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, 2001 ----------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------------------- Commission file number 0-29709 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION ------------------------------------------ (Exact name of registrant as specified in its charter) 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) (215) 256-8828 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------------------------------------ (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, 2,310,490 as of February 12, 2002 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION AND SUBSIDIARY Index ----- PAGE(S) ------- Part I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Consolidated Statements of Financial Condition as of December 31, 2001 and September 30, 2001 1 Unaudited Consolidated Statements of Income for the Three Months Ended December 31, 2001 and 2000 2 Unaudited Consolidated Statement of Stockholders' Equity for the Three Months Ended December 31, 2001 3 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2001 and 2000 4 Notes to Unaudited 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 - 12 Part II OTHER INFORMATION Item 1. - 6. 13 Signatures 14 Harleysville Savings Financial Corporation Unaudited Consolidated Statements of Financial Condition December 31, September 30, 2001 2001 ------------- ------------- Assets Cash and amounts due from depository institutions $ 1,740,101 $ 1,360,099 Interest bearing deposits in other banks 11,021,056 7,588,033 ------------- ------------- Total cash and cash equivalents 12,761,157 8,948,132 Investment securities held to maturity (fair value - December 31, $50,174,000; September 30, $63,568,000) 49,457,013 62,202,405 Investment securities available-for-sale at fair value 7,923,914 3,293,981 Mortgage-backed securities held to maturity (fair value - December 31, $179,883,000; September 30, $171,236,000) 178,465,415 167,726,725 Mortgage-backed securities available-for-sale at fair value 2,996,250 -- Loans receivable (net of allowance for loan losses - December 31, $2,036,000; September 30, $2,036,000) 296,417,411 290,213,221 Accrued interest receivable 2,772,925 3,402,945 Federal Home Loan Bank stock - at cost 9,171,400 8,950,200 Office properties and equipment 5,157,343 5,224,482 Deferred income taxes 261,088 260,041 Prepaid expenses and other assets 8,599,317 8,165,985 ------------- ------------- TOTAL ASSETS $ 573,983,233 $ 558,388,117 ============= ============= Liabilities and Stockholders' Equity Liabilities: Deposits $ 352,224,615 $ 350,146,555 Advances from Federal Home Loan Bank 182,732,650 171,309,384 Accrued interest payable 842,675 727,501 Advances from borrowers for taxes and insurance 2,562,845 979,964 Accounts payable and accrued expenses 700,533 960,825 ------------- ------------- Total liabilities 539,063,318 524,124,229 ------------- ------------- 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. 2001, 2,307,212; Sept. 2001, 2,306,455 23,072 23,065 Paid-in capital in excess of par 7,379,435 7,358,681 Treasury stock, at cost (Dec. 2001, 73,872 shares; Sept. 2001, 65,659) (1,103,131) (1,024,733) Retained earnings - partially restricted 28,637,879 27,922,182 Accumulated other comprehensive loss (17,340) (15,307) ------------- ------------- Total stockholders' equity 34,919,915 34,263,888 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 573,983,233 $ 558,388,117 ============= ============= See notes to unaudited consolidated financial statements -1- Harleysville Savings Financial Corporation Unaudited Consolidated Statements of Income For the Three Months Ended December 31, --------------------------- 2001 2000 ---- ---- INTEREST INCOME: Interest on mortgage loans $4,516,866 $4,038,391 Interest on mortgage-backed securities 2,384,928 2,353,786 Interest on consumer and other loans 982,688 1,087,018 Interest and dividends on investments 1,053,666 1,419,582 ---------- ---------- Total interest income 8,938,148 8,898,777 ---------- ---------- Interest Expense: Interest on deposits 3,890,004 4,112,080 Interest on borrowings 2,555,812 2,428,705 ---------- ---------- Total interest expense 6,445,816 6,540,785 ---------- ---------- Net Interest Income 2,492,332 2,357,992 Provision for loan losses -- -- ---------- ---------- Net Interest Income after Provision for Loan Losses 2,492,332 2,357,992 ---------- ---------- Other Income: Other income 268,413 224,108 ---------- ---------- Total other income 268,413 224,108 ---------- ---------- Other Expenses: Salaries and employee benefits 810,064 707,287 Occupancy and equipment 320,864 262,604 Deposit insurance premiums 15,628 15,772 Other 380,143 376,213 ---------- ---------- Total other expenses 1,526,699 1,361,876 ---------- ---------- Income before Income Taxes 1,234,046 1,220,224 Income tax expense 228,867 319,800 ---------- ---------- Net Income $1,005,179 $ 900,424 ========== ========== Basic Earnings Per Share $ 0.45 $ 0.40 ========== ========== Diluted Earnings Per Share $ 0.44 $ 0.40 ========== ========== Dividends Per Share $ 0.13 $ 0.12 ========== ========== See notes to unaudited consolidated financial statements. -2- Harleysville Savings Financial Corporation Unaudited 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, 2001 $ 23,065 $ 7,358,681 $(1,024,733) $27,922,182 $ (15,307) $34,263,888 =========== =========== =========== =========== =========== =========== Net Income 1,005,179 1,005,179 Issuance of Common Stock: 7 20,754 20,761 Dividends - $.13 per share (289,482) (289,482) Treasury stock aquired (78,398) (78,398) Unrealized holding loss on available-for- sale securities, net of tax (2,033) (2,033) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2001 $ 23,072 $ 7,379,435 $(1,103,131) $28,637,879 $ (17,340) $34,919,915 =========== =========== =========== =========== =========== =========== See notes to unaudited consolidated financial statements. -3- Harleysville Savings Financial Corporation Unaudited Consolidated Statements of Cash Flows Three Months Ended December 31, 2001 2000 ---- ---- Operating Activities: Net Income $ 1,005,179 $ 900,424 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 123,901 116,559 (Increase) decrease in deferred income taxes (7,885) 49,369 Amortization of deferred loan fees (64,163) (47,182) Changes in assets and liabilities which (used) provided cash: Decrease in accounts payable and accrued expenses and income taxes payable (260,292) (72,237) (Increase) decrease in prepaid expenses and other assets (433,332) 399,117 Decrease (increase) in accrued interest receivable 630,020 (125,079) Increase in accrued interest payable 115,174 305,533 ------------ ------------ Net cash provided by operating activities 1,108,602 1,526,504 ------------ ------------ Investing Activities: Purchase of investment securities held to maturity (13,154,845) (2,310,359) Proceeds from maturities of investment securities 25,900,237 Purchase of investment securities available for sale (4,629,933) (404,230) Purchase of FHLB stock (221,200) (903,200) Long-term loans originated or acquired (33,759,241) (16,692,876) Purchase of mortgage-backed securities held to maturity (17,986,847) (20,206,247) Purchase of mortgage-backed securities available for sale (2,996,250) Principal collected on long-term loans & mortgage-backed securities 34,872,177 18,528,174 Purchases of premises and equipment (56,762) (130,068) ------------ ------------ Net cash used in investing activities (12,032,664) (22,118,806) ------------ ------------ Financing Activities: Net increase increase in demand deposits, NOW accounts and savings accounts 8,048,274 3,473,707 Net decrease in certificates of deposit (5,970,215) (474,441) Cash dividends (289,482) (267,835) Net increase in FHLB advances 11,423,266 18,663,434 Purchase of treasury stock (78,398) (186,261) Net proceeds from issuance of stock 20,761 7,256 Net increase in advances from borrowers for taxes & insurance 1,582,881 1,533,578 ------------ ------------ Net cash provided by financing activities 14,737,087 22,749,438 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 3,813,025 2,157,136 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,948,132 4,080,202 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,761,157 $ 6,237,338 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 276,629 $ 3,028 Interest expense 6,560,990 6,235,252 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 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, 2001 are not necessarily indicative of the results which may be expected for the entire fiscal year. Comprehensive Income - Comprehensive income for the three month periods ended December 31, 2001 and 2000, was approximately $1,003,000 and $864,000, respectively. 2. INVESTMENT SECURITIES HELD TO MATURITY A comparison of cost and approximate fair value of investment securities, by maturities, is as follows: December 31, 2001 --------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value --------------------------------------------------------------------------------------------------------------------- U.S. Government agencies Due after 2 years through 5 years $ 8,997,255 $ 3,705 (16,960) $ 8,984,000 Due after 5 years through 10 years 3,000,000 145,000 -- 3,145,000 Due after 10 years through 15 years 11,457,534 213,466 -- 11,671,000 Tax Exempt Obligations Due after 15 years 26,002,224 578,875 (207,099) 26,374,000 ----------- ----------- ----------- ----------- Total Investment Securities $49,457,013 $ 941,046 $ (224,059) $50,174,000 =========== =========== =========== =========== September 30, 2001 --------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value --------------------------------------------------------------------------------------------------------------------- U.S. Government agencies Due after 2 years through 5 years $ 1,000,000 $ -- $ 1,000,000 Due after 5 years through 10 years 12,985,052 $ 214,948 -- 13,200,000 Due after 10 years through 15 years 24,446,500 304,500 -- 24,751,000 Tax Exempt Obligations Due after 15 years 23,770,853 846,147 -- 24,617,000 ------------ ----------- ----------- ----------- Total Investment Securities $ 62,202,405 $ 1,365,595 $ -- $63,568,000 ============ =========== =========== =========== The Company has the positive intent and the ability to hold these securities to maturity. At December 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: December 31, 2001 --------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value --------------------------------------------------------------------------------------------------------------------------- ARM Mutual Funds $ 7,950,186 $ -- $ (26,272) $ 7,923,914 ----------- ------------- --------- ----------- Total Investment Securities $ 7,950,186 $ -- $ (26,272) $ 7,923,914 =========== ============= ========= =========== September 30, 2001 --------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value --------------------------------------------------------------------------------------------------------------------------- ARM Mutual Funds $ 3,317,173 $ -- $ (23,192) $ 3,293,981 ----------- ------------ --------- ----------- Total Investment Securities $ 3,317,173 $ -- $ (23,192) $ 3,293,981 =========== ============ ========= =========== 4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY A comparison of cost and approximate fair value of mortgage-backed securities is as follows: December 31, 2001 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- Collateralized mortgage obligations $69,574,239 $ 635,130 $ (375,369) $69,834,000 FHLMC pass-through certificates 28,449,190 264,170 (77,360) 28,636,000 FNMA pass-through certificates 18,417,608 246,217 (825) 18,663,000 GNMA pass-through certificates 62,024,378 737,454 (11,832) 62,750,000 ------------ ------------ ---------- ------------ Total Mortgage-backed Securities $178,465,415 $ 1,882,971 $ (465,386) $179,883,000 ============ ============ ========== ============ September 30, 2001 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- Collateralized mortgage obligations $68,183,560 $ 887,139 $ (181,699) $68,889,000 FHLMC pass-through certificates 14,315,089 544,911 -- 14,860,000 FNMA pass-through certificates 19,714,010 528,990 -- 20,243,000 GNMA pass-through certificates 65,514,066 1,729,934 -- 67,244,000 ------------ ------------ ---------- ------------ Total Mortgage-backed Securities $167,726,725 $ 3,690,974 $ (181,699) $171,236,000 ============ ============ ========== ============ 5. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE A comparison of cost and approximate fair value of mortgage-backed securities is as follows: December 31, 2001 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- FNMA pass-through certificates $ 2,996,250 $ -- $ -- $ 2,996,250 ------------ ------------ ---------- ------------ Total Mortgage-backed Securities $ 2,996,250 $ -- $ -- $ 2,996,250 ============ ============ ========== ============ -6- 6. LOANS RECEIVABLE Loans receivable consist of the following: December 31, 2001 September 30, 2001 ----------------- ------------------ Residential Mortgages $ 237,974,503 $ 233,290,694 Commercial Mortgages 585,511 785,923 Construction 10,967,383 14,649,063 Education 1,360,802 1,041,197 Savings Account 641,053 617,244 Home Equity 43,240,152 43,401,198 Automobile and other 657,586 628,752 Line of Credit 11,923,130 9,806,918 ------------- ------------- Total 307,350,120 304,220,989 Undisbursed portion of loans in process (6,814,864) (9,919,306) Deferred loan fees (2,081,557) (2,052,274) Allowance for loan losses (2,036,288) (2,036,188) ------------- ------------- Loans receivable - net $ 296,417,411 $ 290,213,221 ============= ============= The total amount of loans being serviced for the benefit of others was approximately $4.1 million and $4.9 million at December 31, 2001 and September 30, 2001, respectively. The following schedule summarizes the changes in the allowance for loan losses: Three Months Ended December 31, ------------------------------- 2001 2000 ---- ---- Balance, beginning of period $ 2,036,188 $ 2,038,131 Provision for loan losses -- -- Amounts recovered 100 -- ----------- ----------- Balance, end of period $ 2,036,288 $ 2,038,131 =========== =========== 7. OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are summarized by major classification as follows: December 31, 2001 September 30, 2001 ----------------- ------------------ Land and buildings $ 5,088,965 $ 5,081,110 Furniture, fixtures and equipment 3,292,060 3,243,153 Automobiles 56,164 56,164 ----------- ----------- Total 8,437,189 8,380,427 Less accumulated depreciation (3,279,846) (3,155,945) ----------- ----------- Net $ 5,157,343 $ 5,224,482 =========== =========== 8. DEPOSITS Deposits are summarized as follows: December 31, 2001 September 30, 2001 ----------------- ------------------ NOW accounts $ 7,951,950 $ 12,280,113 Checking accounts 12,515,239 6,859,090 Money Market Demand accounts 74,504,379 67,941,336 Passbook and Club accounts 2,692,329 2,535,083 Certificate accounts 254,560,718 260,530,933 ------------- ------------- Total deposits $ 352,224,615 $ 350,146,555 ============= ============= The aggregate amount of certificate accounts in denominations of more than $100,000 at December 31, 2001 amounted to approximately $15.8 million. -7- 9. COMMITMENTS At December 31, 2001, the following commitments were outstanding: Origination of fixed-rate mortgage loans $ 8,511,742 Origination of adjustable-rate mortgage loans 855,500 Unused line of credit loans 16,676,487 Loans in process 6,814,864 ----------- Total $32,858,593 =========== 10. DIVIDEND On January 23, 2002, the Board of Directors declared a cash dividend of $.13 per share payable on February 20, 2002 to the stockholders' of record at the close of business on February 6, 2002. 11. EARNINGS PER SHARE The following average shares were used for the computation of earnings per share: For the Three Months Ended December 31, -------------------------------------- 2001 2000 ---- ---- Basic 2,233,025 2,229,776 Diluted 2,270,338 2,254,042 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. -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, 2001 Total assets at December 31, 2001 were $574 million, an increase of $15.6 million or 2.8% for the three month period. This increase was primarily the result of an increase in mortgage-backed securities and loans receivable of approximately $13.7 and $6.2 million, respectively. The remainder was due to an increase in cash of approximately $3.8 million. During the three month period ended December 31, 2001, total deposits increased by $2.1 million to $352.2 million. Advances from borrowers for taxes and insurance also increased by $1.6 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 $11.4 million, which was used to fund the purchase of investment securities and fund loans. Comparisons of Results of Operations for the Three Month Period Ended December 31, 2001 with the Three Month Period Ended December 31, 2000. Net Interest Income The increase in the net interest income for the three month period ended December 31, 2001 when compared to the same period in 2000 can be attributed to the increase in interest earning assets and the decrease in interest expense on deposits. The interest rate spread decreased from 1.67% for the three month period ended December 31, 2000 to 1.59% for the comparable period ended December 31, 2001. Total interest income was $8.9 million for the three month period ended December 31, 2001 compared to $8.9 million for the comparable period in 2000. 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 6.52% for the three month period ended December 31, 2001 from 7.33% for the comparable period in 2000. Total interest expense decreased to $6.4 million for the three month period ended December 31, 2001 from $6.5 million for the comparable period in 2000. This decrease was the result of a decrease in the average cost on interest-bearing liabilities from 5.66% for the three month period ended December 31, 2000 to 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, 2001 when compared to the same period ended December 31, 2000. This was partially offset by an increase in the average interest-bearing liabilities from $462.4 million for the three month period ended December 31, 2000 to $522.6 million for the comparable period ended December 31, 2001. -9- Other Income Other income increased to $268,000 for the three month period ended December 31, 2001 from $224,000 for the comparable period in 2000. The increase is due to an increase in the number of mortgage late charges and additional income from Bank Owned Life Insurance. Other Expenses During the quarter ended December 31, 2001, other expenses increased by $164,000 or 12.3% to $1.5 million. Management believes these are reasonable increases in the cost of operations after considering the effects of inflation, the impact of the 12% growth in the assets of the Company and the opening of a new branch when compared to the same period in 2000. The annualized ratio of expenses to average assets for the three month period ended December 31, 2001 and 2000 was 1.08%. Income Taxes The Company made provisions for income taxes of $229,000 for the three month period ended December 31, 2001 compared to $320,000 for the comparable period in 2000. The primary reason for the decrease in the percentage of tax expense in 2001 was the increase in tax-free income resulting from purchases of tax-exempt securities. Liquidity and Capital Resources The Company's net income for the quarter ended December 31, 2001 of $1,005,000 increased stockholders' equity to $35.0 million or 6.2% 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 $34,936 6.2% $36,972 14.7% Minimum required regulatory capital 22,664 4.0% 20,064 8.0% Excess capital $12,272 2.2% $16,908 6.7% The liquidity of the Company's operations, measured by the ratio of the cash and securities balances to total assets, equaled 43.8% at December 31, 2001 compared to 43.7% at September 30, 2001. As of December 31, 2001, the Company had $32.9 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, 2002, is $176.7 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 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. -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 December 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 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. -11- 1 Year 1 to 3 3 to 5 Over 5 or less Years Years Years Total --------- --------- --------- --------- --------- Interest-earning assets Mortgage loans $ 40,802 $ 35,383 $ 27,301 $ 133,262 $ 236,748 Mortgage-backed securities 76,507 19,942 16,152 68,861 181,462 Consumer and other loans 28,919 15,843 8,981 5,933 59,676 Investment securities and other investments 48,741 3,000 -- 35,110 86,851 --------- --------- --------- --------- --------- Total interest-earning assets 194,969 74,168 52,434 243,166 564,737 --------- --------- --------- --------- --------- Interest-bearing liabilities Passbook and Club accounts -- -- -- 2,692 2,692 NOW accounts -- -- -- 20,467 20,467 Money Market Deposit accounts -- -- -- 27,929 27,929 Choice Savings 11,644 34,932 46,576 Certificate accounts 176,651 64,725 13,185 -- 254,561 Borrowed money 25,042 41,354 29,784 86,553 182,733 --------- --------- --------- --------- --------- Total interest-bearing liabilities 213,337 106,079 42,969 172,573 534,958 --------- --------- --------- --------- --------- Repricing GAP during the period $ (18,368) $ (31,911) $ 9,465 $ 70,593 $ 29,779 ========= ========= ========= ========= ========= Cumulative GAP $ (18,368) $ (50,279) $ (40,814) $ 29,779 ========= ========= ========= ========= Ratio of GAP during the period to total assets -3.25% -5.65% 1.68% 12.50% ========= ========= ========= ========= Ratio of cumulative GAP to total assets -3.25% -8.90% -7.23% 5.27% ========= ========= ========= ========= -12- 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 23, 2002 (c) There were 2,232,291 shares of Common Stock of the Company eligible to be voted at the Annual Meeting and 1,785,532 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 ---------- -------- Paul W. Barndt 1,784,662 870 Philip A. Clemens 1,785,072 460 Edward J. Molnar 1,785,072 460 Name of each director whose term of office continued: Sanford L. Alderfer Mark R. Cummins David J. Friesen George W. Meschter 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, 2002 FOR AGAINST ABSTAIN --------- ------- ------- 1,781,994 410 3,128 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 -13- 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: February 12, 2002 By: /s/ Edward J. Molnar --------------------------------------- Edward J. Molnar President and Chief Executive Officer Date: February 12, 2002 By: /s/ Brendan J. McGill --------------------------------------- Brendan J. McGill Senior Vice President Treasurer and Chief Financial Officer -14-