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, 2000 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, 2,287,301 as of February 9, 2001 Index PAGE(S) ------- Part I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of December 31, 2000 (unaudited) and September 30, 2000 1 Consolidated Statements of Income for the Three Months Ended December 31, 2000 and 1999 (unaudited) 2 Consolidated Statements of Stockholders' Equity for the Three Months Ended December 31, 2000 (unaudited) 3 Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2000 and 1999 (unaudited) 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 - 11 Part II OTHER INFORMATION Item 1. - 6. 12 Signatures 13 Harleysville Savings Financial Corporation Consolidated Statements of Financial Condition December 31, September 30, 2000 2000 --------------------- ---------------------- (unaudited) Assets Cash and amounts due from depository institutions $ 1,126,808 $ 1,224,634 Interest bearing deposits in other banks 5,110,530 2,855,568 --------------------- ---------------------- Total cash and cash equivalents 6,237,338 4,080,202 Investment securities held to maturity (fair value - December 31, $73,751,000; September 30, $69,463,000) 73,591,200 71,280,841 Investment securities available-for-sale at fair value 3,723,991 3,309,736 Mortgage-backed securities held to maturity (fair value - December 31, $132,641,000; September 30, $114,182,000) 133,038,061 116,303,730 Mortgage-backed securities available-for-sale at fair value 7,488,573 7,440,453 Loans receivable (net of allowance for loan losses - December 31, $2,038,131; September 30, $2,038,131) 264,502,419 262,774,378 Accrued interest receivable 3,371,793 3,246,714 Federal Home Loan Bank stock - at cost 8,268,400 7,365,200 Office properties and equipment 4,463,390 4,449,921 Deferred income taxes 264,444 306,761 Prepaid expenses and other assets 7,596,838 7,995,955 --------------------- ---------------------- TOTAL ASSETS $ 512,546,447 $ 488,553,891 ===================== ====================== Liabilities and Stockholders' Equity Liabilities: Deposits $ 312,835,076 $ 309,835,810 Advances from Federal Home Loan Bank 163,797,717 145,134,283 Accrued interest payable 1,130,205 824,672 Advances from borrowers for taxes and insurance 2,253,169 719,591 Accounts payable and accrued expenses 568,911 641,148 --------------------- ---------------------- Total liabilities 480,585,078 457,155,504 --------------------- ---------------------- Commitments Stockholders' equity: Preferred Stock: $.01 par value; 7,500,000 shares authorized; none issued Common stock: $.01 par value; 15,000,000 shares authorized; issued and outstanding, December 31, 2000, 2,285,801; September 30, 2000, 2,285,051 22,858 22,851 Paid-in capital in excess of par 7,126,636 7,119,387 Treasury stock, at cost (66,659 shares and 49,900 respectively) (945,460) (714,163) Retained earnings - partially restricted 25,708,902 25,076,313 Accumulated other comprehensive gain (loss) 48,433 (106,001) --------------------- ---------------------- Total stockholders' equity 31,961,369 31,398,387 --------------------- ---------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 512,546,447 $ 488,553,891 ===================== ====================== See notes to unaudited consolidated financial statements. Page 1 Harleysville Savings Financial Corporation Consolidated Statements of Income For the Three Months Ended December 31, ---------------------------------- 2000 1999 ---- ---- (unaudited) INTEREST INCOME: Interest on mortgage loans $ 4,038,391 $ 3,645,346 Interest on mortgage-backed securities 2,353,786 2,062,594 Interest on consumer and other loans 1,087,018 1,104,063 Interest and dividends on investments 1,419,582 1,256,799 ---------- ----------- Total interest income 8,898,777 8,068,802 ---------- ----------- Interest Expense: Interest on deposits 4,112,080 3,610,825 Interest on borrowings 2,428,705 1,885,437 ---------- ----------- Total interest expense 6,540,785 5,496,262 ---------- ----------- Net Interest Income 2,357,992 2,572,540 Provision for loan losses - - ---------- ----------- Net Interest Income after Provision for Loan Losses 2,357,992 2,572,540 ---------- ----------- Other Income: Other income 224,108 102,470 ---------- ----------- Total other income 224,108 102,470 ---------- ----------- Other Expenses: Salaries and employee benefits 707,287 648,245 Occupancy and equipment 262,604 250,231 Deposit insurance premiums 15,772 44,705 Other 376,213 352,789 ---------- ----------- Total other expenses 1,361,876 1,295,970 ---------- ----------- Income before Income Taxes 1,220,224 1,379,040 Income tax expense 319,800 431,000 ---------- ----------- Net Income $ 900,424 $ 948,040 ========== =========== Basic Earnings Per Share $ 0.40 $ 0.42 ========== =========== Diluted Earnings Per Share $ 0.40 $ 0.42 ========== =========== Dividends Per Share $ 0.12 $ 0.11 ========== =========== See notes to unaudited consolidated financial statements. Page 2 Harleysville Savings Financial Corporation Statements of Stockholders' Equity Paid-in Retained Accumulated Capital Earnings- Other Total Common in Excess Treasury Partially Comprehensive Stockholders' Stock of Par Stock Restricted (Loss)/Gain Equity ------------------------------------------------------------------------------------------------------------------ --------------- Balance at October 1, 2000 $ 22,851 $ 7,119,387 $ (714,163) $ 25,076,313 $ (106,001) $ 31,398,387 ============ ============== ============ ============== ============= =============== Net Income (unaudited) 900,424 900,424 Issuance of Common Stock: (unaudited) 7 7,249 7,256 Dividends - $.12 per share (unaudited) (267,835) (267,835) Treasury stock purchased (66,659 shares) (unaudited) (231,297) (231,297) Unrealized holding gain on available-for- sale securities net of tax (unaudited) 154,434 154,434 ------------ -------------- ------------ -------------- ------------- --------------- Balance at December 31, 2000 (unaudited) $ 22,858 $ 7,126,636 $ (945,460) $ 25,708,902 $ 48,433 $ 31,961,369 ============ ============== ============ ============== ============= =============== See notes to unaudited consolidated financial statements. Page 3 Harleysville Savings Financial Corporation Consolidated Statements of Cash Flows Three Months Ended December 31, 2000 1999 ---- ---- Operating Activities: (unaudited) Net Income $ 900,424 $ 948,040 Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation 116,559 107,089 Decrease (increase) in deferred income taxes 49,369 (83,038) Amortization of deferred loan fees (47,182) (37,990) Changes in assets and liabilities which provided (used) cash: (Decrease) increase in accounts payable and accrued expenses and income taxes payable (72,237) 291,362 Decrease in prepaid expenses and other assets 399,117 134,143 (Increase) decrease in accrued interest receivable (125,079) 7,339 Increase in accrued interest payable 305,533 149,109 ----------- ----------- Net cash provided by operating activities 1,526,504 1,516,054 ----------- ----------- Investing Activities: Purchase of investment securities held to maturity (2,310,359) (3,435,032) Proceeds from maturities of investment securities held to maturity 995,829 Purchase of investment securities available for sale (404,230) (1,879,410) Purchase of FHLB stock (903,200) (407,500) Long-term loans originated or acquired (16,692,876) (9,475,757) Purchase of mortgage-backed securities held to maturity (20,206,247) (3,589,499) Principal collected on long-term loans & mortgage-backed securities 18,573,210 13,076,125 Purchases of premises and equipment (130,068) (20,150) ------------ ------------ Net cash used in investing activities (22,073,770) (4,735,394) ------------ ------------ Financing Activities: Net increase (decrease) increase in demand deposits, NOW accounts and savings accounts 3,473,707 (4,417,877) Net (decrease) increase in certificates of deposit (474,441) 4,749,482 Cash dividends (267,835) (248,683) Net increase in FHLB advances 18,663,434 7,955,541 Purchase of treasury stock (231,297) - Net proceeds from issuance of stock 7,256 53,935 Net increase in advances from borrowers for taxes & insurance 1,533,578 1,241,581 ------------ ------------ Net cash provided by financing activities 22,704,402 9,333,979 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 2,157,136 6,114,639 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,080,202 3,955,818 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,237,338 $10,070,457 ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 3,028 $ 6,500 Interest expense 6,235,252 5,347,153 See notes to unaudited consolidated financial statements. Page 4 Notes to Unaudited Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with generally accepted accounting principles. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three months ended December 31, 2000 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, 2000 and 1999, was approximately $1,054,858 and $867,000, 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, 2000 ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies Due after 2 years through 5 years $ 16,500,000 $ (107,000) $ 16,393,000 Due after 5 years through 10 years 21,981,696 $ 108,020 (348,716) 21,741,000 Due after 10 years through 15 years 17,426,118 67,044 (211,162) 17,282,000 Tax Exempt Obligations Due after 5 years through 10 years 828,750 10,250 839,000 Due after 10 years through 15 years 15,340,267 532,565 (4,832) 15,868,000 Due after 15 years 1,514,369 - 113,631 1,628,000 -------------------- ------------------ ------------------ ------------------- Total Investment Securities $ 73,591,200 $ 717,879 $ (558,079) $ 73,751,000 ==================== ================== ================== =================== September 30, 2000 ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies Due after 3 years through 5 years $ 16,500,000 $ (386,000) $ 16,114,000 Due after 5 years through 10 years 21,980,911 $ 38,090 (971,001) 21,048,000 Due after 10 years through 15 years 17,418,624 43,263 (703,887) 16,758,000 Tax Exempt Obligations Due after 15 years 15,381,306 232,610 (70,916) 15,543,000 -------------------- ------------------ ------------------ ------------------- Total Investment Securities $ 71,280,841 $ 313,963 $ (2,131,804) $ 69,463,000 ==================== ================== ================== =================== U.S. Government Agencies include structured note securities with periodic interest rate adjustments and are called periodically by the issuing agency. These structured notes were comprised of step-up bonds with par values of $999,000 at December 31, 2000 and September 30, 2000. The Bank has the positive intent and the ability to hold these securities to maturity. At December 31, 2000, neither a disposal, nor conditions that could lead to a decision not to hold these securities to maturity were reasonably foreseen. Page 5 3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE A comparison of cost and approximate fair value of investment securities is as follows: December 31, 2000 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- Mutual Funds $ 3,758,383 $ - $ (34,392) $ 3,723,991 ------------------ ------------------ ----------------- ------------------ Total Investment Securities $ 3,758,383 $ - $ (34,392) $ 3,723,991 ================== ================== ================= ================== September 30, 2000 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- ARM Mutual Funds $ 3,354,154 $ - $ (44,418) $ 3,309,736 ------------------ ------------------ ----------------- ------------------ Total Investment Securities $ 3,354,154 $ - $ (44,418) $ 3,309,736 ================== ================== ================= ================== 4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY A comparison of cost and approximate fair value of mortgage-backed securities is as follows: December 31, 2000 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- Collateralized mortgage obligations $47,388,860 $ 141,866 $ (510,726) $47,020,000 FHLMC pass-through certificates 11,298,100 104,457 (15,557) 11,387,000 FNMA pass-through certificates 23,224,121 65,770 (203,891) 23,086,000 GNMA pass-through certificates 51,126,980 231,995 (210,975) 51,148,000 ------------------ ------------------ ----------------- ------------------ Total Mortgage-backed Securities $133,038,061 $ 544,088 $ (941,149) $132,641,000 ================== ================== ================= ================== September 30, 2000 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- Collateralized mortgage obligations $52,482,502 $ 138,918 $ (996,420) $51,625,000 FHLMC pass-through certificates 9,935,756 26,355 (110,111) 9,852,000 FNMA pass-through certificates 21,402,545 33,968 (565,513) 20,871,000 GNMA pass-through certificates 32,482,927 1,654 (650,581) 31,834,000 ------------------ ------------------ ----------------- ------------------ Total Mortgage-backed Securities $116,303,730 $ 200,895 $(2,322,625) $114,182,000 ================== ================== ================= ================== 5. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE A comparison of cost and approximate fair value of mortgage-backed securities is as follows: December 31, 2000 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- FHLMC pass-through certificates $ 2,774,113 $ 18,296 $ - $ 2,755,817 GNMA pass-through certificates 4,643,923 88,833 4,732,756 ------------------ ------------------ ----------------- ------------------ Total Mortgage-backed Securities $ 7,418,036 $ 88,833 $ - $ 7,488,573 ================== ================== ================= ================== September 30, 2000 ---------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Losses Fair Value ---------------------------------------------------------------------------------------------------------------------------- FHLMC pass-through certificates $ 2,835,053 $ - $ (93,580) $ 2,741,473 GNMA pass-through certificates 4,721,589 (22,609) 4,698,980 ------------------ ------------------ --------------------------------------- Total Mortgage-backed Securities $ 7,556,642 $ - $ (116,189) $ 7,440,453 ================== ================== ================= ================== Page 6 6. LOANS RECEIVABLE Loans receivable consist of the following: December 31, 2000 September 30, 2000 ----------------- ------------------ Residential Mortgages $ 209,606,386 $ 207,928,146 Commercial Mortgages 801,743 807,156 Construction 8,564,104 6,579,523 Education 1,667,201 1,414,011 Savings Account 590,430 618,884 Home Equity 43,902,042 44,727,366 Automobile and other 565,003 639,693 Line of Credit 8,293,288 7,888,612 -------------- -------------- Total 273,990,197 270,603,391 Undisbursed portion of loans in process (5,459,238) (3,844,612) Deferred loan fees (1,990,409) (1,946,270) Allowance for loan losses (2,038,131) (2,038,131) -------------- -------------- Loans receivable - net $ 264,502,419 $ 262,774,378 ============== ============== The total amount of loans being serviced for the benefit of others was approximately $6.3 million and $6.6 million at December 31, 2000 and September 30, 2000, respectively. The following schedule summarizes the changes in the allowance for loan losses: Three Months Ended December 31, ------------------------------- 2000 1999 ---- ---- Balance, beginning of period $ 2,038,131 $ 2,040,000 Provision for loan losses - - Amounts charged off, net - - - - Balance, end of period $ 2,038,131 $ 2,040,000 ============ =========== 7. OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are summarized by major classification as follows: December 31, 2000 September 30, 2000 ----------------- ------------------ Land and buildings $ 4,152,207 $ 4,176,671 Construction in progress 109,192 - Furniture, fixtures and equipment 2,943,401 2,898,061 Automobiles 56,164 56,164 ----------- ----------- Total 7,260,964 7,130,896 Less accumulated depreciation (2,797,574) (2,680,975) ------------ ----------- Net $ 4,463,390 $ 4,449,921 ============ =========== 8. DEPOSITS Deposits are summarized as follows: December 31, 2000 September 30, 2000 ----------------- ------------------ NOW accounts $ 11,417,301 $ 10,748,610 Checking accounts 6,689,743 5,780,503 Money Market Demand accounts 52,081,574 49,928,562 Passbook and Club accounts 2,138,641 2,395,877 Certificate accounts 240,507,817 240,982,258 ------------ ------------ Total deposits $312,835,076 $309,835,810 ============ ============ The aggregate amount of certificate accounts in denominations of more than $100,000 at December 31, 2000 amounted to approximately $14.7 million. Page 7 9. COMMITMENTS At December 31, 2000, the following commitments were outstanding: Origination of fixed-rate mortgage loans $ 1,076,936 Origination of adjustable-rate mortgage loans 1,535,740 Unused line of credit loans 3,469,168 Loans in process 5,459,238 ----------- Total $11,541,082 =========== 10. DIVIDEND On January 24, 2001, the Board of Directors declared a cash dividend of $.12 per share payable on February 21, 2001 to the stockholders' of record at the close of business on February 7, 2001. 11. EARNINGS PER SHARE The calculations of earnings per share were based on the number of common stock and common stock equivalents outstanding for the three months ended December 31, 2000 and 1999. The following average shares were used for the computation of earnings per share: For the Three Months Ended December 31, -------------------------- 2000 1999 ---- ---- Basic 2,252,308 2,260,080 Diluted 2,275,764 2,284,072 Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document, the words "anticipate," "believe," "estimate," "intend," "should" and similar expressions, or the negative thereof, as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future-looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements. Changes in Financial Position for the Three Month Period Ended December 31, 2000 Total assets at December 31, 2000 were $512.5 million, an increase of $24.0 million or 4.9% for the three month period. This increase was primarily the result of an increase in mortgage-backed and investment securities of approximately $16.7 and $2.3 million respectively. The remainder was due to an increase in loans and Federal Home Loan Bank stock of approximately $1.7 and $1.0 million respectively. During the three month period ended December 31, 2000, total deposits increased by $3.0 million to $312.8 million. Advances from borrowers for taxes and insurance also increased by $1.5 million. This is a seasonal increase as the majority of taxes the Company escrows for are disbursed in the month of August. There was also an increase in advances from Federal Home Loan Bank of $18.7 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, 2000 with the Three Month Period Ended December 31, 1999. Net Interest Income The decrease in the net interest income for the three month period ended December 31, 2000 when compared to the same period in 1999 can be attributed to the decrease in the interest rate spread. The interest rate spread decreased from 1.95% for the three month period ended December 31, 1999 to 1.67% for the comparable period ended December 31, 2000. Total interest income was $8.9 million for the three month period ended December 31, 2000 compared to $8.1 million for the comparable period in 1999. The increase in the average balance of interest-earning assets was enhanced by an increase in the average yield for the interest-earning assets to 7.33% for the three month period ended December 31, 2000 from 7.07% for the comparable period in 1999. Total interest expense increased to $6.5 million for the three month period ended December 31, 2000 from $5.5 million for the comparable period in 1999. This increase occurred as a result of an increase in the average interest-bearing liabilities from $428.5 million for the three month period ended December 31, 1999 to $462.4 million for the comparable period ended December 31, 2000 while the average cost for the respective periods increased from 5.13% for the three month period ended December 31, 1999 to 5.66% for the comparable period ended December 31, 2000. page 9 Other Income Other income increased to $224,000 for the three month period ended December 31, 2000 from $102,000 for the comparable period in 1999. The increase is due to additional income from Bank Owned Life Insurance. Other Expenses During the quarter ended December 31, 2000, other expenses increased by $66,000 or 5.1% to $1.4 million. Management believes these are normal increases in the cost of operations after considering the effects of inflation and the impact of the 8.9% growth in the assets of the Company when compared to the same period in 1999. The annualized ratio of expenses to average assets for the three month period ended December 31, 2000 was 1.11%. Income Taxes The Company made provisions for income taxes of $320,000 for the three month period ended December 31, 2000 compared to $431,000 for the comparable period in 1999. These provisions are based on the lower level of taxable income due to the purchase of tax-free investments. Liquidity and Capital Resources The Company's net income for the quarter ended December 31, 2000 of $900,000 increased stockholder's equity to $32.0 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 $31,985 6.2% $34,023 15.3% Minimum required regulatory capital 20,501 4.0% 17,793 8.0% ------- ---- ------- ----- Excess capital $11,389 2.2% $16,230 7.3% The liquidity of the Company's operations, measured by the ratio of the cash and securities balances to total assets, equaled 43.7% at December 31, 2000 compared to 41.4% at September 30, 2000. As of December 31, 2000, the Company had $11.5 million in commitments to fund loan originations, disburse loans in process and meet other obligations. Management anticipates that the majority of these commitments will be funded within the next six months by means of normal cash flows and net new deposits. In addition, the amount of certificate accounts, which are scheduled to mature during the 12 months ending December 31, 2001, is $150.7 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 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. page 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, 2000, which are expected to mature, prepay or reprice in each of the future time periods shown. Except as stated below, the amounts of assets or liabilities shown which mature or reprice during a particular period were determined in accordance with the contractual terms of the asset or liability. Adjustable and floating-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due, and fixed-rate loans and mortgage-backed securities are included in the periods in which they are anticipated to be repaid. The following table does not necessarily indicate the impact of general interest rate movements on Harleysville Savings' net interest income because the repricing of certain categories of assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different rate levels. 1 Year 1 to 3 3 to 5 Over 5 or less Years Years Years Total ------------ ------------- ------------- --------------- -------------- Interest-earning assets Mortgage loans $ 43,152 $ 35,701 $ 25,797 $ 104,892 $ 209,542 Mortgage-backed securities 47,082 22,944 13,769 56,732 140,527 Consumer and other loans 25,338 16,052 9,122 6,039 56,551 Investment securities and other investments 20,371 6,500 10,000 62,074 98,945 ------------ ------------- ------------- --------------- -------------- Total interest-earning assets 135,943 81,197 58,688 229,737 505,565 ------------ ------------- ------------- --------------- -------------- Interest-bearing liabilities Passbook and Club accounts - - - 2,139 2,139 NOW accounts - - - 18,107 18,107 Money Market Deposit accounts - - - 24,804 24,804 Choice Savings 6,820 - - 20,459 27,279 Certificate accounts 150,509 83,418 6,580 - 240,507 Borrowed money 57,952 61,629 21,916 22,301 163,798 ------------ ------------- ------------- --------------- -------------- Total interest-bearing liabilities 215,281 145,047 28,496 87,810 476,634 ------------ ------------- ------------- --------------- -------------- Repricing GAP during the period $ (79,338) $ (63,850) $ 30,192 $ 141,927 $ 28,931 ============ ============= ============= =============== ============== Cumulative GAP $ (79,338) $ (143,188) $ (112,996) $ 28,931 ============ ============= ============= =============== Ratio of GAP during the period to total assets -15.69% -12.63% 5.97% 28.07% ============ ============= ============= =============== Ratio of cumulative GAP to total assets -15.69% -28.32% -22.35% 5.72% ============ ============= ============= =============== page 11 Part II OTHER INFORMATION Item 1-5. Not applicable. Item 6. Exhibits and Reports on Form 8-K None page 12 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLEYSVILLE SAVINGS FINANCIAL CORPORATION Date: February 12, 2001 By: /s/ Edward J. Molnar ----------------------------------------- Edward J. Molnar President and Chief Executive Officer Date: February 12, 2001 By: /s/ Brendan J. McGill ----------------------------------------- Brendan J. McGill Senior Vice President Treasurer and Chief Financial Officer