SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20429 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Pennsylvania 23-3028464 -------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 271 Main Street, Harleysville, Pennsylvania 19438 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (215) 256-8828 -------------------------------------------------------------------------------- (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 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, 2,294,951 as of May 1, 2001 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION AND SUBSIDIARY Index PAGE(S) Part I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of March 31, 2001 (unaudited) and September 30, 2000 1 Consolidated Statements of Income for the Three and Six Months Ended March 31, 2001 and 2000 (unaudited) 2 Consolidated Statements of Stockholders' Equity for the Six Months Ended March 31, 2001 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2001 and 2000 (unaudited) 4 Notes to 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 10 - 11 Part II OTHER INFORMATION Item 1. - 6. 12 Signatures 13 Harleysville Savings Financial Corporation Consolidated Statements of Financial Condition March 31, September 30, 2001 2000 ------------- ------------- (unaudited) Assets Cash and amounts due from depository institutions $ 1,030,180 $ 1,224,634 Interest bearing deposits in other banks 12,830,254 2,855,568 ------------- ------------- Total cash and cash equivalents 13,860,434 4,080,202 Investment securities held to maturity (fair value - March 31, $64,713,000; September 30, $69,463,000) 63,663,860 71,280,841 Investment securities available-for-sale at fair value 7,797,785 3,309,736 Mortgage-backed securities held to maturity (fair value - March 31, $142,995,000; September 30, $114,182,000) 141,890,232 116,303,730 Mortgage-backed securities available-for-sale at fair value -- 7,440,453 Loans receivable (net of allowance for loan losses - March 31, $2,038,383; September 30, $2,038,131) 271,029,153 262,774,378 Accrued interest receivable 3,280,710 3,246,714 Federal Home Loan Bank stock - at cost 8,950,200 7,365,200 Office properties and equipment 4,685,709 4,449,921 Deferred income taxes 261,024 306,761 Prepaid expenses and other assets 8,234,805 7,995,955 ------------- ------------- TOTAL ASSETS $ 523,653,912 $ 488,553,891 ============= ============= Liabilities and Stockholders' Equity Liabilities: Deposits $ 325,312,426 $ 309,835,810 Advances from Federal Home Loan Bank 160,703,969 145,134,283 Accrued interest payable 1,083,209 824,672 Advances from borrowers for taxes and insurance 3,187,111 719,591 Accounts payable and accrued expenses 634,821 641,148 ------------- ------------- Total liabilities 490,921,536 457,155,504 ------------- ------------- 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, March 31, 2001, 2,294,201; September 30, 2000, 2,285,051 22,942 22,851 Paid-in capital in excess of par 7,260,074 7,119,387 Treasury stock, at cost March 31, 2001, 69,598 shares; September 30, 2000, 49,900 shares (1,008,100) (714,163) Retained earnings - partially restricted 26,474,675 25,076,313 Accumulated other comprehensive loss (17,215) (106,001) ------------- ------------- Total stockholders' equity 32,732,376 31,398,387 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 523,653,912 $ 488,553,891 ============= ============= See notes to unaudited consolidated financial statements. 1 Harleysville Savings Financial Corporation Consolidated Statements of Income For the Three Months Ended For the Six Months Ended March 31, March 31, ------------------------------- ------------------------------ 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (unaudited) (unaudited) INTEREST INCOME: Interest on mortgage loans $ 4,060,612 $ 3,665,955 $ 8,099,004 $ 7,311,301 Interest on mortgage-backed securities 2,530,112 2,101,994 4,883,899 4,164,588 Interest on consumer and other loans 1,087,845 1,108,944 2,174,863 2,213,008 Interest and dividends on investments 1,411,942 1,271,086 2,831,524 2,527,885 ----------- ----------- ----------- ----------- Total interest income 9,090,511 8,147,979 17,989,290 16,216,782 ----------- ----------- ----------- ----------- Interest Expense: Interest on deposits 4,166,432 3,627,276 8,278,512 7,238,102 Interest on borrowings 2,491,209 1,900,420 4,919,914 3,785,856 ----------- ----------- ----------- ----------- Total interest expense 6,657,641 5,527,696 13,198,426 11,023,958 ----------- ----------- ----------- ----------- Net Interest Income 2,432,870 2,620,283 4,790,864 5,192,824 Provision for loan losses -- -- -- -- ----------- ----------- ----------- ----------- Net Interest Income after Provision for Loan Losses 2,432,870 2,620,283 4,790,864 5,192,824 ----------- ----------- ----------- ----------- Other Income: Gain on sales of securities 133,737 -- 133,737 -- Other income 231,173 121,335 455,281 223,805 ----------- ----------- ----------- ----------- Total other income 364,910 121,335 589,018 223,805 ----------- ----------- ----------- ----------- Other Expenses: Salaries and employee benefits 757,958 684,311 1,465,244 1,332,555 Occupancy and equipment 280,644 246,537 543,248 496,769 Deposit insurance premiums 15,028 16,014 30,800 60,719 Other 362,741 367,957 738,956 720,747 ----------- ----------- ----------- ----------- Total other expenses 1,416,371 1,314,819 2,778,248 2,610,790 ----------- ----------- ----------- ----------- Income before Income Taxes 1,381,409 1,426,799 2,601,634 2,805,839 Income tax expense 349,100 439,400 668,900 870,400 ----------- ----------- ----------- ----------- Net Income $ 1,032,309 $ 987,399 $ 1,932,734 $ 1,935,439 =========== =========== =========== =========== Basic Earnings Per Share $ 0.46 $ 0.44 $ 0.86 $ 0.86 =========== =========== =========== =========== Diluted Earnings Per Share $ 0.46 $ 0.43 $ 0.86 $ 0.85 =========== =========== =========== =========== Dividends Per Share $ 0.12 $ 0.11 $ 0.24 $ 0.22 =========== =========== =========== =========== See notes to unaudited consolidated financial statements. 2 Harleysville Savings Financial Corporation Statements 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, 2000 $ 22,851 $ 7,119,387 $ (714,163) $25,076,313 $ (106,001) $31,398,387 =========== =========== =========== =========== =========== =========== Net Income (unaudited) 1,932,734 1,932,734 Issuance of Common Stock: (unaudited) 91 140,687 140,778 Dividends - $.12 per share (unaudited) (534,372) (534,372) Treasury stock purchased (unaudited) (293,937) (293,937) Unrealized holding gain on available-for- sale securities net of tax (unaudited) 88,786 88,786 ----------- ----------- ----------- ----------- ----------- ----------- Balance at March 31, 2001 (unaudited) $ 22,942 $ 7,260,074 $(1,008,100) $26,474,675 $ (17,215) $32,732,376 =========== =========== =========== =========== =========== =========== See notes to unaudited consolidated financial statements. 3 Harleysville Savings Financial Corporation Consolidated Statements of Cash Flows Six Months Ended March 31, -------------------------- 2001 2000 ---- ---- (unaudited) Operating Activities: Net Income $ 1,932,734 $ 1,935,439 Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation 232,834 221,109 Decrease (increase) in deferred income taxes 52,789 (107,664) Amortization of deferred loan fees (77,776) (65,080) Gain on sale of mortgage backed securities available for sale 133,737 Changes in assets and liabilities which provided (used) cash: Decrease in accounts payable and accrued expenses and income taxes payable (6,327) (45,494) Decrease in prepaid expenses and other assets (238,850) (188,515) (Increase) decrease in accrued interest receivable (33,996) 90,199 Increase in accrued interest payable 258,537 281,806 ------------ ------------ Net cash provided by operating activities 2,253,682 2,121,800 ------------ ------------ Investing Activities: Purchase of investment securities held to maturity (8,383,745) (5,984,732) Proceeds from maturities of investment securities held to maturity 16,000,726 1,525,000 Proceeds from sale of mortgage-backed securities available for sale 7,331,055 Purchase of investment securities available for sale (4,469,715) (1,879,410) Purchase of FHLB stock (1,585,000) (407,500) Long-term loans originated or acquired (35,113,654) (25,055,092) Purchase of mortgage-backed securities held to maturity (34,195,264) (6,589,900) Principal collected on long-term loans & mortgage-backed securities 35,584,477 27,876,136 Purchases of premises and equipment (468,622) (92,177) ------------ ------------ Net cash used in investing activities (25,299,742) (10,607,675) ------------ ------------ Financing Activities: Net increase (decrease) in demand deposits, NOW accounts and savings accounts 6,788,392 (5,525,957) Net increase in certificates of deposit 8,688,224 10,340,451 Cash dividends (534,371) (498,322) Net increase in FHLB advances 15,569,686 3,696,179 Purchase of treasury stock (293,937) (141,250) Net proceeds from issuance of stock 140,778 131,446 Net increase in advances from borrowers for taxes & insurance 2,467,520 1,641,982 ------------ ------------ Net cash provided by financing activities 32,826,292 9,644,529 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 9,780,232 1,158,654 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,080,202 3,955,818 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,860,434 $ 5,114,472 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 523,353 $ 871,500 Interest expense 12,939,889 10,742,152 See notes to unaudited consolidated financial statements. 4 Notes to Unaudited 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 generally accepted accounting principles. 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 and six months ended March 31, 2001 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. Comprehensive Income -Comprehensive income for the three month periods ended March 31, 2001 and 2000, was approximately $1.1 million and $883,000, respectively. For the six month periods ended March 31, 2001 and 2000, comprehensive income was approximately $2.0 million and $1.7 million, respectively. 2. INVESTMENT SECURITIES HELD TO MATURITY A comparison of cost and approximate fair value of investment securities, by maturities, is as follows: March 31, 2001 ----------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ----------------------------------------------------------------------------------------------------------------------- U.S. Government agencies Due after 2 years through 5 years $ 6,500,000 $ 9,000 $ 6,509,000 Due after 5 years through 10 years 21,982,567 154,640 $ (20,207) 22,117,000 Due after 10 years through 15 years 11,433,579 94,239 (38,818) 11,489,000 Tax Exempt Obligations Due after 5 years through 10 years 658,978 8,022 667,000 Due after 10 years through 15 years 19,407,372 681,628 20,089,000 Due after 15 years 3,681,364 160,636 3,842,000 ------------ ------------ ------------ ------------ Total Investment Securities $ 63,663,860 $ 1,108,165 $ (59,025) $ 64,713,000 ============ ============ ============ ============ September 30, 2000 ----------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ----------------------------------------------------------------------------------------------------------------------- U.S. Government agencies Due after 3 years through 5 years $ 16,500,000 $ (386,000) $ 16,114,000 Due after 5 years through 10 years 21,980,911 $ 38,090 (971,001) 21,048,000 Due after 10 years through 15 years 17,418,624 43,263 (703,887) 16,758,000 Tax Exempt Obligations Due after 15 years 15,381,306 232,610 (70,916) 15,543,000 ------------ ------------ ------------ ------------ Total Investment Securities $ 71,280,841 $ 313,963 $ (2,131,804) $ 69,463,000 ============ ============ ============ ============ U.S. Government Agencies include structured note securities with periodic interest rate adjustments and are called periodically by the issuing agency. These structured notes were comprised of step-up bonds with par values of $999,000 at March 31, 2001 and September 30, 2000. The Bank has the positive intent and the ability to hold these securities to maturity. At March 31, 2001, neither a disposal, nor conditions that could lead to a decision not to hold these securities to maturity were reasonably foreseen. 5 3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE A comparison of cost and approximate fair value of investment securities is as follows: March 31, 2001 ---------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------- ARM Mutual Funds $7,823,869 $ -- $ (26,084) $7,797,785 ---------- ------- ---------- ---------- Total Investment Securities $7,823,869 $ -- $ (26,084) $7,797,785 ========== ======= ========== ========== September 30, 2000 ---------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------- ARM Mutual Funds $3,354,154 $ -- $ (44,418) $3,309,736 ---------- ------- ---------- ---------- Total Investment Securities $3,354,154 $ -- $ (44,418) $3,309,736 ========== ======= ========== ========== 4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY A comparison of cost and approximate fair value of mortgage-backed securities is as follows: March 31, 2001 -------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value -------------------------------------------------------------------------------------------------------------- Collateralized mortgage obligations $ 46,508,490 $ 421,807 $ (244,297) $ 46,686,000 FHLMC pass-through certificates 11,770,169 -- 261,831 12,032,000 FNMA pass-through certificates 23,346,292 133,343 (27,635) 23,452,000 GNMA pass-through certificates 60,265,281 573,447 (13,728) 60,825,000 ------------ ------------ ------------ ------------ Total Mortgage-backed Securities $141,890,232 $ 1,128,597 $ (23,829) $142,995,000 ============ ============ ============ ============ September 30, 2000 -------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value -------------------------------------------------------------------------------------------------------------- Collateralized mortgage obligations $ 52,482,502 $ 138,918 $ (996,420) $ 51,625,000 FHLMC pass-through certificates 9,935,756 26,355 (110,111) 9,852,000 FNMA pass-through certificates 21,402,545 33,968 (565,513) 20,871,000 GNMA pass-through certificates 32,482,927 1,654 (650,581) 31,834,000 ------------ ------------ ------------ ------------ Total Mortgage-backed Securities $116,303,730 $ 200,895 $ (2,322,625) $114,182,000 ============ ============ ============ ============ 5. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE A comparison of cost and approximate fair value of mortgage-backed securities is as follows: September 30, 2000 -------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value -------------------------------------------------------------------------------------------------------------- FHLMC pass-through certificates $ 2,835,053 $ -- $ (93,580) $ 2,741,473 GNMA pass-through certificates 4,721,589 -- (22,609) 4,698,980 ----------- ----------- ----------- ----------- Total Mortgage-backed Securities $ 7,556,642 $ -- $ (116,189) $ 7,440,453 =========== =========== =========== =========== 6 6. LOANS RECEIVABLE Loans receivable consist of the following: March 31, 2001 September 30, 2000 -------------- ------------------ Residential Mortgages $ 214,664,471 $ 207,928,146 Commercial Mortgages 796,331 807,156 Construction 8,345,881 6,579,523 Education 3,229,196 1,414,011 Savings Account 580,660 618,884 Home Equity 44,330,376 44,727,366 Automobile and other 462,429 639,693 Line of Credit 8,907,286 7,888,612 ------------- ------------- Total 281,316,630 270,603,391 Undisbursed portion of loans in process (6,222,954) (3,844,612) Deferred loan fees (2,026,140) (1,946,270) Allowance for loan losses (2,038,383) (2,038,131) ------------- ------------- Loans receivable - net $ 271,029,153 $ 262,774,378 ============= ============= The total amount of loans being serviced for the benefit of others was approximately $6 million and $6.6 million at March 31, 2001 and September 30, 2000, respectively. The following schedule summarizes the changes in the allowance for loan losses: Six Months Ended March 31, -------------------------- 2001 2000 ----------- ----------- Balance, beginning of period $ 2,038,131 $ 2,040,000 Provision for loan losses -- -- Amounts charged off -- (1,932) Loan recoveries 252 -- ----------- ----------- Balance, end of period $ 2,038,383 $ 2,038,068 =========== =========== 7. OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are summarized by major classification as follows: March 31, 2001 September 30, 2000 -------------- ------------------ Land and buildings $ 4,040,126 $ 4,176,671 Construction in progress 540,387 Furniture, fixtures and equipment 2,962,841 2,898,061 Automobiles 56,164 56,164 ----------- ----------- Total 7,599,518 7,130,896 Less accumulated depreciation (2,913,809) (2,680,975) ----------- ----------- Net $ 4,685,709 $ 4,449,921 =========== =========== 8. DEPOSITS Deposits are summarized as follows: March 31, 2001 September 30, 2000 -------------- ------------------ NOW accounts $ 12,109,323 $ 10,748,610 Checking accounts 6,646,521 5,780,503 Money Market Demand accounts 54,583,711 49,928,562 Passbook and Club accounts 2,302,389 2,395,877 Certificate accounts 249,670,482 240,982,258 ------------ ------------ Total deposits $325,312,426 $309,835,810 ============ ============ The aggregate amount of certificate accounts in denominations of more than $100,000 at March 31, 2001 amounted to approximately $15.2 million. 7 9. COMMITMENTS At March 31, 2001, the following commitments were outstanding: Origination of fixed-rate mortgage loans $ 7,352,279 Origination of adjustable-rate mortgage loans 791,250 Unused line of credit loans 12,152,932 Loans in process 6,222,954 ---------- Total $26,519,415 =========== 10. DIVIDEND On April 18, 2001, the Board of Directors declared a cash dividend of $.12 per share payable on May 23, 2001 to the stockholders' of record at the close of business on May 9, 2001. 11. EARNINGS PER SHARE The calculations of earnings per share were based on the number of common stock and common stock equivalents outstanding for the six months ended March 31, 2001 and 2000. The following average shares were used for the computation of earnings per share: For the Three Months Ended For the Six Months Ended March 31, March 31, ------------------------------ ------------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- Basic 2,222,695 2,268,324 2,226,339 2,238,379 Diluted 2,251,235 2,290,210 2,252,742 2,300,738 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 Six Month Period Ended March 31, 2001 --------------------------------------------------------------------------- Total assets at March 31, 2001 were $523.7 million, an increase of $35.1 million or 7.18% for the six month period. This increase was primarily the result of an increase in mortgage-backed securities, loans receivable and cash and cash equivalents of approximately $25.6 million, $8.3 million and $9.8million respectively. The remainder was due to an increase in investment securities available for sale and Federal Home Loan Bank stock of approximately $4.5 million and $1.6 million, respectively. These increases were offset by decreases in investment securities and mortgage-backed securities available for sale of $7.6 and $7.4 million, respectively. During the six month period ended March 31, 2001, total deposits increased by $15.5 million to $325.3 million. Advances from borrowers for taxes and insurance also increased by $2.5 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 an increase in advances from Federal Home Loan Bank of $15.6 million, which was used to fund the purchase of investment securities and fund loans. Comparisons of Results of Operations for the Three and Six Month Period Ended ----------------------------------------------------------------------------- March 31, 2001 with the Three and Six Month Period Ended March 31, 2000. ------------------------------------------------------------------------ Net Interest Income ------------------- The decrease in the net interest income for the three and six month periods ended March 31, 2001 when compared to the same periods in 2000 can be attributed to the decrease in the interest rate spread. The interest rate spread decreased from 1.95% for the three-month period ended March 31, 2000 to 1.65% for the comparable period ended March 31, 2001. For the six-month period ended March 31, 2000, the interest rate spread decreased from 1.95% to 1.66% for the comparable period ended March 31, 2001. Total interest income was $9.1 million for the three-month period ended March 31, 2001 compared to $8.1 million for the comparable period in 2000. For the six month period ended March 31, 2001, total interest income was $18.0 million compared to $16.2 million for the comparable period in 2000. The increase is the result of the increased average balance of interest-earning assets and increased average yield for the interest-earning assets to 7.20% and 7.27% for the three and six-month period ended March 31, 2001, respectively from 7.09% and 7.08% for the comparable periods in 2000. Total interest expense increased to $6.7 million for the three-month period ended March 31, 2001 from $5.5 million for the comparable period in 2000. For the six-month period ended March 31, 2001, total interest expense increased to $13.2 million from $11.0 million for the comparable period in 2000. These increases occurred as a result of an increase in the average interest-bearing liabilities from $430.6 million and $429.3 million for the three and six month periods ended March 31, 2000, respectively, to $479.5 million and $471.1 million for the comparable period ended March 31, 2001. 9 Other Income ------------ Other income increased to $365,000 for the three-month period ended March 31, 2001 from $121,000 for the comparable period in 2000. For the six-month period ended March 31, 2001, other income increased to $589,000 from $224,000 for the comparable period in 2000. The three and six-month increase is due to an increase in the fee generating services offered by the Company and additional income from Bank Owned Life Insurance. Other Expenses -------------- During the quarter ended March 31, 2001, other expenses increased by $101,000 or 7.7% to $1.4 million when compared to the same period in 2000. For the six month period ended March 31, 2001, other expenses increased by $167,000 or 6.4% compared to the comparable period in 2000. Management believes these are normal increases in the cost of operations after considering the effects of inflation and the impact of the growth in the assets of the Company when compared to the same periods in 2000. The annualized ratio of expenses to average assets for the three and six month periods ended March 31, 2001 was 1.09%. Income Taxes ------------ The Company made provisions for income taxes of $349,000 and $669,000 for the three and six-month periods ended March 31, 2001, respectively, compared to $439,000 and $870,000 for the comparable periods in 2000. These provisions are based on the levels of taxable income. Liquidity and Capital Resources The Company's net income for the quarter ended March 31, 2001 of $1,032,000 increased stockholder's equity to $32.7 million or 6.3% of total assets. This amount is well in excess of the Company's minimum regulatory capital requirements as illustrated below: (in thousands) Leveraged Risk-based ----------------- ----------------- Actual regulatory capital $32,733 6.3% $34,771 15.0% Minimum required regulatory capital 20,916 4.0% 18,513 8.0% ------- --- ------- ---- Excess capital $11,817 2.3% $16,258 7.0% The liquidity of the Company's operations, measured by the ratio of the cash and securities balances to total assets, equaled 43.4% at March 31, 2001 compared to 41.4% at September 30, 2000. As of March 31, 2001, the Company had $26.5 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 March 31, 2002 is $150 million. Management expects that a substantial portion of these maturing deposits will remain as accounts in the Company. 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 in interest rates. The principal determinant of the exposure of the Company's 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. The Company's 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 in interest rates, the Company remains vulnerable to material and prolonged increases in interest rates during periods in which its interest rate sensitive liabilities exceed its interest rate sensitive assets. 10 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 March 31, 2001, 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 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. 1 Year 1 to 3 3 to 5 Over 5 or less Years Years Years Total ---------- --------- --------- --------- --------- Interest-earning assets Mortgage loans $ 45,175 $ 35,690 $ 26,436 $ 106,678 $ 213,979 Mortgage-backed securities 46,320 23,114 13,549 58,907 141,890 Consumer and other loans 27,663 16,185 9,204 6,098 59,150 Investment securities and other investments 61,504 7,433 -- 32,557 101,494 --------- --------- --------- --------- --------- Total interest-earning assets 180,662 82,422 49,189 204,240 516,513 --------- --------- --------- --------- --------- Interest-bearing liabilities Passbook and Club accounts -- -- -- 2,302 2,302 NOW accounts -- -- -- 18,756 18,756 Money Market Deposit accounts 7,262 -- -- 47,321 54,583 Certificate accounts 150,045 92,065 7,561 -- 249,671 Borrowed money 49,471 54,311 19,905 37,017 160,704 --------- --------- --------- --------- --------- Total interest-bearing liabilities 206,778 146,376 27,466 105,396 486,016 --------- --------- --------- Repricing GAP during the period $ (26,116) $ (63,954) $ 21,723 $ 98,844 $ 30,497 ========= ========= ========= ========= ========= Cumulative GAP $ (26,116) $ (90,070) $ (68,347) $ 30,497 ========= ========= ========= ========= Ratio of GAP during the period to total assets -5.06% -12.38% 4.21% 19.14% ========= ========= ========= ========= Ratio of cumulative GAP to total assets -5.06% -17.44% -13.23% 5.90% ========= ========= ========= ========= 11 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 24, 2001. (c) There were 2,231,662 shares of Common Stock of the Company eligible to be voted at the Annual Meeting and 1,845,405 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 --------- -------- Sanford L. Alderfer 1,831,456 13,949 Mark R. Cummins 1,843,471 1,934 Ronald B. Geib 1,843,471 1,934 Name of each director whose term of office continued: George W. Meschter David J. Friesen Paul W. Barndt Phillip A. Clemens Edward J. Molnar 2. Proposal to ratify the appointment by the board of Deloitte & Touche, LLP as the Bank's independent auditors for the year ending September 30, 2001 FOR AGAINST ABSTAIN --- ------- ------- 1,843,299 - 2,106 3. Proposal to adopt Harleysville Savings Financial Corporation 2000 Stock Option Plan. FOR AGAINST ABSTAIN --- ------- ------- 1,780,596 43,264 21,545 Each of the proposals were adopted by the stockholders of the Bank. Item 1-5. Not applicable. --------------- Item 6. Exhibits and Reports on Form 8-K --------------------------------- None 12 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLEYSVILLE SAVINGS FINANCIAL CORPORATION Date: May 8, 2001 By: /s/ Edward J. Molnar --------------------------------------- Edward J. Molnar President and Chief Executive Officer Date: May 8, 2001 By: /s/ Brendan J. McGill --------------------------------------- Brendan J. McGill Senior Vice President Treasurer and Chief Financial Officer 13