SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-29709
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-3028464
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
271 Main Street, Harleysville, Pennsylvania 19438
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(Address of principal executive offices)
(Zip Code)
(215) 256-8828
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date:
Common Stock, $.01 Par Value, 2,316,490 as of February 7, 2003
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
AND SUBSIDIARY
Index
PAGE(S)
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Financial Condition as of
December 31, 2002 and September 30, 2002 1
Unaudited Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 2002 and 2001 2
Unaudited Condensed Consolidated Statement of Comprehensive Income
for the Three Months Ended December 31, 2002 and 2001 3
Unaudited Condensed Consolidated Statement of Stockholders' Equity
for the Three Months Ended December 31, 2002 3
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2002 and 2001 4
Notes to Unaudited Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 - 12
Item 4. Controls and Procedures 12
Critical Accounting Policies and Judgments 12 - 13
Part II OTHER INFORMATION
Item 1. - 6. 14
Signatures 15
Harleysville Savings Financial Corporation
Unaudited Condensed Consolidated Statements of Financial Condition
December 31, September 30,
2002 2002
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Assets
Cash and amounts due from depository institutions $ 1,833,141 $ 1,431,186
Interest bearing deposits in other banks 16,125,644 34,871,718
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Total cash and cash equivalents 17,958,785 36,302,904
Investment securities held to maturity (fair value -
December 31, $64,049,000; September 30, $57,555,000) 62,392,507 55,665,399
Investment securities available-for-sale at fair value 6,084,192 11,999,611
Mortgage-backed securities held to maturity (fair value -
December 31, $187,362,000; September 30, $168,529,000) 182,497,473 163,814,970
Mortgage-backed securities available-for-sale at fair value 28,070,855 29,514,940
Loans receivable (net of allowance for loan losses -
December 31, $2,032,000; September 30, $2,035,000) 293,318,380 295,353,734
Accrued interest receivable 2,931,311 2,836,448
Federal Home Loan Bank stock - at cost 11,243,600 10,496,500
Office properties and equipment 5,083,882 5,013,031
Deferred income taxes 317,324 134,493
Prepaid expenses and other assets 8,570,990 9,132,423
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TOTAL ASSETS $ 618,469,299 $ 620,264,453
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 372,733,504 $ 371,946,978
Advances from Federal Home Loan Bank 202,189,276 207,502,346
Accrued interest payable 1,032,177 1,041,892
Advances from borrowers for taxes and insurance 2,505,083 983,083
Accounts payable and accrued expenses 1,120,242 922,522
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Total liabilities 579,580,282 582,396,821
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Commitments
Stockholders' equity:
Preferred Stock: $.01 par value;
7,500,000 shares authorized; none issued
Common stock: $.01 par value; 15,000,000
shares authorized; issued and outstanding,
Dec. 2002, 2,316,490; Sept. 2002, 2,316,490 23,165 23,165
Paid-in capital in excess of par 7,540,790 7,551,849
Treasury stock, at cost (Dec. 2002, 46,630 shares; Sept. 2002, 55,912) (734,971) (881,227)
Retained earnings - partially restricted 31,942,515 31,124,031
Accumulated other comprehensive loss 117,518 49,814
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Total stockholders' equity 38,889,017 37,867,632
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 618,469,299 $ 620,264,453
============= =============
See notes to unaudited condensed consolidated financial statements.
Page 1
Harleysville Savings Financial Corporation
Unaudited Condensed Consolidated Statements of Income
For the Three Months Ended
December 31,
--------------------------------
2002 2001
---- ----
INTEREST INCOME:
Interest on mortgage loans $ 4,476,742 $ 4,516,866
Interest on mortgage-backed securities 2,385,908 2,384,928
Interest on consumer and other loans 921,644 982,688
Interest and dividends on tax-exempt investments 352,011 338,864
Interest and dividends on taxable investments 559,579 714,802
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Total interest income 8,695,884 8,938,148
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Interest Expense:
Interest on deposits 2,945,542 3,890,004
Interest on borrowings 2,780,170 2,555,812
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Total interest expense 5,725,712 6,445,816
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Net Interest Income 2,970,172 2,492,332
Provision for loan losses - -
----------- ------------
Net Interest Income after Provision
for Loan Losses 2,970,172 2,492,332
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Other Income:
Other income 312,672 268,413
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Total other income 312,672 268,413
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Other Expenses:
Salaries and employee benefits 850,192 810,064
Occupancy and equipment 387,593 320,864
Deposit insurance premiums 15,074 15,628
Other 437,525 380,143
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Total other expenses 1,690,384 1,526,699
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Income before Income Taxes 1,592,460 1,234,046
Income tax expense 412,300 228,867
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Net Income $ 1,180,160 $ 1,005,179
=========== ============
Basic Earnings Per Share $ 0.52 $ 0.45
=========== ============
Diluted Earnings Per Share $ 0.51 $ 0.44
=========== ============
Dividends Per Share $ 0.16 $ 0.13
=========== ============
See notes to unaudited condensed consolidated financial statements.
Page 2
Harleysville Savings Financial Corporation
Unaudited Condensed Consolidated Statement of Comprehensive Income
Three Months Ended
December 31,
----------------------------
2002 2001
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Net Income $ 1,180,160 $ 1,005,179
Other Comprehensive Income (Loss)
Unrealized gain (loss) on securities net of tax ( benefit)
expense 67,704 (2,033)
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Total Comprehensive Income $ 1,247,864 $ 1,003,146
=========== ===========
Harleysville Savings Financial Corporation
Unaudited Condensed Consolidated Statement of Stockholders' Equity
Paid-in Retained Accumulated
Capital Earnings- Other Total
Common in Excess Treasury Partially Comprehensive Stockholders'
Stock of Par Stock Restricted Loss Equity
------------------------------------------------------------------------------------------------------------- --------------
Balance at October 1, 2002 $ 23,165 $ 7,551,849 $ (881,227) $ 31,124,031 $ 49,814 $ 37,867,632
========= =========== ========== ============ ============ ==============
Net Income 1,180,160 1,180,160
Issuance of Common Stock: - - -
Dividends - $.16 per share (361,676) (361,676)
Treasury stock delivered under
Dividend Reinvestment Plan 19,327 64,399 83,726
Treasury stock delivered under
employee stock plan (30,386) 81,857 51,471
Unrealized holding gain on available-
for- sale securities, net of tax 67,704 67,704
--------- ----------- ---------- ------------ ------------ --------------
Balance at December 31, 2002 $ 23,165 $ 7,540,790 $ (734,971) $ 31,942,515 $ 117,518 $ 38,889,017
========= ============ ========== ============ ============ ==============
See notes to unaudited condensed consolidated financial statements.
Page 3
Harleysville Savings Financial Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31,
-------------------------------
2002 2001
---- ----
Operating Activities:
Net Income $ 1,180,160 $ 1,005,179
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 35,573 123,901
Increase in deferred income taxes (117,012) (7,885)
Proceeds from the sale of loans held for sale 146,000
Gain on sale of loans 702
Amortization of deferred loan fees (151,250) (64,163)
Changes in assets and liabilities which (used) provided cash:
Increase (decrease) in accounts payable and accrued
expenses and income taxes payable 197,720 (260,292)
Decrease (increase) in prepaid expenses and other assets 561,433 (433,332)
(Increase) decrease in accrued interest receivable (94,863) 630,020
(Decrease) increase in accrued interest payable (9,715) 115,174
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Net cash provided by operating activities 1,748,748 1,108,602
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Investing Activities:
Purchase of investment securities held to maturity (10,227,013) (13,154,845)
Proceeds from maturities of investment securities 3,499,905 25,900,237
Purchase of investment securities available for sale - (4,629,933)
Purchase of FHLB stock (747,100) (221,200)
Long-term loans originated or acquired (42,149,251) (33,759,241)
Purchase of mortgage-backed securities held to maturity (67,391,860) (17,986,847)
Purchase of mortgage-backed securities available for sale (14,511,075) (2,996,250)
Principal collected on long-term loans & mortgage-backed securities 114,770,974 34,872,177
Purchases of premises and equipment (106,424) (56,762)
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Net cash used in investing activities (16,861,844) (12,032,664)
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Financing Activities:
Net increase in demand deposits, NOW accounts
and savings accounts 4,686,572 8,048,274
Net decrease in certificates of deposit (3,900,046) (5,970,215)
Cash dividends (361,676) (289,482)
Net (decrease) increase in FHLB advances (5,313,070) 11,423,266
Delivery of treasury stock 135,197
Purchase of treasury stock - (78,398)
Net proceeds from issuance of stock - 20,761
Net increase in advances from borrowers for taxes & insurance 1,522,000 1,582,881
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Net cash (used in) provided by financing activities (3,231,023) 14,737,087
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (18,344,119) 3,813,025
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 36,302,904 8,948,132
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,958,785 $12,761,157
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 48,201 $ 276,629
Interest expense 5,735,427 6,560,990
See notes to unaudited condensed consolidated financial statements.
Page 4
Notes to Unaudited Condensed Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited financial statements have
been prepared in accordance with the instructions for Form 10-Q and therefore do
not include information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America.
However, all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary for a fair presentation have
been included. The results of operations for the three months ended December 31,
2002 are not necessarily indicative of the results which may be expected for the
entire fiscal year.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, including Indirect Guaranttes of Indebtness of Others. This
Interepretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued, it also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This interepretation also
incorporates, without change, the guidance in FASB intrepretation No. 34,
Disclosure of Indirect Guanrantees of Indeptedness on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company currently has no guanantees that would be
required to be recognized, measured or disclosed under this intepretation.
2. INVESTMENT SECURITIES HELD TO MATURITY
A comparison of amortized cost and approximate fair value of investment
securities, by maturities, is as follows:
December 31, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses air Value
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U.S. Government agencies
Due after 1 years through 5 years $ 8,008,714 $ 24,286 $ - $ 8,033,000
Due after 5 years through 10 years 9,000,000 98,000 - 9,098,000
Due after 10 years through 15 years 19,708,139 293,861 - 20,002,000
Tax Exempt Obligations
Due after 10 years through 15 years 2,789,970 102,030 - 2,892,000
Due after 15 years 22,885,684 1,138,316 - 24,024,000
------------ ----------- ----------- -----------
Total Investment Securities $ 62,392,507 $ 1,656,493 $ - $64,049,000
============ =========== =========== ===========
September 30, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
---------------------------------------------------------------------------------------------------------------
U.S. Government agencies
Due after 1 years through 5 years $ 7,026,952 $ 26,048 $ 7,053,000
Due after 5 years through 10 years 2,000,000 75,000 2,075,000
Due after 10 years through 15 years 21,757,858 415,571 $ (117,429) 22,056,000
Tax Exempt Obligations
Due after 10 years through 15 years 3,235,924 124,076 3,360,000
Due after 15 years 21,644,665 1,406,010 (39,675) 23,011,000
------------ ----------- ----------- -----------
Total Investment Securities $ 55,665,399 $ 2,046,705 $ (157,104) $57,555,000
============ =========== =========== ===========
The Company has the positive intent and the ability to hold these securities to
maturity. At December 31, 2002, neither a disposal, nor conditions that could
lead to a decision not to hold these securities to maturity were reasonably
foreseen.
Page 5
3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
A comparison of amortized cost and approximate fair value of investment
securities is as follows:
December 31, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
----------------------------------------------------------------------- ---------------------------
Equities $ 243,450 $ 28,588 $ - $ 272,038
ARM Mutual Funds 5,812,154 - - 5,812,154
---------------------------- ---------------------------
Total Investment Securities $ 6,055,604 $ 28,588 $ - $ 6,084,192
=========== =========== ========== ===========
September 30, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
-------------------------------------------------------------------------------------------------------
ARM Mutual Funds $11,999,611 $ - $ - $11,999,611
----------- ----------- ---------- -----------
Total Investment Securities $11,999,611 $ - $ - $11,999,611
=========== =========== ========== ===========
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
A comparison of amortized cost and approximate fair value of mortgage-backed
securities is as follows:
December 31, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
-------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $34,115,043 $ 147,142 $ (2,185) $34,260,000
FHLMC pass-through certificates 49,678,792 1,270,208 - 50,949,000
FNMA pass-through certificates 52,602,744 1,379,256 - 53,982,000
GNMA pass-through certificates 46,100,894 2,070,106 - 48,171,000
------------ ----------- ---------- ------------
Total Mortgage-backed Securities $182,497,473 $ 4,866,712 $ (2,185) $187,362,000
============ =========== ========== ============
September 30, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
-------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $ 45,143,747 $ 255,218 $ (5,965) $ 45,393,000
FHLMC pass-through certificates 33,697,029 1,166,921 (4,950) 34,859,000
FNMA pass-through certificates 29,674,733 1,062,267 - 30,737,000
GNMA pass-through certificates 55,299,461 2,240,539 - 57,540,000
------------ ----------- ---------- ------------
Total Mortgage-backed Securities $163,814,970 $ 4,724,945 $ (10,915) $168,529,000
============ =========== ========== ============
5. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE
A comparison of amortized cost and approximate fair value of mortgage-backed
securities is as follows:
December 31, 2002
-------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
-------------------------------------------------------------------------------------------------------
FNMA pass-through certificates $ 6,720,934 $ 6,907 $ (6,923) $ 6,720,918
FHLMC pass-through certificates 21,200,451 149,521 (35) 21,349,937
------------ ----------- ---------- ------------
Total Mortgage-backed Securities $ 27,921,385 $ 156,428 $ (6,958) $ 28,070,855
============ =========== ========== ============
September 30, 2002
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Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Losses Fair Value
-------------------------------------------------------------------------------------------------------
FNMA pass-through certificates $ 22,322,686 $ 69,129 $ - $ 22,391,815
GNMA pass-through certificates 7,116,778 6,347 7,123,125
------------ ----------- ---------- ------------
Total Mortgage-backed Securities $ 29,439,464 $ 75,476 $ - $ 29,514,940
============ =========== ========== ============
Page 6
6. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31, 2002 September 30, 2002
---------------- ------------------
Residential Mortgages $ 231,534,541 $ 235,359,382
Commercial Mortgages 489,134 495,647
Construction 8,114,465 8,607,450
Education 329,272 334,271
Savings Account 539,592 478,969
Home Equity 38,734,514 41,451,058
Automobile and other 731,591 725,883
Line of Credit 22,550,678 18,529,734
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Total 303,023,787 305,982,394
Undisbursed portion of loans in process (5,663,369) (6,502,564)
Deferred loan fees (2,010,457) (2,091,264)
Allowance for loan losses (2,031,581) (2,034,832)
----------- -----------
Loans receivable - net $ 293,318,380 $ 295,353,734
================ ==============
The total amount of loans being serviced for the benefit of others was
approximately $3.1 million and $3.5 million at December 31, 2002 and September
30, 2002, respectively.
The following schedule summarizes the changes in the allowance for loan losses:
Three Months Ended December 31,
2002 2001
----------- -----------
Balance, beginning of period $ 2,034,832 $ 2,036,188
Provision for loan losses - -
Amounts (charged-off) recovered (3,251) 100
----------- -----------
Balance, end of period $ 2,031,581 $ 2,036,288
=========== ===========
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
December 31, September 30,
2002 2002
------------ ------------
Land and buildings $ 5,334,062 $ 5,190,758
Furniture, fixtures and equipment 3,482,117 3,406,672
Automobiles 24,896 81,059
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Total 8,841,075 8,678,489
Less accumulated depreciation (3,757,193) (3,665,458)
------------ ------------
Net $ 5,083,882 $ 5,013,031
============ ============
8. DEPOSITS
Deposits are summarized as follows:
December 31, September 30,
2002 2002
------------ ------------
NOW accounts $ 15,896,636 $ 14,051,771
Checking accounts 8,801,427 8,572,256
Money Market Demand accounts 86,080,893 83,464,010
Passbook and Club accounts 3,322,991 3,327,338
Certificate accounts 258,631,557 262,531,603
------------ ------------
Total deposits $372,733,504 $371,946,978
============ ============
The aggregate amount of certificate accounts in denominations of more than
$100,000 at December 31, 2002 amounted to approximately $21.1 million.
Page 7
9. COMMITMENTS
At December 31, 2002, the following commitments were outstanding:
Origination of fixed-rate mortgage loans $ 7,552,693
Origination of adjustable-rate mortgage loans 307,300
Unused line of credit loans 24,067,899
Loans in process 5,663,369
-----------
Total $37,591,261
===========
10. DIVIDEND
On January 22, 2003, the Board of Directors declared a cash dividend of $.16 per
share payable on February 19, 2003 to the stockholders' of record at the close
of business on February 5, 2003.
11. EARNINGS PER SHARE
The following average shares were used for the computation of earnings per
share:
For the Three Months Ended
December 31,
---------------------------
2002 2001
---------- ----------
Basic 2,263,380 2,233,025
Diluted 2,309,409 2,270,338
The difference between the number of shares used for computation of basic
earnings per share and diluted earnings per share represents the dilutive effect
of stock options.
Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. In
addition, in those and other portions of this document, the words "anticipate,"
"believe," "estimate," "intend," "should" and similar expressions, or the
negative thereof, as they relate to the Company or the Company's management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future-looking events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.
Changes in Financial Position for the Three Month Period Ended December 31, 2002
--------------------------------------------------------------------------------
Total assets at December 31, 2002 were $618.5 million, a decrease of $1.8
million or .29% for the three month period. This decrease was primarily the
result of a decrease in cash and cash equivalents, investment securities
available for sale, mortgage-backed securities available for sale and loans
receivable of approximately $18.3 million, $5.9 million, $1.4 million and $2.0
million respectively. The decrease was partially offset by an increase in
mortgage-backed held to maturity securities, investment securities held to
maturity and Federal Home Loan Bank stock of $18.7 million, $6.7 million and
$747,000, respectively.
During the three-month period ended December 31, 2002, total deposits increased
by $787,000 to $372.7 million. Advances from borrowers for taxes and insurance
also increased by $1.5 million. This is a seasonal increase as the majority of
taxes the Company escrows for are disbursed in the month of August. There was
also a decrease in advances from Federal Home Loan Bank of $5.3 million, which
was repaid with normal cash flows from loans and mortgage-backed securities.
Comparisons of Results of Operations for the Three Month Period Ended December
------------------------------------------------------------------------------
31, 2002 with the Three Month Period Ended December 31, 2001.
-------------------------------------------------------------
Net Interest Income
-------------------
The increase in the net interest income for the three month period ended
December 31, 2002 when compared to the same period in 2001 can be attributed to
the increase in interest-earning assets and the decrease in interest expense on
deposits. The interest rate spread increased to 1.77% for the three month period
ended December 31, 2002 from 1.59% for the comparable period ended December 31,
2001.
Total interest income was $8.7 million for the three month period ended December
31, 2002 compared to $8.9 million for the comparable period in 2001. The
increase in the average balance of interest-earning assets was offset by a
decrease in the average yield for the interest-earning assets to 5.79% for the
three month period ended December 31, 2002 from 6.52% for the comparable period
in 2001.
Total interest expense decreased to $5.7 million for the three month period
ended December 31, 2002 from $6.4 million for the comparable period in 2001.
This decrease was the result of a decrease in the average cost on
interest-bearing liabilities to 4.02% for the three month period ended December
31, 2002 from 4.93% for the comparable period ended December 31, 2001. This
decrease is the result of a lower level of interest paid on deposits for the
three month period ended December 31, 2002 when compared to the same period
ended December 31, 2001. This was partially offset by an increase in the average
interest-bearing liabilities to $570.0 million for the three month period ended
December 31, 2002 from $522.6 million for the comparable period ended December
31, 2001.
page 9
Other Income
------------
Other income increased to $313,000 for the three month period ended December 31,
2002 from $268,000 for the comparable period in 2001. The increase is due to an
increase in fee generating services offered by the Company.
Other Expenses
--------------
For the three month period ended December 31, 2002, other expenses increased by
$164,000 or 10.72% to $1.7 million. Management believes these are reasonable
increases in the cost of operations after considering the effects of inflation,
the impact of the 8% growth in the assets of the Company. The annualized ratio
of expenses to average assets for the three month period ended December 31, 2002
and 2001 was 1.10% and 1.08%, respectively.
Income Taxes
------------
The Company made provisions for income taxes of $412,000 for the three-month
period ended December 31, 2002 compared to $229,000 for the comparable period in
2001. The primary reason for the increase in the percentage of tax expense in
2002 was the increase in amount of taxable income resulting from a decrease in
the percentage of tax-exempt securities to total assets.
Liquidity and Capital Resources
-------------------------------
The Bank's net income for the quarter ended December 31, 2002 of $1,180,000
increased stockholders' equity to $38.7 million or 6.3% of total assets. This
amount is well in excess of the Bank's minimum regulatory capital requirements
as illustrated below:
(in thousands)
Leveraged Risk-based
--------- ----------
Actual regulatory capital $38,748 6.3% $40,793 14.6%
Minimum required regulatory capital 24,728 4.0% 21,299 8.0%
------- ---- ------- -----
Excess capital $14,020 2.3% $19,494 6.6%
The liquidity of the Company's operations, measured by the ratio of the cash and
securities balances to total assets, equaled 48.02% at December 31, 2002
compared to 47.93% at September 30, 2002.
As of December 31, 2002, the Company had $37.6 million in commitments to fund
loan originations, disburse loans in process and meet other obligations.
Management anticipates that the majority of these commitments will be funded
within the next six months by means of normal cash flows and net new deposits.
In addition, the amount of certificate accounts, which are scheduled to mature
during the 12 months ending December 31, 2003, is $121.3 million. Management
expects that a substantial portion of these maturing deposits will remain as
accounts in the Company.
Page 10
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company has instituted programs designed to decrease the sensitivity of its
earnings to material and prolonged increases or decreases in interest rates. The
principal determinant of the exposure of Harleysville Savings' earnings to
interest rate risk is the timing difference between the repricing or maturity of
the Company's interest-earning assets and the repricing or maturity of its
interest-bearing liabilities. If the maturities of such assets and liabilities
were perfectly matched, and if the interest rates borne by its assets and
liabilities were equally flexible and moved concurrently, neither of which is
the case, the impact on net interest income of rapid increases or decreases in
interest rates would be minimized. Harleysville Savings' asset and liability
management policies seek to increase the interest rate sensitivity by shortening
the repricing intervals and the maturities of the Company's interest-earning
assets. Although management of the Company believes that the steps taken have
reduced the Company's overall vulnerability to increases and decreases in
interest rates, the Company remains vulnerable to material and prolonged
increases and decreases in interest rates during periods in which its interest
rate sensitive liabilities exceed its interest rate sensitive assets and
interest rate sensitive assets exceed interest rate sensitive liabilities,
respectively.
The authority and responsibility for interest rate management is vested in the
Company's Board of Directors. The Chief Executive Officer implements the Board
of Directors' policies during the day-to-day operations of the Company. Each
month, the Chief Executive Officer presents the Board of Directors with a report
which outlines the Company's asset and liability "gap" position in various time
periods. The "gap" is the difference between interest-earning assets and
interest-bearing liabilities which mature or reprice over a given time period.
He also meets weekly with the Company's other senior officers to review and
establish policies and strategies designed to regulate the Company's flow of
funds and coordinate the sources, uses and pricing of such funds. The first
priority in structuring and pricing the Company's assets and liabilities is to
maintain an acceptable interest rate spread while reducing the effects of
changes in interest rates and maintaining the quality of the Company's assets.
The following table summarizes the amount of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 2002, which are
expected to mature, prepay or reprice in each of the future time periods shown.
Except as stated below, the amounts of assets or liabilities shown which mature
or reprice during a particular period were determined in accordance with the
contractual terms of the asset or liability. Adjustable and floating-rate assets
are included in the period in which interest rates are next scheduled to adjust
rather than in the period in which they are due, and fixed-rate loans and
mortgage-backed securities are included in the periods in which they are
anticipated to be repaid.
The passbook accounts, negotiable order of withdrawal ("NOW") accounts and money
market deposit accounts, are included in the "Over 5 Years" categories based on
management's beliefs that these funds are core deposits having significantly
longer effective maturities based on the Company's retention of such deposits in
changing interest rate environments.
Generally, during a period of rising interest rates, a positive gap would result
in an increase in net interest income while a negative gap would adversely
affect net interest income. Conversely, during a period of falling interest
rates, a positive gap would result in a decrease in net interest income while a
negative gap would positively affect net interest income. However, the following
table does not necessarily indicate the impact of general interest rate
movements on Harleysville Savings' net interest income because the repricing of
certain categories of assets and liabilities is discretionary and is subject to
competitive and other pressures. As a result, certain assets and liabilities
indicated as repricing within a stated period may in fact reprice at different
rate levels.
The following table does not necessarily indicate the impact of general interest
rate movements on Harleysville Savings' net interest income because the
repricing of certain categories of assets and liabilities is discretionary and
is subject to competitive and other pressures. As a result, certain assets and
liabilities indicated as repricing within a stated period may in fact reprice at
different rate levels.
Page 11
1 Year 1 to 3 3 to 5 Over 5
or less Years Years Years Total
---------- ---------- --------- --------- ----------
Interest-earning assets
Mortgage loans $ 32,619 $ 38,404 $ 27,840 $ 129,583 $ 228,446
Mortgage-backed securities 79,341 24,933 21,259 85,035 210,568
Consumer and other loans 37,256 14,238 8,064 5,314 64,872
Investment securities and other investments 53,719 21,175 - 30,692 105,586
---------- ---------- --------- --------- ----------
Total interest-earning assets 202,935 98,750 57,163 250,624 609,472
---------- ---------- --------- --------- ---------
Interest-bearing liabilities
Passbook and Club accounts - - - 3,323 3,323
NOW accounts - - - 24,698 24,698
Money Market Deposit accounts - - - 33,084 33,084
Choice Savings 31,171 21,826 52,997
Certificate accounts 121,309 80,661 56,662 - 258,632
Borrowed money 20,061 37,838 20,084 124,206 202,189
---------- ---------- --------- --------- ----------
Total interest-bearing liabilities 172,541 118,499 76,746 207,137 574,923
---------- ---------- --------- --------- ----------
Repricing GAP during the period $ 30,394 $ (19,749) $ (19,583) $ 43,487 $ 34,549
========== ========== ========= ========= ==========
Cumulative GAP $ 30,394 $ 10,645 $ (8,938) $ 34,549
========== ========== ========= =========
Ratio of GAP during the period to total assets 4.99% -3.24% -3.21% 7.14%
========== ========== ========= =========
Ratio of cumulative GAP to total assets 4.99% 1.75% -1.47% 5.67%
========== ========== ========= =========
Controls and Procedures
Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures within 90 days of the filing date of this quarterly report, and based
on their evaluation, our chief executive officer and chief financial officer
have concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange commission's rules and forms. Disclosure controls and procedure
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports we file under the
Exchange Act is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Critical Accounting Policies and Judgments
The Company's condensed consolidated financial statements are prepared based on
the application of certain accounting policies, the most significant of which
are described in Note 1, Summary of Significant Accounting Policies. Certain of
these policies require numerous estimates and strategic or economic assumptions
that may prove inaccurate or subject to variations and may significantly affect
the Company's reported results and financial
Page 12
position for the period or in future periods. Changes in underlying factors,
assumptions, or estimates in any of these areas could have a material impact on
the Company's future financial condition and results of operations.
Allowance for Loan Losses - The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). The Bank's
periodic evaluation of the allowance is based on known and inherent risks in the
portfolio, past loan loss experience, current economic conditions, trends within
the Company's market area and other relevant factors. The first step in
determining the allowance for loan losses is recognizing a specific allowance on
individual impaired loans. Special mention, nonaccrual, substandard and doubtful
residential and other consumer loans are considered for impairment. An allowance
is recognized for loan losses in the remainder of the loan portfolio based on
known and inherent risk characteristics in the portfolio, past loss experience
and prevailing market conditions. Because evaluating losses involves a high
degree of management judgment, a margin is included for the imprecision inherent
in making these estimates. While management believes that the allowance is
adequate to absorb estimated credit losses in its existing loan portfolio,
future adjustments may be necessary in circumstances that differ substantially
form the assumptions used in evaluating the adequacy of the allowance for loan
losses.
Page 13
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------------
(a) The annual meeting of Stockholders was held on January 22,
2003
(c) There were 2,264,654 shares of Common Stock of the Company
eligible to be voted at the Annual Meeting and 1,858,932
shares were represented at the meeting by the holders
thereof, which constituted a quorum. The items voted upon at
the Annual Meeting and the vote for each proposal were as
follows:
1. Election of directors for a three-year term:
FOR WITHHELD
David J. Friesen 1,851,928 7,004
George W. Meschter 1,852,805 6,127
Name of each director whose term of office continued:
Sanford L. Alderfer
Mark R. Cummins
Paul W. Barndt
Philip A. Clemens
Edward J. Molnar
Ronald B. Geib
2. Proposal to ratify the appointment by the board of
Deloitte & Touche, LLP as the Company's independent
auditors for the year ending September 30, 2003
FOR AGAINST ABSTAIN
--- ------- -------
1,857,604 - 1,328
Each of the proposals were adopted by the stockholders of
the Company.
Item 1,2,3 and 5. Not applicable.
---------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
Page 14
Signatures
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
The undersigned executive officer of Harleysville Savings Financial Corporation
hereby certifies that the Registrant's Form 10-Q for the three months ended
December 31, 2002 fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.
/s/ Edward J. Molnar
---------------------
Edward J. Molnar
Chief Executive Officer
Date: February 6, 2003
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
The undersigned executive officer of Harleysville Savings Financial Corporation
hereby certifies that the Registrant's Form 10-Q for the three months ended
December 31, 2002 fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.
/s/ Brenden J. McGill
---------------------
Brendan J. McGill
Chief Financial Officer
Date: February 6, 2003
SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Edward J. Molnar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harleysville Savings
Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 6, 2003
/s/ Edward J. Molnar
--------------------
Edward J. Molnar
Chief Executive Officer
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Brendan J. McGill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harleysville Savings
Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 6, 2003
/s/ Brenden J. McGill
---------------------
Brendan J. McGill
Chief Financial Officer