UNITED STATES
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 June 30, 2008
-------------------------------------------
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 |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer" "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |X| No |_|
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, 3,553,533 shares outstanding as of August 13, 2008
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
June 30, 2008 and September 30, 2007 1
Unaudited Consolidated Statements of Income for the Three and Nine
Months Ended June 30, 2008 and 2007 2
Unaudited Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended June 30, 2008 and 2007 3
Unaudited Consolidated Statements of Stockholders' Equity for the Nine
Months Ended June 30, 2008 and June 30, 2007 4
Unaudited Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2008 and 2007 5
Notes to Unaudited Consolidated Financial Statements 6 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 - 19
Item 4. Controls and Procedures 19
Part II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other information 20
Item 6. Exhibits 20
Signatures 21
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Financial Condition
June 30, September 30,
(In thousands, except share data) 2008 2007
------------- -------------
Assets
Cash and amounts due from depository institutions $ 2,203 $ 1,647
Interest bearing deposits in other banks 7,285 6,670
------------- -------------
Total cash and cash equivalents 9,488 8,317
Investment securities held to maturity (fair value -
June 30, $89,739; September 30, $109,305) 88,701 108,693
Investment securities available-for-sale at fair value 1,149 1,910
Mortgage-backed securities held to maturity (fair value -
June 30, $220,769; September 30, $188,612) 224,119 192,842
Mortgage-backed securities available-for-sale at fair value 797 817
Loans receivable (net of allowance for loan losses -
June 30, $1,960; September 30, $1,932) 456,132 419,053
Accrued interest receivable 4,006 4,047
Federal Home Loan Bank stock - at cost 15,153 14,140
Office properties and equipment, net 10,128 9,917
Prepaid expenses and other assets 14,982 13,808
------------- -------------
TOTAL ASSETS $ 824,655 $ 773,544
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 440,921 $ 424,035
Advances 329,154 298,609
Accrued interest payable 1,567 1,556
Advances from borrowers for taxes and insurance 5,670 1,247
Accounts payable and accrued expenses 1,340 1,056
------------- -------------
Total liabilities 778,652 726,503
------------- -------------
Stockholders' equity:
Preferred Stock: $.01 par value;
12,500,000 shares authorized; none issued
Common stock: $.01 par value; 25,000,000 shares authorized;
3,921,177 shares issued 39 39
Additional paid-in capital 8,009 8,044
Treasury stock, at cost (June 30, 2008 367,644 shares; September 30 2007, 203,658) (5,215) (3,316)
Retained earnings - partially restricted 43,366 42,363
Accumulated other comprehensive loss (196) (89)
------------- -------------
Total stockholders' equity 46,003 47,041
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 824,655 $ 773,544
============= =============
See notes to unaudited consolidated financial statements.
page -1-
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Income
For the Three Months Ended For the Nine Months Ended
(In thousands,except per share data) June 30, June 30,
--------------------------- ---------------------------
2008 2007 2008 2007
---- ---- ---- ----
INTEREST INCOME:
Interest on mortgage loans $ 4,797 $ 4,346 $ 14,053 $ 12,781
Interest on commerical loans 449 206 1,166 359
Interest on mortgage-backed securities 2,724 2,264 7,442 7,043
Interest on consumer and other loans 1,373 1,507 4,356 4,512
Interest on taxable investments 1,114 1,389 3,943 3,975
Interest on tax-exempt investments 345 387 1,043 1,137
Dividends on investment securities 10 16 32 40
---------- ---------- ---------- ----------
Total interest income 10,812 10,115 32,035 29,847
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 3,685 3,978 11,997 11,506
Interest on borrowings 3,371 3,271 10,209 9,728
---------- ---------- ---------- ----------
Total interest expense 7,056 7,249 22,206 21,234
---------- ---------- ---------- ----------
Net Interest Income 3,756 2,866 9,829 8,613
Provision for loan losses 35 -- 40 --
---------- ---------- ---------- ----------
Net Interest Income after Provision
for Loan Losses 3,721 2,866 9,789 8,613
---------- ---------- ---------- ----------
Other Income:
Customer service fees 156 157 460 414
Impairment of equity securities (252) -- (252) --
Gain on sale of investments -- -- 4 160
Income on bank-owned life insurance 120 119 372 353
Other income 177 199 583 486
---------- ---------- ---------- ----------
Total other income 201 475 1,167 1,413
---------- ---------- ---------- ----------
Other Expenses:
Salaries and employee benefits 1,437 1,202 4,195 3,758
Occupancy and equipment 289 293 817 819
Deposit insurance premiums 12 13 37 39
Data processing 186 145 434 433
Other 630 663 1,882 1,841
---------- ---------- ---------- ----------
Total other expenses 2,554 2,316 7,365 6,890
---------- ---------- ---------- ----------
Income before Income Taxes 1,368 1,025 3,591 3,136
Income tax expense 332 211 720 661
---------- ---------- ---------- ----------
Net Income $ 1,036 $ 814 $ 2,871 $ 2,475
========== ========== ========== ==========
Basic Earnings Per Share $ 0.29 $ 0.21 $ 0.78 $ 0.64
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.29 $ 0.21 $ 0.77 $ 0.63
========== ========== ========== ==========
Dividends Per Share $ 0.17 $ 0.17 $ 0.51 $ 0.51
========== ========== ========== ==========
See notes to unaudited consolidated financial statements.
page -2-
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended
30-Jun
(In thousands) 2008 2007
------------------------------------------------------------------------------------------------------------------
Net Income $ 1,036 $ 814
Other Comprehensive Income
Unrealized gain (loss) on securities net of tax
2008, $2; 2007, $(21) 4(1) (40)
------------ ------------
Total Comprehensive Income $ 1,040 $ 774
============ ============
(1) Disclosure of reclassification amount, net of tax for the three months ended: 2008 2007
---- ----
Net unrealized loss arising during the three months ended $ (246) $ (61)
Reclassification adjustment for net loses included in net income 252 --
------------ ------------
$ 6 $ (61)
Tax (expense) benefit (2) 21
------------ ------------
Net unrealized gain (loss) on securities $ 4 $ (40)
============ ============
Nine Months Ended
30-Jun
2008 2007
------------------------------------------------------------------------------------------------------------------
Net Income $ 2,871 $ 2,475
Other Comprehensive Income
Unrealized loss on securities net of tax benefit
2008, $55; 2007, $22 (107)(1) (42)
------------ ------------
Total Comprehensive Income $ 2,764 $ 2,433
============ ============
(1) Disclosure of reclassification amount, net of tax for the nine months ended: 2008 2007
---- ----
Net unrealized gain (loss) arising during the nine months ended $ (410) $ 96
Reclassification adjustment for net losses (gains) included in net income 248 (160)
------------ ------------
$ (162) $ (64)
Tax benefit 55 22
------------ ------------
Net unrealized loss on security available for sale (107) $ (42)
============ ============
See notes to unaudited consolidated financial statements.
page -3-
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Stockholders' Equity
Retained Accumulated
(In thousands, except Common Additional Earnings- Other Total
share and per share data) Stock Common Paid-in Treasury Partially Comprehensive Stockholders'
Shares Stock Capital Stock Restricted Loss Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at October 1, 2007 3,921,177 $ 39 $ 8,044 $ (3,316) $ 42,363 $ (89) $ 47,041
Net Income 2,871 2,871
Dividends declared - $.51 per share (1,868) (1,868)
Stock Option Compensation 88 88
Treasury stock purchased (205,358 shares) (2,557) (2,557)
Treasury stock issued for stock options
exercised (2,250 shares) (19) 38 19
Treasury Stock issued under
Dividend Reinvestment Plan (31,122 shares) (78) 487 409
Treasury stock delivered under
employee stock plan (8,000 shares) (26) 133 107
Change in unrealized holding loss on
available - for- sale securities, net
of tax (107) (107)
--------- -------- -------- -------- --------- --------- --------
Balance at June 30, 2008 3,921,177 $ 39 $ 8,009 $ (5,215) $ 43,366 $ (196) $ 46,003
========= ======== ======== ======== ========= ========= ========
Retained Accumulated
Common Additional Earnings- Other Total
Stock Common Paid-in Treasury Partially Comprehensive Stockholders'
Shares Stock Capital Stock Restricted Loss Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at October 1, 2006 3,921,177 $ 39 $ 7,992 $ (1,262) $ 41,715 $ (12) $ 48,472
Net Income 2,475 2,475
Dividends declared - $.51 per share (1,967) (1,967)
Stock Option Compensation 77 77
Treasury stock purchased (25,996 shares) (434) (434)
Treasury stock issued for stock options
exercised (3,751 shares) (16) 65 49
Treasury Stock issued under
Dividend Reinvestment Plan (24,361 shares) (7) 423 416
Change in unrealized holding loss on
available - for- sale securities, net
of tax (42) (42)
--------- -------- -------- -------- --------- --------- --------
Balance at June 30, 2007 3,921,177 $ 39 $ 8,046 $ (1,208) $ 42,223 $ (54) $ 49,046
========= ======== ======== ======== ========= ========= ========
See notes to unaudited consolidated financial statement.
page -4-
Harleysville Savings Financial Corporation
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended June 30,
--------------------------
(In thousands) 2008 2007
---- ----
Operating Activities:
Net Income $ 2,871 $ 2,475
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 387 384
Provision for loan losses 40 --
Gain on sale of securities (4) (160)
Loss on impairment of securities 252 --
Amortization of deferred loan fees 12 2
Net amortization of premiums and discounts 122 193
Increase in cash surrender value (372) (353)
Compensation charge on stock options 88 77
Changes in assets and liabilities which provided (used) cash:
Increase in accounts payable and accrued expenses 284 687
Increase in prepaid expenses and other assets (804) (684)
Decrease (increase) in accrued interest receivable 41 (119)
Increase (decrease) in accrued interest payable 11 (107)
----------- -----------
Net cash provided by operating activities 2,928 2,395
Investing Activities:
Purchase of investment securities held to maturity (20,997) (19,918)
Purchase of mortgage-backed securities held to maturity (61,396) (20,939)
Purchase of investment securities available for sale -- (466)
Proceeds from maturities of investment securities available-for-sale 422 5,414
(Purchase) Proceeds from redemption of FHLB stock (1,012) 1,482
Proceeds from maturities of investment securities held to maturity 31,818 22,264
Principal collected on mortgage-backed securities 39,172 35,318
Principal collected on long-term loans 66,039 68,720
Long-term loans originated or acquired (103,170) (93,360)
Purchases of premises and equipment (597) (2,307)
----------- -----------
Net cash used in investing activities (49,721) (3,792)
Financing Activities:
Net increase in demand deposits, NOW accounts
and savings accounts 5,302 8,088
Net increase (decrease) in certificates of deposit 11,584 (4,268)
Cash dividends (1,459) (1,551)
Proceeds from long-term debt 182,300 25,000
Repayment of long-term debt (151,755) (31,594)
Treasury stock delivered under employee stock plans 126 49
Acquisition of Treasury stock (2,557) (433)
Net increase in advances from borrowers for taxes and insurance 4,423 4,118
----------- -----------
Net cash provided by (used in) financing activities 47,964 (591)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,171 (1,988)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,317 10,050
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,488 $ 8,062
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (credited and paid) $ 22,195 $ 21,341
Income taxes 683 556
See notes to unaudited consolidated financial statements.
page -5-
Harleysville Savings Financial Corporation
Notes to Unaudited Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -The unaudited condensed consolidated financial statements
include the accounts of Harleysville Savings Financial Corporation (the
"Company") and its subsidiary. Harleysville Savings Bank (the "Bank") is the
wholly owned subsidiary of the Company. The accompanying consolidated financial
statements include the accounts of the Company, the Bank, and the Bank's wholly
owned subsidiaries, HSB Inc, a Delaware corporation which was formed in order to
hold certain assets, Freedom Financial LLC that allows the Company to offer non
deposit products and HARL LLC that allows the Bank to invest in equity
investments. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited consolidated 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 of the consolidated
financial statements have been included. The results of operations for the three
and nine months ended June 30, 2008 are not necessarily indicative of the
results which may be expected for the entire fiscal year ending September 30,
2008 or any other period. The financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the period ended
September 30, 2007.
Use of Estimates in Preparation of Consolidated Financial Statements - The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. The most significant of these estimates is
the allowance for loan losses. Actual results could differ from those estimates.
Recent Accounting Pronouncements - In July 2006, the FASB issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of SFAS Statement No. 109 ("FIN 48"). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken in a tax return. The Company
must presume the tax position will be examined by the relevant tax authority and
determine whether it is more likely than not that the tax position will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. A tax
position that meets the more-likely-than-not recognition threshold is measured
to determine the amount of benefit to recognize in the financial statements. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The cumulative
effect of applying the provisions of FIN 48 represents a change in accounting
principle and shall be reported as an adjustment to the opening balance of
retained earnings. In May 2007, the FASB issued FASB Staff Position ("FSP") FIN
48-1 "Definition of Settlement in
page -6-
FASB Interpretation No. 48" (FSP FIN 48-1). FSP FIN 48-1 provides guidance on
how to determine whether a tax position is effectively settled for the purpose
of recognizing previously unrecognized tax benefits. There was no impact on the
Company's financial statements upon adoption of FIN 48 as of October 1, 2007.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. The changes to current practice
resulting from the application of SFAS No. 157 relate to the definition of fair
value, the methods used to measure fair value and the expanded disclosures about
fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. Earlier application
is encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including financial statements for an interim
period within that fiscal year. The provisions of SFAS No. 157 should be applied
prospectively as of the beginning of the fiscal year in which it is initially
applied, except for certain financial instruments which require retrospective
application as of the beginning of the fiscal year of initial application (a
limited form of retrospective application). The transition adjustment, measured
as the difference between the carrying amounts and the fair values of those
financial instruments at the date SFAS No. 157 is initially applied, should be
recognized as a cumulative-effect adjustment to the opening balance of retained
earnings. The Company is currently evaluating the impact of adopting SFAS No.
157 on its Consolidated Financial Statements.
In February 2000, the FASB issued FASB Staff Position (FSP) 157-2, "Effective
Date of FASB Statement No. 157," that would permit a one-year deferral in
applying the measurement provisions of Statement No. 157 to non-financial assets
and non-financial liabilities (non-financial items) that are not recognized or
disclosed at fair value in an entity's financial statements on a recurring basis
(at least annually). Therefore, if the change in fair value of a non-financial
item is not required to be recognized or disclosed in the financial statements
on an annual basis or more frequently, the effective date of application of
Statement 157 to that item is deferred until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years. This deferral
does not apply, however, to an entity that applies Statement 157 in interim or
annual financial statements before FSP 157-2 is effective. The Company is
currently evaluating the impact, if any, that the adoption of FSP 157-2 will
have on the Company's operating income or net earnings.
In September 2006, the Emerging Issues Task Force (EITF) of FASB issued EITF
Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance Arrangements" (EITF 06-04).
EITF 06-4 requires the recognition of a liability related to the postretirement
benefits covered by an endorsement split-dollar life insurance arrangement. The
consensus highlights that the employer (who is also the policyholder) has a
liability for the benefit it is providing to its employee. As such, if the
policyholder has agreed to maintain the insurance policy in force for the
employee's benefit during his or her retirement, then the liability recognized
during the employee's active service period should be based on the future cost
of insurance to be incurred during the employee's retirement. Alternatively, if
the policyholder has agreed to provide the employee with a death benefit, then
the liability for the future death benefit should be recognized by following the
guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as
appropriate. For transition, an entity can choose to apply the guidance using
either of the
page -7-
following approaches: (a) a change in accounting principle through retrospective
application to all periods presented or (b) a change in accounting principle
through a cumulative-effect adjustment to the balance in retained earnings at
the beginning of the year of adoption. The EITF 06-4 is effective for fiscal
years beginning after December 15, 2007, with early adoption permitted. The
Company is continuing to evaluate the impact of this statement on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for our Company October 1, 2008. The Company is evaluating the impact
that the adoption of SFAS No. 159 will have on our consolidated financial
statements.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
"Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements"
(EITF 06-10). EITF 06-10 provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and measurement of the
associated asset on the basis of the terms of the collateral assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007. The Company is currently assessing the impact of EITF 06-10 on its
consolidated financial position and results of operations.
In December of 2007, FASB issued statement No. 141 (R) "Business Combinations".
This Statement establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The Statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective as of the beginning of a company's fiscal year beginning after
December 15, 2008. The new pronouncement will impact the Company's accounting
for business combinations completed beginning October 1, 2009.
In December 2007, FASB issued statement No. 160 "Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51". This Statement
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of a company's fiscal year beginning after
December 15, 2008. The Company believes that this new pronouncement will have an
immaterial impact on the Company's financial statements in future periods.
In March 2008, the FASB issued Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities--an amendment of FASB Statement No. 133"
(Statement 161). Statement 161 requires entities that utilize derivative
instruments to provide qualitative disclosures about their objectives and
strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within derivatives. Statement
161 also requires entities to disclose additional information about the amounts
and location of derivatives located within the financial statements, how the
provisions of SFAS 133 have been applied, and
page -8-
the impact that hedges have on an entity's financial position, financial
performance, and cash flows. Statement 161 is effective for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company is currently evaluating the potential impact the new
pronouncement will have on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles." The Company is currently evaluating
the potential impact the new pronouncement will have on its consolidated
financial statements.
page -9-
2. INVESTMENT SECURITIES HELD TO MATURITY
A comparison of amortized cost and approximate fair value of investment
securities held to maturity with gross unrealized gains and losses is as
follows:
June 30, 2008
Gross Gross
Amortized Unrealized Unrealized Approximate
(In thousands) Cost Gains Losses Fair Value
--------------------------------------------------------------------------------------------------------
U.S. Government Agencies $ 63,786 $ 453 $ (63) $ 64,176
Tax-Exempt Obligations 24,915 919 (271) 25,563
---------- ---------- ---------- ----------
Total Investment Securities $ 88,701 $ 1,372 $ (334) $ 89,739
========== ========== ========== ==========
September 30, 2007
Gross Gross
Amortized Unrealized Unrealized Approximate
(In thousands) Cost Gains Losses Fair Value
--------------------------------------------------------------------------------------------------------
U.S. Government Agencies $ 83,155 $ 211 $ (533) $ 82,833
Tax Exempt Obligations 25,538 1,101 (167) 26,472
---------- ---------- ---------- ----------
Total Investment Securities $ 108,693 $ 1,312 $ (700) $ 109,305
========== ========== ========== ==========
page -10-
3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
A comparison of amortized cost and approximate fair value of investment
securities available-for-sale with unrealized gains and losses is as follows:
June 30, 2008
Gross Gross
Amortized Unrealized Unrealized
(In thousands) Cost Gains Losses Fair Value
-------------------------------------------------------------------------------------------------------------
Equity Securities $ 1,250 $ -- $ (309) $ 941
Money Market Mutual Funds 208 -- -- 208
----------- ----------- ----------- -----------
Total Investment Securities $ 1,458 $ -- $ (309) $ 1,149
=========== =========== =========== ===========
At June 30, 2008 the Company had 2 equity securities with unrealized losses of
$202,000 in this position for a time period greater than twelve months. The
Company also had 5 equity securities with unrealized losses of $107,000 in this
position for a time period less than twelve months. All these securities are
equity holdings of other financial institutions. The severity and duration of
the impairment is consistent with market developments in the financial industry.
Management believes these equity securities in an unrealized loss position will
recover in the foreseeable future. The Company evaluated the near-term prospects
of the issuers in relation to the severity and duration of the impairment. Based
on that evaluation the Company's ability and intent to hold those securities for
a reasonable period of time sufficient for a forecasted recovery of fair value,
the Company does not consider these equity securities to be
other-than-temporarily impaired.
September 30, 2007
Gross Gross
Amortized Unrealized Unrealized
(In thousands) Cost Gains Losses Fair Value
-------------------------------------------------------------------------------------------------------------
Equity Securities $ 1,501 $ 6 $ (173) $ 1,334
Money Market Mutual Funds 576 -- -- 576
----------- ----------- ----------- -----------
Total Investment Securities $ 2,077 $ 6 $ (173) $ 1,910
=========== =========== =========== ===========
page -11-
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
A comparison of amortized cost and approximate fair value of mortgage-backed
securities held to maturity with gross unrealized gains and losses is as
follows:
June 30,2008
Gross Gross
Amortized Unrealized Unrealized Approximate
(In thousands) Cost Gains Losses Fair Value
---------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $ 15,176 $ 9 $ (485) $ 14,700
FHLMC pass-through certificates 92,603 274 (1,305) 91,572
FNMA pass-through certificates 116,134 108 (1,953) 114,289
GNMA pass-through certificates 206 2 -- 208
----------- ----------- ----------- -----------
Total Mortgage-Backed Securities $ 224,119 $ 393 $ (3,743) $ 220,769
=========== =========== =========== ===========
September 30,2007
Gross Gross
Amortized Unrealized Unrealized Approximate
(In thousands) Cost Gains Losses Fair Value
---------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $ 16,471 $ 97 $ (299) $ 16,269
FHLMC pass-through certificates 89,533 164 (2,198) 87,499
FNMA pass-through certificates 86,586 12 (2,008) 84,590
GNMA pass-through certificates 252 2 -- 254
----------- ----------- ----------- -----------
Total Mortgage-Backed Securities $ 192,842 $ 275 $ (4,505) $ 188,612
=========== =========== =========== ===========
page -12-
5. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE
A comparison of amortized cost and approximate fair value of mortgage-backed
securities available-for-sales with gross unrealized gains and losses is as
follows:
June 30, 2008
Gross Gross
Amortized Unrealized Unrealized
(In thousands) Cost Gains Losses Fair Value
--------------------------------------------------------------------------------------------------------------
FNMA pass-through certificates $ 785 $ 12 $ -- $ 797
----------- ----------- ----------- -----------
Total Mortgage-Backed Securities $ 785 $ 12 $ -- $ 797
=========== =========== =========== ===========
September 30, 2007
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------------------------------------------------------------------------------------------------------
FNMA pass-through certificates $ 785 $ 32 $ -- $ 817
----------- ----------- ----------- -----------
Total Mortgage-Backed Securities $ 785 $ 32 $ -- $ 817
=========== =========== =========== ===========
6. LOANS RECEIVABLE
Loans receivable consist of the following:
(In thousands)
June 30, 2008 September 30, 2007
------------- ------------------
Residential Mortgages $ 332,259 $ 305,341
Commercial Mortgages 30,993 15,314
Construction 6,768 6,093
Savings Account 886 977
Home Equity 68,368 74,218
Automobile and other 1,006 904
Home Equity Line of Credit 24,383 21,386
----------- -----------
Total 464,663 424,233
Undisbursed portion of loans in process (6,119) (2,795)
Deferred loan fees (452) (453)
Allowance for loan losses (1,960) (1,932)
----------- -----------
Loans Receivable - net $ 456,132 $ 419,053
=========== ===========
The total amount of loans being serviced for the benefit of others was
approximately $3.0 million and $3.6 million at June 30, 2008 and September 30,
2007, respectively.
The following schedule summarizes the changes in the allowance for loan losses:
Nine Months Ended Year Ended
June 30, 2008 September 30, 2007
------------- ------------------
(In thousands)
--------------
Balance, beginning of period $ 1,932 $ 1,956
Provision for loan losses 40 --
Amounts charged-off (22) (37)
Loan recoveries 10 13
------- -------
Balance, end of period $ 1,960 $ 1,932
======= =======
page -13-
7. DEPOSITS
Deposits are summarized as follows:
(In thousands)
June 30,2008 September 30,2007
------------ -----------------
Non-interest bearing checking $ 12,173 $ 11,740
NOW accounts 15,197 13,711
Interest checking accounts 28,908 25,750
Money Market Demand accounts 52,326 51,827
Passbook and Club accounts 2,590 2,864
Certificate accounts 329,727 318,143
---------- ----------
Total deposits $ 440,921 $ 424,035
========== ==========
The aggregate amount of certificate accounts in denominations of more than
$100,000 at June 30, 2008 and September 30, 2007 amounted to approximately $54.9
million and $53.6 million, respectively. Amounts in excess of $100,000 may not
be federally insured.
8. COMMITMENTS
At June 30, 2008, the following commitments were outstanding:
(In thousands)
Commitments to originate mortgage loans $ 20,388
Unused line of credit loans 46,793
Loans in process 6,119
----------
Total $ 73,300
==========
page -14-
9. EARNINGS PER SHARE
The following shares were used for the computation of earnings per share:
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
--------------------------------------------------------------------
2008 2007 2008 2007
---- ---- ---- ----
Basic 3,555,039 3,859,397 3,669,262 3,859,267
Diluted 3,598,927 3,877,469 3,713,388 3,888,142
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.
10. ADVANCES
Advances consists of the following:
June 30, September 30,
2008 2007
Weighted Weighted
(In thousands) Interest Interest
Maturing Period Amount Rate Amount Rate
---------------------------------------------------------------------------------------
1 to 12 months $ 29,445 3.71% $ 69,227 5.07%
13 to 24 months 27,560 4.35% 20,043 4.37%
25 to 36 months 15,000 4.71% 17,410 4.50%
37 to 48 months 51,027 4.61% 23,595 4.99%
49 to 60 months 39,130 3.78% 58,334 4.48%
61 to 72 months 41,711 4.23% 20,000 4.63%
73 to 84 months 4,842 3.58% 20,000 4.26%
85 to 120 months 120,439 4.05% 70,000 4.50%
---------------------------------------------------------
Total $ 329,154 4.15% $ 298,609 4.65%
=========================================================
The majority of the advances are collateralized by Federal Home Loan Bank
("FHLB") stock and substantially all first mortgage loans. The Company has a
line of credit with the FHLB of which $12.5 million out of $75.0 million was
used at June 30, 2008 and $31.5 million was used as of September 30, 2007, for
general purposes. Included in the table above at June 30, 2008 and September 30,
2007 are convertible advances whereby the FHLB has the option at a predetermined
strike rate to convert the fixed interest rate to an adjustable rate tied to
London Interbank Offered Rate ("LIBOR"). The Company then has the option to
repay these advances if the FHLB converts the interest rate. These advances are
included in the periods in which they mature. The Company has a total FHLB
borrowing capacity of $536.4 million of which $279.2 million was used as of June
30, 2008. In addition, there are four long-term advances from other financial
institutions that are secured by investment and mortgage-backed securities
totaling $50 million.
11. REGULATORY CAPITAL REQUIREMENTS
Harleysville Savings Bank (the "Bank") is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on the Bank's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of total Tier
1 capital (as defined in the regulations) to risk weighted assets (as defined),
and of Tier 1 capital (as defined) to assets (as defined). Management believes,
as of June 30, 2008, that the Bank meets all capital adequacy requirements to
which it is subject.
As of June 30, 2008, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are also presented in the table.
To Be Considered Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------------------------------------------------------------
As of June 30, 2008
Tier 1 Capital (to assets) $ 45,918 5.64% $ 32,582 4.00% $ 40,727 5.00%
Tier 1 Capital (to risk weighted assets) 45,918 10.98% 16,721 4.00% 25,082 6.00%
Total Capital (to risk weighted assets) 47,879 11.45% 33,442 8.00% 41,803 10.00%
As of September 30, 2007
Tier 1 Capital (to assets) $ 46,797 6.02% $ 31,021 4.00% $ 38,776 5.00%
Tier 1 Capital (to risk weighted assets) 46,797 12.12% 15,443 4.00% 23,164 6.00%
Total Capital (to risk weighted assets) 48,729 12.62% 30,886 8.00% 38,607 10.00%
page -15-
Item 2. 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.
The Company's business consists of attracting deposits from the general public
through a variety of deposit programs and investing such deposits principally in
first mortgage loans secured by residential properties, commercial loans and
commercial lines of credit in the Company's primary market area. The Company
also originates a variety of consumer loans, predominately home equity loans and
lines of credit also secured by residential properties in the Company's primary
lending area. The Company serves its customers through its full-service branch
network as well as through remote ATM locations, the internet and telephone
banking.
Critical Accounting Policies and Judgments
------------------------------------------
The Company's consolidated financial statements are prepared based on the
application of certain 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 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. The Company believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of the consolidated financial statements: allowance for loan losses
and other-than-temporary security impairment.
Allowance for Loan Losses
-------------------------
Analysis and Determination of the Allowance for Loan Losses - The allowance for
loan losses is a valuation allowance for probable losses inherent in the loan
portfolio. The Company evaluates the need to establish allowances against losses
on loans on a monthly basis. When additional allowances are necessary, a
provision for loan losses is charged to earnings.
Our methodology for assessing the appropriateness of the allowance for loan
losses consists of three key elements: (1) specific allowances for certain
impaired loans; (2) a general valuation allowance on certain identified problem
loans; and (3) a general valuation allowance on the remainder of the loan
portfolio. Although we determine the amount of each element of the allowance
separately, the entire allowance for loan losses is available for the entire
portfolio.
Specific Allowance Required for Certain Impaired Loans: We establish an
allowance for certain impaired loans for the amounts by which the collateral
value, present value of future cash flows or observable market price are lower
than the carrying value of the loan. Under current accounting guidelines, a loan
is defined as impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due under the
contractual terms of the loan agreement.
General Valuation Allowance on Certain Identified Problem Loans - We also
establish a general allowance for classified loans that do not have an
individual allowance. We segregate these loans by loan category and assign
allowance percentages to each category based on inherent losses associated with
each type of lending and consideration that these loans, in the aggregate,
represent an above-average credit risk and that more of these loans will prove
to be uncollectible compared to loans in the general portfolio.
General Valuation Allowance on the Remainder of the Loan Portfolio - We
establish another general allowance for loans that are not classified to
recognize the inherent losses associated with lending activities, but which,
unlike specific allowances, has not been allocated to particular problem assets.
This general valuation allowance is determined by segregating the loans by loan
category and assigning allowance percentages based on our historical loss
experience, delinquency trends and management's evaluation of the collectibility
of the loan portfolio. The allowance may be adjusted for significant factors
that, in management's judgment, affect the collectability of the portfolio as of
the evaluation date. These significant factors may include changes in lending
policies and procedures, changes in existing general economic and business
conditions affecting our primary lending areas, credit quality trends,
collateral value, loan volumes and concentrations, seasoning of the loan
portfolio, recent loss experience in particular segments of the portfolio,
duration of the current business cycle and bank regulatory examination results.
The applied loss factors are reevaluated monthly to ensure their relevance in
the current economic environment.
page -16-
Other-than-Temporary Impairment of Investment Securities
--------------------------------------------------------
Securities are evaluated periodically to determine whether a decline in their
value is other-than-temporary. Management utilizes criteria such as the
magnitude and duration of the decline, in addition to the reasons underlying the
decline, to determine whether the loss in value is other-than-temporary. The
term "other-than-temporary" is not intended to indicate that the decline is
permanent, but indicates that the prospects for a near-term recovery of value
are not necessarily favorable, or that there is a lack of evidence to support
realizable value equal to or greater than the carrying value of the investment.
Once a decline in value is determined to be other-than-temporary, the value of
the security is reduced, and a corresponding charge to earnings is recognized.
The Company recorded an other-than-temporary impairment charge of $252,000 in
the third quarter ended June 30, 2008 related to several equity securities held
by the Company.
Changes in Financial Position for the Nine-Month Period Ended June 30, 2008
---------------------------------------------------------------------------
Total assets at June 30, 2008 were $824.7 million, an increase of $51.1 million
for the nine-month period then ended. The increase was primarily due to the
retail growth in mortgage and commercial loans, resulting in an overall increase
in loans receivable of approximately $37.1 million. There was also an increase
in investments due to purchases less maturities of approximately $10.5 million.
Asset growth was primarily funded by deposit growth during the nine -month
period ended June 30, 2008, total deposits increased by $16.9 million to $440.9
million. There was also an increase in advances of $30.5 million. Advances from
borrowers for taxes and insurance also increased by $4.4 million due to the
timing of property tax payments.
Comparisons of Results of Operations for the Three and Nine Month Period Ended
------------------------------------------------------------------------------
June 30, 2008 with the Three Month and Nine Month Period Ended June 30, 2007
----------------------------------------------------------------------------
Net Interest Income
-------------------
Net interest income was $3.8 million for the three-month period ended June 30,
2008 compared to $2.9 million for the comparable period in 2007. The increase in
the net interest income for the three-month period ended June 30, 2008 when
compared to the same period in 2007 can be attributed to the increase in
interest rate spread from 1.29% in 2007 to 1.84% in 2008, and in the difference
between the average interest earning assets in relation to the average interest
earning liabilities in comparable periods. The increase in the net interest
income for the nine-month period ended June 30, 2008 when compared to the same
period in 2007 can be attributed to the increase in interest rate spread from
1.42% in 2007 to 1.91% in 2008. Net interest income was $9.8 million for the
nine-month period ended June 30, 2008 compared to $8.6 million for the
comparable period in 2007.
Non-Interest Income
-------------------
Non-interest income decreased to $201,000 for the three-month period ended June
30, 2008 from $475,000 for the comparable period in 2007. For the nine-month
period ended June 30, 2008, non-interest income decreased to $1.17 million from
$1.41 million for the comparable period in 2007. The decrease is primarily due
to an impairment write-down of two equity securities resulting in a loss of
$252,000.
Non-Interest Expenses
---------------------
For the three-month period ended June 30, 2008, non-interest expenses increased
by $238,000 or 10.3% to $2.6 million compared to $2.3 million for the same
period in 2007. For the nine-month period ended June 30, 2008, non-interest
expenses increased by $475,000 or 6.9% to $7.4 million compared to $6.9 million
for the same period in 2007. Management believes that these are reasonable
increases in the cost of operations after considering the impact of additional
expenses related to the Company's new commercial loan department and business
banking. The annualized ratio of non-interest expenses to average assets for the
three and nine-month periods ended June 31, 2008 and 2007 were 1.25%, 1.23% and
1.21%, 1.21%, respectively.
Income Taxes
------------
The Company made provisions for income taxes of $332,000 and $720,000 for the
three-month and nine-month period ended June 30, 2008, respectively, compared to
$211,000 and $661,000 for the comparable periods in 2007. These provisions are
based on the levels of pre-tax income, adjusted primarily for tax-exempt
interest income on investments.
Liquidity and Capital Recourses
-------------------------------
For a financial institution, liquidity is a measure of the ability to fund
customers' needs for loans and deposit withdrawals. Harleysville Savings Bank
regularly evaluates economic conditions in order to maintain a strong liquidity
position. One of the most significant factors considered by management when
evaluating liquidity requirements is the stability of the Bank's core deposit
base. In addition to cash, the Bank maintains a portfolio of short-term
investments to meet its liquidity requirements. Harleysville Savings also relies
upon cash flow from operations and other financing activities, generally
short-term and long-term
page -17-
debt. Liquidity is also provided by investing activities including the repayment
and maturity of loans and investment securities as well as the management of
asset sales when considered necessary. The Bank also has access to and
sufficient assets to secure lines of credit and other borrowings in amounts
adequate to fund any unexpected cash requirements.
As of June 30, 2008, the Company had $73.3 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 new deposits.
The Company invests excess funds in overnight deposits and other short-term
interest-earning assets, which provide liquidity to meet lending requirements.
The Company also has available borrowings with the Federal Home Loan Bank of
Pittsburgh up to the Company's maximum borrowing capacity, which was $536.4
million at June 30, 2008 of which $279.2 million was outstanding at June 30,
2008.
The Bank's net income for the nine months ended June 30, 2008 is $2.9 million
compared to $2.5 million for the comparable period in 2007. In spite of a
profitable nine month period, the decrease in our stockholder's equity is due to
a repurchase of common stock in an unsolicited private transaction. The Company
repurchased the shares at a price of $12.45 per share or $2,557,000 in the
aggregate. The Bank's stockholders' equity of $46 million or 5.6% of total
assets is in excess of the Bank's minimum regulatory capital requirement.
Item 3.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.
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 Financial Officer ("CFO") 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.
The CFO 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 June 30, 2008, 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, interest
bearing 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 the Company's' 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 -18-
1 Year 1 to 3 3 to 5 Over 5
or less Years Years Years Total
----------- ----------- ----------- ----------- -----------
Interest-earning assets:
Mortgage loans $ 66,761 $ 53,837 $ 22,570 $ 189,091 $ 332,259
Commercial loans 12,265 3,557 1,517 13,654 30,993
Mortgage-backed securities 74,644 76,637 22,091 51,544 224,916
Consumer and other loans 45,919 25,278 7,034 23,180 101,411
Investment securities and other investments 42,862 38,629 16,065 14,732 112,288
----------- ----------- ----------- ----------- -----------
Total interest-earning assets 242,451 197,938 69,277 292,201 801,867
----------- ----------- ----------- ----------- -----------
Interest-bearing liabilities:
Passbook and Club accounts -- -- -- 2,590 2,590
NOW and checking accounts -- -- -- 44,105 44,105
Consumer Money Market Deposit accounts 12,938 -- -- 31,514 44,452
Business Money Market Deposit accounts 5,906 -- -- 1,968 7,874
Certificate accounts 259,615 51,082 19,030 -- 329,727
Borrowed money 37,564 54,188 77,197 160,205 329,154
----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities 316,023 105,270 96,227 240,382 757,902
----------- ----------- ----------- ----------- -----------
Repricing GAP during the period $ (73,572) $ 92,668 $ (26,950) $ 51,819 $ 43,965
=========== =========== =========== =========== ===========
Cumulative GAP $ (73,572) $ 19,096 $ (7,854) $ 43,965
=========== =========== =========== ===========
Ratio of GAP during the period to total assets -8.92% 11.24% -3.27% 6.28%
=========== =========== =========== ===========
Ratio of cumulative GAP to total assets -8.92% 2.32% -0.95% 5.33%
=========== =========== =========== ===========
Item 4. Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
page -19-
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
There are no material changes to the risk factors set forth in
Part 1, Item 1A, Risk Factors"' of the Company's Form 10-K for
the year ended September 30, 2007. Please refer to that
section for disclosures regarding the risk and uncertainties
related to the Company's business. Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds . Item 3. Defaults
upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.0 Section 1350 Certification of Chief Executive
Officer and Chief Financial Officer
page -20-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
Date: August 13, 2008 By: /s/ Ronald B. Geib
------------------------------------------
Ronald B. Geib
Chief Executive Officer
Date: August 13, 2008 By: /s/ Brendan J. McGill
------------------------------------------
Brendan J. McGill
Senior Vice President
Treasurer and Chief Financial Officer
page -21-