . .   9,268,681    9,273,397    9,262,819

Average Balance Sheet
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $1,166,684   $1,031,055   $  894,758
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1,739,068    1,566,194    1,354,306
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1,843,525    1,639,041    1,413,772
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1,436,781    1,267,936    1,144,822
Other interest-bearing liabilities and deposits. . . . . . . . . . . . . . .   1,655,592    1,462,823    1,244,238
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .     154,547      148,636      142,959

Selected Operating Ratios
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . .        1.39%        1.42%        1.47%
Return on average shareholder's equity . . . . . . . . . . . . . . . . . . .       16.57%       15.63%       14.52%
Leverage (assets divided by shareholders' equity). . . . . . . . . . . . . .       11.15        12.05        10.31
Average shareholders' equity as a percentage of: . . . . . . . . . . . . . .
     Average loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       13.25%       14.42%       15.98%
     Average deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . .       10.76        11.72        12.49
     Average assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .        8.38         9.07        10.11
     Average earning assets. . . . . . . . . . . . . . . . . . . . . . . . .        8.89         9.49        10.56
Dividend payout ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . .       40.74        40.34        38.84
Average total loans as a percentage of average deposits and borrowed funds .       70.47        70.48        71.91
Net interest margin on average earning assets: . . . . . . . . . . . . . . .
     Interest income** . . . . . . . . . . . . . . . . . . . . . . . . . . .        7.92%        7.65%        7.87%
     Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .       (3.78)       (3.23)       (3.28)
     Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . .        4.14         4.42         4.59
     Noninterest margin. . . . . . . . . . . . . . . . . . . . . . . . . . .       (1.87)       (2.01)       (2.06)

* Adjusted for 5% stock dividends effective 11/9/00 and 9/30/99.    ** Tax-Equivalent Basis
</TABLE>

PAGE 1
DESCRIPTION  OF  BUSINESS

Harleysville National Corporation, a Pennsylvania corporation (the Corporation),
was  incorporated  in  June 1982. On January 1, 1983, the Corporation became the
parent  bank  holding  company  of  Harleysville National Bank and Trust Company
(HNB),  a  wholly-owned subsidiary of the Corporation. On February 13, 1991, the
Corporation  acquired  all  of  the  outstanding  common  stock  of The Citizens
National  Bank  (CNB).  On  June  1,  1992,  the Corporation acquired all of the
outstanding  stock  of Summit Hill Trust Company (Summit Hill). On September 25,
1992,  Summit  Hill  merged  into CNB and is now operating as a branch office of
CNB.  On  July 1, 1994, the Corporation acquired all of the outstanding stock of
Security  National Bank (SNB). On March 1, 1996, the Corporation acquired all of
the  outstanding  common stock of Farmers & Merchants Bank (F&M). F&M was merged
into  CNB and is now operating as a branch office of CNB. On March 17, 1997, the
HNC  Financial Company was incorporated as a Delaware Corporation. HNC Financial
Company's  principal business function is to expand the investment opportunities
of  the  Corporation.  On  January 20, 1999, the Corporation acquired all of the
outstanding  stock  of Northern Lehigh Bancorp, Inc., parent company of Citizens
National  Bank  of  Slatington.  Citizens National Bank of Slatington was merged
into  CNB.  On  April 28, 2000, the Corporation acquired all of the out-standing
common  stock of Citizens Bank and Trust Company (CB &T). CB & T was merged into
CNB.

HNB, which was established in 1909, CNB, which was established in 1903, and SNB,
which  was  established  in 1988, (collectively the Banks), are national banking
associations  under  the  supervision  of  the  Office of the Comptroller of the
Currency.  The  Corporation's  and  HNB's  legal headquarters are located at 483
Main  Street,  Harleysville,  Pennsylvania  19438.  CNB's legal headquarters are
located  at  13-15 West Ridge Street, Lansford, Pennsylvania 18232.  SNB's legal
head-quarters  are located at One Security Plaza, Pottstown, Pennsylvania 19464.
HNC  Financial  Company's legal headquarters are located at 300 Delaware Avenue,
Suite  1704,  Wilmington,  Delaware  19801.

As  of  December  31,  2000, the Corporation had total assets of $1,935,213,000,
total shareholders' equity of $173,536,000 and total deposits of $1,489,050,000.

The  Banks  engage  in  full-service  commercial  banking  and  trust business,
including  accepting  time  and  demand  deposits,  making secured and unsecured
commercial  and  consumer  loans,  financing  commercial  transactions,  making
construction  and  mortgage  loans and performing corporate pension and personal
investment and trust services. Their deposits are insured by the Federal Deposit
Insurance  Corporation (FDIC) Bank Insurance Fund to the extent provided by law.
The  Banks  have  40 branch offices located in Montgomery Bucks, Chester, Berks,
Carbon,  Wayne,  Monroe,  Lehigh,  Northampton  and  Schuylkill  Counties,
Pennsylvania.

On  December  31,  2000,  the  Banks  had  579  full-time  equivalent employees.

Competition

The  Banks  compete  actively  with  other  eastern  Pennsylvania  financial
institutions,  many  larger  than  the  Banks,  as  well  as  with financial and
nonfinancial  institutions  headquartered  elsewhere.  The  Banks  are generally
competitive  with  all competing institutions in their service area with respect
to  interest rates paid on time and savings deposits, service charges on deposit
accounts,  interest  rates  charged  on  loans,  and  fees and charges for trust
services.

Supervision  and  Regulation

The  operations  of  the  Banks are subject to federal, state and local statutes
applicable  to  banks  chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured by
the  FDIC.  The  Banks'  operations  are  also subject to the regulations of the
Federal  Reserve  Board,  the  FDIC  and  the  Office  of the Comptroller of the
Currency  (who  regularly  examines  the  Banks'  areas  such  as asset quality,
investments,  management  practices  and  other  aspects  of  bank  operations).

The  Corporation  is subject to federal and state securities laws, certain rules
and  regulations of the Securities and Exchange Commission, to the provisions of
the  Bank  Holding  Company  Act  of 1956, as amended, and to supervision by the
Federal  Reserve  Board.

Market  Information

The  following  table sets forth quarterly dividend information and the high and
low  prices  for  the  Corporation's  common  stock  for  2000  and  1999.  The
Corporation's  stock  is  traded in the over-the-counter market under the symbol
"HNBC"  and  commonly  quoted  under  NASDAQ  National  Market  Systems.

Price of Common Stock

2000                  Low Price  High Price  Dividend
-----------------------------------------------------
First Quarter* . . .  $   22.62  $  30.95    $    .26
Second Quarter*. . .      24.46     31,19         .27
Third Quarter* . . .      24.05     32.50         .28
Fourth Quarter . . .      27.25     34.69         .32


1999                   Low Price  High Price  Dividend
------------------------------------------------------
First  Quarter** . . . $   30.00  $    36.28  $    .23
Second  Quarter**. . .     30.84       33.33       .24
Third  Quarter*. . . .     31.51       33.57       .25
Fourth  Quarter* . . .     30.00       32.27       .30

*  Adjusted  for  a  5%  stock  dividend  effective 11/09/00.

**Adjusted  for  a  5%  stock  dividend  effective  09/30/99.



PAGE 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES


TO  THE  BOARD OF DIRECTORS AND SHAREHOLDERS, HARLEYSVILLE NATIONAL CORPORATION:

We  have  audited  the  accompanying consolidated balance sheets of Harleysville
National  Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
related  consolidated  statements of income, shareholders' equity and cash flows
for  each  of  the  three  years  in  the  period ended December 31, 2000. These
financial  statements  are  the responsibility of the Corporation's management.
Our  responsibility is to express an opinion on these financial statements based
on  our  audits.

We  conducted  our  audits  in  accordance  with  auditing  standards generally
accepted  in the United States. Those standards require that we plan and perform
the  audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and disclosures in the financial statements. An
audit  also  includes  assessing  the accounting principles used and significant
estimates  made  by  management,  as  well  as evaluating the overall financial
statement  presentation.  We  believe that our audits provide a reasonable basis
for  our  opinion.

In our opinion, the following consolidated financial statements present fairly,
in  all  material  respects, the consolidated financial position of Harleysville
National  Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated  results  of their operations and their consolidated cash flows for
each  of  the  three  years in the period ended December 31, 2000, in conformity
with  accounting  principles  generally  accepted  in  the  United  States.




/s/ Grant  Thornton  LLP
Grant  Thornton  LLP
Philadelphia,  Pennsylvania
January  10,  2001


PAGE 6

CONSOLIDATED  BALANCE  SHEETS
      HARLEYSVILLE  NATIONAL  CORPORATION  AND  SUBSIDIARIES

(Dollars  in  thousands)                                 December  31
                                                   ------------------------
Assets                                                2000         1999
                                                   ------------------------
Cash and due from banks . . . . . . . . . . . . .  $   52,018   $   49,654
Federal funds sold. . . . . . . . . . . . . . . .           -        6,600
                                                   -----------  -----------
  Total cash and cash equivalents . . . . . . . .      52,018       56,254
                                                   -----------  -----------
Interest-bearing deposits in banks. . . . . . . .       3,507        7,237
Investment securities available for sale. . . . .     570,619      505,350
Investment securities held to maturity
(fair value $31,601 and $25,094, respectively). .      30,841       25,545
Loans . . . . . . . . . . . . . . . . . . . . . .   1,209,605    1,118,244
Less: Deferred costs, net . . . . . . . . . . . .       2,450          572
      Allowance for loan losses . . . . . . . . .     (15,210)     (14,887)
                                                   -----------  -----------
        Net loans . . . . . . . . . . . . . . . .   1,196,845    1,103,929
                                                   -----------  -----------
Bank premises and equipment, net. . . . . . . . .      21,870       21,933
Accrued interest receivable . . . . . . . . . . .      12,391       11,044
Other real estate owned . . . . . . . . . . . . .         288        1,436
Intangible assets, net. . . . . . . . . . . . . .       1,697        2,006
Bank-owned life insurance . . . . . . . . . . . .     37,4712        5,527
Other assets. . . . . . . . . . . . . . . . . . .       7,666        7,406
                                                   -----------  -----------
        Total assets. . . . . . . . . . . . . . .  $1,935,213   $1,767,667
                                                   ===========  ===========
Liabilities and Shareholders' Equity

Deposits:
     Noninterest-bearing. . . . . . . . . . . . .     227,446      214,384
     Interest-bearing:
        Checking accounts . . . . . . . . . . . .     163,807      162,190
        Money market accounts . . . . . . . . . .     333,622      259,015
        Savings                                       161,233      163,011
        Time, under $100,000. . . . . . . . . . .     430,074      407,858
        Time, $100,000 or greater . . . . . . . .     172,868      134,979
                                                   -----------  -----------
        Total deposits. . . . . . . . . . . . . .   1,489,050    1,341,437

Accrued interest payable. . . . . . . . . . . . .      22,346       17,544
U.S. Treasury demand notes. . . . . . . . . . . .       2,055        3,232
Federal funds purchased . . . . . . . . . . . . .      44,500        9,500
Federal Home Loan Bank (FHLB) borrowings. . . . .     110,750      130,250
Securities sold under agreements to repurchase. .      74,083      108,615
Other liabilities . . . . . . . . . . . . . . . .      18,893       10,426
                                                   -----------  -----------
        Total liabilities . . . . . . . . . . . .   1,761,677    1,621,004
                                                   -----------  -----------
Shareholders' equity:

    Series preferred stock,  par value $1 per share;
    authorized 3,000,000 shares, none issued. . .           -            -
    Common stock, par value $1 per share;
    authorized 30,000,000 shares; issued
    and outstanding   9,253,762 shares in
    2000 and 8,835,102 shares in 1999 . . . . . .       9,254        8,835
    Additional paid in capital. . . . . . . . . .      79,869       68,260
    Retained earnings . . . . . . . . . . . . . .      83,244       80,376
    Treasury stock; 2000-8,500 shares at cost . .        (253)           -
    Accumulated other comprehensive income (loss)       1,422      (10,808)
                                                   -----------  -----------
        Total shareholders' equity. . . . . . . .     173,536      146,663
                                                   -----------  -----------
        Total liabilities and shareholders' equity $1,935,213   $1,767,667
                                                   ===========  ===========

===========================================================================
See  accompanying  notes  to  consolidated  financial  statements.


PAGE 7>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES


(Dollars in thousands except weighted average number of common shares and per share information)
                                                                                          Year Ended December 31
                                                                                    ----------------------------------
                                                                                       2000        1999        1998
                                                                                    ----------------------------------
<S>                                                                                 <C>         <C>         <C>
Interest Income

Loans, including fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   87,131  $   76,350  $   70,295
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       9,013       6,960       5,084
Investment securities:
    Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      24,205      19,485      16,380
    Exempt from federal taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .      10,870      10,570       8,586
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         219         552       1,373
Deposits in banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         373         250         287
                                                                                    ----------  ----------  ----------
    Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     131,811     114,167     102,005
                                                                                    ----------  ----------  ----------

Interest Expense

Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      18,337      14,272      13,837
Time, under $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      23,465      20,695      20,427
Time, $100,000 or greater. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      11,282       6,017       5,308
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      12,690       9,665       4,800
                                                                                    ----------  ----------  ----------
    Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .      65,774      50,649      44,372
                                                                                    ----------  ----------  ----------
    Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      66,037      63,518      57,633
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,312       2,153       2,288
                                                                                    ----------  ----------  ----------
    Net interest income after provision for loan losses. . . . . . . . . . . . . .      63,725      61,365      55,345
                                                                                    ----------  ----------  ----------

Other Operating Income

Service charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,832       3,771       3,530
Security gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          52         495       1,621
Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,977       2,643       2,156
Bank-owned life insurance income . . . . . . . . . . . . . . . . . . . . . . . . .       1,944         526           -
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,401       3,100       3,213
                                                                                    ----------  ----------  ----------
    Total other operating income . . . . . . . . . . . . . . . . . . . . . . . . .      12,206      10,535      10,520
                                                                                    ----------  ----------  ----------
    Net interest income after provision for loan losses and other operating income      75,931      71,900      65,865
                                                                                    ----------  ----------  ----------

Other Operating Expenses

Salaries, wages and employee benefits. . . . . . . . . . . . . . . . . . . . . . .      23,745      22,271      20,551
Occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,927       2,684       2,573
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5,134       4,774       3,857
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      12,871      12,247      11,465
                                                                                    ----------  ----------  ----------
    Total other operating expenses . . . . . . . . . . . . . . . . . . . . . . . .      44,677      41,976      38,446
                                                                                    ----------  ----------  ----------
    Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . .      31,254      29,924      27,419
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5,650       6,686       6,661
                                                                                    ----------  ----------  ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   25,604  $   23,238  $   20,758
                                                                                    ==========  ==========  ==========
Weighted average number of common shares:*
    Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9,268,681   9,273,397   9,262,819
                                                                                    ==========  ==========  ==========
    Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9,279,273   9,285,241   9,278,194
                                                                                    ==========  ==========  ==========
Net income per share information:*
                                                                                    ==========  ==========  ==========
    Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     2.76  $     2.51  $     2.24
                                                                                    ==========  ==========  ==========
    Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     2.76  $     2.50  $     2.24
                                                                                    ==========  ==========  ==========
Cash dividends per share*. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     1.13  $     1.02  $     0.90
                                                                                    ==========  ==========  ==========

*Adjusted for 5% stock dividends effective 11/9/00 and 9/30/99.

=======================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>

PAGE 8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES

(Dollars in thousands)

                                   Common Stock                                 Accumulated
                                 -----------------                                 Other
                                 Number of   Par      Additional      Retained  Comprehensive   Treasury            Comprehensive
                                  Shares    Value   Paid in Capital   Earnings   Income(Loss)    Stock      Total    Income(Loss)
                                  ------------------------------------------------------------------------------------------------
<S>                               <C>      <C>      <C>              <C>         <C>            <C>       <C>        <C>
Balance, January 1, 1998 . . . .    7,518  $ 7,518  $        50,563  $  55,103   $      4,462         -   $117,646
Acquisition of Citizens Bank and
    Trust Company. . . . . . . .      920      920            5,180     11,283            186         -     17,569
Stock options. . . . . . . . . .       18       18              331          -              -         -        349
Stock dividends. . . . . . . . .        -        -                -          1              -         -          1
Stock awards . . . . . . . . . .        -        -                5          -              -         -          5
Net income for 1998. . . . . . .        -        -                -     20,758              -         -     20,758   $     20,758
Other comprehensive income, net
    of reclassifications and tax        -        -                -          -          1,124         -      1,124          1,124
Purchases of Treasury stock. . .        -        -                -          -              -         -          -
Cash dividends . . . . . . . . .        -        -                -     (8,062)             -         -     (8,062)
                                  ------------------------------------------------------------------------------------------------
Comprehensive income . . . . . .                                                                                          $ 21,882
                                                                                                                     =============
Balance, December 31, 1998 . . .    8,456   8,4565            6,079     79,083          5,772         -    149,390
Stock options. . . . . . . . . .        3        3               28          -              -         -         31
Stock dividends. . . . . . . . .      376     3761            2,145    (12,570)             -         -        (49)
Stock awards . . . . . . . . . .        -        -                8          -              -         -          8
Net income for 1999. . . . . . .        -        -                -     23,238              -         -     23,238       $ 23,238
Other comprehensive loss, net
    of reclassifications and tax        -        -                -          -        (16,580)        -    (16,580)       (16,580)
Cash dividends . . . . . . . . .        -        -                -     (9,375)             -         -     (9,375)
                                  ------------------------------------------------------------------------------------------------
Comprehensive income . . . . . .                                                                                          $ 6,658
                                                                                                                     =============
Balance, December 31, 1999 . . .    8,835    8,835           68,260     80,376        (10,808)        -    146,663
Stock options. . . . . . . . . .        4        4               30          -              -         -         34
Stock dividends. . . . . . . . .      415      415           11,566    (12,306)             -       325          -
Stock awards . . . . . . . . . .        -        -               13          -              -         -         13
Net income for 2000. . . . . . .        -        -                -     25,604              -         -     25,604   $     25,604
Other comprehensive income, net
    of reclassifications and tax        -        -                -          -         12,230         -     12,230         12,230
Treasury stock . . . . . . . . .        -        -                -          -              -      (578)      (578)
Cash dividends . . . . . . . . .        -        -                -    (10,430)             -         -    (10,430)
                                  ------------------------------------------------------------------------------------------------
Comprehensive income . . . . . .                                                                                          $37,834
                                                                                                                     =============
Balance, December 31, 2000 . . .    9,254  $ 9,254  $        79,869  $  83,244   $      1,422   $  (253)  $173,536
                                  ================================================================================================


==================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>

PAGE 9
<TABLE>
<CAPTION>
CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
HARLEYSVILLE  NATIONAL  CORPORATION  AND  SUBSIDIARIES

(Dollars  in  thousands)                                                               Year  Ended  December  31
                                                                                   ----------------------------------
                                                                                      2000        1999        1998
                                                                                   ----------------------------------
<S>                                                                                <C>         <C>         <C>
Operating Activities

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  25,604   $  23,238   $  20,758
Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . .      2,312       2,153       2,288
    Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .      3,043       2,937       2,397
    Net amortization of investment securities discount/premiums . . . . . . . . .        391         961         572
    Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,337       3,646       1,475
    Net realized securities gain. . . . . . . . . . . . . . . . . . . . . . . . .        (52)       (495)     (1,621)
    Increase in accrued income receivable . . . . . . . . . . . . . . . . . . . .     (1,347)       (530)     (1,457)
    Increase (decrease) in accrued interest payable . . . . . . . . . . . . . . .      4,802       3,038        (615)
    Net increase in other assets. . . . . . . . . . . . . . . . . . . . . . . . .       (184)     (2,106)     (1,167)
    Net (decrease) increase in other liabilities. . . . . . . . . . . . . . . . .     (1,431)        517       2,299
    Decrease in unearned income . . . . . . . . . . . . . . . . . . . . . . . . .     (1,878)     (3,381)     (1,911)
    Write-down of other real estate owned . . . . . . . . . . . . . . . . . . . .         86         117          65
    Decrease (increase) in intangible assets. . . . . . . . . . . . . . . . . . .        309         (70)        (84)
                                                                                   ----------  ----------  ----------
        Net cash provided by operating activities . . . . . . . . . . . . . . . .     34,992      30,025      22,999
                                                                                   ----------  ----------  ----------

Investing Activities

Proceeds from sales of investment securities available for sale . . . . . . . . .     33,208      77,177      67,003
Proceeds, maturity or calls of investment securities held to maturity . . . . . .      6,869      11,214      21,044
Proceeds, maturity or calls of investment securities available for sale . . . . .     32,238      78,403      57,765
Purchases of investment securities held to maturity . . . . . . . . . . . . . . .    (19,740)    (10,632)    (13,083)
Purchases of investment securities available for sale . . . . . . . . . . . . . .   (204,688)   (221,056)   (249,143)
Net decrease (increase) in interest-bearing deposits in banks . . . . . . . . . .      3,730      (1,827)        806
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (94,783)   (161,726)   (104,988)
Net increase in premises and equipment. . . . . . . . . . . . . . . . . . . . . .     (3,056)     (3,785)     (3,410)
Purchase of bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . .    (11,944)    (25,527)          -
Proceeds from sales of other real estate. . . . . . . . . . . . . . . . . . . . .      2,495       1,765       1,060
                                                                                   ----------  ----------  ----------
        Net cash used in investing activities . . . . . . . . . . . . . . . . . .   (155,671)   (255,994)   (222,946)
                                                                                   ----------  ----------  ----------

Financing Activities

Net increase in deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .    147,613     130,112     124,072
(Decrease) increase in U.S. Treasury demand notes . . . . . . . . . . . . . . . .     (1,177)        973         110
Increase (decrease) in federal funds purchased. . . . . . . . . . . . . . . . . .     35,000      (1,500)     (2,700)
(Decrease) increase in FHLB borrowings. . . . . . . . . . . . . . . . . . . . . .    (19,500)     36,750      76,500
(Decrease) increase in securities sold under agreement. . . . . . . . . . . . . .    (34,532)     63,746      13,320
Cash dividends and fractional shares. . . . . . . . . . . . . . . . . . . . . . .    (10,430)     (9,375)     (8,062)
Dividends reinvestment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -         (49)          -
Repurchase of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .       (578)       (183)     (1,318)
Stock options                                                                             47          39         354
                                                                                   ----------  ----------  ----------
        Net cash provided by financing activities . . . . . . . . . . . . . . . .    116,443     220,513     202,276
                                                                                   ----------  ----------  ----------
Net (decrease) increase in cash and cash equivalents. . . . . . . . . . . . . . .     (4,236)     (5,456)      2,329
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . .     56,254      61,710      59,381
                                                                                   ----------  ----------  ----------
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . .  $  52,018   $  56,254   $  61,710
                                                                                   ==========  ==========  ==========
Cash paid during the year for:
    Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  60,973   $  47,611   $  44,793
                                                                                   ==========  ==========  ----------
    Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,348       3,356       4,790
                                                                                   ==========  ==========  ==========
Supplemental disclosure of noncash investing and financing activities:
    Transfer of assets from loans to other real estate owned. . . . . . . . . . .  $   1,433   $   2,186   $   1,918
                                                                                   ==========  ==========  ==========
    Transfer of securities from investment securities held to maturity to
    investment securities available for sale. . . . . . . . . . . . . . . . . . .  $   7,574   $   7,530   $       -
                                                                                   ==========  ==========  ==========

=====================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>

PAGE 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES


1 / SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Harleysville  National  Corporation  (the  Corporation)  through  its subsidiary
banks, Harleysville National Bank and Trust Company, Citizens National Bank, and
Security  National  Bank  (collectively  the  Banks),  provides  a full range of
banking  services  to  individual  and  corporate  customers  located in eastern
Pennsylvania. The Banks compete with other banking and financial institutions in
their  primary  market  communities,  including  financial  institutions  with
resources  substantially  greater  than  their  own.  Commer cial banks, savings
banks,  savings  and  loan  associations,  credit  unions and money market funds
actively compete for deposits and for various types of loans. Such institutions,
as  well  as  consumer  finance  and  insurance  companies,  may  be  considered
competitors  of  the  Banks  with  respect  to  one or more of the services they
render.  In  addition  to  being  subject  to  competition  from other financial
institutions, the Banks are subject to federal and state laws and to regulations
of  certain  federal agencies, and, ac cordingly, they are periodically examined
by  those  regulatory  authorities.

Basis of Financial Statement Presentation

The  accounting  and  reporting policies of the Corporation and its Subsidiaries
conform  with  generally accepted accounting principles applicable to banks. All
significant  intercompany  transactions  are  eliminated  in  consolidation  and
certain  reclassifications  are made when necessary to conform with the previous
years' financial statements to the current year's presentation. In preparing the
consolidated  financial statements, management is required to make estimates and
assumptions  that  affect  the reported amo unts of assets and liabilities as of
the  dates  of  the balance sheets and revenues and expenditures for the periods
presented.  Therefore,  actual  results  could  differ  significantly from those
estimates.

Investment Securities

The  Corporation  accounts  for  securities  under  the  Statement  of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and  Equity Securities," which requires among other things, that debt and equity
securities  classified  as  available  for  sale  be reported at fair value with
unrealized  gains  and  losses  excluded  from  earnings  and  reported in other
comprehensive income, net of income taxes. The net effect of unrealized gains or
losses, caused by marking an available for sale portfolio to market, could cause
fluctuations  in  the level of shareholders' equity and equity-related financial
ratios as market interest rates cause the fair value of fixed-rate securities to
fluctuate.

Investment  securities  are  classified as held to maturity when the Corporation
and  its  Subsidiaries  have  the ability and intent to hold those securities to
maturity.  These  investment  securities  are  carried  at  cost,  adjusted  for
amortization  of  premiums  and  accretion  of  discounts.

Investment  securities  expected to be held for an indefinite period of time are
classified  as  available  for sale and are stated at fair value. Realized gains
and  losses  on  the  sale  of  investment  securities  are recognized using the
specific  identification  method and are included in the consolidated statements
of  income.

Loans

Loans  are  stated  at the principal amount outstanding. Net loans represent the
principal  loan  amount outstanding reduced by unearned income and allowance for
loan  losses.  Interest  on  loans  is credited to income based on the principal
amount  outstanding.

Lease financing represents automobile and equipment leasing. The lease financing
receivable  included  in  loans  is stated at the gross amount of lease payments
receivable plus the residual value less income to be earned over the life of the
leases.  Such  income  is recognized over the term of the leases using the level
yield  method.

Loan  origination  fees and direct loan origination costs of completed loans are
deferred and recognized over the life of the loan as an adjustment to yield. The
net loan origination fees recognized as yield adjustments are reflected in total
interest  income  in  the consolidated statements of income, and the unamortized
balance  of  such  net  loan  origination  fees  is reported in the consolidated
balance  sheets  as  part  of  deferred  costs,  net.

Income  recognition  of  interest  is  discontinued  when,  in  the  opinion  of
management,  the  collectibility  of  such  interest becomes doubtful. A loan is
generally  classified  as nonaccrual when principal or interest has consistently
been in default for a period of 90 days or more or because of a deterioration in
the  financial  condition  of  the borrower, and payment in full of principal or
interest  is  not  expected.  Loans  past due 90 days or more and still accruing
interest  are  loans that are generally well-secured and expected to be restored
to  a  current  status  in  the  near  future.

The  Corporation  accounts for impaired loans under SFAS No. 114, "Accounting by
Creditors  for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors  for  Impairment  of  a Loan-Income Recognition and Disclosures." This
standard  requires that a creditor measure impairment based on the present value
of  expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a  loan's  observable  market  price, or the fair value of the collateral if the
loan  is  collateral dependent. Regardless of the measurement method, a creditor
must  measure  impairment  based  on  the  fair value of the collateral when the
creditor  determines  that  foreclosure  is  probable.

The Corporation adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial  Assets  and  Extinguishments  of Liabilities," as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125  -  An Amendment of FASB Statement No. 125" on January 1, 1997. SFAS No. 125
applies  a  control-oriented,  financial  components  approach  to
financial-asset-transfer transactions whereby the Corporation (1) recognizes the
financial  and servicing assets it controls and the liabilities it has incurred,
(2)  derecognizes  financial  assets  when  control  has  been  surrendered, and
(3)derecognizes  liabilities  once  they  are  extinguished. Under SFAS No. 125,
control  is  considered  to  have  been surrendered only if: (i) the transferred
assets  have  been  isolated  from  the  transferor  and  its creditors, even in
bankruptcy  or other receivership (ii) the transferee has the right to pledge or
exchange  the transferred assets, or, is a qualifying special purpose entity (as
defined)  and  the holders of beneficial interests in that entity have the right
to  pledge  or  exchange  those  interests;  and  (iii)  the transferor does not
maintain  effective  control  over  the  transferred assets through an agreement
which  both entitles and obligates it to repurchase or redeem those assets prior
to  maturity,  or  through  an agreement which both entitles and obligates it to
repurchase or redeem those assets if they were not readily obtainable elsewhere.
If  any  of  these  conditions  are  not  met,  the Corporation accounts for the
transfer  as  a  secured  borrowing.

PAGE 11

SFAS  No.  125 also requires that the Corporation derecognize a liability if and
when  it  is extinguished. A liability is considered extinguished under SFAS No.
125  if  (1)  the  Corporation  pays  the  creditor, and thus, is relieved of it
obligation  for the liability, or (2) is legally released from being the primary
obligor  under the liability, either judicially or by the creditor. The adoption
of  this  statement  did  not  have  a  material  impact  on  the  Corporation's
consolidated  financial  position  or  results  of  operations.

In September 2000, the Financial Accounting Standards Board has adopted SFAS No.
140,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and
Extinguishments  of  Liabilities",  which replaces SFAS No. 125, "Accounting for
Transfers  and Servicing of Financial Asset and Extinguishments of Liabilities,"
revises the standards for accounting for the securitizations and other transfers
of  financial  assets  and  collateral.  This new standard also requires certain
disclosures,  but  carries  over most of the provisions of SFAS 125. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities  occurring  after  March  31,  2001.  However,  for  recognition and
reclassification  of  collateral and for disclosures relating to securititzation
transactions  and collateral this statement is effective for fiscal years ending
after  December  15,  2000,  with  earlier applications not allowed and is to be
applied  prospectively. The adoption of this statement is not expected to have a
material  impact  on  the  Corporation's  consolidated  financial  statements.

Allowance  for  Loan  Losses

The allowance for loan losses is maintained at a level that management considers
adequate  to  provide for potential losses based upon an evaluation of known and
inherent  risks  in  the  loan  portfolio. Allowance for loan losses is based on
estimated  net  realizable  value  unless  it  is  probable  that  loans will be
foreclosed,  in which case allowance for loan losses is based on fair value less
selling  costs. Management's periodic evaluation is based upon evaluation of the
portfolio,  past loss experience, current economic conditions and other relevant
factors.  While  management  uses  the  best  information available to make such
evaluations,  future  adjustments  to the allowance may be necessary if economic
conditions  differ  substantially  from  the  assumptions  used  in  making  the
evaluation.  In  addition,  various  regulatory agencies, as an integral part of
their  examination  process,  periodically review the Banks' allowances for loan
losses.  Such  agencies  may  require  the  Banks  to recognize additions to the
allowance based  on  their judgment of information available to them at the time
of their examination.

Bank  Premises  and  Equipment

Bank  premises  and  equipment are stated at cost less accumulated depreciation.
Depreciation  is  recorded  using the straight-line and accelerated depreciation
methods over the estimated useful life of the assets. Leasehold improvements are
amortized  over  the  term  of  the lease or estimated useful life, whichever is
shorter.

Other  Real  Estate  Owned

Other  real estate owned includes foreclosed real estate which is carried at the
lower  of  cost  (lesser  of  carrying  value  of  loan or fair value at date of
acquisition)  or  estimated fair value less selling costs. Any write-down, at or
prior  to  the dates the real estate is considered foreclosed, is charged to the
allowance  for  loan  losses.  Subsequent  write-downs  are  recorded  in  other
expenses,  and  expenses incurred in connection with holding such assets and any
gains  or  losses  upon  their  sale  are included in other income and expenses.

Intangible  Assets

Intangible  assets  consist  of  a  core deposit intangible which represents the
present  value of the difference in costs between the acquired core deposits and
the  market alternative funding sources. Intangible assets also include mortgage
servicing  rights.  The  core  deposit  intangibles  are  being amortized over a
10-year life on an accelerated basis. The amortization charged to income related
to  the  core  deposit  intangibles  was  $325,000  for  each of the years ended
December  31,  2000,  1999 and 1998, respectively. The mortgage servicing rights
are  amortized  in  proportion to and over the period of estimated net servicing
income.

Stock  Options

The Corporation adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which  contains  a  fair value-based method for valuing stock-based compensation
that  entities may use, which measures compensation cost at the grant date based
on the fair value of the award. Compensation is then recognized over the service
period, which is usually the vesting period. Alternatively, the standard permits
entities  to  continue  accounting  for  employee  stock  options  and  similar
instruments  under Accounting Principles Board (APB) Opinion No. 25, "Accounting
for  Stock  Issued  to  Employees."  Entities that continue to account for stock
options  using  APB Opinion No. 25 are required to make pro forma disclosures of
net  income  and  earnings  per  share,  as  if  the  fair value-based method of
accounting  defined in SFAS No. 123 had been applied. The Corporation's employee
stock  option  plan  is  accounted  for  under  APB  Opinion  No.  25.

Income  Taxes

The  Corporation  accounts for income taxes under the liability method specified
by SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be  recovered  or settled. The effect on deferred taxes of a change in tax rates
is  recognized  in  income  in  the period that includes the enactment date. The
principal  types  of  accounts,  resulting  in  differences  between  assets and
liabilities  for  financial statement and tax return purposes, are the allowance
for  possible  loan  losses, leased assets, deferred loan fees and compensation.

Pension  Plans

The  Corporation  has  certain employee benefit plans covering substantially all
employees.  The  Corporation  accrues  service  cost  as  incurred.

Advertising  Costs

The  Corporation  expenses  advertising  costs  as  incurred.

Restrictions  on  Cash  and  Due  From  Banks

As  of  December  31,  2000, the Banks did not need to maintain reserves (in the
form  of  deposits  with the Federal Reserve Bank) to satisfy federal regulatory
requirements.

Bank  Owned  Life  Insurance  (BOLI)

During  2000  and 1999, the corporation entered into an investment of bank owned
life  insurance  (BOLI).  BOLI  involves the purchasing of life insurance by the
Corporation  on  a  chosen  group of employees. The corporation is the owner and
beneficiary  of  the  policies. This pool of insurance, due to tax advantages to
the  Banks,  is  profitable  to  the  corporation. This profitability is used to
offset  a  portion of future benefit cost increases. Bank deposits fund BOLI and
the  earnings  from  BOLI  are  recognized  as  other income.

Net  Income  Per  Share

The  Corporation  adopted  the provisions of SFAS No. 128, "Earnings per Share."
SFAS  No.  128  eliminates  primary  and  fully  diluted  earnings per share and
requires  presentation  of  basic  and  diluted  earnings  per  share  (EPS)  in
conjunction  with  the  disclosure  of  the  methodology  used in computing such
earnings  per  share. Basic earnings per share excludes dilution and is computed
by  dividing  income  available  to  common shareholders by the weighted-average
common  shares  outstanding  during  the period. Diluted earnings per share take
into  account  the  potential  dilution  that could occur if securities or other
contracts  to issue common stock were exercised and converted into common stock.

PAGE 12

The  reconciliation  of the numerators and denominators of the basic and diluted
EPS  follows:

<TABLE>
<CAPTION>
                                               Year  Ended  December  31,  2000
                                         --------------------------------------------
                                             Income         Shares        Per Share
                                          (Numerator)    (Denominator)      Amount
                                         --------------------------------------------
<S>                                      <C>             <C>            <C>
Net income. . . . . . . . . . . . . . .  $   25,604,000
                                         ==============
Basic EPS
Income available to
common shareholders. . . . . . . . . .  $   25,604,000      9,268,681  $         2.76
                                                                        ==============
Effect of Dilutive Securities
Stock options . . . . . . . . . . . . .               -         10,592
                                         --------------  -------------
Diluted EPS
Income available to
common shareholders. . . . . . . . . . . $   25,604,000      9,279,273  $         2.76
                                         ==============  =============  ==============
</TABLE>

148,977  anti-dilutive  weighted shares have been excluded in the computation of
2000  diluted EPS since the options' exercise price was greater than the average
market  price  of  the  common  stock.

<TABLE>
<CAPTION>
                                       Year  Ended  December  31,  1999
                               ---------------------------------------------
<S>                            <C>             <C>            <C>
Net income. . . . . . . . . .  $   23,238,000
                               ==============
Basic EPS

Income available to
common shareholders . . . . .  $   23,238,000      9,273,397  $         2.51
                                                              ==============
Effect of Dilutive Securities
Stock options . . . . . . . .               -         11,844
                               --------------  -------------
Diluted EPS

Income available to
common shareholders . . . . .  $   23,238,000      9,285,241  $         2.50
                               ==============  =============  ==============
</TABLE>

4,411  anti-dilutive  weighted  shares  have been excluded in the computation of
1999  diluted EPS since the options' exercise price was greater than the average
market  price  of  the  common  stock.

<TABLE>
<CAPTION>
                                      Year  Ended  December  31,  1998
                               ----------------------------------------------
<S>                            <C>             <C>            <C>
Net income. . . . . . . . . .  $   20,758,000
                               ==============
Basic EPS

Income available to
common shareholders . . . . .  $   20,758,000      9,262,819  $         2.24
                                                              ==============
Effect of Dilutive Securities
Stock options . . . . . . . .               -         15,375
                               --------------  -------------
Diluted EPS

Income available to
common shareholders . . . . .  $   20,758,000      9,278,194  $         2.24
                               ==============  =============  ==============
</TABLE>

3,740  anti-dilutive  weighted  shares  have been excluded in the computation of
1998  diluted EPS since the options' exercise price was greater than the average
market  price  of  the  common  stock.

Comprehensive  Income

The  Corporation  has  adopted  the  FASB  issued  SFAS  No.  130,  "Reporting
Comprehensive  Income."  SFAS No. 130 establishes standards to provide prominent
disclosure  of comprehensive income items. Comprehensive income is the change in
equity  of  a  business  enterprise  during a period from transactions and other
events  and  circumstances  from  non-owner  sources. Other comprehensive income
consists  of  net  unrealized gains on investment securities available for sale.
The  components  of  other  comprehensive  income  are  as  follows:

<TABLE>
<CAPTION>
(Dollars  in thousands)             Before tax      Tax benefit     Net  of  tax
December 31, 2000                      amount        (expense)        amount
-----------------                 -----------------------------------------------
<S>                               <C>             <C>             <C>
Unrealized gains on securities:
  Unrealized holding gains
    arising during period. . . .  $      18,845   $      (6,581)  $      12,264

Less reclassification
  adjustment for gains
    realized in net income . . .             52             (18)             34
                                  --------------  --------------  --------------
Other comprehensive
  income, net. . . . . . . . . .  $      18,793   $      (6,563)  $      12,230
                                  ==============  ==============  ==============

                                    Before tax     Tax  benefit     Net of tax
December 31, 1999. . . . . . . .      amount         (expense)        amount
------------------                ----------------------------------------------
Unrealized losses on securities:
  Unrealized holding losses
    arising during period. . . .  $     (25,242)  $       8,835   $     (16,407)

Less reclassification
  adjustment for gains
    realized in net income . . .            495            (322)            173
                                  --------------  --------------  --------------

Other comprehensive
  losses, net. . . . . . . . . .  $     (25,737)  $       9,157   $     (16,580)
                                  ==============  ==============  ==============

                                    Before  tax    Tax  benefit    Net  of  tax
December 31, 1998. . . . . . . .      amount         (expense)        amount
------------------                ----------------------------------------------
Unrealized gains on securities:
  Unrealized holding gains
    arising during period. . . .  $       3,351   $      (1,173)  $       2,178

Less reclassification
  adjustment for gains
    realized in net income . . .          1,621            (567)          1,054
                                  --------------  --------------  --------------

Other comprehensive
  income, net. . . . . . . . . .  $       1,730   $        (606)  $       1,124
                                  ==============  ==============  ==============
</TABLE>

Other  Information

SFAS  No.  131  establishes  standards  for  the way public business enterprises
report  information  about operating segments in annual financial statements and
requires  that  those  enterprises  report  selected information about operating
segments in subsequent interim financial reports issued to shareholders. It also
establishes  standards  for  related  disclosure  about  products  and services,
geographic  areas,  and  major  customers.  The statement requires that a public
business  enterprise  report  financial  and  descripti ve information about its
reportable  operating  segments.  Operating  segments  are  components  of  an
enterprise  about  which  separate  financial  information  is available that is
evaluated  regularly  by  the  chief operating decision maker in deciding how to
allocate  resources  and  assess  performance.  The statement also requires that
public  enterprises report a measure of segment profit or loss, certain specific
revenue  and expense items and segment assets. It also requires that information
be  reported  about revenues derived from the enterprises' products or services,
or  about the countries in which the enterprises earn revenues and holds assets,
and  about  major  customers,  regardless  of whether the information is used in
making  operating  decisions.

The  company  has  one  reportable  segment,  "Community  Banking."  All  of the
Corporation's  activities  are  interrelated, and each activity is dependent and
assessed  based  on  how  each of the activities of the Corporation supports the
others.  For  example,  commercial  lending is dependent upon the ability of the
Banks to fund themselves with retail deposits and other borrowings and to manage
interest  rate  and credit risk. This situation is also similar for consumer and
residential  mortgage  lending. Accordingly, all significant operating decisions
are  based  upon  analysis  of the Corporation as one operating segment or unit.

PAGE 13

In  June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for Derivative
Instruments  and  Hedging  Activity"  as  amended in June, 1999 by SFAS No. 137,
"Accounting  for Derivative Instruments and Hedging Activities - Deferral of the
Effective  Date  of  FASB  Statement  No.  133,"  and in June 2000, by SFAS 138,
"Accounting  for Certain Derivative Instruments and Certain Hedging Activities,"
(collectively  SFAS  133).  SFAS  No.  133  establishes accounting and reporting
standards  for  derivative instruments, including certain derivative instruments
imbedded  in  other  contracts,  and for hedging activities. It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement  of financial position and measure those instruments at fair value. If
certain  conditions  are  met,  a derivative may be specifically designated as a
hedge.  The  accounting  for  changes in the fair value of derivative (gains and
losses) depends on the intended use of the derivative and resulting designation.
On  January  1,  1999, the Corporation adopted SFAS No. 133. Concurrent with the
adoption,  the Corporation reclassified $7,530,000 of investment securities from
the  held  to  maturity category to the available for sale category and recorded
$221,000  net  of  taxes  of  unrealized  holding  gains  in  accumulated  other
comprehensive  income.

During  July  2000,  the  Corporation  reclassified  $7,574,000  of  investment
securities  from  the  held  to  maturity  category  to  the  available for sale
category, due to its acquisition of Citizens Bank and Trust Company. As a result
of  the  reclassification,  the  Corporation  recorded  $19,000  net  of  taxes
unrealized  holding  losses  in  accumulated  other  comprehensive  income.

Statement of Financial Accounting Standards No. 119 "Disclosure About Derivative
Financial  Instruments  and  Fair Value of Financial Instruments" (SFAS No. 119)
requires  disclosures about financial instruments, which are defined as futures,
forwards, swap and option contracts and other financial instruments with similar
characteristics.  On  balance  sheet  receivables and payables are excluded from
this  definition.  The  Corporation  did  not  hold  any  derivative  financial
instruments  as  defined  by  SFAS  No.  119  at  December  31,  2000,  1999
or  1998.

2  /  ACQUISITIONS

On  April 28, 2000, the Corporation consummated its acquisition of Citizens Bank
and  Trust  Company.  Under  the  terms  of  the  merger,  accounted  for  as  a
pooling-of-interest, Citizens Bank and Trust Company's shareholders received 166
shares  of  Harleysville  National  Corporation  common  stock for each share of
common  stock  of  Citizens  Bank  and Trust Company. Upon the completion of the
acquisition,  Citizens  Bank  and Trust Company's banking operations merged into
those  of  Citizens  National  Bank,  a  wholly-owned subsidiary of Harleysville
National  Corporation.

On  January  20,  1999,  the Corporation consummated its acquisition of Northern
Lehigh  Bancorp,  Inc.,  parent company of Citizens National Bank of Slatington.
Northern  Lehigh Bancorp, Inc. shareholders received 3.57 shares of Harleysville
National  Corporation  common  stock  for  each share of Northern Lehigh Bancorp
common  stock.

The acquisition was effected by the merger of Northern Lehigh Bancorp, Inc. with
Harleysville  National  Corporation  North,  Inc.,  a  bank  holding company and
wholly-owned  subsidiary of Harleysville National Corporation. Citizens National
Bank  of Slatington merged with and into The Citizens National Bank of Lansford,
a  national  banking  association  and  wholly-owned  subsidiary of Harleysville
National Bank North, Inc., under the name Citizens National Bank. The merger was
accounted  for  on  a pooling-of-interest basis, and all prior periods have been
restated  to  reflect  the  combination.

3 / INVESTMENT  SECURITIES

The amortized cost, unrealized gains and losses, and the estimated market values
of  the  Corporation's  investment securities held to maturity and available for
sale  are  as  follows:

<TABLE>
<CAPTION>
(Dollars  in  thousands)                    December  31,  2000
                           ---------------------------------------------------
                                            Gross          Gross     Estimated
                            Amortized     Unrealized     Unrealized   Market
Held to Maturity               Cost         Gains         (Losses)     Value
----------------           ---------------------------------------------------
<S>                        <C>          <C>          <C>           <C>

U.S. Treasury notes . . .  $       500  $         -  $         -   $       500

Obligations of states and
  political subdivisions.       25,803          701            -        26,504

Mortgage-backed
  Securities. . . . . . .        3,437           70            -         3,507

Other securities. . . . .        1,101            3          (14)        1,090
                           -----------  ------------  -----------  -----------
  Totals. . . . . . . . .  $    30,841  $       774  $       (14)  $    31,601
                           ===========  ============  ===========  ===========

Available for Sale
------------------

U.S. Treasury notes . . .  $    39,692  $       667  $         -   $    40,359

Obligations of other U.S.
  Government agencies
  and corporations. . . .       38,508          214         (112)       38,610

Obligations of states and
  political subdivisions.      193,269        3,252       (1,448)      195,073

Mortgage-backed
  securities. . . . . . .      226,578        1,880         (975)      227,483

Other securities. . . . .       70,384        2,086       (3,376)       69,094
                           -----------  ------------  -----------  -----------
  Totals. . . . . . . . .  $   568,431  $     8,099  $    (5,911)  $   570,619
                           ===========  ============  ===========  ===========

                                            December  31,  1999
                           ---------------------------------------------------
                                            Gross          Gross     Estimated
                            Amortized     Unrealized     Unrealized   Market
Held to Maturity               Cost         Gains         (Losses)     Value
----------------           ---------------------------------------------------
U.S. Treasury Notes . . .  $     1,000  $         4  $         -   $     1,004

Obligations of states and
  political subdivisions.       21,450          164         (585)       21,029

Mortgage-backed
  securities. . . . . . .        1,792            7          (19)        1,780

Other securities. . . . .        1,303            4          (26)        1,281
                           -----------  ------------  -----------  -----------
  Totals. . . . . . . . .  $    25,545  $       179  $      (630)  $    25,094
                           ===========  ============  ===========  ===========

Available for Sale

U.S. Treasury notes . . .  $    48,486  $       134  $       (53)  $    48,567

Obligations of other U.S.
  Government agencies
  and corporations. . . .       50,748            -       (1,174)       49,574

Obligations of states and
  political subdivisions.      181,361          699       (9,888)      172,172

Mortgage-backed
  securities. . . . . . .      168,010          189       (4,128)      164,071

Other securities. . . . .       73,350        1,542       (3,926)       70,966
                           -----------  ------------  -----------  -----------
  Totals. . . . . . . . .  $   521,955  $     2,564  $   (19,169)  $   505,350
                           ===========  ============  ===========  ===========
</TABLE>

PAGE 14

There  are  no  significant  concentrations  of  securities (greater than 10% of
shareholders'  equity)  in  any  individual  security  issuer.

Securities  with  a  carrying value of $393,656,000 and $377,575,000 at December
31, 2000 and 1999, respectively, were pledged to secure public funds, government
deposits  and  repurchase  agreements.

The  amortized  cost  and  estimated  market  value of investment securities, at
December 31, 2000, by contractual maturities, are shown below. Actual maturities
will  differ  from contractual maturities because issuers and borrowers may have
the  right  to  call  or  prepay  obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
(Dollars  in  thousands)    Held to Maturity      Available for Sale
                         ----------------------------------------------
                                     Estimated                Estimated
                         Amortized    Market     Amortized     Market
                            Cost       Value        Cost       Value
                         ----------------------------------------------
<S>                      <C>         <C>         <C>         <C>
Due in one year or less  $    1,342  $    1,347  $   13,752  $   13,792

Due after one year
  through five years. .         854         844      57,444      57,644

Due after five years
  through ten years . .       3,670       3,790      52,850      52,621

Due after ten years . .      21,538      22,113     217,807     219,079
                         ----------  ----------  ----------  ----------
                             27,404     28,0943     41,8533      43,136
Mortgage-backed
  securities. . . . . .       3,437       3,507     226,578     227,483
                         ----------  ----------  ----------  ----------
  Totals. . . . . . . .  $   30,841  $   31,601  $  568,431  $  570,619
                         ==========  ==========  ==========  ==========
</TABLE>

Proceeds from sales of investment securities available for sale during 2000 were
$133,208,000. Gross gains of $953,000 and gross losses of $901,000 were realized
on  these sales. Proceeds from sales of investment securities available for sale
during  1999  were  $77,177,000.  Gross  gains  of  $764,000 and gross losses of
$269,000  were  realized  on  these  sales.  Proceeds  from  sales of investment
securities  available  for  sale  during  1998  were $67,003,000. Gross gains of
$1,625,000  and  gross  losses  of  $4,000  were  real
ized  on  these  sales.

4  /  LOANS

Major  classifications  of  loans  are  as  follows:

<TABLE>
<CAPTION>
(Dollars  in  thousands)         December  31,
                           ------------------------
                              2000         1999
                           ------------------------
<S>                        <C>          <C>
Real estate . . . . . . .  $  369,831   $  368,177
Commercial and industrial     296,168      282,799
Consumer loans. . . . . .     427,518      372,359
Lease financing . . . . .     116,088       94,909
                           -----------  -----------
     Total loans. . . . .   1,209,605    1,118,244

Deferred costs, net . . .       2,450          572
Allowance for loan losses     (15,210)     (14,887)
                           -----------  -----------
     Net loans. . . . . .  $1,196,845   $1,103,929
                           ===========  ===========
</TABLE>

A  loan  is  generally  classified  as nonaccrual when principal or interest has
consistently  been  in  default  for a period of 90 days or more or because of a
deterioration  in  the financial condition of the borrower or payment in full of
principal or interest is not expected. Delinquent loans past due 90 days or more
and  still  accruing  interest  are  loans  that  are generally well-secured and
expected  to  be  restored  to  a  current  status  in  the  near  future.

On  December  31,  2000, nonaccrual loans were $5,370,000, loans 90 days or more
past  due  and  still  accruing  interest  were  $514,000  and  troubled  debt
restructured  loans  were  $11,000.  On December 31, 1999, nonaccrual loans were
$3,690,000,  loans  90  days  or  more past due and still accruing interest were
$565,000  and  troubled  debt  restructured  loans  were  $465,000.

The  balance  of impaired loans was $3,322,000 at December 31, 2000, compared to
$2,582,000  at  December  31, 1999. The Banks have identified a loan as impaired
when  it is probable that interest and principal will not be collected according
to  the  contractual terms of the loan agreement. The December 31, 2000 impaired
loan  balance  included  $3,311,000  of nonaccrual loans and $11,000 of troubled
debt  restructured  loans. The December 31, 1999, impaired loan balance included
$2,117,000  of  nonaccrual  loans  and  $465
,000  of  troubled  debt  restructured  loans.

The  allowance  for loan loss associated with the impaired loans was $377,000 at
December  31, 2000, and $262,000 at December 31, 1999. The average impaired loan
balance  was  $2,965,000  in  2000,  compared  to $3,046,000 in 1999. The income
recognized  on  impaired  loans  during 2000 and 1999 was $128,000 and $132,000,
respectively.  The  Banks'  policy  for  interest income recognition on impaired
loans is to recognize income on restructured loans under the accrual method. The
Banks  recognize  income on nonaccrual loans under the cash basis when the loans
are  both  current  and  the  collateral  on the loan is sufficient to cover the
outstanding  obligation  to  the  Banks.  The Banks will not recognize income if
these  factors  do  not  exist.

The  Banks have no concentration of loans to individual borrowers which exceeded
10%  of  total loans at December 31, 2000 and 1999. As of December 31, 2000, the
Banks  have  a  concentration  of  indirect  consumer loans (12% of total loans)
included  in  the  consumer  loan classification. The Banks actively monitor the
risk  of  this  loan  concentration.  The  Banks continued to pursue new lending
opportunities  while  seeking  to  maintain  a  portfolio  that is diverse as to
industry concentration, type and geographic distribution.  The Banks' geographic
lending  area  is primarily concentrated in Montgomery, Carbon, Bucks, and Wayne
counties,  but  also  includes  Chester, Berks, Lehigh, Monroe, Northhampton and
Schuylkill  counties.

Loans  to  directors,  executive  officers and their associates, are made in the
ordinary  course  of  business  and  on  substantially the same terms, including
interest  rates  and  collateral, as those prevailing at the time for comparable
transactions  with  others.  Activity  of  these  loans  is  as  follows:

<TABLE>
<CAPTION>
(Dollars in thousands)    Year Ended December 31,
                      -------------------------------
                        2000       1999       1998
<S>                   <C>        <C>        <C>
                      -------------------------------
Balance, January 1 .  $  9,411   $  6,162   $  4,917
New loans. . . . . .    68,009     30,064     12,704
Repayments . . . . .   (69,076)   (26,815)   (11,459)
                      ---------  ---------  ---------
Balance, December 31  $  8,344     $9,411   $  6,162
                      =========  =========  =========
</TABLE>

PAGE 15

5  /  ALLOWANCE  FOR  LOAN  LOSSES

Transactions  in  the  allowance  for  loan  losses  are  as  follows:

<TABLE>
<CAPTION>
(Dollars  in  thousands)        Year  Ended  December  31,
                               ----------------------------
                                 2000      1999      1998
                               ----------------------------
<S>                            <C>       <C>       <C>
Balance, beginning of year. .  $14,887   $14,245   $13,107
                               --------  --------  --------

     Provision charged to
          operating expenses.    2,312     2,153     2,288
                               --------  --------  --------
     Loans charged off:

          Commercial
               and industrial     (123)     (108)     (217)
     Consumer . . . . . . . .   (1,470)     (632)     (647)
     Real estate. . . . . . .     (610)     (833)     (442)
     Lease financing. . . . .     (450)     (226)     (145)
                               --------  --------  --------
          Total charged off .   (2,653)   (1,799)   (1,451)
                               --------  --------  --------

Recoveries:
     Commercial
          and industrial. . .       60        28        94

     Consumer . . . . . . . .      289       112       100
     Real estate. . . . . . .      274        96        89
     Lease financing. . . . .       41        52        18
                               --------  --------  --------
          Total recoveries. .      664       288       301
                               --------  --------  --------

Balance, end of year. . . . .  $15,210   $14,887   $14,245
                               ========  ========  ========
</TABLE>

6  /  BANK  PREMISES  AND  EQUIPMENT

Bank  premises  and  equipment  consist  of  the  following:


<TABLE>
<CAPTION>
                               Estimated
(Dollars  in  thousands)         Useful      December  31,
                                             ---------------
                                  Lives      2000     1999
                               -----------------------------
<S>                            <C>          <C>      <C>
Land                                        $ 3,202  $ 3,060
Buildings . . . . . . . . . .  15-39 years   21,419   20,723
Furniture, fixtures . . . . .   3-10 years
     and equipment. . . . . .                20,186   18,754
                                            -------  -------
          Total cost. . . . .                44,807   42,537

Less accumulated depreciation
     and amortization . . . .                22,937   20,604
                                            -------  -------
          Total . . . . . . .               $21,870  $21,933
                                            =======  =======
</TABLE>

7  /  DEPOSITS  AND  BORROWINGS

At  December  31,  2000,  scheduled maturities of certificates of deposit are as
follows:

(Dollars  in  thousands)

      Year Ended December 31,            Amount
     ------------------------------------------
     2001 . . . . . . . . . . . . . .  $376,858
     2002 . . . . . . . . . . . . . .   163,995
     2003 . . . . . . . . . . . . . .    47,146
     2004 . . . . . . . . . . . . . .    12,138
     2005 . . . . . . . . . . . . . .     2,765
     Thereafter . . . . . . . . . . .        40
                                       --------
     Total. . . . . . . . . . . . . .  $602,942
                                       ========

Federal  Home  Loan  Bank  (FHLB)  advances  at  December  31,  2000,  totaled
$110,750,000.  The  advances  are collateralized by FHLB stock and certain first
mortgage  loans  and  mortgage-backed  securities.  First  mortgages  used  as
collateral for these advances totaled $86,367,000. These advances had a weighted
average  interest rate of 5.83%. Advances are made pursuant to several different
credit programs offered from time to time by the FHLB. Unused lines of credit at
the  FHLB  were  $114,738,000  at  December  31,  2000,  and  $188,657,000  at
December  31,  1999.

Outstanding  borrowings  mature  as  follows:  (dollars  in  thousands)

     2001. . . . . . . . . . . . . . .$  30,000

     2002. . . . . . . . . . . . . . .    3,000

     2003. . . . . . . . . . . . . . .        -

     2004. . . . . . . . . . . . . . .   24,000

     2005 and thereafter . . . . . . .   53,750
                                      ---------
                                      $ 110,750
                                      =========

The  Banks,  pursuant  to  a  designated  cash  management  agreement,  utilize
securities  sold under agreements to repurchase as vehicles for customers' sweep
and  term  investment  products.  Securitization  under  these  cash  management
agreements  are  in  U.S.  Treasury  Securities  and  obligations  of states and
political  subdivisions  securities.

These  securities  are  held in a third party custodian's account, designated by
the  Banks  under  a  written custodial agreement that explicitly recognizes the
Banks'  interest  in  the  securities.  At  December  31, 2000, these agreements
matured within one year. The average balance of securities sold under agreements
to  repurchase  for 2000 was $71,973,000, and the maximum amounts outstanding at
any  month-end  during  2000  was  $84,888,000.

8  /  FEDERAL  INCOME  TAXES

Income  tax  expense  from  current  operations  is  composed  of the following:

(Dollars in thousands)  Year Ended December 31,
                        ----------------------
                         2000    1999    1998
                        ----------------------
Current tax payable . . $2,379  $3,282  $5,231
Deferred income tax . .  3,271   3,404   1,430
                        ------  ------  ------
     Tax expense . . .  $5,650  $6,686  $6,661
                        ======  ======  ======

The  effective  income tax rates of 18.1% for 2000, 22.3% for 1999 and 24.3% for
1998 were less than the applicable federal income tax rate of 35% for each year.
The  reason  for  these  differences  follows:

<TABLE>
<CAPTION>
(Dollars  in  thousands)     Year Ended December 31,
                           ----------------------------
                             2000      1999      1998
                           ----------------------------
<S>                        <C>       <C>       <C>
Expected tax expense. . .  $10,939   $10,464   $ 9,625

Tax-exempt income net of
     expense disallowance   (5,432)   (3,885)   (3,068)

Other . . . . . . . . . .      143       107       104
                           --------  --------  --------
     Actual tax expense .  $ 5,650   $ 6,686   $ 6,661
                           ========  ========  ========
</TABLE>


PAGE 16

The  tax  effect of temporary differences that give rise to significant portions
of  deferred  tax  assets  and  liabilities  are  as  follows:

<TABLE>
<CAPTION>
(Dollars in thousands)         2000                 1999
                           ---------------------------------------
                           Asset   Liability    Asset   Liability
                           ---------------------------------------
<S>                        <C>     <C>         <C>      <C>
Allowance for
     credit losses. . . .  $5,184  $        -  $ 5,071  $        -

Lease assets. . . . . . .       -      18,084        -      14,740
Deferred loan fees. . . .     132           -      277           -
Deferred compensation . .   1,304           -    1,186           -

Unrealized gain
     on securities. . . .       -         766    5,795           -

Other . . . . . . . . . .      98           -      148          37
                           ------  ----------  -------  ----------
     Total deferred taxes  $6,718  $   18,850  $12,477  $   14,777
                           ======  ==========  =======  ==========
</TABLE>

The  exercise  of  stock options which have been granted under the Corporation's
various  stock  option  plans gives rise to compensation, which is includable in
the taxable income of the applicable employees and deductible by the Corporation
for  income  tax  purposes.  Compensation  resulting  from increases in the fair
market  value of the Corp-oration's Common Stock subsequent to the date of grant
of  the applicable exercised stock options is not recognized, in accordance with
APB  Opinion  No.  25,  as  an expense for financial accounting purposes and the
related  tax  benefits  are  taken  directly  to  Additional  Paid  in  Capital.

9  /  PENSION  PLANS

The  Corporation  has two noncontributory defined benefit pension plans covering
substantially  all  employees.  These  plans  are  the  Harleysville  National
Corporation  Pension  Plan  and  the  Northern  Lehigh  Bancorp Pension Plan. On
January 20, 1999, the Corporation consummated its acquisition of Northern Lehigh
Bancorp,  Inc.  These  plans  were not consolidated, as of December 31, 2000 and
1999.

The Harleysville National Corporation Pension Plan's Benefits are based on years
of  service  and the employee's average compensation during any five consecutive
years  within the 10-year period preceding retirement. The Harleysville National
Corporation Pension Plan's funded status and amounts recognized in the financial
statements  follow:

<TABLE>
<CAPTION>
(Dollars in thousands)                            2000     1999
                                                 ----------------
<S>                                              <C>      <C>
Change in benefit obligation:
-----------------------------
Benefit obligation at beginning of year . . . .   5,579    4,976
Service cost. . . . . . . . . . . . . . . . . .     448      365
Interest cost . . . . . . . . . . . . . . . . .     327      291
Actual gain . . . . . . . . . . . . . . . . . .     288      167
Benefits paid . . . . . . . . . . . . . . . . .    (275)    (220)
Change in assumptions . . . . . . . . . . . . .       -        -
                                                 -------  -------
Benefits obligation at end of year. . . . . . .  $6,367   $5,579
                                                 =======  =======

Change in plan assets:
----------------------
Fair value of plan assets
  at beginning of year . . . . . . . . . . . .   $6,155   $5,974
Actual return on plan assets. . . . . . . . . .    (136)     401
Employer contribution . . . . . . . . . . . . .       -        -
Benefits paid . . . . . . . . . . . . . . . . .    (275)    (220)
                                                 -------  -------
Fair value of plan assets at end of year. . . .  $5,744   $6,155
                                                 =======  =======
Funded status . . . . . . . . . . . . . . . . .  $ (622)  $  575
Unrecognized transition liability (asset) . . .    (172)    (189)
Unrecognized prior service cost . . . . . . . .    (439)    (550)
Unrecognized net (gain) or loss . . . . . . . .   1,536      703
                                                 -------  -------
Prepaid (accrued) benefit cost. . . . . . . . .  $  303   $  539
                                                 =======  =======
</TABLE>

<TABLE>
<CAPTION>
Weighted-average assumptions
----------------------------
     as of December 31,              2000    1999    1998
     ------------------             ------  ------  ------
<S>                                 <C>     <C>     <C>
Discount rate. . . . . . . . . . .   6.00%   6.00%   6.00%
Expected return on plan assets . .   7.00%   7.00%   7.00%
Rate of compensation increase. . .   4.50%   4.50%   4.50%

Components of net periodic
--------------------------
     benefit cost                    2000    1999    1998
     ------------                   ------  ------  ------
Service cost . . . . . . . . . . .  $ 447   $ 365   $ 264
Interest cost .  . . . . . . . . .    326     291     297
Expected return on plan assets . .   (421)   (410)   (431)
Amortization of prior service cost   (111)   (111)   (111)
Recognized net actuarial loss. . .     (6)    (17)    (17)
                                    ------  ------  ------
      Net periodic benefit cost. .  $ 235   $ 118   $   2
                                    ======  ======  ======
</TABLE>

As  of December 31, 2000, Harleysville National Corporation's Pension Plan's had
an  investment  in  the  Corporation's  stock  with  a market value of $233,000.

The  Northern  Lehigh  Bancorp  Pension Plan's Benefits are based primarily upon
years  of  service  and  compensation rates near retirement. The Northern Lehigh
Bancorp  Pension  Plan's  funded  status and amounts recognized in the financial
statements  follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                      2000    1999
                                           ------  ------
<S>                                        <C>     <C>
Change in benefit obligation:
-----------------------------
Benefit obligation at beginning of year .  $ 744   $ 753
Service cost. . . . . . . . . . . . . . .      -      55
Interest cost . . . . . . . . . . . . . .     51      51
Actual gain . . . . . . . . . . . . . . .     21     (13)
Benefits paid . . . . . . . . . . . . . .    (43)    (24)
Effect of curtailment . . . . . . . . . .     46     (78)
                                           ------  ------
Benefits obligation at end of year. . . .  $ 819   $ 744
                                           ======  ======

Change in plan assets:
----------------------
Fair value of plan assets
  at beginning of year . . . . . . . . .   $ 886   $ 855
Actual return on plan assets. . . . . . .      3      67
Employer contribution . . . . . . . . . .      -       -
Plan expenses . . . . . . . . . . . . . .      -     (12)
Benefits paid . . . . . . . . . . . . . .    (48)    (24)
                                           ------  ------
Fair value of plan assets at end of year.  $ 841   $ 886
                                           ======  ======
Funded status . . . . . . . . . . . . . .  $  22   $ 143
Unrecognized transition liability (asset)    (42)    (48)
Unrecognized prior service cost . . . . .      -       -
Unrecognized net (gain) or loss . . . . .   (112)   (262)
                                           ------  ------
Prepaid (accrued) benefit cost. . . . . .  $(132)  $(167)
                                           ======  ======
</TABLE>

<TABLE>
<CAPTION>
Weighted-average assumptions
----------------------------
     as of December 31,              2000    1999    1998
     ------------------             ----------------------
<S>                                 <C>     <C>     <C>
Discount rate. . . . . . . . . . .   6.50%   7.00%   7.00%
Expected return on plan assets . .   8.00%   8.00%   8.00%
Rate of compensation increase. . .   0.00%   5.00%   5.00%

Components of net periodic
--------------------------
     benefit cost                    2000    1999    1998
     ------------                   ----------------------
Service cost . . . . . . . . . . .  $   -   $  55   $  54
Interest cost. . . . . . . . . . .     51      51      59
Expected return on plan assets . .    (69)    (67)    (57)
Amortization of prior service cost    (16)    (15)     (5)
                                    ------  ------  ------
     Net periodic benefit cost . .  $ (34)  $  24   $  51
                                    ======  ======  ======
</TABLE>


PAGE 17

A 401(k) deferred savings plan covers eligible employees of the Banks. Employees
may  contribute  up  to a maximum of 15% of salary on a pre-tax basis with a 50%
employer  match  up  to  a  maximum  of  3%  of salary. Contributions charged to
earnings  were  $353,000,  $284,000,  and  $242,000  for  2000,  1999  and 1998,
respectively.

The  Corporation has a Supplemental Executive Retirement Plan (SERP) for certain
individuals.  The  SERP  provides  for payments based on a certain percentage of
salary  for  a period of 10 years after retirement. As of December 31, 2000, and
1999,  the  Corporation  had  accrued  a liability of $1,832,000 and $1,528,000,
respectively,  for  the  SERP.

10  /  SHAREHOLDERS'  EQUITY

On  November  9,  2000,  the  Corporation paid a 5% stock dividend on its common
stock  to  shareholders  of  record  as  of  October  26,  2000.

On  September  30,  1999, the Corporation paid a 5% stock dividend on its common
stock  to  shareholders  of  record  as  of  September  17,  1999.

11  /  STOCK  OPTIONS

The Corporation has fixed stock option plans that allow the Corporation to grant
options  up  to  833,390  shares of common stock to key employees and directors.
The  options have a term of ten years when issued and are completely vested over
a  five-year  period.  The exercise price of each option equals the market price
of  the  Corporation's  stock  on  the  date  of  grant.

The  Corporation  has  elected  to  account  for its stock option plan under APB
Opinion  No.  25,  "Accounting  for Stock Issued to Employees."  Accordingly, no
compensation  cost  has  been  recognized  for  its  stock  option  plan.  Had
compensation  cost  for  the plan been determined based on the fair value of the
options  at  the  grant  dates  consistent  with  the  method  of  SFAS No. 123,
"Accounting  for  Stock-Based  Compensation,"  the  Corporation's net income and
earnings  per  share  would  have  been:

<TABLE>
<CAPTION>
                                     2000     1999     1998
                                   --------------------------
<S>                  <C>           <C>      <C>      <C>
Net income           As reported   $25,604  $23,238  $20,758
  (in thousands)     Pro forma     $23,236  $22,527  $20,261
Earnings per share   As reported    $2.76    $2.51    $2.24
  (Basic)            Pro forma      $2.51    $2.43    $2.19
Earnings per share   As reported    $2.76    $2.50    $2.24
  (Diluted)          Pro forma      $2.50    $2.43    $2.18
</TABLE>

The  fair value of each option grant is estimated on the date of grant using the
Black-Scholes  option-pricing  model  with  the  following  weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield
of  3.26%,  3.30%  and  2.54%;  expected  volatility  of 2.58%, 2.84% and 3.18%;
risk-free  interest rate of 5.96%, 7.06% and 5.50%; and an expected life of 9.82
years,  9.42  years  and  9.50  years.

Information  about stock options outstanding at December 31, 2000, is summarized
as  follows:

<TABLE>
<CAPTION>
                                Weighted-Average
                  Outstanding    Exercise Price
                  -------------------------------
<S>               <C>           <C>
Balance 1/1/98 .       42,327   $           14.12
Granted. . . . .       79,933               32.20
Exercised. . . .    (19,270)1                8.10
Cancelled. . . .       (1,460)              22.11
                  ------------  -----------------
Balance 1/1/99 .       101,53              027.49
Granted. . . . .       39,421               31.13
Exercised. . . .       (3,936)               7.89
Cancelled. . . .       (2,206)              34.73
                  ------------  -----------------
Balance 1/1/00 .      134,809               29.01
Granted. . . . .      593,183               27.93
Exercised. . . .       (3,936)               8.48
Cancelled. . . .       (1,654)              31.74
                  ------------  -----------------
Balance 12/31/00      722,402   $           28.23
                  ============  =================
</TABLE>

The  weighted  average  fair value of options granted during 2000, 1999 and 1998
were  $27.93,  $31.13  and  $32.20,  respectively.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                            OPTIONS OUTSTANDING
Range of           Number          Weighted-Average       Weighted-Average      Number     Weighted-Average
Exercise-Price   Outstanding  Remaining Contractual Life   Exercise Price    Exercisable    Exercise Price
-----------------------------------------------------------------------------------------------------------
<S>              <C>          <C>                         <C>                <C>           <C>
$ 7.74 - $11.62       11,808                   1.5 years  $            9.31        11,808  $           9.31
$19.36 - $23.23        1,915                   4.6 years  $           22.11         1,915  $          22.11
$27.10 - $30.98      560,103                   9.9 years  $           27.75             -  $              -
$30.98 - $34.85      144,165                   8.2 years  $           31.41       138,045  $          31.40
$34.85 - $38.72        4,411                   7.3 years  $           38.57         1,764  $          38.57
                 -----------                                                 ------------  ----------------
                     722,402                                                      153,532  $          29.67
                 ===========                                                 ============  ================
-----------------------------------------------------------------------------------------------------------
</TABLE>

12 / COMMITMENTS  AND  CONTINGENT  LIABILITIES

Based  on  consultation  with the Corporation's legal counsel, management is not
aware  of  any  litigation  that  would  have  a  material adverse effect on the
consolidated  financial  position  of  the Corporation. There are no proceedings
pending  other  than the ordinary routine litigation incident to the business of
the  Corporation  and its Subsidiaries. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the Corporation or
its  Subsidiaries  by  government  authorities.

Lease commitments for equipment and banking locations expire intermittently over
the  years  through 2036. Most banking location leases require the lessor to pay
insurance,  maintenance  costs  and  property taxes.  Approximate minimum rental
commitments  for existing operating leases at December 31, 2000, are as follows:

<TABLE>
<CAPTION>
                                      Total
                                Operating Leases
                                -----------------
<S>                            <C>
             2001 . . . . . .  $       1,594,000
             2002 . . . . . .          1,340,000
             2003 . . . . . .          1,248,000
             2004 . . . . . .          1,009,000
             2005 . . . . . .          1,003,000
         Thereafter . . . . .          4,683,000
                               -----------------
             Total. . . . . .  $      10,877,000
                               =================
</TABLE>

Total  lease  expense  amounted  to  $1,889,000  in 2000, $1,796,000 in 1999 and
$1,670,000  in  1998.


PAGE 18

13  /  FINANCIAL  INSTRUMENTS  WITH  OFF-BALANCE SHEET RISK

The Banks have not entered into any interest rate swaps, caps, floors or collars
and  are  not a party to any forward or futures transactions. However, the Banks
are  a  party  to  various  other financial instruments at December 31, 2000 and
1999,  which  are not included in the consolidated financial statements, but are
required  in  the  normal  course of business to meet the financing needs of its
customers  and  to assist in managing its exposure to changes in interest rates.
Management  does  not  expect any material losses from these transactions, which
include  standby  letters of credit at December 31, 2000 and 1999, of $6,829,000
and  $7,254,000,  respectively;  commitments to extend credit of $51,409,000 and
$46,945,000,  respectively  for  revolving  home  equity lines; $120,610,000 and
$103,203,000, respectively for commercial and real estate loans; $33,534,000 and
$27,116,000,  respectively,  for  consumer  loans.

The  Banks'  exposure to credit loss in the event of nonperformance by the other
party  to  the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amounts of those
instruments. The Banks use the same stringent credit policies in extending these
commitments  as  they  do  for  recorded financial instruments and control their
exposure  to  loss  through  credit  approval  and  monitoring procedures. These
commitments  are  generally  issued  for  one year or less, often expire without
being  drawn  upon,  and  often  are  secured  with  appropriate  collateral.

The  Banks  offer  commercial,  mortgage  and  consumer credit products to their
customers  in the normal course of business, which are detailed in note 4. These
products  represent  a  diversified credit portfolio and are generally issued to
borrowers  within  the Banks' branch office systems in eastern Pennsylvania. The
ability  of  the  customers to repay their credits is, to some extent, dependent
upon  the  economy  in  the  Banks'  market  areas.

14  /  REGULATORY  CAPITAL

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(Dollars  in  thousands)                                                           To  Be  Well
                                                                                 Capitalized Under
                                                                For Capital      Prompt Corrective
                                                Actual        Adequacy Purposes  Action Provision
As of December 31, 2000                     Amount    Ratio    Amount   Ratio     Amount   Ratio
---------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets):
----------------------------------------
<S>                                        <C>       <C>      <C>       <C>      <C>       <C>
Corporation . . . . . . . . . . . . . . .  $186,989   13.35%  $ 112,06   38.00%  $     -       -
Harleysville National Bank. . . . . . . .  106,549    10.46%    81,461    8.00%   101,826   10.00%
Citizens National Bank. . . . . . . . . .   37,622    14.36%    20,955    8.00%    26,193   10.00%
Security National Bank. . . . . . . . . .   13,553    12.65%     8,572    8.00%    10,715   10.00%

Tier 1 Capital (to risk weighted assets):
----------------------------------------
Corporation . . . . . . . . . . . . . . .  $171,226   12.22%  $ 56,031    4.00%  $     -       -
Harleysville National Bank. . . . . . . .   95,980    9.43%     40,731    4.00%    61,096    6.00%
Citizens National Bank. . . . . . . . . .   34,344    13.11%    10,477    4.00%    15,716    6.00%
Security National Bank. . . . . . . . . .   12,509    11.67%     4,286    4.00%     6,429    6.00%

Tier 1 Capital (to average assets):
-----------------------------------
Corporation . . . . . . . . . . . . . . .  $171,226   8.97%   $ 76,313    4.00%  $      -       -
Harleysville National Bank. . . . . . . .   95,980    7.12%     53,932    4.00%     67,415   5.00%
Citizens National Bank. . . . . . . . . .   34,344    8.51%     16,147    4.00%     20,183   5.00%
Security National Bank. . . . . . . . . .   12,509    8.70%      5,754    4.00%      7,193   5.00%
</TABLE>

<TABLE>
<CAPTION>
(Dollars  in  thousands)                                                           To  Be  Well
                                                                                 Capitalized Under
                                                                For Capital      Prompt Corrective
                                                Actual        Adequacy Purposes  Action Provision
As of December 31, 2000                     Amount    Ratio    Amount   Ratio     Amount   Ratio
<S>                                        <C>       <C>      <C>       <C>      <C>       <C>
--------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets):
---------------------------------------
Corporation . . . . . . . . . . . . . . .  $171,548   13.48%  $101,772   8.00%   $      -       -
Harleysville National Bank. . . . . . . .    93,993   10.23%    73,484   8.00%     91,855   10.00%
Citizens National Bank. . . . . . . . . .    40,305   16.27%    19,822   8.00%     24,777   10.00%
Security National Bank. . . . . . . . . .     9,593   10.57%     7,259   8.00%      9,074   10.00%

Tier 1 Capital (to risk weighted assets):
----------------------------------------
Corporation . . . . . . . . . . . . . . .  $156,326   12.29%  $ 50,886   4.00%  $       -       -
Harleysville National Bank. . . . . . . .    83,222    9.06%    36,742   4.00%     55,113    6.00%
Citizens National Bank. . . . . . . . . .    37,208   15.02%     9,911   4.00%     14,866    6.00%
Security National Bank. . . . . . . . . .     8,532    9.40%     3,629   4.00%      5,444    6.00%

Tier 1 Capital (to average assets):
----------------------------------
Corporation . . . . . . . . . . . . . . .  $156,326    8.92%  $ 70,081   4.00%  $       -       -
Harleysville National Bank. . . . . . . .    83,222    6.76%    49,228   4.00%     61,536    5.00%
Citizens National Bank. . . . . . . . . .    37,208    9.35%    15,918   4.00%     19,898    5.00%
Security National Bank. . . . . . . . . .     8,532    7.05%     4,844   4.00%      6,055    5.00%
</TABLE>


PAGE 19
The Banks are subject to various regulatory capital requirements administered by
the  federal  banking agencies. Failure to meet minimum capital requirements can
initiate  certain  mandatory-and  possibly  additional  discretionary-actions by
regulators  that,  if  undertaken,  could  have  a direct material effect on the
Corporation's  financial  statements.  Under capital adequacy guidelines and the
regulatory  framework  for  prompt  corrective  action,  the  Banks  must  meet
 specific  capital  guidelines  that involve quantitative measures of the Banks'
assets,  liabilities,  and  certain  off-balance-sheet items as calculated under
regulatory  accounting  practices. The Banks' capital amounts and classification
are  also  subject  to qualitative judgments by the regulators about components,
risk  weightings,  and  other  factors.

Quantitative  measures  established  by  regulation  to  ensure capital adequacy
require  the  Banks  to  maintain  minimum  amounts and ratios (set forth in the
table) of total and Tier 1 capital to risk-weighted assets. Management believes,
as  of  December 31, 2000, that the Banks meet all capital adequacy requirements
to which they are subject. To be categorized as well capitalized, the Banks must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as  set forth in the table. There are no conditions or events that have occurred
that  management  believes  have  changed  the  institutions'  category.

The  National Banking Laws require the approval of the Office of the Comptroller
of the Currency if the total of all dividends declared by a national bank in any
calendar  year  exceed  the  net  profits of the bank (as defined) for that year
combined  with  its  retained  net profits for the preceding two calendar years.
Under  this  formula,  the  Banks may declare dividends in 2001 of approximately
$29,000,000  plus  an amount equal to the net profits of the Banks in 2001 up to
the  date  of  any  such  dividend  declaration.

Additionally,  banking  regulations  limit  the  amount  of  investments, loans,
extensions  of  credit  and  advances  that  one subsidiary bank can make to the
Corporation  at  any  time to 10% and in the aggregate 20% of the Banks' capital
stock  and  surplus.  These  regulations  also require that any such investment,
loan,  extension  of  credit or advance be secured by securities having a market
value  in  excess  of  the  amount  thereof. At December 31, 2000, there were no
investments,  loans,  extensions  of credit or advances from any of the Banks to
the  Corporation.

15  /  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

SFAS  No. 107 "Disclosures about Fair Values of Financial Instruments," requires
disclosure  of  the  estimated  fair value of an entity's assets and liabilities
considered  to  be  financial  instruments.  For  the  Corporation,  as for most
financial  institutions,  the  majority  of  its  assets  and  liabilities  are
considered  financial instruments as defined in SFAS No. 107. However, many such
instruments  lack  an  available  trading  market, as characterized by a willing
buyer  and  seller  engaging  in  an  exchange  transaction.  Also,  it  is  the
Corporation's  general  practice and intent to hold its financial instruments to
maturity  and  not  to engage in trading or sales activities, except for certain
loans  and  investments.  Therefore,  the  Corporation  had  to  use significant
estimates  and  present  value  calculations  to  prepare  this  disclosure.

Changes  in  the  assumptions  or methodologies used to estimate fair values may
materially  affect  the  estimated  amounts.  Also, management is concerned that
there  may  not be reasonable comparability between institutions due to the wide
range  of  permitted  assumptions  and  methodologies  in  the absence of active
markets.  This lack of uniformity gives rise to a high degree of subjectivity in
estimating  financial  instrument  fair  values.

Estimated  fair  values  have  been determined by the Corporation using the best
available  data  and  an  estimation  methodology  suitable for each category of
financial  instruments.  The  estimation  methodologies used, the estimated fair
values  and  recorded  book  balances at December 31, 2000 and 1999 are outlined
below.

For  cash  and  due  from  banks, interest-bearing deposits in banks and federal
funds  sold, the recorded book values of $55,525,000 and $63,491,000 at December
31,  2000  and  1999,  respectively, approximate fair values. The estimated fair
values of investment securities are based on quoted market prices, if available.
Estimated  fair  values  are  based  on  quoted  market  prices  of  comparable
instruments  if  quoted  market  prices  are  not  available.

The  loan  portfolio, net of unearned income, at December 31, 2000 and 1999, has
been  valued  using  a  present value discounted cash flow analysis where market
prices  were  not available. The discount rate used in these calculations is the
estimated  current  market  rate  adjusted  for  credit risk. The carrying value
approximates  its  fair  value.

                                   2000
                       ------------------------------
                          Carrying       Estimated
                           Amount        Fair Value
                       ------------------------------
Investment securities  $  601,460,000  $  602,220,000
Loans, net. . . . . .  $1,212,055,000  $1,207,034,000


                                   1999
                       ------------------------------
                          Carrying       Estimated
                           Amount        Fair Value
                       ------------------------------
Investment securities  $  530,895,000  $  530,444,000

Loans, net. . . . . .  $1,118,816,000  $1,121,214,000

The  estimated  fair  values  of  demand  deposits  (i.e.,  interest  and
noninterest-bearing checking accounts, savings and certain types of money market
accounts)  are,  by  definition,  equal  to  the amount payable on demand at the
reporting  date (i.e., their carrying amounts). The carrying amounts of variable
rate,  fixed-term  money market accounts and certificates of deposit approximate
their fair values at the reporting date. The carrying amount of accrued interest
receivable  and  payable  approximates  fair  value.


                         2000
               --------------------------
                 Carrying     Estimated
                  Amount      Fair Value
               --------------------------
Time deposits  $602,942,000  $604,664,000

                         1999
               --------------------------
                 Carrying     Estimated
                  Amount      Fair Value
               --------------------------
Time deposits  $542,837,000  $546,551,000


The  fair  values  of  demand  notes,  borrowings,  and  securities  sold  under
agreements  to  repurchase of $231,388,000 and $251,597,000 at December 31, 2000
and  1999,  respectively,  approximate  their  recorded  book  balances.

There  was  no material difference between the notional amount and the estimated
fair  value  of off-balance-sheet items which totaled approximately $212,382,000
and  $184,518,000  at  December  31,  2000 and 1999, respectively, and primarily
comprised  unfunded loan commitments which are generally priced at market at the
time  of  funding.


PAGE 20

16  /  CONDENSED  FINANCIAL  INFORMATION  -  PARENT  COMPANY  ONLY

Condensed  financial  statements  of  Harleysville  National Corporation follow:

<TABLE>
<CAPTION>
CONDENSED  BALANCE  SHEETS
(Dollars  in  thousands)                  December  31,
                                      ---------------------
                                         2000       1999
                                      ---------------------
<S>                                    <C>        <C>
Assets:
   Cash . . . . . . . . . . . . . . .  $    651   $     51
   Investments in subsidiaries. . . .   172,880    146,612
                                      ---------   ---------
      Total assets. . . . . . . . . .  $173,531   $146,663
                                      =========   =========

Liabilities and shareholders' equity:
   Other liabilities. . . . . . . . .  $     (5)  $      -
                                      ----------  ---------
      Total liabilities . . . . . . .  $     (5)  $      -
                                      ----------  ---------

Shareholders' equity:
   Common stock . . . . . . . . . . .  $  9,254   $  8,835
   Additional paid in capital . . . .    79,869     68,260
   Retained earnings. . . . . . . . .    83,244     80,376
   Treasury stock . . . . . . . . . .      (253)         -
   Net unrealized gain on investment
      securities available for sale .     1,422    (10,808)
                                      ---------   ---------
      Total shareholders' equity. . .   173,536    146,663
                                      ---------   ---------
      Total liabilities and
        shareholders' equity. . . . .  $173,531   $146,663
                                      =========   =========
</TABLE>

<TABLE>
<CAPTION>
CONDENSED  STATEMENTS  OF  INCOME
(Dollars  in  thousands)        Year Ended December 31,
                            -----------------------------
                               2000      1999      1998
                            -----------------------------
<S>                          <C>       <C>       <C>
Dividends from banks. . . .  $14,575   $21,650   $28,875
                            --------   -------   --------
   Total operating income .   14,575    21,650    28,875
                            --------   -------   --------

Operating expense . . . . .       14        19         8
                            --------   -------   --------

Income before income tax
   expense and equity in
   undistributed net income
   of banks . . . . . . . .   14,561    21,631    28,867

Income tax expense. . . . .       (5)       (7)       (3)
                            --------   -------   --------

Income before equity in
   undistributed net income
   of banks . . . . . . . .   14,566    21,638    28,870

Equity in undistributed
   net income of banks. . .   11,038     1,600    (8,112)
                            --------   -------   --------
   Net income . . . . . . .  $25,604   $23,238   $20,758
                            ========   =======   ========
</TABLE>

<TABLE>
<CAPTION>
CONDENSED  STATEMENTS  OF  CASH  FLOWS
(Dollars  in  thousands)             Year Ended December 31,
                                 -------------------------------
                                   2000       1999       1998
                                 -------------------------------
<S>                              <C>        <C>        <C>
Operating activities:
   Net income . . . . . . . . .  $ 25,604   $ 23,238   $ 20,758

   Adjustments to reconcile
     net income to net cash
     provided by operating
     activities:

     Equity in undistributed
       net income of banks . . .  (11,038)    (1,600)     8,112

     Net decrease in
       other liabilities. . . .        (5)      (446)        (3)
                                 ---------   --------   --------

Net cash provided by
   operating activities . . . .    14,561     21,192     28,867
                                 ---------   --------   --------

Investing activities:

   Capital contributions
     made to the banks. . . . .    (3,000)   (12,000)   (21,663)
                                 ---------   --------   --------

Net cash (used in) provided
   by investing activities. . .    (3,000)   (12,000)   (21,663)
                                 ---------   --------   --------

Financing activities:

   Cash dividends and
     fractional shares. . . . .   (10,430)    (9,375)    (8,062)

   Dividend reinvestment. . . .         -        (49)         -

   Repurchase of common stock .      (578)         -          -

   Stock options and awards . .        47         39        354
                                 ---------   --------   --------
Net cash used in
   financing activities . . . .   (10,961)    (9,385)    (7,708)
                                 ---------   --------   --------
Net increase (decrease) in cash       600       (193)      (504)

Cash and cash equivalents at
   beginning of year. . . . . .        51        244        748
                                 ---------   --------   --------
Cash and cash equivalents at
   end of year. . . . . . . . .  $    651   $     51   $    244
                                 =========   ========   ========
</TABLE>


PAGE 21

17  /  QUARTERLY  FINANCIAL  DATA  (UNAUDITED)

The  following  is  the  summarized (unaudited) consolidated quarterly financial
data  of  the  Corporation  which,  in  the  opinion of management, reflects all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation  of  the  Corporation's  results  of  operations:

<TABLE>
<CAPTION>
(Dollars  in  thousands,  except  per  share  information)
                                                              Three  Months  Ended
                                                    --------------------------------------
2000:                                                March 31  June 30  Sept. 30  Dec. 31
                                                    --------------------------------------
<S>                                                 <C>         <C>      <C>      <C>
   Interest income                                    $ 31,423  $32,343  $33,593  $34,452
   Net interest income                                  16,343   16,716   16,531   16,447
   Provision for losses                                    506      549      581      676
   Noninterest income                                    2,654    2,857    3,248    3,447
   Operating expenses                                   10,929   11,647   11,004   11,097
   Income before income
     tax expense                                         7,562    7,377    8,194    8,121
   Income tax expense                                    1,517    1,070    1,454    1,609
                                                      --------  -------  -------  -------
   Net income                                         $  6,045  $ 6,307  $ 6,740  $ 6,512
                                                      ========  =======  =======  =======
   Net income per share
     Basic                                            $   0.65  $  0.68  $  0.73  $  0.70
                                                      ========  =======  =======  =======
     Diluted                                          $   0.65  $  0.68  $  0.73  $  0.70
                                                      ========  =======  =======  =======

1999:

   Interest income                                    $ 26,491  $27,782  $29,418  $30,476
   Net interest income                                  15,098   15,961   16,358   16,101
   Provision for losses                                    490      490      489      684
   Noninterest income                                    2,452    2,653    2,493    2,937
   Operating expenses                                    9,813   10,002   10,290   11,871
   Income before income
     tax expense                                         7,247    8,122    8,072    6,483
   Income tax expense                                    1,697    2,024    1,782    1,183
                                                      --------  -------  -------  -------
   Net income                                         $  5,550  $ 6,098  $ 6,290  $ 5,300
                                                      ========  =======  =======  =======
   Net income per share
     Basic                                            $   0.60  $  0.66  $  0.68  $  0.57
                                                      ========  =======  =======  =======
     Diluted                                          $   0.60  $  0.65  $  0.68  $  0.57
                                                      ========  =======  =======  =======
</TABLE>


PAGE 22

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS
HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED  SUMMARY  OF  OPERATIONS
                                                                   Year  Ended  December  31,
(Dollars  in  thousands,  except  per  share          ----------------------------------------------------------
data and average shares outstanding)                     2000        1999        1998        1997        1996
                                                      ----------------------------------------------------------
<S>                                                   <C>         <C>         <C>         <C>         <C>
INCOME AND EXPENSE
Interest income. . . . . . . . . . . . . . . . . . .  $  131,811  $  114,167  $  102,005  $   94,114  $   86,776
Interest expense . . . . . . . . . . . . . . . . . .      65,774      50,649      44,372      39,989      36,658
                                                      ----------  ----------  ----------  ----------  ----------
Net interest income. . . . . . . . . . . . . . . . .      66,037      63,518      57,633      54,125      50,118
Provision for loan losses. . . . . . . . . . . . . .       2,312       2,153       2,288       2,652       2,279
                                                      ----------  ----------  ----------  ----------  ----------
Net interest income after provision for loan losses.      63,725      61,365      55,345      51,473      47,839
Noninterest income . . . . . . . . . . . . . . . . .      12,206      10,535      10,520       7,961       5,666
Noninterest expense. . . . . . . . . . . . . . . . .      44,677      41,976      38,446      33,522      30,650
                                                      ----------  ----------  ----------  ----------  ----------
Income before income tax expense . . . . . . . . . .      31,254      29,924      27,419      25,912      22,855
Income tax expense . . . . . . . . . . . . . . . . .       5,650       6,686       6,661       6,883       6,306
                                                      ----------  ----------  ----------  ----------  ----------
Net income . . . . . . . . . . . . . . . . . . . . .  $   25,604  $   23,238  $   20,758  $   19,029  $   16,549
                                                      ==========  ==========  ==========  ==========  ==========
----------------------------------------------------------------------------------------------------------------
PER SHARE*
Basic. . . . . . . . . . . . . . . . . . . . . . . .  $     2.76  $     2.51  $     2.24  $     2.06  $     1.79
Diluted. . . . . . . . . . . . . . . . . . . . . . .        2.76        2.50        2.24        2.06        1.79
Cash dividends paid. . . . . . . . . . . . . . . . .        1.13        1.02        0.90        0.82        0.72
Basic average shares outstanding . . . . . . . . . .   9,268,681   9,273,397   9,262,819   9,238,609   9,226,960
Diluted average shares outstanding . . . . . . . . .   9,279,273   9,285,241   9,278,194   9,245,704   9,250,827
*Adjusted for 5% stock dividends effective 11/9/00,
9/30/99, 6/30/97 and 6/28/96.

----------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans. . . . . . . . . . . . . . . . . . . . . . . .  $1,166,684  $1,031,055  $  894,758  $  815,891  $  754,029
Investments. . . . . . . . . . . . . . . . . . . . .     562,508     515,006     427,850     357,749     328,994
Other interest-earning assets. . . . . . . . . . . .       9,876      20,133      31,698      34,477      25,137
Total assets . . . . . . . . . . . . . . . . . . . .   1,843,525   1,639,041   1,413,772   1,271,153   1,165,446
Deposits . . . . . . . . . . . . . . . . . . . . . .   1,436,781   1,267,936   1,144,822   1,045,309     980,733
Other interest-bearing liabilities . . . . . . . . .     218,811     194,887      99,416      71,568      46,814
Shareholders' equity . . . . . . . . . . . . . . . .     154,547     148,636     142,959     129,758     116,191

----------------------------------------------------------------------------------------------------------------
BALANCE SHEET AT YEAR-END
Loans. . . . . . . . . . . . . . . . . . . . . . . .  $1,212,055  $1,118,816  $  956,867  $  852,386  $  788,234
Investments. . . . . . . . . . . . . . . . . . . . .     601,460     530,895     491,942     372,760     345,612
Other interest-earning assets. . . . . . . . . . . .       3,507      13,837      23,886      21,463      19,627
Total assets . . . . . . . . . . . . . . . . . . . .   1,935,213   1,767,667   1,541,449   1,313,443   1,217,972
Deposits . . . . . . . . . . . . . . . . . . . . . .   1,489,050   1,341,437   1,211,326   1,087,253   1,012,720
Other interest-bearing liabilities . . . . . . . . .     231,388     251,597     151,628      64,400      59,521
Shareholders' equity . . . . . . . . . . . . . . . .     173,536     146,663     149,572     136,715     122,821
----------------------------------------------------------------------------------------------------------------
</TABLE>


PAGE 23

BALANCE SHEET ANALYSIS

The  table below presents the major asset and liability categories on an average
daily  basis  for the periods presented, along with interest income and expense,
and  key  rates  and  yields.

Distribution Of Assets, Liabilities And Shareholders' Equity, Interest Rates And
Interest  Differential

<TABLE>
<CAPTION>
                                                              Year  Ended  December  31,
                                  ------------------------------------------------------------------------------------------------
                                               2000                             1999                            1998
                                  ------------------------------------------------------------------------------------------------
                                   Average   Average                Average   Average               Average    Average
(Dollars in thousands)             Balance     Rate    Interest     Balance     Rate    Interest    Balance      Rate   Interest
                                  ------------------------------------------------------------------------------------------------
<S>                               <C>        <C>       <C>        <C>         <C>      <C>         <C>         <C>      <C>
Assets
Investment securities:
  Taxable investments. . . . . .  $  348,560    6.94%  $  24,205  $  305,163     6.39% $  19,485   $  261,612     6.26%  $  16,381
  Nontaxable investments (1) . .     213,948    7.46      15,962     209,843     7.44     15,613      166,238     7.60      12,642
                                  ---------- --------- ---------- ----------- -------- ----------- ---------- --------- ----------
    Total investment securities.     562,508    7.14      40,167     515,006     6.82     35,098      427,850     6.78      29,023
Loans (1) (2). . . . . . . . . .   1,166,684    8.31      96,896   1,031,055     8.14     83,938      894,758     8.49      75,932
Other rate-sensitive assets. . .       9,876    5.99         592      20,133     3.98        802       31,698     5.24       1,660
                                  ---------- --------- ---------- ----------- -------- ----------- ---------- --------- ----------
    Total earning assets . . . .   1,739,068    7.92     137,655   1,566,194     7.65    119,838    1,354,306     7.87     106,615
Noninterest-earning assets . . .     104,457       -           -      72,847        -          -       59,466        -           -
                                  ---------- --------- ---------- ----------- -------- ----------- ---------- --------- ----------
    Total assets . . . . . . . .  $1,843,525    7.47%  $ 137,655  $1,639,041     7.31% $ 119,838   $1,413,772     7.54%  $ 106,615
                                  ========== ========= ========== =========== ======== =========== ========== ========= ==========

Liabilities And Shareholders' Equity
Deposits:
  Demand . . . . . . . . . . . .  $  204,778      - %  $       -  $  192,659       - % $       -   $  168,462       - % $        -
  Savings. . . . . . . . . . . .     625,928    2.93      18,337     567,316     2.52     14,272      508,245     2.72      13,837
  Time . . . . . . . . . . . . .     606,075    5.73      34,747     507,961     5.26     26,712      468,115     5.50      25,735
                                  ---------- --------- ---------- ----------- -------- ----------- ---------- --------- ----------
    Total. . . . . . . . . . . .   1,436,781    3.69      53,084   1,267,936      3.23     40,984    1,144,822     3.46     39,572

Borrowings and other
  interest-bearing liabilities .     218,811    5.80      12,690     194,887     4.96      9,665       99,416     4.83       4,800
Other liabilities. . . . . . . .      33,386       -           -      27,582        -          -       26,875        -      44,372
                                  ---------- --------- ---------- ----------- -------- ----------- ---------- --------- ----------

    Total liabilities. . . . . .   1,688,978    3.89      65,774   1,490,405     3.40     50,649    1,271,113     3.49           -
Shareholders' equity . . . . . .     154,547       -           -     148,636        -          -      142,659        -           -
                                  ---------- --------- ---------- ----------- -------- ----------- ---------- --------- ----------
    Total liabilities and
      shareholders' equity . . .  $1,843,525    3.57%  $  65,774  $1,639,041     3.09% $  50,649   $1,413,772     3.14% $   44,372
                                  ========== ========= ========== =========== ======== =========== ========== ========= ==========
Average effective rate on
  interest-bearing liabilities .  $1,450,814    4.53%  $  65,774  $1,270,164     3.99% $  50,649   $1,075,776     4.12% $   44,372
                                  ========== ========= ========== =========== ======== =========== ========== ========= ==========

==================================================================================================================================

Interest Income/Earning Assets .  $1,739,068    7.92%  $ 137,655  $1,566,194     7.65% $ 119,838   $1,354,306     7.87% $  106,615
Interest Expense/Earning Assets.  $1,739,068    3.78   $  65,774  $1,566,194     3.23  $  50,649   $1,354,306     3.28  $   44,372
                                             ---------                         -------                         --------
Effective Interest Differential                l4.14%                            4.42%                            4.59%
                                             =========                         =======                         ========

<FN>
(1)  The  interest  earned  on  nontaxable  investment  securities  and  loans  is  shown  on  a  tax-equivalent  basis.

(2) 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.
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


PAGE 24

The following is management's discussion and analysis of the significant changes
in  the  results of operations, capital resources and liquidity presented in its
accompanying  consolidated  financial  statements for the corporation, the Banks
and  HNC  Financial  Company. The Corporation's consolidated financial condition
and  results  of  operations  consist  almost  entirely  of the Banks' financial
condition  and  results  of operations.  Current performance does not guarantee,
and  may  not  be  indicative  of  similar  performance  in  the  future.

In  addition  to  historical information, this document contains forward-looking
statements.  We  have  made forward-looking statements in this document that are
subject  to  risks  and  uncertainties.  Forward-looking  statements include the
information  concerning  possible  or  assumed  future  results of operations of
Harleysville  National  Corporation and its subsidiaries. When we use words such
as  "believes,"  "expects," "anticipates," or similar expressions, we are making
forward-looking  statements.

Shareholders  should  note  that  many  factors,  some  of  which  are discussed
elsewhere  in  this  document  and  in  the  documents  that  we  incorporate by
reference,  could  affect  the future financial results of Harleysville National
Corporation  and  its  subsidiaries  and  could  cause  those  results to differ
materially  from  those expressed in our forward-looking statements contained or
incorporated by reference in this document. These factors include the following:

     -    operating,  legal  and  regulatory  risks;

     -    economic,  political  and  competitive  forces  affecting our banking,
          securities,  asset  management  and  credit  services  businesses; and

     -    the  risk  that  our  analysis  of  these  risks  and  forces could be
          incorrect  and/or  that the strategies developed to address them could
          be  unsuccessful.

Introduction

The  Corporation  continued  its  strong  earnings  performance during 2000. Net
income increased 10.2% and total assets grew 9.5%. This performance was achieved
through  an increase in earning assets, growth in other income and the continued
strength  in  loan  quality.  This performance was also achieved during a period
when  the  Corporation successfully completed the acquisition of Citizens Bank &
Trust  Company,  a community bank with $130 million in assets.

The Corporation's net  income  of $25,604,000 in 2000, increased 10.2% compared
to the $23,238,000 reported  in  1999. Diluted earnings of $2.76 in 2000
increased 10.4% from $2.50 in  1999. Basic earnings per share in 2000 were
$2.76 compared to $2.51 in 1999.

The  primary  sources of this increase in net income were the growth in both net
interest  income  and  other  income, and lower tax expense. Net interest income
grew  $2,519,000,  as a result of an 11.0% rise in average earning assets. Other
operating  income  rose  $1,671,000,  due  primarily  to  higher  trust fees and
bank-owned life insurance income. Offsetting these increases was a rise in other
operating  expenses,  primarily related to the overall growth in the Corporation
and  acquisition  related  expenses.

A key focus of the Banks is preserving the quality of their loan portfolios. Key
loan  quality  performance ratios at December 31, 2000, improved from the strong
ratios recorded at December 31, 1999. The ratio of the allowance for loan losses
to nonperforming assets of 268.3% at December 31, 2000, improved from the 266.3%
at  December  31, 1999. Loans 90 days past due at December 31, 2000, of $514,000
decreased  from  the  $565,000  at  December  31,  1999.

Interest-Earning  Assets  and  Interest-Bearing  Liabilities

The  level  of  average  interest-earning  assets was $1,739,068,000 in 2000, an
increase  of  $172,874,000,  or  11.0%,  compared to $1,566,194,000 in 1999. The
increase  was  the  result  of growth in loans and investments. During 2000, the
average  balance  of  the  loan  portfolio  increased $135,629,000, or 13.2% and
investments  grew  $47,502,000,  or  9.2%.  Average interest-earning assets were
$1,354,306  in  1998.

Average interest-bearing liabilities totaled $1,450,814,000 in 2000, an increase
of  $180,650,000,  or  14.2%,  compared  to 1999. Contributing to this rise were
increases  in  time  deposits,  savings  deposits  and  other  borrowings  of
$98,114,000,  $58,612,000,  and  $23,924,000,  respectively.  Average
interest-bearing  liabilities  were  $1,075,776,000  in  1998.

Investment  Securities

Statement  of  Financial  Accounting  (SFAS)  Standards No. 115, "Accounting for
Certain  Investments  in  Debt  and  Equity  Securities,"  requires, among other
things,  that  debt  and  equity  securities classified as available for sale be
reported  at fair value, with unrealized gains and losses excluded from earnings
and  reported  in other comprehensive income. The net effect of unrealized gains
or  losses,  caused by marking an available for sale portfolio to market, causes
fluctuations  in  the level of shareholders' equity and equity-related financial
ratios as market interest rates cause the fair value of fixed-rate securities to
fluctuate.

The  investment  securities  total  at  December  31, 2000, of $601,460,000 grew
$70,565,000,  or 13.3%, over the December 31, 1999, balance of $530,895,000. The
investment  securities  available  for  sale  increased  $65,269,000  and  the
investment  securities  held  to  maturity increased $5,296,000 during 2000. The
increase  in  the investments available for sale was funded by proceeds from the
maturities  and  calls  in  the investment securities portfolios and through the
increase  in  deposits  during  2000.

Loans

The  Banks  continued  to  experience growth in all loan categories during 2000.
Total  loans grew $91,361,000 or 8.2%, from $1,118,244,000 at December 31, 1999,
to  $1,209,605,000  at  December  31,  2000.  During 2000, consumer loans, lease
financing, commercial loans and real estate loans grew $55,159,000, $21,179,000,
$13,369,000 and $1,654,000, respectively. The majority of the growth in consumer
loans  was  related  to the growth in financing indirect automobile dealer loans
during 2000. The Corporation has maintained strong relationships with automobile
dealers  to  insure  that  we offer them the services and products to meet their
financing needs. Residential mortgages sold during 2000 were $7,690,000 compared
to  $38,215,000  in  1999.

The  Banks have no concentration of loans to individual borrowers which exceeded
10%  of  total loans at December 31, 2000 and 1999. As of December 31, 2000, the
Banks  have  a  concentration  of  indirect  consumer loans (12% of total loans)
included  in  the  consumer loans classification. The Banks actively monitor the
risk of this loan concentration. The Banks have no foreign loans, and the impact
of nonaccrual, restructured troubled debt and delinquent loans on total interest
income  was  not  material.

A  loan  is  generally  classified  as nonaccrual when principal or interest has
consistently  been  in  default  for a period of 90 days or more or because of a
deterioration  in  the financial condition of the borrower or payment in full of
principal or interest is not expected. Delinquent loans past due 90 days or more
and  still  accruing  interest  are  loans  that  are generally well-secured and
expected  to  be  restored  to  a  current  status  in  the  near  future.


PAGE 25

The  Banks  continued  to  maintain  a  high quality loan portfolio during 2000.
Nonperforming  assets (nonaccruing loans, net assets in foreclosure and troubled
debt  restructured  loans)  were 0.47% of total loans and net assets acquired in
foreclosure  at  December  31, 2000, compared to 0.50% at December 31, 1999, and
0.57%  at  December 31, 1998. The ratio of the allowance to nonperforming assets
was  268.3%  at  December  31, 2000, compared to 266.3% at December 31, 1999 and
261.2%  at  December  31,  1998.

The  balance  of nonaccruing loans of $5,370,000 at December 31, 2000, increased
$1,680,000  from  the  December  31, 1999, balance of $3,690,000. A rise in both
nonaccruing  commercial  loans  and  indirect consumer loans was responsible for
this  increase.  The  December 31, 1999, balance of nonaccrual loans was $51,000
less  than  the  December  31,  1998,  balance  of  $3,741,000.

Net  assets  in foreclosure totaled $288,000 as of December 31, 2000, a decrease
of  $1,148,000  from  the  December  31,  1999,  balance.  During 2000, sales of
foreclosed  properties  totaled  $2,495,000,  transfers  from loans to assets in
foreclosure  were  $1,433,000  and  write-downs of assets in foreclosure equaled
$86,000.  Efforts  to liquidate assets acquired in foreclosure are proceeding as
quickly  as  potential  buyers  can  be  located  and  legal constraints permit.
Generally accepted accounting principles require foreclosed assets to be carried
at the lower of cost (lesser of carrying value of asset or fair value at date of
acquisition)  or  estimated  fair  value,  less  selling  costs.

The  Banks  aggressively  manage loan collection efforts. During 2000, the Banks
reduced loans past due 90 days or more. Loans past due 90 days or more and still
accruing  interest  are  loans  that  are  generally well secured and are in the
process  of  collection. As of December 31, 2000, loans past due 90 days or more
and  still  accruing interest were $514,000, compared to $565,000 as of December
31,  1999.  This  decrease  was  a result of a reduction in commercial loans and
consumer  loans  past  due  90  days  at  December 31,  2000.

As of December 31, 2000, there was one  commercial borrower with a troubled debt
restructured  loan  totaling  $11,000.  This  customer  was  complying  with the
restructured  terms  as  of  December  31,  2000.

The  Banks' policy is to maintain allowances for loan losses at a level believed
by  management  to  be  adequate  to  absorb  potential  losses.  Management's
determination  of the adequacy of the allowance is determined monthly based on a
continuing  evaluation  of  the  portfolio,  past  loss  experience, current and
anticipated  economic conditions and other factors deemed relevant. Additions to
the  allowances  are  charged  to operations. The allowance for loan losses grew
2.2% from $14,887,000 at December 31, 1999, to $15,210,000 at December 31, 2000.
The  allowance  for loan losses to nonperforming assets at December 31, 2000, of
268.3%  increased  from  the 266.3% at December 31, 1999.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                Year  Ended  December  31,
                                         -------------------------------------
                                            2000         1999         1998
                                         -------------------------------------
<S>                                      <C>          <C>          <C>
Nonperforming assets. . . . . . . . . .  $5,670,000   $5,591,000   $5,455,000

Allowance for loan losses to
    nonperforming assets. . . . . . . .       268.3%       266.3%       261.2%

Nonperforming assets to total loans and
    net assets acquired in foreclosure.        0.47%        0.50%        0.57%

Allowance for loan losses
    to total loans. . . . . . . . . . .        1.25%        1.33%        1.49%
--------------------------------------------------------------------------------
</TABLE>

Deposits and Borrowings and  Other  Interest-Bearing  Liabilities

The  primary  funding  sources  of  the  Corporation  are  deposits  and  other
borrowings.  Total  deposits  of  $1,489,050,000 at December 31, 2000, increased
$147,613,000,  or  11.0%,  from the $1,341,437,000 balance at December 31, 1999.
This  increase was primarily due to the growth in money market accounts and time
deposits  during this period. Money market deposits grew $74,607,000 during this
period  as  a result of the successful introduction of new money market products
during  2000.  Time  deposits  under  $100,000  increased  $22,216,000  and time
deposits  greater  than  $100,000  grew $37,889,000. The growth in time deposits
over  $100,000  provided  the banks with a lower cost funding alternative during
2000,  compared  to  the  higher  level  of  other  borrowings  during  1999.
Noninterest-bearing  deposits  grew  $13,062,000,  interest-bearing  checking
accounts  rose  $1,617,000 and savings accounts decreased $1,778,000 at December
31,  2000,  compared  to  December  31,  1999.

Other borrowings experienced a decrease of $20,209,000 during 2000. Decreases in
securities  sold  under  agreements  to  repurchase  and  Federal Home Loan Bank
borrowings  of  $34,532,000 and $19,500,000, respectively, were partially offset
by  an  increase  in  federal  funds  purchased  of $35,000,000. The decrease in
securities  sold  under  agreements  to repurchase was primarily the result of a
business  customer  withdrawing  funds  to be used for general business purposes
throughout  2000.  U.S.  treasury  demand notes decreased $1,177,000 during this
period.  Borrowings and other interest-bearing liabilities include federal funds
purchased,  FHLB  borrowings, securities sold under agreements to repurchase and
U.S.  Treasury  notes.

INCOME  STATEMENT  ANALYSIS

Results  of  Operations

The  2000 net income of $25,604,000 increased $2,366,000, or 10.2% from the 1999
net  income of $23,238,000. On a per share basis, diluted earnings were $2.76 in
2000 and $2.50 in 1999.  Basic earnings per share were $2.76 in 2000 compared to
$2.51  in  1999. Net income increased in 1999 by $2,480,000, or 11.9% over 1998.

The  return  on  average  shareholders'  equity was 16.57% for 2000, compared to
15.63%  for  1999 and 14.52% in 1998. The 2000 return on average assets of 1.39%
decreased from the 1999 return on average asset rate of 1.42% as a result of the
asset  growth  experienced  during  2000.  The 1998 return on average assets was
1.47%.

Net  income is affected by five major elements: (1) net interest income, or
the  difference  between interest income earned on loans and investments and
interest expense paid on deposits and borrowed funds; (2) the provision for loan
losses, or the amount added to the allowance for loan losses to provide reserves
for  future  losses  on  loans;  (3)  other  operating  income, which is made up
primarily  of  certain service fees and Investment Management and Trust Services
income;  (4)  other  operating expenses, which consist primarily of salaries and
other  operating expenses; and (5) income taxes. Each of these major elements is
reviewed  in  more  detail  in  the  following  discussion.

PAGE 26

Net  Interest  Income

The  2000 net interest income of $66,037,000 increased $2,519,000, or 4.0%, from
1999 levels. Net interest income was $63,518,000 in 1999, which was 10.2% higher
than  the  $57,633,000  reported  in  1998.  The smaller rise experienced in net
interest income during 2000, was the result of both the Banks increased level of
bank  owned  life  insurance  and  higher  funding  costs.

Interest  income  at  December  31,  2000,  of $131,811,000 grew $17,644,000, or
15.5%,  from  the  $114,167,000  balance  at  December 31, 1999. The increase in
interest income is the result of the growth in both average loans and investment
securities  during  this  period.  This  growth in interest income was partially
offset  by  the  $15,125,000, or 29.9%, increase in interest expense at December
31,2000,  compared  to  December 31, 1999. The higher rate of growth in interest
expense,  compared  to  the growth in interest income, is the result of both the
funding of the bank-owned life insurance (BOLI) with deposits, and the high cost
of  attracting  new  deposits.  The  Banks' investment in BOLI increased from an
average  of $9,394,000 in 1999 to $25,295,000 in 2000. While the cost of funding
BOLI is recorded as interest expense, BOLI income is recorded as other operating
income.

Net  Interest  Margin

The  net  interest  margin  for  2000  of  4.14% was lower than the net interest
margins  for  1999  and  1998  of  4.42%  and 4.59%, respectively. The lower net
interest  margin  experienced  in 2000 is related to the funding of the BOLI and
the  high  cost  of  attracting  new  funding sources. The impact of funding the
additional  BOLI  purchased  during  2000  reduced the net interest margin by 34
basis  points.  The  tax-equivalent  yield  on  total  interest-earning  assets
increased  27 basis points from 7.65% in 1999 to 7.92% in 2000. This increase is
primarily  due  to  the impact of the rise in interest rates during this period.
The tax-equivalent yield on total interest-earning assets in 1998 was 7.87%. The
2000  average  interest  rate  paid  on  interest-bearing  deposits  and  other
borrowings  of 4.53% was higher than the 1999 rate of 3.99%. The Banks' 54 basis
point  rise  in  the  cost of interest-bearing liabilities outpaced the 27 basis
point  rise  in  the  tax-equivalent yield on total interest earning assets. The
1998  cost  of  interest-bearing  liabilities  was  4.12%.

Interest  Rate  Sensitivity  Analysis

The  Corporation  actively  manages its interest rate sensitivity positions. The
objectives  of  interest  rate  risk  management  are to control exposure of net
interest  income to risks associated with interest rate movements and to achieve
consistent  growth  in net interest income. The Asset/Liability Committee, using
policies  and  procedures  approved  by  the  Banks'  Boards  of  Directors,  is
responsible  for  managing  the  rate  sensitivity  position.  The  Banks manage
interest rate sensitivity by changing mix and repricing characteristics of their
assets  and  liabilities  through  their  investment  securities  portfolios,
borrowings  from  the  FHLB  and  their  offering of loan and deposit terms. The
nature  of  the  Banks'  current  operations  is  such that it is not subject to
foreign  currency exchange or commodity price risk. The Banks do not own trading
assets  and  they do not have any hedging transactions in place such as interest
rate  swaps,  caps  or  floors.

The  Banks  utilize  three  principal  reports  to  measure  interest rate risk:
asset/liability  simulation  reports;  gap  analysis  reports;  and net interest
margin reports. The table below shows the interest rate sensitivity gap position
as  of  December 31, 2000. The table presents data at a single point in time and
includes  management assumptions estimating the prepayment rate and the interest
rate environment prevailing at December 31, 2000. Money market, interest-bearing
checking,  and  savings  accounts  are  considered  stable sources of funds, and
although  the  rates are subject to change, rates on these accounts historically
have  not  changed  as quickly or as often as the other deposits included in the
following analysis. On a cumulative basis over the next 12 months, the Banks are
in  a  positive  gap  position  of 4.25% of earning assets at December 31, 2000.

<TABLE>
<CAPTION>
                         Interest Rate Sensitivity Gap Position as of December 31, 2000
                                       ---------------------------------------------
(Dollars in thousands)               0 to 90    91 to 365    Over 1 year       Over 5
                                      days        days       Under 5 years     years
                                       -------------------------------------------
<S>                                 <C>        <C>          <C>                <C>
Assets
Other rate-sensitive assets. . . .  $  3,507   $        -   $       -          $      -
Loans. . . . . . . . . . . . . . .   320,796      282,794     581,229            27,236
Investment securities. . . . . . .    16,607       61,609     210,514           310,542
                                    ---------  -----------  ----------        ---------
Total rate-sensitive assets. . . .   340,910      344,403     791,743           337,778
                                    ---------  -----------  ----------        ---------

Liabilities
Time deposits. . . . . . . . . . .   146,510      230,348     226,044         40
Money market savings funds . . . .    10,009       30,026     160,139    133,448
Interest-bearing checking accounts     4,914       14,743      78,627     65,523
Savings accounts . . . . . . . . .     4,837       14,511      77,392     64,493
Other borrowings . . . . . . . . .   150,637            -      80,751          -
                                    ---------  -----------  ----------  ---------
Total rate-sensitive liabilities .  $316,907   $  289,628   $ 622,953   $263,504
                                    ---------  -----------  ----------  ---------
Incremental gap. . . . . . . . . .  $ 24,003   $   54,775   $ 168,790   $ 74,274
                                    =========  ===========  ==========  =========
Cumulative gap . . . . . . . . . .  $ 24,003   $   78,778   $ 247,568   $321,842
                                    =========  ===========  ==========  =========
% of earning assets. . . . . . . .      1.30%        4.25%      13.37%     17.38%
                                    =========  ===========  ==========  =========
</TABLE>


PAGE 27

<TABLE>
<CAPTION>
                                                             Asset/Liability
                                   Change in                      Policy
                   Market Value  Market Value   Percentage       Approved
                    of Equity      of Equity      Change      Percent Change
                   -----------------------------------------------------------
<S>                <C>           <C>            <C>          <C>
+200 Basis Points       262,627       (27,189)       -9.38%           +/- 30%
+100 Basis Points       281,252        (8,564)       -2.95%           +/- 30%
Flat Rate . . . .       289,816             -         0.00%           +/- 30%
-100 Basis Points       279,467       (10,349)       -3.57%           +/- 30%
-200 Basis Points       260,897       (28,919)       -9.98%           +/- 30%
</TABLE>

--------------------------------------------------------------------------------

Management  also  simulates  possible  economic  conditions  and  interest  rate
scenarios  in  order  to  quantify the impact on net interest income. The effect
that changing interest rates have on the Banks' net interest income is simulated
by  increasing  and  decreasing interest rates. This simulation is known as rate
shocking.  The  report  above  forecasts  changes  in the Banks' market value of
equity  under alternative interest rate environments. The market value of equity
is  defined  as  the  net  present  value  of  the  Banks'  existing  assets and
liabilities.  The  results of the December 31, 2000, rate shock simulations show
that  the  Banks  are  within  all  guidelines set by the Banks' Asset/Liability
policy.

In  the event the Banks should experience a mismatch in their desired GAP ranges
or  an  excessive decline in their market value of equity resulting from changes
in  interest  rates,  they  have a number of options which they could utilize to
remedy  such  a mismatch. The Banks could restructure their investment portfolio
through  the  sale  or  purchase  of  securities  with  more favorable repricing
attributes.  They could also emphasize loan products with appropriate maturities
or  repricing  attributes, or attract deposits or obtain borrowings with desired
maturities.

Provision  for  Loan  Losses

The  provision for loan losses is based on management's analysis of the adequacy
of  the  allowance for loan losses. In its evaluation, management considers past
loan experience, overall characteristics of the loan portfolio, current economic
conditions and other relevant factors. Based on the latest monthly evaluation of
potential  loan  losses,  the allowance is adequate to absorb known and inherent
losses  in the loan portfolio. Ultimately however, the adequacy of the allowance
is  largely  dependent  upon  the  economy,  a  factor  beyond the Corporation's
control.  With  this  in mind, additions to the allowance for loan losses may be
required  in  future  periods,  especially  if economic trends worsen or certain
borrowers'  abilities  to  repay  decline.

The  2000  provision  of $2,312,000, reflected an increase of $159,000, or 7.4%,
compared  to  the  1999  provision  of $2,153,000. The increase in the provision
during  2000  is  based  on  management's  analysis  of the adequacy of the loan
portfolio.  The  allowance  for  loan  losses  to nonperforming assets ratio for
December  31, 2000, 1999 and 1998 were 268.3%, 266.3%, and 261.2%, respectively.
Total loans charged off increased 47.5% from $1,799,000 in 1999 to $2,653,000 in
2000. The increase in the loans charged off was primarily due to consumer loans.
Recoveries  of  $664,000  during  2000  increased  from  the  1999 recoveries of
$288,000.  The  increase  in  recoveries  is related to consumer and real estate
loans.  The  charged  off  loans  and  recoveries  for  1998 were $1,451,000 and
$301,000,  respectively.

Other  Income

The 2000 other operating income of $12,206,000 increased $1,671,000, compared to
the  1999  level  of  $10,535,000. Contributing to this rise in operating income
were increases in service charges, trust income, BOLI income and other income of
$61,000, $334,000, $1,418,000 and $301,000 respectively. These gains were offset
by  a decrease in security gains of $443,000 in 2000, compared to 1999. The 2000
other  operating  income  net  of security gains increased $2,114,000, or 21.1%,
over  the  1999  other  operating  income  net  of  security  gains.

Income  from service charges on deposit accounts of $3,832,000 in 2000 increased
$61,000,  or 1.6%, from the 1999 income from service charges on deposit accounts
of  $3,771,000. The increase in service charges during 2000 is attributed to the
9.3%  rise  in  average fee earning deposits, partially offset by a reduction in
fees  related  to  merger related promotions. The 1999 service charges grew 6.8%
over  1998  service  charges.

The  $52,000  net  security  gain  in  2000 was lower than the 1999 and 1998 net
security  gains  of  $495,000  and  $1,621,000,  respectively.  Security  gains
resulting  from the sale of securities at HNC Financial Company during 2000 were
partially  offset  by  a  net  loss  on the sale of securities at the Banks. The
majority  of  the  security  gain  in  1998 was the result of the sale of equity
securities held at HNC Financial Company. HNC Financial Company did not sell any
securities  during  1999.  From  time to time, the Corporation  sells investment
securities  available  for  sale  to fund the purchase of other securities in an
effort  to  enhance  the  overall  return  on  the  portfolio.

Fees  from  the  Corporation's  Investment  Management  and  Trust  Division  of
$2,977,000  increased $334,000, or 12.6%, compared to the $2,643,000 recorded in
1999.  This  increase was primarily the result of a 16.4% increase in the market
value  of  trust  assets  from  December 31, 1999 to December 31, 2000. The 1998
Investment  Management  and  Trust  Division  income  was  $2,156,000.

During 1999, the Corporation entered into a $25,000,000 investment of bank owned
life  insurance  (BOLI).  The Corporation entered into an additional $10,000,000
investment  of  BOLI  during  the  2000.  BOLI  involves  the purchasing of life
insurance  by the Corporation on a chosen group of employees. The Corporation is
the  owner  and  beneficiary of the policies. This pool of insurance, due to tax
advantages to the Banks, is profitable to the Corporation. This profitability is
used  to  offset  a portion of future benefit cost increases. Bank deposits fund
BOLI  and the earnings from BOLI are recognized as other income. The Corporation
recognized  $1,944,000  of  BOLI  income  2000  and  $526,000  in  1999.

Other  income  increased  $301,000  during  2000,  from  $3,100,000  in  1999 to
$3,401,000 in 2000. Contributing to this increase were increases related to loan
servicing  fees,  loan insurance fees, and ATM/Debit card fees.  These increases
were  partially  offset  by  a  decrease  in  gains  on  the sale of residential
mortgages,  resulting from a decrease in new mortgage volumes experienced during
2000.  Other  income  in  1998  was  $3,213,000.


PAGE 28

Other  Expenses

The  Corporation's  total December 31, 2000, overhead expense as a percentage of
average  assets  of  2.52%  was  well below its peer banks' ratio of 2.95% as of
September 30, 2000. Other operating expenses rose to $44,677,000 in 2000, a 6.4%
increase  over the $41,976,000 recorded in 1999. This increase improved from the
9.2%  increase  in  other  operating  expenses  experienced  from  1998 to 1999.
Employee  salaries  and benefits increased $1,474,000, or 6.6%, from $22,271,000
in  1999  to $23,745,000 in 2000. The increase in salaries and benefits reflects
cost-of-living  increases,  merit increases and additional staff necessitated by
current  and  planned  growth.  The 1999 salaries and benefits expense increased
8.4%  over  the  1998  salary  and  benefits  expense  of  $20,551,000.

Net  occupancy  costs  increased  by $243,000, or 9.1%, in 2000, compared with a
$111,000,  or  4.3%,  increase in 1999. Contributing to the increase in 2000 was
the  opening  of  new  branches and an off-lease vehicle sales center. Equipment
expenses increased by $360,000, or 7.5%, during 2000, and $917,000, or 23.8%, in
1999.  These increases are due to equipment depreciation, rental and maintenance
associated with planned increases in data processing capabilities used to manage
the  rise  in volume related to the growth of the Corporation and to enhance the
products  offered  to  its  customers.

Other  expenses  grew $624,000, or 5.1%, from $12,247,000 in 1999 to $12,871,000
in  2000. The 1999 other expenses increased 6.8%, compared to 1998. The increase
in  2000  is  the  result  of expenses associated with the overall growth of the
Banks,  and  the  acquisition  of  Citizens  Bank  and  Trust  Company.

Income  Taxes

The  Corporation  accounts for income taxes under the liability method specified
by SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be  recovered  or settled. Under SFAS No. 109, the effect on deferred taxes of a
change  in  tax  rates  is  recognized in income in the period that includes the
enactment date. The principal types of accounts resulting in differences between
assets  and  liabilities for financial statement and tax return purposes are the
allowance  for  loan losses, leased assets, deferred loan fees and compensation.

The  effective income tax rates of 18.01% for 2000, 22.3% for 1999 and 24.3% for
1998 were less than the applicable federal income tax rate of 35.0%, as a result
of  tax-exempt  income.

--------------------------------------------------------------------------------

CAPITAL

Capital,  at  the  end of 2000, was $173,536,000, an increase of $26,873,000, or
18.3%,  over  the  end  of  1999.  The  increase was due to the retention of the
Corporation's  earnings,  and  to  the  adjustment  for the net unrealized gains
related  to  the  available for sale investment securities. Net unrealized gains
and  losses  on  available  for  sale  investment  securities  are  recorded  as
accumulated  other  comprehensive  income  (loss)  in  the equity section of the
balance  sheet. The accumulated other comprehensive income at December 31, 2000,
was  a  gain  of  $1,422,000,  compared to a loss of $10,808,000 at December 31,
1999.  Management  believes  that the Corporation's current capital position and
liquidity  position  are  strong  and  that  its capital position is adequate to
support  its operations. Except as previously discussed, management is not aware
of  any  recommendation  by  any  regulatory  authority, which, if it were to be
implemented,  would  have  a  material  effect  on  the  Corporation's  capital.

The  Corporation's  capital  ratios  exceed  regulatory  requirements.  Existing
minimum  regulatory  capital ratio requirements are 5.0% for primary capital and
6.0%  for  total capital. The primary capital ratio was 9.63% December 31, 2000,
compared  with  9.66% at December 31, 1999. Since the Corporation's only capital
is primary capital, the total capital ratios are the same as the primary capital
ratios.

Pursuant  to the federal regulators' risk-based capital adequacy guidelines, the
components of capital are called Tier 1 and Tier 2 capital. For the Corporation,
Tier  1 capital is shareholders' equity, and Tier 2 capital is the allowance for
loan  losses.  The  risk-based  capital  ratios  are  computed  by  dividing the
components  of  capital  by  risk-adjusted  assets.  Risk-adjusted  assets  are
determined by assigning credit risk-weighting factors from 0% to 100% to various
categories  of  assets  and off-balance-sheet financial instruments. The minimum
for  the  Tier 1 capital ratio is 4.0%, and the total capital ratio (Tier 1 plus
Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At December 31,
2000,  the  Corporation's Tier 1 risk-adjusted capital ratio was 12.22%, and the
total  risk-adjusted  capital  ratio  was  13.35%,  both  well  above regulatory
requirements.  The  risk-based  capital  ratios  of  each  of  the Corporation's
commercial  banks  also  exceeded  regulatory  requirements  at the end of 2000.

To  supplement  the  risk-based capital adequacy guidelines, the Federal Reserve
Board  (FRB) established a leverage ratio guideline. The leverage ratio consists
of  Tier  1  capital  divided  by  quarterly  average  total  assets,  excluding
intangible  assets.  The  minimum  leverage  ratio  guideline  is 3% for banking
organizations  that  do  not  anticipate  significant  growth  and  that  have
well-diversified  risk,  excellent  asset quality, high liquidity, good earnings
and,  in general, are considered top-rated, strong banking or ganizations. Other
banking  organizations  are  expected  to  have  ratios  of  at  least 4% or 5%,
depending  upon  their  particular  condition  and growth plans. Higher leverage
ratios  could  be  required by the particular circumstances or risk profile of a
given  banking  organization.  The  Corporation's leverage ratios were 8.97% and
8.92%  at  December  31,  2000  and  1999,  respectively.

Under  FDIC  regulations,  a "well capitalized" institution must have a leverage
ratio  of  at  least  5%, a Tier 1 risk-based capital ratio of at least 6% and a
total  risk-based  capital ratio of at least 10% and not be subject to a capital
directive  order.  To be considered "adequately capitalized" an institution must
generally  have  a  leverage  ratio  of at least 4%, a Tier 1 risk-based capital
ratio  of  at  least  4% and a total risk-based capital ratio of at least 8%. An
institution  is deemed to be "critically under capitalized" if it has a tangible
equity  ratio  of  2%  or less. As of December 31, 2000, the Banks are above the
regulatory  minimum  guidelines and meet the criteria to be categorized as "well
capitalized"  institutions.


PAGE 29

Liquidity

Liquidity  is  a  measure  of  the  ability of the Banks to meet their needs and
obligations  on  a  timely  basis. For a bank, liquidity requires the ability to
meet the day-to-day demands of deposit customers, and the ability to fulfill the
needs  of  borrowing  customers. Generally, the Banks arrange their mix of cash,
money  market investments, investment securities and loans in order to match the
volatility,  seasonality,  interest sensitivity and growth trends of its deposit
funds.  Federal  funds  sold  averaged  $3,721,000  during  2000, and investment
securities  available  for sale averaged $530,345,000 during 2000; both are more
than  sufficient to match normal fluctuations in loan demand or deposit funding.
Backup  sources  of  liquidity  are  provided  by  federal funds lines of credit
established  with  correspondent  banks. Additional liquidity could be generated
through  borrowings  from  the  Federal  Reserve  Bank of Philadelphia, of which
Harleysville,  Citizens and Security are members, and from the Federal Home Loan
Bank  of  Pittsburgh,  of which Harleysville, Citizens and Security are members.
Unused  lines  of  credit at the FHLB were $114,738,000 as of December 31, 2000.

There  are  no  known  trends  or  any  known  demands,  commitments,  events or
uncertainties  that  will  result in, or that are reasonably likely to result in
liquidity  increasing  or  decreasing  in  any  material  way.


================================================================================
PAGE 30