-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SD57BioXYkT4etfhA6iHnZ+E+fxux5NfL7JK5HReqj8WCeJ3enNvngmo8wN678C2 R6qW2oNxEYbYiuCK2ydgZg== 0000702902-97-000008.txt : 19971113 0000702902-97-000008.hdr.sgml : 19971113 ACCESSION NUMBER: 0000702902-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEYSVILLE NATIONAL CORP CENTRAL INDEX KEY: 0000702902 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 232210237 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15237 FILM NUMBER: 97716851 BUSINESS ADDRESS: STREET 1: 483 MAIN ST CITY: HARLEYSVILLE STATE: PA ZIP: 19438 BUSINESS PHONE: 2152568851 MAIL ADDRESS: STREET 1: 483 MAIN STREET CITY: HARLEYSVILLE STATE: PA ZIP: 19438 10-Q 1 FORM 10-Q FOR 09/30/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 September 30, 1997. -------------------- 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 0-15237 ------- HARLEYSVILLE NATIONAL CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-2210237 - ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 483 Main Street, Harleysville, Pennsylvania 19438 - ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 256-8851 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___. 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: 7,020,211 shares of Common Stock, $1.00 par value, outstanding on October 31, 1997. PAGE 1 HARLEYSVILLE NATIONAL CORPORATION INDEX TO FORM 10-Q REPORT PAGE ---- Part I. Financial Information Consolidated Balance Sheets - (unaudited) Sept. 30, 1997 and (audited) Dec. 31, 1996 3 Consolidated Statements of Income (unaudited) - Nine Months and Three 4 Months Ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended 5 September 30, 1997 and 1996 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and 8 Results of Operations Part II. Other Information 18 Signatures 19 PAGE 2 PART 1. FINANCIAL INFORMATION HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited) (Dollars in thousands) September 30, 1997 December 31, 1996 -------------------- ------------------- ASSETS Cash and due from banks $ 32,064 $ 39,407 Federal Funds sold 9,050 6,000 -------------------- ------------------- Total cash and cash equivalents 41,114 45,407 -------------------- ------------------- Interest-bearing deposits in banks 9,231 8,475 Investment securities available for sale 258,255 209,795 Investment securities held to maturity (market value $50,636 and $66,680, respectively) 49,552 65,226 Loans 726,456 689,203 Less: Unearned income (5,261) (7,793) Allowance for loan losses (11,689) (10,710) -------------------- ------------------- Net loans 709,506 670,700 -------------------- ------------------- Bank premises and equipment, net 17,323 14,810 Accrued income receivable 7,743 6,653 Other real estate owned 715 972 Intangible assets, net 1,812 1,658 Other assets 3,237 2,432 -------------------- ------------------- Total assets $ 1,098,488 $ 1,026,128 ==================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $ 142,772 $ 139,723 Interest-bearing: NOW accounts 96,481 102,270 Money market accounts 177,773 155,516 Savings 106,366 104,329 Time, under $100,000 301,674 294,501 Time, $100,000 or greater 71,616 51,360 -------------------- ------------------- Total deposits 896,682 847,699 Accrued interest payable 14,418 13,927 U.S. Treasury demand notes 2,016 2,572 Federal funds purchased 14,000 - Federal Home Loan Bank (FHLB) borrowings 27,000 35,000 Securities sold under agreements to repurchase 28,237 21,949 Other liabilities 9,222 7,350 -------------------- ------------------- Total liabilities 991,575 928,497 -------------------- ------------------- Shareholders' Equity: Series preferred stock, par value $1 per share; authorized 3,000,000 shares, none issued - - Common stock, par value $1 per share; authorized 30,000,000 shares; issued and outstanding 7,020,211 shares in 1997 and 6,656,770 shares in 1996 7,020 6,657 Additional paid in capital 49,305 40,316 Retained Earnings 46,680 47,849 Net unrealized gains on investment securities available for sale 3,908 2,809 -------------------- ------------------- Total shareholders' equity 106,913 97,631 -------------------- ------------------- Total liabilities and shareholders' equity $ 1,098,488 $ 1,026,128 ==================== =================== See accompanying notes to consolidated financial statements.
PAGE 3 HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Nine months ended Three months Ended September 30, September 30, ------------------- ------------------- (Dollars in thousands except weighted average number of common shares and per share information) 1997 1996 1997 1996 ------------------- ----------- ------------------- ---------- INTEREST INCOME: Loans, including fees $ 41,939 $ 39,220 $ 14,332 $ 13,161 Lease financing 3,376 2,796 1,139 1,087 Investment securities: Taxable 9,294 8,976 3,038 3,078 Exempt from federal taxes 3,917 2,866 1,417 1,041 Federal funds sold 781 547 465 148 Deposits in banks 309 168 91 97 ------------------- ----------- ------------------- ---------- Total interest income 59,616 54,573 20,482 18,612 ------------------- ----------- ------------------- ---------- INTEREST EXPENSE: Savings deposits 7,436 7,236 2,585 2,503 Time, under $100,000 12,332 12,711 4,182 4,184 Time, $100,000 or greater 2,421 1,393 980 518 Borrowed funds 2,859 1,559 940 566 ------------------- ----------- ------------------- ---------- Total interest expense 25,048 22,899 8,687 7,771 ------------------- ----------- ------------------- ---------- Net interest income 34,568 31,674 11,795 10,841 Provision for loan losses 1,670 1,572 540 517 ------------------- ----------- ------------------- ---------- Net interest income after provision for loan losses 32,898 30,102 11,255 10,324 ------------------- ----------- ------------------- ---------- OTHER OPERATING INCOME: Service charges 2,122 1,922 706 657 Security gains (losses), net 1,134 (96) 430 23 Trust income 1,107 1,007 369 322 Other Income 804 947 146 362 ------------------- ----------- ------------------- ---------- Total other operating income 5,167 3,780 1,651 1,364 ------------------- ----------- ------------------- ---------- Net interest income after provision for loan losses and other operating income 38,065 33,882 12,906 11,688 ------------------- ----------- ------------------- ---------- OTHER OPERATING EXPENSES: Salaries, wages and employee benefits 11,349 10,668 3,911 3,914 Occupancy 1,467 1,379 511 474 Furniture and equipment 1,976 1,516 721 521 Other expenses 6,094 5,525 2,006 1,781 ------------------- ----------- ------------------- ---------- Total other operating expenses 20,886 19,088 7,149 6,690 ------------------- ----------- ------------------- ---------- Income before income taxes 17,179 14,794 5,757 4,998 Income tax expense 4,651 4,250 1,513 1,483 ------------------- ----------- ------------------- ---------- Net income $ 12,528 $ 10,544 $ 4,244 $ 3,515 =================== =========== =================== ========== Weighted average number of common shares 7,006,084 6,995,446 7,019,406 6,996,467 =================== =========== =================== ========== Net income per share information $ 1.79 $ 1.51 $ 0.60 $ 0.50 =================== =========== =================== ========== Cash dividends per share $ 0.65 $ 0.56 $ 0.23 $ 0.20 =================== =========== =================== ========== See accompanying notes to consolidated financial statements.
PAGE 4 HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) Nine Months Ended Sept. 30, OPERATING ACTIVITIES: 1997 1996 ----------------------------- ---------- Net Income $ 12,528 $ 10,544 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,670 1,572 Depreciation and amortization 1,172 1,009 Net amortization of investment securities' discount/premiums 186 341 Net realized security (gain) loss (1,134) 96 Increase in accrued income receivable (1,090) (634) Increase in accrued interest payable 491 1,016 Increase in other assets (806) (434) Net increase in other liabilities 1,279 3,311 Decrease in unearned income (2,532) (1,122) Write-down of other real estate owned 4 119 (Increase) decrease in intangible assets (153) 226 ----------------------------- ---------- Net cash provided by operating activities 11,615 16,044 ----------------------------- ---------- INVESTING ACTIVITIES: Proceeds from sales of investment securities available for sale 29,047 59,239 Proceeds, maturity or calls of investment securities held to maturity 12,904 7,069 Proceeds, maturity or calls of investment securities available for sale 16,947 26,479 Purchases of investment securities available for sale (88,045) (115,871) Purchases of investment securities held to maturity (1,001) (4,439) Net increase in interest-bearing deposits in banks (756) (6,538) Net increase in loans (38,764) (45,407) Net increase in premises and equipment (3,684) (2,423) Proceeds from sales of other real estate 1,074 449 ----------------------------- ---------- Net cash used in investing activities (72,278) (81,442) ----------------------------- ---------- FINANCING ACTIVITIES: Net increase in deposits 48,983 42,065 (Decrease) increase in U.S. Treasury demand notes (556) 92 Increase in federal funds purchased 14,000 12,000 (Decrease) increase in FHLB borrowings (8,000) 300 Increase in securities sold under agreement 6,288 3,283 Cash dividends & fractional shares (4,545) (3,922) Dividend reinvestment (17) (19) Stock Options 217 31 ----------------------------- ---------- Net cash provided by financing activities 56,370 53,830 ----------------------------- ---------- Increase in cash and cash equivalents (4,293) (11,568) Cash and cash equivalents at beginning of period 45,407 50,607 ----------------------------- ---------- Cash and cash equivalents at end of the period $ 41,114 $ 39,039 ============================= ========== Cash paid during the period for: Interest $ 24,557 $ 21,882 ============================= ========== Supplemental disclosure of noncash investing and financing activities: Transfer of assets from loans to other real estate owned $ 820 $ 1,056 ============================= ========== See accompanying notes to consolidated financial statements.
PAGE 5 HARLEYSVILLE NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of Harleysville National Corporation (the "Corporation") and its wholly owned subsidiaries - Harleysville National Bank and Trust Company ("Harleysville"), The Citizens National Bank of Lansford ("Citizens"), Security National Bank ("Security") (collectively, the "Banks") and HNC Financial Company - as of September 30, 1997, the results of its operations for nine and three month periods ended September 30, 1997 and 1996 and the cash flows for the nine month periods ended September 30, 1997 and 1996. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Corporation and the notes thereto set forth in the Corporation's 1996 annual report. The results of operations for the nine and three month periods ended September 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. NOTE 2 - Income tax expense is less than the amount calculated using the statutory tax rate primarily the result of tax exempt income earned from state and municipal securities and loans. NOTE 3 - The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which is effective for financial statements issued after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. The adoption of this new standard is not expected to have a material impact on the disclosure of earnings per share in the financial statements. NOTE 4 - On January 1, 1996, the Corporation adopted the Financial Accounting Standards Board issued (SFAS) No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, the standard permits entities to continue accounting for employee stock options and similar instruments under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. The Corporation's employee stock option plan is accounted for under APB Opinion No. 25. Accordingly, the adoption of SFAS No. 123 did not have an impact on the Corporation's consolidated financial position or results of operations. NOTE 5 - On March 1, 1996, the Corporation consummated the acquisition of Farmers & Merchants Bank (Honesdale, PA.) ("Farmers"). The acquisition was pursuant to an Agreement and Plan of Reorganization and an Agreement and Plan of Merger which was executed on September 7, 1995. The agreements delineate the terms of the combination. The shareholders of Farmers approved the merger at a meeting of shareholders on January 31, 1996. For each share of Farmers common stock outstanding, 0.6190 shares of the Corporation's common stock were issued at the effective date on March 1, 1996. As a result of the transaction, 438,126 new shares of Harleysville National Corporation, par value $1.00 per share, were issued on March 1, 1996 pursuant to Registration Statement No. 33-65021 filed with the SEC and which was effective January 2, 1996. Farmers' banking operations were merged into those of Citizens. The Farmers merger was accounted for on a pooling-of-interests basis. NOTE 6 - On May 8, 1997, the Board of Directors of Harleysville National Corporation declared a 5% stock dividend (five shares of common stock for each 100 shares of common stock outstanding held) that was payable June 30, 1997, to shareholders of record June 13, 1997. On May 9, 1996, the Board of Directors of Harleysville National Corporation declared a 5% stock dividend (five shares of common stock for each 100 shares of common stock outstanding held) that was payable June 28, 1996, to shareholders of record June 14, 1996. PAGE 6 Prior period weighted average number of common shares, net income per share and cash dividends per share information have been restated to reflect the stock dividends. NOTE 7 - On March 17, 1997, the HNC Financial Company, a subsidiary of Harleysville National Corporation was incorporated as a Delaware Corporation. HNC Financial Company's principal business function is to expand the investment opportunities of the Corporation. NOTE 8 - In February 1997, the FASB issued SFAS No. 129, Disclosure Information about Capital Structure. SFAS No. 129 summarizes previously issued disclosure guidance contained within APB Opinion No. 10 and 15, as well as SFAS No. 47. SFAS No. 129 is effective for fiscal years ending after December 15, 1997. The Banks' current disclosures will not be affected by the adoption of SFAS No. 129. NOTE 9 - In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards to provide prominent disclosure of comprehensive income items. Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. SFAS No. 130 is effective for all periods beginning after December 15, 1997. Subsequent to the effective date, all prior-period amounts are required to be restated to conform to the provisions of SFAS No. 130. The adoption of SFAS No. 130 is not expected to have a material impact on the Corporation's financial position or results of operations. NOTE 10 - In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires that public business enterprises report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. It also requires that public business enterprises report certain information about their products and services, the geographic areas in which they operate, and their major customers. SFAS No. 131 is effective for all periods beginning after December 15, 1997. The adoption of SFAS No. 131 will have no impact on the Corporation's financial position or results of operation. PAGE 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - ----------------------- The following is management's discussion and analysis of the significant changes in the results of operations, capital resources and liquidity presented in its accompanying consolidated financial statements for the Corporation, the Banks and HNC Financial Company. The Corporation's consolidated financial condition and results of operations consist almost entirely of the Banks' financial condition and results of operations. This discussion should be read in conjunction with the 1996 Annual Report. Current performance does not guarantee, assure, or may be indicative of similar performance in the future. In addition to historical information, this Form 10-Q contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Corporation undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Corporation files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by the Corporation in 1997 and 1998, and any Current Reports on Form 8-K filed by the Corporation. Consolidated net income for the first nine months of 1997 was $12,528,000, an increase of $1,984,000, or 18.8%, over the first nine months of 1996 net income of $10,544,000. Earnings per share for the first nine months of 1997 of $1.79 increased $0.28, over the first nine months of 1996 earnings per share of $1.51. Consolidated net income for the third quarter of 1997 was $4,244,000, an increase of $729,000, or 20.7%, over the third quarter of 1996 net income of $3,515,000. Earnings per share for the third quarter of 1997 of $0.60 increased $0.10, over the third quarter of 1996 earnings per share of $0.50. The first nine months of 1997 net income included a security gain, resulting from the sale of equity securities held at HNC Financial Company. This gain contributed $863,000 to net income during the first nine months of 1997. This gain was partially offset by losses on the sale of mortgage loans and losses on the sales of securities at the banking subsidiaries that reduced net income by $114,000 and $126,000, respectively. The third quarter of 1997 net income included a security gain, resulting from the sale of equity securities held at HNC Financial Company in the amount of $455,000. This gain was partially offset by losses on the sale of mortgage loans and losses on the sales of securities at the banking subsidiaries that reduced net income for the third quarter by $114,000 and $176,000, respectively. Management continuously reviews the available for sale security portfolio for opportunities to sell securities and recognize gains. The timing of security sales is dependent on portfolio management strategies and market conditions. It is anticipated that Management may sell securities in the future that may result in gains or losses. As of September 30, 1997, the banks have seen an improvement in asset quality, compared to December 31, 1996 and September 30, 1996. Nonperforming assets, including nonaccrual loans, restructured loans and other real estate owned, were $4,572,000, or .63% of total loans and net assets acquired in foreclosure at September 30, 1997, compared to 0.83% at December 31, 1996 and 1.78% at September 30, 1996. The ratio of the allowance for loan losses to nonperforming assets improved to 255.7% at September 30, 1997, from 188.8% at December 31, 1996 and 88.3% at September 30, 1996. For the nine months ended September 30, 1997, the annualized return on average assets and the annualized return on average shareholders' equity were 1.57% and 16.35%, respectively. For the same period in 1996, the annualized return on average assets was 1.46% and the annualized return on average PAGE 8 shareholders' equity was 15.61%. For the three months ended September 30, 1997, the annualized return on average assets was 1.55%, compared to 1.42% for the same period in 1996, and the annualized return on average shareholders' equity was 16.08% for the third quarter of 1997 and 15.23% for the third period of 1996. Net income is affected by five major elements: net interest income, or the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowed funds; the provision for loan losses, or the amount added to the allowance for loan losses to provide reserves for future losses on loans; other operating income, which is made up primarily of certain fees, trust income and gains and losses from sales of securities; other operating expenses, which consist primarily of salaries and other operating expenses and income taxes. Each of these major elements will be reviewed in more detail in the following discussion. NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES ------------------------------------------------------------- Net interest income for the first nine months of 1997 of $34,568,000 increased $2,894,000, or 9.1%, over the first nine months of 1996 net interest income of $31,674,000. As illustrated in the table below, the primary source of this increase was a rise in interest income resulting from increases to earning asset volumes in the first nine months of 1997, compared to the same period in 1996. The increase in interest income was partially offset by a rise in interest expense, primarily as a result of an increase in the volumes of time deposits and other borrowings. Other borrowings include Federal Funds purchased, Federal Home Loan Bank borrowings, securities sold under agreements to repurchase and U. S. Treasury demand notes. The rate-volume variance analysis set forth in the table below, which is computed on a tax-equivalent basis (tax rate of 35%), analyzes changes in net interest income for the nine months ended September 30, 1997 over September 30, 1996 and the three months ended September 30, 1997 over September 30, 1996 by their rate and volume components. Nine Months Ended Three Months Ended September 30, 1997 September 30, 1997 Over/(Under) Over/(Under) September 30, 1996 September 30, 1996
Total Caused by: Total Caused by: ------------ ------------ Variance Rate Volume Variance Rate Volume --------- ------------ ------- --------- ------------ ------- Interest Income: Securities * $ 1,935 $ 423 $ 1,512 $ 539 $ 44 $ 495 Money market instruments 375 34 341 311 4 307 Loans * 3,320 (242) 3,562 1,235 161 1,074 --------- ------------ ------- --------- ------------ ------- Total 5,630 215 5,415 2,085 209 1,876 --------- ------------ ------- --------- ------------ ------- Interest Expense: Savings deposits 200 (89) 289 82 (25) 107 Time deposits and certificates of deposit 650 (183) 833 459 28 431 Other borrowings 1,300 (4) 1,304 375 8 368 --------- ------------ ------- --------- ------------ ------- Total 2,150 (276) 2,426 916 11 906 --------- ------------ ------- --------- ------------ ------- Net interest income $ 3,480 $ 491 $ 2,989 $ 1,169 $ 198 $ 970 ========= ============ ======= ========= ============ ======= *Tax Equivalent Basis
Taxable-equivalent net interest income was $36,944,000 for the first nine months of 1997, compared to $33,464,000 for the same period in 1996, a 10.4% or $3,480,000 increase. This increase in taxable-equivalent net interest income was primarily due to a $2,989,000 increase related to volume. The PAGE 9 increase related to interest rates was $491,000. Total taxable-equivalent interest income grew $5,630,000, primarily the result of the higher volumes in both the security and loan earning asset categories. Average year-to-date earning assets increased to $1,008,643,000 at September 30, 1997 from $917,920,000 at September 30, 1996, a 9.9% increase. This increase in earning assets was primarily due to the growth in loans, as a result of persistent sales efforts and new branch openings. Total interest expense grew $2,150,000 during the first nine months of 1997, compared to the same period in 1996. This growth was principally the result of higher volumes, primarily due to an increase in other borrowings. The volume of average other borrowings increased $33,897,000, or 83.9% during the first nine months of 1997, compared to the first nine months of 1996. The increase in other borrowings was used to finance the earning asset growth. Partially offsetting this growth in interest expense were lower interest rates paid on deposits during the first nine months of 1997, compared to the same period in 1996. The lower deposit rates were primarily due to lower time deposit rates. The decrease in the time deposit rates is related to the repricing of maturing higher rate CD's, into CD's with lower rates. Taxable-equivalent net interest income of $12,668,000 was $1,169,000, or 10.2% higher for the third quarter of 1997, compared to $11,499,000 for the same period in 1996. Interest income grew $2,085,000 during the period, as a result of an increase in earning asset volumes. Third quarter average earning assets grew $98,332,000, compared to the third quarter of 1996. This growth included a $48,987,000 rise in loans and a $27,412,000 increase in securities. The increase in the interest income was partially offset by a $916,000 rise in interest expense. Increases in all deposit category volumes contributed to this increase in interest expense. Nonaccruing loans are included in the average balance yield calculations, but the average nonaccruing loans had no material effect on the results. NET INTEREST MARGIN --------------------- The net interest margin of 4.88% for the nine month period ended September 30, 1997, increased from the 4.86% net interest margin for the first nine months of 1996. The yield on earning assets was 8.20% during the first nine months of 1997, compared to 8.19% for the same period in 1996. During the first nine months of 1997, a decrease in the yield on loans was offset by increases in both the securities and money market instrument earning asset categories, compared to the same period in 1996. The average interest rate paid on interest bearing deposits and other borrowings was 4.14% for both of the first nine months of 1997 and 1996. The net interest margin was 4.87% in the third quarter of 1997, a .02% decrease from the 4.89% net interest margin recorded in the third quarter of 1996. The Banks have been able to effectively match assets and liabilities and maintain a consistent percentage of earning assets to total assets. PROVISION FOR LOAN LOSSES - ---------------------------- The provision is based on management's analysis of the adequacy of the allowance for loan losses. In its evaluation, management considers past loan experience, overall characteristics of the loan portfolio, current economic conditions and other relevant factors. Based on the latest monthly evaluation of potential loan losses, management currently believes that the allowance is adequate to absorb known and inherent losses in the loan portfolio. Ultimately, however, the adequacy of the allowance is largely dependent upon the economy, a factor beyond the Corporation's control. With this in mind, additions to the allowance for loan losses may be required in future periods, especially if economic trends worsen or certain borrowers' ability to repay declines. For the first nine months of 1997 the provision for loan losses was $1,670,000, compared to $1,572,000 for the same period in 1996. Net charge offs were $691,000 for the nine months ended September 30, 1997, compared with $718,000 for the nine months ended September 30, 1996. The net loans charged off during the first nine months of 1997 were primarily attributed to consumer loans (installment, personal credit lines and credit cards). During the first half of 1997, management took steps to control the risk of consumer charge offs by tightening credit standards and increasing reserve for loan losses for consumer loans. Total net loans charged off during the third quarter of 1997 were 79.5% less than the third quarter of 1996. The ratio of PAGE 10 the allowance for loan losses to loans at September 30, 1997 of 1.62% was higher than the December 31, 1996 ratio of 1.57%, and was lower than the September 30, 1996 ratio of 1.60%. ALLOWANCE FOR LOAN LOSSES - ---------------------------- Transactions in the allowance for loan losses are as follows:
1997 1996 ----------------- --------------- Balance, Beginning of Year $10,710,000 $9,891,000 Provision charged to operating expenses 1,670,000 1,572,000 Loans charged off (1,058,000) (840,000) Recoveries 367,000 123,000 ----------------- --------------- Balance, September 30 $11,689,000 $10,746,000 ================= =============== Ratios: Sept. 30, 1997 Dec. 31, 1996 Sept. 30, 1996 - ------------------------------------------------- ----------------- --------------- --------------- Allowance for loan losses to nonperforming assets 255.7% 188.8% 88.3% ----------------- --------------- --------------- Nonperforming assets to total loans & net assets acquired in foreclosure 0.63% 0.83% 1.78% Allowance for loan losses to total loans 1.62% 1.57% 1.60%
The following table sets forth an allocation of the allowance for loan losses by loan category:
September 30, 1997 ------------------- Percent Amount of Loans ------------------- --------- Commercial and industrial $ 3,021,000 27% Installment and other 1,725,000 31% Real estate 1,474,000 34% Lease financing 172,000 8% Unallocated 5,297,000 N/A ------------------- --------- Total $ 11,689,000 100% =================== =========
Nonperforming assets (nonaccruing loans, net assets in foreclosure and troubled debt restructured loans) were 0.63% of total loans and net assets acquired in foreclosure at September 30, 1997, compared to 0.83% at December 31, 1996 and 1.78% at September 30, 1996. The decline in this ratio from September 30, 1996 to September 30, 1997, is primarily the result of the reduction in nonaccruing loans during this period. The ratio of the allowance for loan losses to non-performing assets was 255.7% at September 30, 1997 compared to 188.8% at December 31, 1996 and 88.3% at September 30, 1996. Nonaccruing loans at September 30, 1997 of $2,833,000, decreased $150,000 from the December 31, 1996 level of $2,983,000, and decreased $6,538,000 from the September 30, 1996 level of $9,371 ,000. The $6,538,000 reduction in nonaccrual loans from September 30, 1996 to September 30, 1997, was primarily due to one loan being upgraded to accruing status during the fourth quarter of 1996. This loan achieved accrual status after meeting appropriate standards. Net assets in foreclosure totaled $714,000 as of September 30, 1997, an decrease of $258,000 from the December 31, 1996 balance of $972,000. During the first nine months of 1997, transfers from loans to assets in foreclosure were $820,000, payments on foreclosed properties totaled $1,074,000 and write downs of assets in foreclosure equaled $4,000. The balance of net assets in foreclosure at September 30, 1996 was $1,708,000. PAGE 11 Efforts to liquidate assets acquired in foreclosure are proceeding as quickly as potential buyers can be located and legal constraints permit. Generally accepted accounting principles require foreclosed assets to be carried at the lower of cost (lesser of carrying value of asset or fair value at date of acquisition) or estimated fair value. As of September 30, 1997, there were two unrelated borrowers with troubled debt restructured loans totaling $1,025,000, compared with a balance of $1,717,000 as of December 31, 1996 and $1,097,000 at September 30, 1996. There were three unrelated borrowers at December 31, 1996 and September 30, 1996, including the same two borrowers at September 30, 1997. The two unrelated borrowers were complying with the restructured terms, as of September 30, 1997. Loans past due 90 days or more and still accruing interest are loans that are generally well-secured and expected to be restored to a current status in the near future. As of September 30, 1997, loans past due 90 days or more and still accruing interest were $1,969,000, compared to $1,848,000 as of December 31, 1996 and $1,544,000 as of September 30, 1996. The $121,000 increase in loans past due 90 days from December 31, 1996 to September 30, 1997 was primarily the result of an increase in commercial loans past due 90 days. The following information concerns impaired loans: Impaired Loans:
Restructured Loans $1,025,000 Nonaccrual Loans 1,470,000 ---------- $2,495,000 ========== Average year-to-date impaired loans: $3,917,000 ========== Impaired loans with specific loss allowances: $2,495,000 ========== Loss allowances reserved on impaired loans: $ 348,000 ========== Income recognized on impaired loans during the first nine months of 1997 $ 110,000 ==========
The Banks' policy for interest income recognition on impaired loans is to recognize income on restructured loans under the accrual method. The Banks recognize income on nonaccrual loans under the cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Banks. The Banks will not recognize income if these factors do not exist. OTHER OPERATING INCOME - ------------------------
Nine Months Ended Sept. 30, Three Months Ended Sept. 30, ------------ ----------------- ------------- ---------------- 1997 1996 1997 1996 ------------ ----------------- ------------- ---------------- (Dollars in thousands) Service charges $ 2,122 $ 1,922 $ 706 $ 657 Securities gains (losses), net 1,134 (96) 430 23 Trust income 1,107 1,007 369 322 Other income 804 947 146 362 ------------ ----------------- ------------- ---------------- Total other operating income $ 5,167 $ 3,780 $ 1,651 $ 1,364 ============ ================= ============= ================
PAGE 12 Other operating income for the first nine months of 1997 increased $1,387,000, or 36.7%, from $3,780,000 at September 30, 1996 to $5,167,000 at September 30, 1997. This rise in other operating income is primarily the result of a $1,230,000 rise in net security gains during the first nine months of 1997, compared to the same period in 1996. Also contributing to this increase was a $200,000 increase in service charges and a $100,000 rise in trust fees. These gains were partially offset by a $176,000 reduction in other income related to losses on the sale of residential mortgages. The third quarter of 1997 other income of $1,651,000 was $287,000, or 21.0% higher than the third quarter of 1996 other operating income of $1,364,000. This increase was primarily the result of an increase in net security gains, offset by losses on the sale of residential mortgages, during the third quarter of 1997. The $200,000, or 10.4% increase in service charges is the result of the 7.8% growth in average deposits eligible for service charges and an effort by the banks to enhance the collection of service fees. During this period service charges on deposits grew $82,000, or 9.7%, and overdraft fees increased $93,000, or 10.9%. The 1997 third quarter increase in service charges was 7.5%, compared to the third quarter in 1996. The corporation recorded a net security gain of $1,134,000 in the first nine months of 1997, compared to a $96,000 loss in the same period in 1996. The third quarter 1997 net security gain was $407,000 higher than the third quarter of 1996. The majority of the 1997 security gain is the result of the sale of equity securities held at HNC Financial Company. From time to time, the Corporation sells investment securities available for sale to fund the purchase of other securities in an effort to enhance the overall return of the portfolio. Income from the Trust and Financial Services Department increased $100,000, or 9.9%, in the first nine months of 1997, compared to the same period in 1996. This increase was the result of both an increase in the book value of trust assets of 8.8% from September 30, 1996 to September 30, 1997, and the Corporation's continuing emphasis on marketing the Trust and Financial Services Department's products and services. The third quarter 1997 trust fees grew 14.6%, compared to the same period in 1996. Other income for the nine months of 1997 decreased $143,000, or 15.1%, compared to the same period in 1996. This decrease is due to a $176,000 net loss recognized on the sales of residential mortgages, during the third quarter of 1997. The Corporation used the funds generated from these sales to purchase mortgages that currently earn a higher rate of return and reduce the overall interest rate risk of the residential mortgage portfolio. The Corporation continuously researches different strategies it can use to enhance both the interest rate earned on loans, and reduce the interest rate risk of the loan portfolios. Net of the loss on the sale of residential mortgages, other income grew 3.5%, primarily due to a rise in merchant credit card processing fees. The third quarter of 1997 other income decreased $216,000, compared to the same period in 1996, primarily due to the $176,000 mortgage loan sale loss. Also contributing to the lower third quarter 1997 other income were lower fees associated with loans. OTHER OPERATING EXPENSES - --------------------------
Nine Months Ended Sept. 30, Three Months Ended Sept. 30, ------------ ---------------- ------------- ---------------- 1997 1996 1997 1996 ------------ ---------------- ------------- ---------------- (Dollars in thousands) Salaries $ 8,746 $ 7,591 $ 3,044 $ 2,563 Employee benefits 2,603 3,077 867 1,351 Net occupancy expense 1,467 1,379 511 474 Equipment expense 1,976 1,516 721 521 Other expenses 6,094 5,525 2,006 1,781 ------------ ---------------- ------------- ---------------- Total other operating expenses $ 20,886 $ 19,088 $ 7,149 $ 6,690 ============ ================ ============= ================
PAGE 13 Other operating expenses for the first nine months of 1997 of $20,886,000 increased $1,798,000, or 9.4%, from the $19,088,000 for the same period in 1996. The third quarter of 1997 other operating expenses grew 6.9%, compared to the third quarter of 1996. The rise in operating expenses was due to higher expenses related to four new branches opened after September 30, 1996, increases in equipment expenses and other expenses related to the overall growth of the Banks. Employee salaries increased $1,155,000, or 15.2% from $7,591,000 for the first nine months of 1996 to $8,746,000 for the same period in 1997. The salary increase directly related to the staffing of the four new branches was $270,000, or 23.4% of the total salary increase. The remaining increase in salaries reflects cost of living increases, merit increases and additional staff necessitated by current and planned future growth. The third quarter of 1997 salaries increased 18.8%, compared to the third quarter of 1996. Employee benefits of $2,603,000 expensed in the first nine months of 1997, were 15.4% lower than the employee benefits expensed during the same period in 1996. This decrease is the result of the modification of the Banks' profit-sharing plan into a 401 (K) plan during 1996, and to lower pension expenses. The profit-sharing plan was funded entirely by the Banks and the modified 401 (K) plan is both Bank and employee funded. The third quarter of 1997 employee benefits decreased $484,000, compared to the third quarter of 1996. Net occupancy expense increased $88,000, or 6.4%, from $1,379,000 in the first nine months of 1996 to $1,467,000 in the first nine months of 1997. The third quarter of 1997 occupancy expense increased $37,000 over the same period in 1996. The four new branches were responsible for these increases. Equipment expense increased $460,000, or 30.3% during the first nine months of 1997, compared to the same period in 1996. The first nine months of 1997 equipment expense related to the new branches totaled $108,000. The remainder of this increase is due to both equipment rental, and depreciation and maintenance associated with planned increased data processing capabilities. The increased data processing capabilities include equipment used to process check imaging and the ongoing updating of data processing equipment to manage the rise in volume related to the growth of the Corporation. The third quarter of 1997 furniture and equipment expenses grew $200,000, compared to the third quarter of 1996. Other expenses increased $569,000, or 10.3%, from $5,525,000 in the first nine months of 1996, compared to other expenses recorded during the same period in 1997 of $6,094,000. The increase related to the three new branches totaled $181,000. The remainder of the growth is the result of higher stationery and supplies, postage expenses and other expenses directly related to the 9.3% growth in the bank during this period. The third quarter of 1997 other expenses grew 12.6%, compared to the third quarter in 1996. INCOME TAXES - ------------- Income tax expense is less than the amount calculated using the statutory tax rate primarily as a result of tax exempt income earned from state and municipal securities and loans. BALANCE SHEET ANALYSIS - ------------------------ Total assets grew $72,360,000, or 7.1%, from $1,026,128,000 at December 31, 1996 to $1,098,488,000 at September 30, 1997. This growth was primarily in interest earning assets which grew $76,377,000 to $1,047,283,000 at September 30, 1997, from $970,906,000 at December 31, 1996. During the first nine months of 1997 loans increased $39,785,000, investment securities rose $32,786,000, federal funds sold grew $3,050,000 and interest-bearing deposits in banks increased $756,000. The increase in interest earning assets was partially offset by a $7,343,000 decrease in cash and due from bank deposits. Total deposits grew $48,983,000 from $847,699,000 at December 31, 1996 to $896,682,000 at September 30, 1997. This growth was due to a $27,429,000 rise in time deposits, a $22,257,000 increase in money market accounts, a $3,049,000 growth in noninterest-bearing accounts, and a $2,037,000 increase in savings accounts. Offsetting these increases was a $5,789,000 decrease in NOW accounts. Other borrowings increased $11,732,000 during the first nine PAGE 14 months of 1997, primarily the result of an increase in federal funds purchased. Other borrowings and deposits are used to fund loan and investment growth. CAPITAL - ------- Capital formation is critical to the Corporation's well being and future growth. Capital for the period ending September 30, 1997 was $106,913,000, an increase of $9,282,000 over the end of 1996. The increase is primarily the result of the retention of the Corporation's earnings. Management believes that the Corporation's current capital and liquidity positions are adequate to support its operations. Management is not aware of any recommendations by any regulatory authority which, if it were to be implemented, would have a material adverse effect on the Corporation's capital.
Tier 1 Capital to Risk- Total Capital to Risk- Leverage Ratio Weighted Assets Ratio Weighted Asset Ratio Sept. 30, 1997 Sept. 30,1997 Sept. 30, 1997 --------------- ------------------------ ----------------------- Amount Ratio Amount Ratio Amount Ratio --------------- ------ ------------------------ ------ ----------------------- ------ Entity: Corporation $ 101,222 9.52% $ 101,222 13.50% $ 110,637 14.76% Subsidiary Banks: Harleysville National Bank 71,083 8.26 71,083 11.73 78,685 12.99 Citizens National Bank 20,889 12.98 20,889 22.75 21,977 23.93 Security National Bank 6,074 8.74 6,074 11.69 6,725 12.94 "Well Capitalized" institution (under FDIC regulations) 5.00 6.00 10.00
December 31, 1996 December 31,1996 December 31, 1996 ------------------ ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio ------------------ ------ ----------------- ------ ------------------ ------ Entity: Corporation $ 93,164 9.21% $ 93,164 13.12% $ 102,061 14.38% Subsidiary Banks: Harleysville National Bank 67,253 8.34 67,253 11.59 74,528 12.85 Citizens National Bank 20,031 13.08 20,031 22.60 20,993 23.69 Security National Bank 3,885 6.81 3,885 9.57 4,394 10.83 "Well Capitalized" institution (under FDIC regulations) 5.00 6.00 10.00
(1) Accordingly, at September 30, 1997, both the Corporation and its subsidiary banks were "well capitalized" under FDIC regulations. The Corporation's capital ratios exceed regulatory requirements. Existing minimum regulatory capital ratio requirements are 5.0% for primary capital and 6.0% for total capital. The Corporation's primary capital ratio was 10.54% at September 30, 1997, compared with 10.29% at December 31, 1996. Since the Corporation's only capital is primary capital, the total capital ratios are the same as the primary capital ratios. Pursuant to the federal regulators' risk-based capital adequacy guidelines, the components of capital are called Tier 1 and Tier 2 capital. For the Corporation, Tier 1 Capital is the shareholders' equity, and Tier 2 capital is the allowance for loan losses. The risk-based capital ratios are computed by dividing the components of capital by risk-adjusted assets. Risk-adjusted assets are determined by assigning credit risk-weighting factors from 0% to 100% to various categories of assets and off-balance sheet financial instruments. The minimum for the Tier 1 ratio is 4.0%, and the PAGE 15 total capital ratio (Tier 1 plus Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At September 30, 1997, the Corporation's Tier 1 risk-adjusted capital ratio was 13.48%, and the total risk-adjusted capital ratio was 14.73%, both well above the regulatory requirements. The risk-based capital ratios of each of the Corporation's commercial banks also exceeded regulatory requirements at September 30, 1997. To supplement the risk-based capital adequacy guidelines, the Federal Reserve Board established a leverage ratio guideline. The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding intangible assets. The minimum leverage ratio guideline is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings and, in general, are considered top-rated, strong banking organizations. Other banking organizations are expected to have ratios of at least 4% and 5%, depending upon their particular condition and growth plans. Higher leverage ratios could be required by the particular circumstances or risk profile of a given banking organization. The Corporation's leverage ratios were 9.52% at September 30, 1997 and 9.21% at December 31, 1996. The year-to-date September 30, 1997 cash dividend per share of $.65 was 16.1% higher than the cash dividend for the same period in 1996 of $.56. The dividend payout ratio for the first nine months of 1997 was 36.28%, compared to 38.75% for the twelve month period ended December 31, 1996. On June 30, 1997, the Corporation paid a 5% stock dividend (five shares of common stock for each 100 shares of common stock outstanding held), to shareholders of record June 13, 1997. On June 28, 1996, the Corporation paid a 5% stock dividend (five shares of common stock for each 100 shares of common stock outstanding held), to shareholders of record June 14, 1996. Activity in both the Corporation's dividend reinvestment and stock purchase plan and the stock option plan did not have a material impact on capital during the first nine months of 1997. LIQUIDITY - --------- Liquidity is a measure of the ability of the Banks to meet their needs and obligations on a timely basis. For a bank, liquidity answers the ability to meet the day-to-day demands of deposit customers, along with the ability to fulfill the needs of borrowing customers. Generally, the Banks arrange their mix of cash, money market investments, investment securities and loans in order to match the volatility, seasonality, interest sensitivity and growth trends of its deposit funds. Federal Funds sold averaged $18,722,000 during the first nine months of 1997 and securities available for sale averaged $228,124,000 during the first nine months of 1997, more than sufficient to match normal fluctuations in loan demand or deposit fund supplies. Backup sources of liquidity are provided by Federal Fund lines carried in the subsidiary Banks. Additional liquidity could be generated through borrowings from the Federal Reserve Bank of Philadelphia and the Federal Home Loan Bank of Pittsburgh, of which Harleysville, Citizens and Security are members. Unused lines of credit at the FHLB were $191,499,000, as of September 30, 1997. There are currently a number of issues before Congress which may affect the Corporation and its business operations, and the business operations of its subsidiaries. However, management does not believe these issues will have a material adverse effect on liquidity, capital resources or the results of operations. Recently, Pennsylvania enacted a law to permit State chartered banking institutions to sell insurance. This follows a U. S. Supreme Court decision in favor of nationwide insurance sales by banks and which also bars states from blocking insurance sales by national banks in towns with populations of no more the 5,000. The Bank is currently evaluating its options regarding the sale of insurance Congress is currently considering legislative reforms to modernize the financial services industry, including repealing the Glass Steagall Act which prohibits commercial banks from engaging in the securities industry. Consequently, equity underwriting activities of banks may increase in the near future. However, the Corporation does not currently anticipate entering into these activities. Changes in the Bank's FDIC assessment rate, caused by the enactment of the Deposit Insurance Funds Act of 1996, will adversely impact results of operations, net of income taxes, in a currently estimated amount of PAGE 16 $20,000 for the remaining months of 1997. The act also provides regulatory relief to the financial services industry relative to environmental risks, frequency of examinations, and the simplification of forms and disclosures. The Corporation has analyzed the recently enacted changes to the federal tax law. The impact of such changes on liquidity, operating results, and capital should not be material. The Corporation is in the process of assessing the cost and extent of vulnerability of the Corporation's computer systems to the "Year 2000 problem." Modifications or replacements of computer systems to attain Year 2000 compliance have begun, and the Corporation expects to attain Year 2000 compliance and institute appropriate testing of its modifications and replacements before the Year 2000 date change. The Corporation believes that, with modifications to existing software and conversions to new software, the Year 2000 problem will not pose a significant operational problem for the Corporation. The Corporation has taken steps to communicate with the unrelated parties with whom it deals to coordinate Year 2000 compliance. Most of the costs incurred in addressing the Year 2000 problem are expected to be expensed as incurred, in compliance with GAAP. The financial impact to the Corporation of Year 2000 compliance has not been and is not anticipated to be material to the Corporation's financial position or results of operations in any given year. From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the Corporation and the Banks. It cannot be predicted whether such legislation will be enacted or, if enacted, how such legislation would affect the business of the Corporation and the Banks. As a consequence of the extensive regulation of commercial banking activities in the United States, the Corporation's and the Bank's business is particularly susceptible to being affected by federal legislation and regulations that may increase the costs of doing business. Except as specifically described above, Management believes that the affect of the provisions of the aforementioned legislation on liquidity, capital resources, and results of operations of the Corporation will be immaterial. Management is not aware of any other current specific recommendations by regulatory authorities or proposed legislation, which if they were implemented, would have a material adverse effect upon the liquidity, capital resources, or results of operations, although the general cost of compliance with numerous and multiple federal and state laws and regulations does have, and in the future may have, a negative impact on the Corporation's results of operations. Further, the business of the Corporation is also affected by the state of the financial services industry in general. As a result of legal and industry changes, Management predicts that the industry will continue to experience an increase in consolidations and mergers as the financial services industry strives for greater cost efficiencies and market share. Management also expects increased diversification of financial products and services offered by the Bank and its competitors. Management believes that such consolidations and mergers, and diversification of products and services may enhance the Banks competitive position. PAGE 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings. - ---------------------------- Management, based upon discussions with the Corporation's legal counsel, is not aware of any litigation that would have a material adverse effect on the consolidated financial position of the Corporation. There are no proceedings pending other than the ordinary routine litigation incident to the business of the Corporation and its subsidiaries - Harleysville National Bank and Trust Company, The Citizens National Bank of Lansford and Security National Bank. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation and the Banks by government authorities. Item 2. Change in Securities. - ----------------------------- Not applicable. Item 3. Defaults Upon Senior Securities. - ---------------------------------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------ None. Item 5. Other Information. - -------------------------- None. Item 6. Exhibits and Reports on Form 8-K. - ----------------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K: None. PAGE 18 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 NATIONAL CORPORATION /s/ Walter E. Daller, Jr. ________________________ Walter E. Daller, Jr., President and Chief Executive Officer (Principal executive officer) /s/ Vernon L. Hunsberger ________________________ Vernon L. Hunsberger, Treasurer (Principal financial and accounting officer) Date: November 13, 1997 PAGE 19 EX-27 2
9 1,000 9-MOS DEC-31-1997 SEP-30-1997 32,064 9,231 9,050 0 258,255 49,552 50,636 721,195 11,689 1,098,488 896,682 69,253 23,640 2,000 0 0 7,020 99,893 1,048,488 45,315 13,211 1,090 59,616 22,189 2,859 34,568 1,670 1,134 20,886 17,179 17,179 0 0 12,528 1.79 1.79 4.88 2,833 1,969 1,025 0 10,710 1,058 367 11,689 11,689 0 5,297
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