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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 March 31, 1998
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-22399
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HARRIS FINANCIAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2889833
------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
235 North Second Street, PO Box 1711, Harrisburg, Pennsylvania 17105
- -------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 717-236-4041
------------
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
---- ----
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date 33,957,950 shares of stock, par
value of $.01 per share, outstanding at April 30, 1998.
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<PAGE>
Part I. Financial Information.
Part 1, Item 1 Financial Statements.
(Balance of this page is left intentionally blank.)
Page
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 57,157 $ 24,466
Marketable securities held to maturity (Note 2) - 96,412
Marketable securities available for sale (Note 2) 1,209,273 1,102,782
Loans receivable, net 887,765 890,484
Loans held for sale, net 20,421 14,886
Loan servicing rights (Note 3) 11,373 11,830
Real estate investments 6,831 6,698
Premises and equipment, net of accumulated
depreciation of $15,934 and $15,393 18,917 18,722
Accrued interest receivable 15,506 13,538
Income taxes receivable - 5,757
Intangible assets 18,792 19,396
Other assets 14,266 2,088
----------- -----------
Total assets $ 2,260,301 $ 2,207,059
=========== ===========
Liabilities and Stockholders' Equity
- --------------------------------------
Deposits $ 1,139,174 $ 1,146,238
Escrow 9,730 8,552
Accrued interest payable 10,923 4,297
Postretirement benefit obligation 2,737 2,297
Other borrowings (Note 4) 902,878 853,978
Deferred tax liability 6,711 8,279
Income taxes payable 353 -
Other liabilities 4,037 4,384
----------- -----------
Total Liabilities $ 2,076,543 $ 2,028,025
----------- -----------
Common stock, $.01 par value, authorized 50,000,000
shares 33,941,700 shares issued and outstanding at
March 31, 1998, 33,790,400 shares issued and
outstanding at December 31, 1997 (Notes 8 and 9) $ 339 $ 338
Paid in capital 28,981 28,016
Retained earnings 146,355 141,043
Net unrealized gain on marketable securities 9,085 10,732
Employee stock ownership plan (471) (529)
Recognition and retention plans (531) (566)
----------- -----------
Total stockholders' equity 183,758 179,034
----------- -----------
Total liabilities and stockholders' equity $ 2,260,301 $ 2,207,059
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
All 1997 share data and per share data have been restated to give effect to the
3 for 1 stock split on November 18, 1997
Page 1
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except for per share data)
(Unaudited)
Three Months Ended March 31,
----------------------------
Interest Income: 1998 1997
-------- -------
Loans Receivable:
First mortgage loans $ 12,340 $ 11,160
Commercial 2,199 1,275
Consumer and other loans 4,707 4,775
Taxable investments 7,435 4,736
Taxfree investments 1,534 1,306
Dividends 2,245 1,518
Mortgage backed securities 9,928 6,618
Money market securities 19 66
-------- --------
Total Interest Income 40,407 31,454
-------- --------
Interest Expense:
Deposits 12,980 13,595
Borrowed funds (Note 4) 13,312 6,293
Escrow 17 33
-------- --------
Total interest expense 26,309 19,921
-------- --------
Net interest income 14,098 11,533
Provision for loan losses 830 152
-------- --------
Net int. inc. after provision for loan losses 13,268 11,381
-------- --------
Non-interest income:
Service charges on deposits 678 348
Other svc. charges/commissions/fees 437 288
Net servicing income (54) 558
Gain on sale of mortgage backed securities (Note 2) 895 1,044
Gain on sale of other securities, net (Note 2) 1,489 411
Gain on sale of loans, net 1,074 440
Other 409 186
-------- --------
Total non-interest income 4,928 3,275
-------- --------
Non-interest expense:
Salaries and benefits 5,335 4,074
Equipment expense 679 429
Occupancy expense 729 752
Advertising and public relations 492 439
FDIC insurance 179 191
Director fees 76 76
Income from real estate operations (161) (96)
Amortization of intangibles and write-offs 605 587
Other 1,889 1,205
-------- --------
Total non-interest expense 9,823 7,657
-------- --------
Income before income taxes 8,373 6,999
Income tax expense 2,624 2,290
-------- --------
Net Income $ 5,749 $ 4,709
======== ========
Basic earnings per share (Note 8) $ 0.17 $ 0.14
======== ========
Diluted earnings per share (Note 8) $ 0.17 $ 0.14
======== ========
See accompanying notes to consolidated financial statements
All share and per share data have been restated to give effect for a 3 for
1 stock split on November 18, 1997.
Page 2
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net Employee Recognition
Unrealized Stock And
Common Paid in Retained Gain/(Loss) Ownership Retention
Stock Capital Earnings on Securities Plan Plan Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 336 $ 25,676 $124,812 $ 3,615 $ (1,024) $ (665) $152,750
Net income 4,709 4,709
Dividends paid at $.0483 per share (368) (368)
Exercised stock options 49 49
Change in unrealized gain (loss) on marketable
securities, net of tax effect of ($2,216) (3,641) (3,641)
ESOP stock committed for release 124 124
Earned portion of RRP plan 25 25
Excess of fair value above cost of ESOP stock
committed for release 130 130
Excess of fair value above cost of earned portion
of RRP stock 24 24
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1997 $ 336 $ 25,879 $129,153 $ (26) $ (900) $ (640) $153,802
======== ======== ======== ======== ======== ======== ========
Balance at January 1, 1998 $ 338 $ 28,016 $141,043 $ 10,732 $ (529) $ (566) $179,034
Net income 5,749 5,749
Dividends paid at $.055 per share (437) (437)
Exercised stock options 1 503 504
Change in unrealized gain (loss) on marketable
securities, net of tax effect of ($1,110) (1,647) (1,647)
ESOP stock committed for release 58 58
Earned portion of RRP plan 35 35
Excess of fair value above cost of ESOP stock
committed for release 289 289
Excess of fair value above cost of earned portion
of RRP stock 173 173
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 $ 339 $ 28,981 $146,355 $ 9,085 $ (471) $ (531) $183,758
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
All share and per share data have been restated to give effect for the 3 for 1
stock split on November 18, 1997.
Page 3
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 5,749 $ 4,709
Adjustments to reconcile net income to net cash provided by
operating activities :
Provision for loan losses 830 152
Net depreciation, amortization, and accretion 2,768 850
(Increase) decrease in loans held for sale (4,833) 392
Net gain on sales of interest earning assets (3,458) (1,895)
Gain on sale of foreclosed real estate (1) (16)
Equity (income)/losses from joint ventures (4) 52
Increase in accrued interest receivable (1,968) (1,971)
Increase in accrued interest payable 6,626 5,510
Amortization and write-off of intangibles 605 585
Earned ESOP shares 347 254
Earned RRP shares 208 49
Provision for deferred income taxes (452) 285
Decrease in income taxes receivable 6,104 3,767
Other, net (4,035) (440)
--------- ---------
Net cash provided by operating activities 8,486 12,283
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and principal reductions of marketable securities:
Held to Maturity 1,032 6,687
Available-for-sale 159,666 7,188
Proceeds from sales of marketable securities; available for sale 267,231 145,485
Purchase of marketable securities; available for sale (445,931) (328,943)
Loans Sold 31,554 4,409
Net increase in loan originations less principal payments on
loans (31,598) (21,632)
Purchase of loan servicing rights (433) (29)
Investment in real estate held for investment -- 20
Proceeds from payments on real estate held for investment 14 130
Purchases of premises and equipment (736) (691)
Cash proceeds received from the sale of foreclosed real
estate 325 276
--------- ---------
Net cash used in investing activities $ (18,876) $(187,100)
--------- ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
(Continued)
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in deposits $ (7,064) $ 2,039
Net increase in other borrowings 48,900 169,090
Net (decrease) increase in escrow 1,178 (40)
Cash dividends (437) (368)
Proceeds from the exercise of stock options 504 49
--------- ---------
Net cash provided by financing operations 43,081 170,770
--------- ---------
Net increase (decrease) in cash and cash equivalents 32,691 (4,047)
Cash and cash equivalents at beginning of period 24,466 29,693
--------- ---------
Cash and cash equivalents at end of period $ 57,157 $ 25,646
========= =========
Supplemental disclosures:
Cash paid during the years for:
Interest on deposits, advances and other borrowings
(includes interest credited to deposit accounts) $ 18,166 $ 40,373
Income taxes 69 2,378
Cash received during the years for:
Income tax refunds $ 3,089 $ --
Non-cash investing activities:
Transfer from loans to foreclosed real estate $ 484 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands)
(Unaudited)
(1) Accounting Policies
The Consolidated Financial Statements include the accounts of Harris
Financial, Inc. and its wholly-owned subsidiary Harris Savings Bank. In turn,
Harris Savings Bank is comprised of the following subsidiaries: Avstar Mortgage
Corporation, Harris Delaware Corporation, H. S. Service Corporation, First
Harrisburg Service Corporation and C.B.L. Service Corporation. All intercompany
balances have been eliminated in consolidation.
The accompanying interim financial statements have been prepared in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of interim periods
have been made. Operating results for the three month period ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998 or any other interim period.
The accounting policies followed in the presentation of interim financial
results are consistent with those followed on an annual basis. These policies
are presented on pages 36 through 38 of the 1997 Annual Report to Stockholders.
(2) Marketable Securities
Marketable Securities consist of the following as of the date indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---------- ------------ ---------
<S> <C> <C> <C>
Held-to-maturity, at amortized cost (1) $ -- $ 96,412 $ 102,728
---------- ---------- ----------
Available-for-sale, at amortized cost 1,194,461 1,085,214 891,404
Available-for-sale, net unrealized gain 14,812 17,568 (64)
---------- ---------- ----------
Available-for-sale, at fair value 1,209,273 1,102,782 891,340
---------- ---------- ----------
Total Marketable securities $1,209,273 $1,199,194 $ 994,068
========== ========== ==========
</TABLE>
(1) In January 1998, the remaining held-to-maturity portfolio with a book value
of $96.4 million was transferred to the available-for-sale segment of the
portfolio. The market value of these securities at time of transfer was
$97.5 million. The transfer reflects a realignment of the Registrant's
investment objectives.
Page 4
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands)
(Unaudited)
(2) Marketable Securities (continued)
The amortized cost and fair value of marketable securities at March 31,
1998 by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
Available-for-sale
Due in one year or less (1) $ 141,285 $ 141,047
Due after one year through five years 209,082 209,005
Due after five years through ten years 105,985 108,308
Due after ten years 32,951 33,335
Equity Securities 149,363 159,032
Mortgage-backed securities 555,795 558,546
---------- ----------
Total securities available-for-sale $1,194,461 $1,209,273
========== ==========
</TABLE>
(1) In January 1998, the held-to-maturity portfolio of $96.0 million was
transferred to the available-for-sale and $63.0 million of the amount
transferred was subsequently sold. The net addition to the AFS segment from
the HTM reclassification was $33.0 million.
Activity from the sale of marketable securities is as follows:
For the three months ended
March 31,
-------------------------------
1998 1997
-------- --------
Proceeds $267,231 $145,485
======== ========
Gross gains $ 2,384 $ 1,511
Gross losses -- 56
-------- --------
Net gain $ 2,384 $ 1,455
======== ========
Page 5
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands)
(Unaudited)
(3) Loans Serviced for Others
The following table sets forth information concerning loans serviced for
others as of the dates indicated. These balances are not included in the
accompanying consolidated statements of financial condition:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Unpaid principal balances of mortgage loans
serviced for:
FHLMC $ 668,368 $ 670,426 $ 636,293
FNMA 317,345 328,086 317,065
Other investors 16,525 68,389 68,046
---------- ---------- ----------
Total Mortgage loans serviced $1,002,238 $1,066,901 $1,021,404
========== ========== ==========
Carrying value of mortgage loan servicing
rights $ 11,373 $ 11,830 $ 11,991
========== ========== ==========
Fair value of mortgage loan servicing
rights $ 12,964 $ 14,181 $ 12,200
========== ========== ==========
Valuation allowance for impairment related to
mortgage loan servicing rights $ 219 $ 126 $ 122
========== ========== ==========
</TABLE>
Page 6
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands)
(Unaudited)
(4) Other Borrowings
The following table presents the composition of the Registrant's other
borrowings as of the dates indicated.
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
FHLB advances $573,988 $575,440 $588,730
Repurchase Agreements 328,395 277,548 --
ESOP loan 495 990 990
-------- -------- --------
Total other borrowings $902,878 $853,978 $589,720
======== ======== ========
(5) Treasury Stock Repurchase Program
On February 27, 1998, Harris Financial, Inc. received authorization from
the Pennsylvania Department of Banking to repurchase 450,000 shares of its
outstanding common stock at the prevailing market price at time of repurchase.
The shares will be used to establish several stock ownership and stock option
plans. These plans, which are in the developmental phase, will benefit
directors, executive officers, and non-executive officers. Repurchase of shares
must be completed within one year of the program's authorization date. The
approval may be extended for one year if a written request for extension is
received by the Pennsylvania Department of Banking before February 29, 1999.
Page 7
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands)
(Unaudited)
(6) New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-1 (SOP 98-1) "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
defines the characteristics of internal-use software and sets guidance regarding
the classification of internal-use software costs based on the type of cost
incurred and the stage of the software implementation. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Management does not expect the adoption of SOP 98-1 to have a material effect on
the financial condition or results of operations of the Registrant.
In April 1998, the AICPA issued Statement of Position No. 98-5 (SOP 98-5),
"Reporting on the Costs of Start Up Activities". This statement is effective for
financial statements for fiscal years beginning after December 15, 1998. SOP
98-5 set forth criteria for defining start up costs and requires that all such
costs be expensed as incurred. The adoption of SOP 98-5 will require the
write-off of previously capitalized start-up costs, which should be reported as
the cumulative effect of a change in accounting principle in the period of the
statement's adoption. Management believes that the adoption of this statement
will not have a material effect on the Registrant's financial condition or
results of operation.
(7) Commitments and Contingent Liabilities
In the ordinary course of business, the Registrant makes commitments to
extend letters of credit to its customers. At March 31, 1998 and December 31,
1997, standby letters of credit issued and outstanding amounted to $4,530,000
and $2,281,000 respectively. These letters of credit are not reflected in the
accompanying financial statements. Management does not anticipate any
significant losses as a result of these transactions.
At March 31, 1998, the Registrant has $54,791,000 in unused line of credit
commitments extended to its customers, $29,877,000 of undistributed funds on
construction loans and $50,381,000 of loan origination commitments.
(8) Earnings per share
On October 21, 1997, the Board of Directors of Harris Financial, Inc.
declared a 3 for 1 stock split to be effected in the form of a dividend to
stockholders of record as of November 4, 1997, and payable on November 18, 1997.
All share and per share information in this report has been restated to reflect
the stock split as if it had been in effect during all periods presented.
Page 8
<PAGE>
HARRIS FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands)
(Unaudited)
(8) Earnings per share (continued)
The following table shows the allocation of earnings per share to basic
earnings per share and diluted earnings per share.
Per Share
For the quarter ended March 31, 1998 Income Shares Amount
---------- ---------- ---------
Basic earnings per share
Income available to common shareholders $5,749,000 33,880,514 $ 0.17
---------- ---------- --------
Options held by management and directors 299,606
---------- ---------- --------
Diluted earnings per share
Income available to common shareholders
plus assumed conversion $5,749,000 34,180,120 $ 0.17
========== ========== ========
For the quarter ended March 31, 1997
Basic earnings per share
Income available to common shareholders $4,709,000 33,133,908 $ 0.14
---------- ---------- --------
Options held by management and directors 260,160
---------- ---------- --------
Diluted earnings per share
Income available to common shareholders
plus assumed conversion $4,709,000 33,394,068 $ 0.14
========== ========== ========
(9) Reorganization
On September 17, 1997, Harris Savings Bank and its existing mutual holding
company parent, Harris Financial, MHC, reorganized into a two-tier mutual
holding company structure with the establishment of a state chartered holding
company, Harris Financial, Inc., as the parent of the Bank. Under the terms of
this reorganization, each share of Harris Savings Bank stock was exchanged for
one share of Harris Financial, Inc. stock.
The reorganization was accounted for in a manner similar to a pooling of
interest. Accordingly, the prior period consolidated financial statements of
Harris Financial, Inc. are identical to the prior period consolidated financial
statements of Harris Savings Bank.
Prior to the consummation of this reorganization, the Registrant received
the approval of the Federal Reserve, the Pennsylvania Department of Banking, and
the FDIC.
(10) Comprehensive Income
On January 1, 1998, the Registrant adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS
130 establishes standards for reporting and displaying comprehensive income and
its components. Comprehensive income, as defined by SFAS 130, is the total of
net
Page 9
<PAGE>
income and all other nonowner changes in equity. Total comprehensive income for
the three months ended March 31, 1998 and 1997 was $4.1 million and $1.1
million, respectively. The difference between net income and comprehensive
income for the above periods is due to unrealized gains and losses on available
for sale securities.
Page 10
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and 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 interim consolidated financial statements for Harris
Financial, Inc. Please note that Harris Financial, Inc. (the Registrant or HFI)
is the successor to the issuer Harris Savings Bank (the Bank). This discussion
should be read in conjunction with the 1997 Annual Report. Current performance
does not guarantee, and may not be indicative of similar performance in the
future.
In addition to historical information, this Quarterly Report on Form 10-Q
contains forward-looking statements, as such term is defined in the Securities
and Exchange Act of 1934 and the regulations thereunder. 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 Financial Condition and Results of
Operations". 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 Registrant undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or circumstances that
arise after the date hereof.
(a) Results of Operations
Net Income or Loss The net income for the three month period ended March
31, 1998 was $5,749,000, representing an increase of $1,040,000 or 22.1%
from the $4,709,000 net income figure reported during the first three
months of 1997.
Net Interest Income Net interest income, on a tax equivalent basis, totaled
$14,926,000 for the three months ended March 31, 1998, which represents an
increase of $2,690,000, or 22.0%, from the $12,236,000 of net interest
income recorded in the three months ended March 31, 1997. This increase
reflected a favorable volume variance of $1,846,000 due to a $493.3 million
increase in total average earning assets to $2.196 billion during the year
to date period ended March 31, 1998 as compared to $1.702 billion recorded
during the same period ending March 31, 1997.
The net volume variance of $1,846,000 was caused by the following factors:
(1) Marketable Securities - Taxable: This category produced a $6,639,000
favorable volume variance which is due to growth in average balances
that reflects the ongoing execution of the current investment strategy
intended to deploy surplus capital generated by ongoing operations.
(2) Commercial loans generated a positive volume variance of $664,000
which is based on the growth in average balances that is indicative of
the Registrant's emphasis on increasing its market share in this loan
category.
(3) Borrowed funds generated an unfavorable volume variance of $7,119,000
which reflects the Registrant's wholesale funding to facilitate its
current investment strategy.
(4) Time deposits created a favorable volume variance of $779,000 which is
indicative of a reduced reliance on this higher cost of funds and
Registrant's emphasis on wholesale funding sources.
The net favorable rate variance of $844,000 was caused by the following
factors:
(1) During the first quarter of 1998, the average yield on the mortgage
loan portfolio increased by 58 basis points ( 8.71% vs. 8.13%) over
the same period ending March 31, 1997. This increase is caused by
Page 11
<PAGE>
higher levels of prepayments which accelerate the recognition of
deferred origination income and increase the corresponding portfolio
yield. Consequently, the mortgage loan portfolio generated a favorable
rate variance of $811,000.
Page 12
<PAGE>
(2) The yield on commercial loans increased by 137 basis points to 8.94%.
The Registrant is experiencing the activation of lines of credit at
Prime and Prime plus 50 basis points during the quarter ending March
31, 1998 that were not utilized by its customer base in the comparable
quarter ending March 31, 1997.
(3) Borrowed funds produced a favorable rate variance of $100,000. This
reflects the 9 basis point reduction in the market costs of funds
between the three month period ending March 31, 1998 and the
comparable period ending March 31, 1997.
(4) Other loans generated an unfavorable rate variance of $327,000. This
segment of the Registrant's loan portfolio dropped 55 basis points (
7.73% vs. 8.28%) from three month period ending March 31, 1998 and the
comparable period ending March 31, 1997. This decrease reflects the
repayment of previous higher yielding loans and the recognition of the
remaining deferred costs when the loan is prepaid or refinanced.
The continued reliance on wholesale funding sources instead of customer
deposits had the effect of increasing the Registrant's interest cost of
funds by a marginal 2 basis points (5.07% vs. 5.05%) for the three months
ending March 31, 1998 versus the comparable period ending March 31, 1997.
The reliance on wholesale funding is caused by a redeployment of excess
capital generated from ongoing operations into an interest earning
capacity. The ultimate objective of this leveraging strategy is to redeploy
the current investment purchases into higher yielding assets that are
consistent with the Registrant's prudent Asset Liability Management (ALM)
objectives. However, the general stable nature of the yield curve has also
decreased the overall yield of interest earning assets. Consequently, total
interest earning assets generated 7.51% for the three months ending March
31, 1998 while the three month yield for the three months ending March 31,
1997 was 7.56%. These factors are also reflected in the decline in the net
interest margin of 16 basis points to 2.72% in the year to date period
ended March 31, 1998 as compared to 2.88 % recorded in the three month
period ended March 31, 1997.
Table 1 on the following page presents the Registrant's average asset and
liability balances, interest rates, interest income, and interest expense
for each of the three month periods ended March 31, 1998 and March 31,
1997, respectively. Table 2 presents a rate-volume analysis of changes in
net interest income.
For information on qualitative and quantitative disclosures regarding
market risk, refer to Management's Discussion and Analysis included in the
Annual Report to Stockholders. Correspondingly, there has been no
significant changes in the Registrant's market risk profile.
Page 13
<PAGE>
TABLE 1 - Average Balance Sheets, Rate, and Interest Income and Expense Summary
(All figures in 000's)
<TABLE>
<CAPTION>
For the quarter ended,
--------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------------- --------------------------------------
Average (1) (2) Average Average (1) (2) Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------- -------- ---------- ---------- -------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest Bearing assets:
Mortgage Loans, net (1) $ 566,712 $ 12,340 8.71% $ 548,904 $ 11,160 8.13%
Commercial loans 98,393 2,199 8.94% 67,353 1,275 7.57%
Other loans, net 243,557 4,707 7.73% 230,621 4,775 8.28%
Marketable Securities - Taxable 1,134,668 19,153 6.75% 741,765 12,548 6.77%
Marketable Securities - Taxfree (2) 114,124 2,362 8.28% 92,770 2,009 8.66%
Other interest earning assets 38,053 474 4.98% 20,754 390 7.52%
----------- -------- ----------- --------
Total interest-earning assets 2,195,507 41,235 7.51% 1,702,167 32,157 7.56%
-------- --------
Noninterest-earning assets 78,759 77,679
----------- -----------
Total assets $ 2,274,266 $ 1,779,846
=========== ===========
Liabilities and stockholders' equity
Interest bearing liabilities:
Savings deposits $ 148,586 $ 958 2.58% $ 147,614 $ 998 2.70%
Time deposits 749,082 10,280 5.49% 805,117 11,040 5.48%
NOW and money market deposits 237,876 1,742 2.93% 182,461 1,557 3.41%
Escrow 10,094 17 0.67% 8,545 33 1.54%
Borrowed Funds 931,108 13,312 5.72% 433,232 6,293 5.81%
----------- -------- ----------- --------
Total interest bearing liabilities 2,076,746 26,309 5.07% 1,576,969 19,921 5.05%
-------- --------
Non interest bearing liabilities 14,657 48,782
----------- -----------
Total liabilities 2,091,403 1,625,751
Stockholders' equity 182,863 154,095
----------- -----------
Total liabilities and shareholders' equity $ 2,274,266 $ 1,779,846
=========== ===========
Net interest income before
provision for loan losses $ 14,926 $ 12,236
======== ========
Interest rate spread (3) 2.44% 2.51%
Net interest-earning assets $ 118,761 $ 125,198
=========== ===========
Net interest margin (4) 2.72% 2.88%
Ratio of interest earning assets to
interest-bearing liabilities 1.06 1.08
======== ========
</TABLE>
(1) Includes income recognized on deferred loan fees of $949,000 and $252,000
for the comparable 1998 and 1997 periods, respectively.
(2) Interest income and yields are shown on a tax-equivalent basis.
(3) Represents the difference between the average yield on interest earning
assets and the average cost on interest-bearing liabilities.
(4) Represents the annualized net interest income before provision for loan
loss divided by average interest-earning assets.
Page 14
<PAGE>
TABLE 2 - Rate/Volume Analysis of Changes in Net Interest Income (All figures in
000's)
Quarter Ended March 31, 1998
Compared to
Quarter Ended March 31, 1997
Increase (Decrease)
-------------------------------
Volume Rate Net
------ ----- -------
Interest-earning assets:
Mortgage loans, net $ 369 $ 811 $ 1,180
Commercial loans 664 260 924
Other loans, net 259 (327) (68)
Marketable securities - Taxable 6,639 (34) 6,605
Marketable securities - Taxfree 445 (92) 353
Other interest earning assets 247 (163) 84
------- ----- -------
Total interest earning assets 8,623 455 9,078
------- ----- -------
Interest-bearing liabilities
Savings Deposits 6 (46) (40)
Time deposits (779) 19 (760)
NOW and money market deposits 426 (241) 185
Escrow and stock subscriptions 5 (21) (16)
Borrowed funds 7,119 (100) 7,019
------- ----- -------
Total interest-bearing liabilities 6,777 (389) 6,388
------- ----- -------
Net change in net interest income $ 1,846 $ 844 $ 2,690
======= ===== =======
Note: Changes in interest income and interest expense arising from the
combination of rate and volume cariances are prorated across rate and
volume variances
Page 15
<PAGE>
Provision for Loan Losses There was a $830,000 provision for loan losses
recorded in the three months ended March 31, 1998, versus a $152,000 provision
for loan losses recorded in the three months ended March 31, 1997. The $678,000
increase in the provision results from the Registrant's ongoing commitment to
commercial lending and the recognition of the greater credit risks inherent in
this type of lending and to address any unknown year 2000 problems pertaining to
the computer applications (hardware or software) of the Registrant's commercial
clients.
Noninterest Income Noninterest income totaled $4,928,000 for the three months
ended March 31, 1998. This represents an increase of $1,653,000, or 50.5%, from
the $3,275,000 recorded in the year to date period ending March 31, 1997. This
increase can be attributed to several factors. The primary reason was a
$2,384,000 gain associated with the sale of securities in the three months
ending March 31, 1998. This represents a $929,000 increase over the $1,455,000
gain reported in the comparable period in 1997. Second, the sale of mortgage
loans produced a $1,074,000 gain for the three months ending March 31, 1998. The
year to date 1998 performance represents a $634,000 increase over the comparable
three month period in 1997. Third, service charges on deposits generated
$678,000, or a $330,000 increase over the prior year to date March 31, 1997
value of $348,000. This change is attributable to the Registrant's increased
emphasis on fee income. Counter balancing these increases was a $612,000 drop in
net servicing income from the year to date March 31, 1998 figure of a loss of
$54,000 from the year to date March 31, 1997 figure of $558,000. This decrease
is due in part to a $242,000 write-off of servicing rights resulting from the
sale of servicing and a $94,000 provision for the impairment of servicing
rights. This write-off was mitigated by a $390,000 gain realized on the sale of
servicing rights which is included in other income.
Noninterest Expense Noninterest Expense was $9,823,000 for the three month
period ending March 31, 1998. This is an increase $2,166,000, or 28.3%, from the
$7,657,000 reported for the three month period ending March 31, 1997. The
increase in Noninterest Expense was caused, primarily, by a $1,261,000 increase
in Salary and Benefit Expense. This increase represents salary expenditures to
acquire staff expertise which is necessary for the Registrant's transition to a
full service community bank. In addition, the Registrant recognized a $684,000
increase in Other Expenses which is based on increased loan and deposit support
activity and consulting costs incurred in the three month period ending March
31, 1998. These costs were incurred after the conversion to the new mainframe
computer system in November 1997.
Provision for Income Taxes Corporate income tax expense totaled $2,624,000 for
the three month period ended March 31, 1998, which resulted in an effective tax
rate of 31.3% on pretax income of $8,373,000. This represents an increase of
$334,000 from the $2,290,000 of corporate tax expense, resulting in an effective
tax rate of 32.7% on pretax income of $6,999,000, recorded during the three
month period ended March 31, 1997.
Sources and Uses of Funds Total cash and cash equivalents increased $32.7
million during the three month period ended March 31, 1998. For the comparable
period ending March 31, 1997, cash and cash equivalents decreased by $4.0
million. Operating activities generated cash totaling $8.5 million and $12.3
million during the three month periods ended March 31, 1998 and March 31, 1997,
respectively. During the three month period ending March 31, 1998, investing
activities of the Registrant resulted in a net use of cash of $18.9 million, due
mainly to $445.9 million in purchases of marketable securities and loan
originations of $ 31.6 million which were partially offset by marketable
security sales, maturities and principal reductions totaling $427.9 million and
loan sales amounting to $31.6 million. During the
Page 16
<PAGE>
three month period ending March 31, 1997, purchases for the Bank's portfolio of
marketable securities used cash of $328.9 million, and loan originations used
another $21.6 million. These purchases were partially offset by security sales
totaling $145.5 million. The increase in marketable securities activity in 1998
relative to 1997 results primarily from the Registrant's reliance on using this
portfolio to profitably deploy excess capital generated by net income. The
Registrant's financing activities for the three month period ending March 31,
1998, resulted in a net sources of cash totaling $43.1 million, which is
primarily attributable to borrowing increases of $48.9 million. However, deposit
outflows of $7.1 million reduced the cash provided by financing operations for
the three months ended March 31, 1998. The borrowing increases result from the
Registrant's reliance on primarily wholesale funding sources to support
investment operations. During the three months ending March 31, 1997, borrowings
provided cash sources of $169.1 million.
Stockholders' Equity Stockholders' equity totaled $183.8 million, $179.0
million, and $153.8 million at March 31, 1998, December 31, 1997, and March 31,
1997, respectively. Stockholders' equity amounted to 8.1% on total assets of $
2.260 billion as of March 31, 1998, compared to 8.1% on total assets of $2.207
billion at December 31, 1997, and 7.9% on total assets of $1.943 billion at
March 31, 1997.
The increase in Stockholders' equity of $4.7 million or 2.6% in the three months
ended March 31, 1998 resulted mainly from $5.7 million in income from ongoing
operations and $.5 million due to exercised stock options. Offsetting these
increases is a $1.6 million decline in the market value, net of tax effect, of
the available-for-sale securities portfolio. The increase in Stockholders'
equity of $30.0 million or 19.5 % in the twelve month period ended March 31,
1998, consisted primarily of net additions of $18.8 million in income from
ongoing operations; a net increase of $9.1 million in the market value, net of
tax effect, of market value increases in the available-for-sale securities
portfolio; and a $2.2 million increase in excess of fair value of ESOP stock
committed for release and excess of fair value of cost of the earned portion of
Recognition and Retention Plan (RRP) stock.
(Balance of this page is left intentionally blank.)
Page 17
<PAGE>
Regulatory Capital Compliance Risk-based capital standards are issued by
bank regulatory agencies in the United States. These capital standards link
a banking company's capital to the risk profile of its assets and provide
the basis by which all banking companies and banks are evaluated in terms
of capital adequacy. These risk-based capital standards require all banks
to have Tier 1 capital of at least 4.0% and total capital, including Tier 1
capital, equal to at least 8.0% of risk-adjusted assets. Tier 1 capital
consists of common stockholders' equity and qualifying perpetual preferred
stock along with related surpluses and retained earnings. Total capital is
comprised of Tier 1 capital, limited life preferred stock, qualifying debt
instruments, and the reserves for possible loan losses. Furthermore, the
banking regulators also issue leverage ratio requirements. The leverage
ratio requirement is measured at the ratio Tier 1 capital to adjusted
average assets. The following table provides a comparison of Harris
Financial, Inc.'s risk-based capital ratios and leverage ratio to the
minimum regulatory requirements for the period indicated.
<TABLE>
<CAPTION>
Minimum Minimum
Requirement Requirement
for Capital to be
HARRIS FINANCIAL, INC Actual Adequacy "Well Capitalized"
--------------------- -------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998
Total Capital
(to Risk Weighted Assets) $164,930 13.1% $100,773 8.0% $125,966 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 155,882 12.4% 50,386 4.0% 75,580 6.0%
Tier 1 Capital
(to Avg. Assets) 155,882 6.9% 89,755 4.0% 112,194 5.0%
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) $157,520 13.7% $ 91,979 8.0% $114,973 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 148,906 13.0% 45,989 4.0% 68,984 6.0%
Tier 1 Capital
(to Avg. Assets) 148,906 7.5% 80,649 4.0% 100,811 5.0%
</TABLE>
The mid-tier holding company Harris Financial, Inc. was not formed until
September 17, 1997. Consequently, no historical information for March 31, 1997
exists.
Page 18
<PAGE>
The following table provides a comparison of Harris Savings Bank's
risk-based capital ratios and leverage ratio to the minimum regulatory
requirements for the period indicated.
<TABLE>
<CAPTION>
Minimum Minimum
Requirement Requirement
for Capital to be "Well Cap-
HARRIS FINANCIAL, INC Actual Adequacy italized"
--------------------- -------- --------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998
Total Capital
(to Risk Weighted Assets) $154,781 12.4% $100,003 8.0% $125,004 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 145,733 11.7% 50,001 4.0% 75,002 6.0%
Tier 1 Capital
(to Avg. Assets) 145,733 6.5% 89,368 4.0% 111,710 5.0%
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) $147,533 12.9% $91,474 8.0% $114,343 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 138,919 12.1% 45,737 4.0% 68,606 6.0%
Tier 1 Capital
(to Avg. Assets) 138,919 7.0% 80,558 4.0% 100,697 5.0%
As of March 31, 1997
Total Capital
(to Risk Weighted Assets) $139,946 13.9% $80,839 8.0% $101,049 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 131,507 13.0% 40,419 4.0% 60,629 6.0%
Tier 1 Capital
(to Avg. Assets) 131,507 7.4% 71,194 4.0% 88,992 5.0%
</TABLE>
During the month of March 1998, the Registrant adhered to the 6.5% Tier 1
minimum stipulated by the Pennsylvania Department of Banking ("Department").
This minimum threshold was a condition required by the Department for the
Treasury Stock Repurchase Program that was approved on February 27, 1998.
Page 19
<PAGE>
Marketable Securities In January 1998, the Registrant sold securities from
the held-to-maturity (HTM) portfolio. The book value of these securities
totalled $63.0 million and a gain of $1.4 million was realized from the
transaction. The sale of these securities was designed to restructure
investment cash flows that didn't mesh with the Registrant's current
investment philosophy; recognize gains that were resident in the HTM
portfolio; and reinvest the sale proceeds at higher current market yields.
Under generally accepted accounting principles, the sale of these
securities eliminated the Registrant's ability to use the held-to-maturity
classification on any securities. As a result, the remaining securities in
the held-to-maturity portfolio were transferred to the available-for-sale
portfolio. This transfer resulted in a $209,565 increase, net of taxes, to
the net unrealized gains on marketable securities.
Marketable securities, excluding cash, totaled $1,209.3 million, $1,199.2
million, and $994.1 million at March 31, 1998, December 31, 1997, and March
31, 1997, respectively. Total marketable securities increased $10.1
million, or .8%, during the first three months of 1998. Total marketable
securities increased $215.2 million, or 21.6%, in the twelve month period
ended March 31, 1998.
Based on fair market value, during the three month period ending March 31,
1998, U.S. Government/Agencies increased $28.9 million, corporate bonds
increased $51.5 million, while total mortgage backed securities decreased
$74.8 million. For the 12 month period ending March 31, 1998, U.S.
Government/Agencies increased $49.8 million, mortgage backed securities
increased $76.3 million, and corporate bonds increased $55.2 million.
Table 3 on the following page presents the composition of the Registrant's
marketable securities portfolio as of March 31, 1998, December 31, 1997,
and March 31, 1997, respectively.
(Balance of this page left intentionally blank.)
Page 20
<PAGE>
TABLE 3 - Composition of Marketable Securities Portfolios (All figures in 000's)
The following table sets forth certain information regarding the amortized cost
and fair values of the Registrant's marketable securities portfolio at March 31,
1998, December 31, 1997, and March 31, 1997.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
------------------------- ------------------------- -------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
U.S. Government and agencies $ -- $ -- $ 67,933 $ 68,651 $ 67,497 $ 66,867
Mortgage-backed securities:
FNMA PC's -- -- 4,050 4,150 4,600 4,660
Private Issue CMO's -- -- 24,429 24,744 30,631 30,490
---------- ---------- ---------- ---------- ---------- ----------
Total mortgage-backed securities -- -- 28,479 28,894 35,231 35,150
---------- ---------- ---------- ---------- ---------- ----------
Total securities held-to-maturity $ -- $ -- $ 96,412 $ 97,545 $ 102,728 $ 102,017
---------- ---------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Government and agencies $ 283,653 $ 282,060 $ 184,033 $ 184,503 $ 168,396 $ 165,393
Corporate bonds 71,967 71,635 20,117 20,115 17,000 16,448
Municipal obligations 109,389 113,348 109,351 114,023 93,636 93,723
FHLB stock 32,219 32,219 30,027 30,027 29,449 29,449
Equities (Common and Preferred) 117,144 126,813 116,802 124,790 109,785 113,716
Asset Backed Securities 24,294 24,652 24,551 24,837 25,667 25,519
Mortgage-backed securities:
FHLMC PC's 2,389 2,507 2,920 3,066 30,842 31,501
Private Issue PC's -- -- -- -- 21,419 21,511
FNMA CMO'S 132,173 132,742 151,067 152,433 108,693 108,698
FHLMC CMO's 80,435 81,231 272,927 274,281 193,401 192,215
Private Issue CMO's 340,798 342,066 173,419 174,707 93,116 93,167
---------- ---------- ---------- ---------- ---------- ----------
Total mortgage-backed securities 555,795 558,546 600,333 604,487 447,471 447,092
---------- ---------- ---------- ---------- ---------- ----------
Total securities available-for-sale $1,194,461 $1,209,273 $1,085,214 $1,102,782 $ 891,404 $ 891,340
---------- ---------- ---------- ---------- ---------- ----------
Other interest-earning securities:
FHLB daily investment $ 49,143 $ 49,143 $ 11,840 $ 11,840 $ 6,701 $ 6,701
---------- ---------- ---------- ---------- ---------- ----------
Total marketable securities and
interest bearing investments $1,243,604 $1,258,416 $1,193,466 $1,212,167 $1,000,833 $1,000,058
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
Page 21
<PAGE>
Loans Loans Receivable, excluding the reduction for the Allowance for Loan
Losses, totaled $896.8 million, $899.1 million, and $849.2 million at March
31, 1998, December 31, 1997, and March 31, 1997, respectively. The decrease
of $2.3 million, or .3%, for the three months ended March 31, 1998,
reflects growth in commercial loans of $27.7 million. However, this
increase was offset by a decline of $18.7 million and $11.3 million, in
first mortgage loans and consumer and other loans, respectively, for the
three month period ending March 31, 1998. The total portfolio increase of
$47.6 million, or 5.6%, for the twelve month period ended March 31, 1998,
resulted from a $35.5 million increase in commercial loans and $11.7
million increase in consumer and other loans. During the same twelve month
period ending March 31, 1998, first mortgage loans increased a marginal $.4
million. These developments are part of a strategy designed to enhance the
Registrant's ROE (Return on Equity) and maximize shareholder value, while
managing interest rate risk.
Table 4 on the following page presents an analysis of the Registrant's loan
portfolio as of March 31, 1998, December 31, 1997, and March 31, 1997,
respectively.
(Balance of this page left intentionally blank.)
Page 22
<PAGE>
TABLE 4 - Loan Composition (All Figures in 000's)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
Amount Amount Amount
-------------- ----------------- --------------
<S> <C> <C> <C>
Mortgage loans:
Principal balances:
One to four family $ 538,826 $ 539,248 $ 540,004
Construction (1) 18,845 36,814 17,820
--------- --------- ---------
Less: 557,671 576,062 557,824
Unearned discounts 718 855 1,280
Net deferred loan origination fees 8,548 8,147 8,535
--------- --------- ---------
Total first mortgage loans 548,405 567,060 548,009
--------- --------- ---------
Commercial Loans:
Principal balances:
Secured by other residential real estate properties 15,171 15,635 17,879
Commercial 93,539 65,620 55,271
--------- --------- ---------
Less: 108,710 81,255 73,150
Unearned discounts 311 534 193
--------- --------- ---------
Total commercial loans 108,399 80,721 72,957
--------- --------- ---------
Consumer and other loans:
Principal balances:
Mobile home 69,085 71,356 61,109
Home equity and second mortgage 149,966 155,861 148,178
Other 6,658 9,097 4,560
--------- --------- ---------
Total consumer and other loans 225,709 236,314 213,847
Plus:
Net deferred loan origination costs 412 499 518
Dealer Reserves 13,888 14,504 13,911
--------- --------- ---------
Total Consumer and other loans 240,009 251,317 228,276
--------- --------- ---------
Less Allowance for loan losses 9,048 8,614 8,439
--------- --------- ---------
Loans Receivable, net $ 887,765 $ 890,484 $ 840,803
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Percent of Percent of Percent of
Mortgage Loans: Amount Total Amount Total Amount Total
--------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
ARM $ 73,892 13.25% 90,615 15.73% $ 105,337 18.88%
Fixed Rate 483,779 86.75% 485,447 84.27% 452,487 81.12%
--------- ------ --------- ------ --------- ------
Total Mortgage Loans $ 557,671 100.00% $ 576,062 100.00% $ 557,824 100.00%
========= ====== ========= ====== ========= ======
</TABLE>
(1) Net of undistributed portion of $29,877, $29,338, and $,26,677 at March 31,
1998, December 31, 1997 and March 31, 1997, respectively
Page 23
<PAGE>
Mortgage Servicing Rights As of March 31, 1998, December 31, 1997, and
March 31, 1997, the Bank held mortgage loan servicing rights with carrying
values totaling $11.4 million, $11.8 million, and $12.0 million,
respectively. The unpaid principal balances of loans serviced for others
totaled $1.002 billion, $1.067 billion, and $1.021 billion at March 31,
1998, December 31, 1997, and March 31, 1997, respectively. The Bank
recorded amortization expense on mortgage loan servicing rights totaling
$889,000 (this figure includes a $242,000 write-off of servicing rights and
$94,000 provision for impairment) during the three months ended March 31,
1998. The Bank recorded amortization expense on mortgage loan servicing
rights of $351,000, in the first three months of 1997.
At March 31, 1998, the total amount of capitalized mortgage servicing
rights (including mortgage servicing rights purchased) was $11,373,000
before the valuation allowance. The valuation allowance for impairment
related to such rights was $219,000 at March 31, 1998. The fair value of
such rights was approximately $12,964,000 at March 31, 1998.
Asset Quality The Registrant's experience in credit losses continues to
rank among the best in the community banking industry. Due to prudent
underwriting activities and the relatively stable economic environment in
the Registrant's primary market area, the Registrant's overall loan quality
remains strong. To enhance this condition, management follows a policy of
continuous credit loss monitoring, including an assessment of the adequacy
of the allowance for loan losses. This assessment is performed by
considering current asset quality, anticipated external economic
conditions, overall trends of internal delinquency by loan category, and
the balance of loans within the portfolio. These assessments are performed
on a quarterly basis and the provision for loan losses is adjusted
accordingly.
Loan charge-offs, net of recoveries, totaled $396,000 for the three month
period ended March 31, 1998, compared to $35,000 for the three month period
ended March 31, 1997. Loan charge-offs, net of recoveries, totaled $679,000
for the twelve month period ended March 31, 1998. Based on management's
continuing review of the loan portfolio, the Registrant recorded provision
for loan losses of $830,000 for the three month, and $1,288,000 for the 12
month periods ending March 31, 1998.
The allowance for loan losses totaled $9,048,000, $8,614,000, and
$8,439,000 at March 31, 1998, December 31, 1997, and March 31, 1997,
respectively. Stated as a percentage of total loans receivable (including
Loans held for sale, net), the allowance for loan losses amounted to .99%,
1.02%, and .98% at March 31, 1998, December 31, 1997, and March 31, 1997,
respectively.
Deposits Deposits, not including escrow funds, totaled $1.139 billion,
$1.146 billion, and $1.175 billion at March 31, 1998, December 31, 1997,
and March 31, 1997, respectively. Total deposits declined by $7.1 million,
or .6%, during the three months ended March 31, 1998. In addition, total
deposits declined by $36.3 million or 3.1% during the twelve months ending
March 31, 1998. Both the three month and twelve month declines reflect the
Registrant's strategy of leveraging an existing surplus capital base and
paying competitive, but not top market rates on the remaining deposit base.
The deposit decline has been offset by increased reliance on other
borrowings.
Table 5 on the following page presents the composition of the Registrant's
deposit portfolio as of March 31, 1998, December 31, 1997, and March 31,
1997, respectively.
Page 24
<PAGE>
TABLE 5 - Deposit Composition (All figures in 000's)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
------------------------- ------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand and NOW Accounts $ 118,071 10.36% $ 100,703 8.79% $ 91,783 7.81%
Money Market 135,585 11.90% 128,079 11.17% 129,629 11.03%
Savings 154,694 13.58% 148,718 12.97% 147,844 12.58%
Time Deposits 730,824 64.16% 768,738 67.07% 806,206 68.58%
----------- ------ ----------- ------ ----------- ------
Total Deposits $ 1,139,174 100.00% $ 1,146,238 100.00% $ 1,175,462 100.00%
=========== ====== =========== ====== =========== ======
</TABLE>
(Balance of this page is left intentionally blank.)
Page 25
<PAGE>
Other Borrowings During the three and twelve month periods ended March 31,
1998, the Registrant actively engaged in leveraging activities to redeploy
its excess capital. This strategy relies on using external sources of funds
to invest in interest earning assets at a positive spread between the yield
on interest earning asset and the cost of the support borrowing.
Other borrowings totaled $902.9 million, $854.0 million, and $589.7 million
at March 31, 1998, December 31, 1997, and March 31, 1997, respectively.
Borrowings from non-deposit funding sources increased $48.9 million, or
5.7%, during the three months ended March 31, 1998, and increased $313.2
million, or 53.1%, during the twelve month period ended March 31, 1998. The
increases were due to the increase in repurchase agreements to $328.4
million, which represents an increase of $50.8 million, or 18.3%, and
$328.4 million during the three months and twelve months ended March 31,
1998, respectively. Offsetting these increases in other borrowings were a
$1.5 million or .3% and $14.7 million or 2.5% decrease in FHLB advances for
the three and twelve month periods ending March 31, 1998, respectively.
At the end of the three month period ending March 31, 1998, the Registrant
had maximum FHLB lines of credit totalling $802.8 million vs. $1,017.9
million in available FHLB credit for the twelve month period ending March
31, 1998. This decline of 21.1 % or $215.1 million is based on increased
repurchase agreement activity during 1998. Whenever a financial institution
utilizes repurchase agreements as a funding option, the maximum amount of
credit available from the FHLB is correspondingly reduced. During the
twelve month period ending March 31, 1998, repurchase agreement balances
increased by $328.4 million. This shift in external funding sources is
predicated on the current cost of funds advantage associated with
repurchase agreement transactions.
Table 6 on the following page presents the composition of the Registrant's
other borrowings as of March 31, 1998, December 31, 1997, and March 31,
1997, respectively.
(Balance of this page left blank intentionally.)
Page 26
<PAGE>
TABLE 6 - Other Borrowings (All figures in 000's)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
--------------------- --------------------- ----------------------
Amount Percent Amount Percent Amount Percent
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
FHLB Advances $ 573,988 63.58% $ 575,440 67.38% $ 588,730 99.83%
Repurchase Agreements 328,395 36.37% 277,548 32.50% - 0.00%
ESOP Loan 495 0.05% 990 0.12% 990 0.17%
--------- ------ --------- ------ --------- ------
Total Other Borrowings $ 902,878 100.00% $ 853,978 100.00% $ 589,720 100.00%
========= ====== ========= ====== ========= ======
</TABLE>
(Balance of this page is left intentionally blank.)
Page 27
<PAGE>
Liquidity The Registrant's primary sources of funds are deposits and
proceeds from principal and interest payments on loans and mortgage-backed
securities. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Registrant anticipates that it
will have sufficient funds available to meet its current commitments.
The Registrant exceeded all regulatory standards for liquidity at March 31,
1998, December 31, 1997, and March 31, 1997.
Other Matters On January 29, 1997, the Bank filed an F-3 regarding the
formation of a two tier mutual holding company structure which was
incorporated by reference in the March 31, 1997 F-4 report. On September
17, 1997 the Federal Reserve approved the formation of Harris Financial,
Inc. (the Registrant), a second tier holding company, which owns 100% of
the outstanding shares of Harris Savings Bank. All March 31, 1998 financial
information reflects the combined operations of the Registrant and it's
wholly owned subsidiary, Harris Savings Bank.
In January 1998, Charles C. Pearson, Jr. was named President and Chief
Executive Officer of Harris Financial, MHC (the top tier parent company of
Harris Financial, Inc.). Mr. Pearson was the prior President and Chief
Executive Officer of PNC Bank's Central PA Region. He joined PNC Bank in
January 1994, when United Federal Bankcorp, Inc., where he served as
President and Chief Executive Officer, was acquired by PNC Bank Corp.
Mr. Pearson began his banking career at Philadelphia National Bank in 1967.
In 1977, he joined Hamilton Bank in Lancaster, PA as the Executive Vice
President of the banking division. In 1984, he joined Commonwealth National
Bank as Executive Vice President and after its acquisition by Mellon Bank,
was transferred to Mellon Bank's Central PA region where he served as the
Chairman, President and Chief Executive Officer. In 1988, he joined United
Federal as President, Chief Executive Officer and Director of the
institution.
Year 2000 Compliance The efficient and reliable operation of the
Registrant's business is significantly dependent upon its computer
hardware, software programs, and operating systems (collectively "computer
systems"). As a financial services company, the Registrant relies on
computer systems in virtually all significant business operations.
Management considers Year 2000 readiness to be a major business issue and
has implemented a Year 2000 Plan to successfully address all related risks.
The Registrant is currently evaluating all of its computer systems for Year
2000 readiness, including those systems that do not involve business
information processing. In addition, management is communicating with
vendors, business partners, commercial banking customers, and others to
coordinate full Year 2000 conversion. Management expects all
business-critical systems to be Year 2000 compliant by December 31, 1998 to
allow a full year for adequate integrated testing and completion of any
remaining corrective action. HFI anticipates that all of its computer
systems will be completely tested and made fully Year 2000 compliant during
1999.
During 1997, the Registrant made substantial progress toward Year 2000
compliance by replacing its core banking hardware and software systems. The
Page 28
<PAGE>
Registrant manages its information systems internally, using computer
systems acquired from nationally-recognized vendors. The Registrant does
not operate any legacy, or internally-developed, computer systems. HFI's
core banking hardware consists of a mainframe system, a number of
stand-alone and network servers, and certain microcomputers. As of this
time, management believes that virtually all of the HFI's core banking
hardware and operating systems are Year 2000 compliant. The Registrant's
core banking software is not fully Year 2000 compliant at this time;
however, a substantial portion of the business-critical programs are Year
2000 ready. Because HFI has already replaced its core banking computer
systems with Year 2000 compliant systems, management expects ongoing
remaining expenses for Year 2000 preparation to be immaterial to HFI's
earnings in 1998 and beyond.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
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 6.
(a) Exhibits
Exhibit 10.1 Change in Control Agreement between Harris
Financial, MHC and Jane Tompkins, dated April
14, 1998.
Exhibit 10.2 Change in Control Agreement between Harris
Financial, MHC and John Atkinson, dated April
30, 1998.
Exhibit 11 Statement Re: Computation of Earnings Per
Share.
Exhibit 27 Financial Data Schedule
(b) Reports on form 8-K.
The Registrant filed the following Current Reports on form
8-K during the first quarter of 1998:
Page 29
<PAGE>
(i) Current Report on Form 8-K, dated August 11, 1997, re:
Executive Employment Agreement between Harris Savings Bank
and Richard C. Ruben, filed with the Securities and Exchange
Commission on March 12, 1998; and
(ii) Current Report on Form 8-K, dated December 19, 1997,
re: Executive Agreement between Harris Financial MHC and
Charles C. Pearson, Jr., filed with the Securities and
Exchange Commission on March 12, 1998.
(iii) Current Report on Form 8-K, dated April 29, 1998, re:
Naming John Atkinson as Executive Vice President/Chief
Operating Officer of Harris Savings Bank, filed with the
Securities and Exchange Commission on May 7, 1998
Page 30
<PAGE>
(b) Reports on form 8-K
(continued)
Page 31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRIS FINANCIAL, INC.
(Registrant)
By /s/ Charles C. Pearson, Jr.
------------------------------------
Charles C. Pearson, Jr., President
and Chief Executive Officer
By /s/ James L. Durrell
------------------------------------
James L. Durrell, Executive Vice President
and Chief Financial Officer
Dated: May 8, 1998
Page 32
<PAGE>
EXHIBIT INDEX
Exhibit Number
- --------------
Exhibit 10.1 Change in Control Agreement dated April 14, 1998
Exhibit 10.2 Change in Control Agreement dated April 29, 1998
Exhibit 11 Statement Re: Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule
page 33
Exhibit 10.1
This AGREEMENT is made effective as of April 14, 1998 by and among Harris
Savings Bank (the "Savings Bank") a Pennsylvania chartered savings bank, with
its principal administrative office at Second and Pine Streets, Harrisburg,
Pennsylvania, Harris Financial, MHC (the "Holding Company"), a corporation
organized under the laws of the Commonwealth of Pennsylvania which is the
holding company for the Savings Bank, and Jane B. Tompkins (the "Executive").
WHEREAS, the Savings Bank recognizes the substantial contribution Executive
has made to the Savings Bank and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has been selected to, and has agreed to serve in the
position of SVP/Chief Credit Officer for the Savings Bank, a position of
substantial responsibility.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. The Agreement will be up for consideration for
renewal each March 31st, after the Board of Directors completes a formal
performance evaluation of the Executive. The purpose of this evaluation will be
to determine whether or not to extend the Agreement. The results of this
evaluation will be included in the Minutes of the next Board Meeting. The
Agreement will renew for an additional year so that the remaining term shall be
three (3) years unless written notice is provided to the Executive at least ten
(10) days, but not more than twenty (20) days prior to the anniversary date,
that this Agreement shall cease at the end of the thirty-six (36) months
following such anniversary date.
2. PAYMENTS TO THE EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Savings Bank or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the voluntary (for any of the bases set below) or involuntary
termination of Executive's employment, other than for Cause, as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation, relocation of his principal
place of employment by more than 30 miles from its location immediately prior to
the Change in Control or the failure to continue in effect any vacation
benefits, pension plan, dental plan, life insurance plan, health, accident or
disability plan in which Executive is participating immediately prior to Change
in Control.
"Change in Control" of the Bank or the Holding Company shall mean (i) a plan of
reorganization, merger, merger conversion, consolidation or sale of all or
substantially all of the assets of the Bank or the Holding Company or a similar
transaction occurs in which the Bank or the Holding Company is not the resulting
entity; (ii) individuals who constitute the board of directors of the Bank or
the board of trustees of the Holding Company on the date hereof cease for any
reason to constitute a majority thereof; or (iii) a change in control within the
meaning of 12 C.F.R. ss.303.4(a) or 12 C.F.R. ss.225.41(b) occurs, as
determined by the board of directors of the Bank or the board of trustees of the
Holding Company. In the event the Holding Company converts from the mutual form
of organization to the stock form of organization at any time subsequent to the
effective date of this Agreement ("Stock Holding Company"), a "change in
control" of the Bank or the Stock Holding Company for purposes of this Agreement
shall mean an event of a nature that: (I) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); or (II) results in a Change in Control of the Savings Bank
Page 34
<PAGE>
or the Stock Holding Company within the meaning of the Change in Bank Control
Act and the Rules and Regulations promulgated by the Federal Deposit Insurance
Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Savings Bank
and the Board of Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
ss.225.41(b) with respect to the Stock Holding Company, as in effect on the
date hereof; (III) results in a transaction requiring prior FRB approval under
the Bank Holding Company Act of 1956 and the regulations promulgated thereunder
by the FRB at C.F.R. 225.11, as in effect on the date hereof; or (IV) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of Securities of the Bank or
the Stock Holding Company representing 20% or more of the Bank's or the Stock
Company's outstanding securities except for any securities of the Bank purchased
by the Stock Company in connection with the conversion of the Company to the
stock form and any securities purchased by the Bank's employee stock ownership
plan and trust; or (b) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Stock Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or Stock Company or similar transaction occurs in which the
Bank or Stock Company is not the resulting entity; or (d) a proxy statement
shall be distributed soliciting proxies from stockholders of the Stock Company,
by someone other than the current management of the Stock Company, seeking
stockholder approval of a plan of reorganization, merger, or consolidation of
the Stock Company or Bank or similar transaction with one or more corporations
as a result of which the outstanding shares of the class of securities then
subject to such plan or transaction are exchanged for or converted into cash or
property or securities not issued by the Bank or the Stock Company; or (e) a
tender offer is accepted for 20% or more of the voting securities of the Bank or
Stock Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any material provision of
this Agreement. For purposes of this Section, no act, or the failure to act on
Executive's part shall be "willful" unless done or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Holding Company or the Savings Bank. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a Notice of Termination
which shall include a copy of a resolution duly adopted by the affirmative vote
of not less than two-thirds of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to the Executive
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in good faith opinion of the Board, the Executive was
guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause. Any
stock options or limited rights granted to Executive under any stock option plan
or any unvested awards granted to Executive under a Recognition and Retention
Plan of the Savings Bank, the Company or any subsidiary or affiliate thereof,
shall become null and void effective upon Executive's receipt of Notice of
Termination for Cause and shall not be exercisable by Executive at any time
subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of the
Executive's employment, other than for Termination for Cause, the Savings Bank
and the Company shall pay the Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times the
Page 35
<PAGE>
average of the three preceding years' base salary, including bonuses and any
other cash or deferred compensation paid, or to be paid, to the Executive for
such years and such benefits as are otherwise payable to Executive under such
plans upon a Change in Control. At the election of the Executive such payment
may be made in a lump sum or paid in equal monthly installments during the
twelve (12) months following the Executive's termination. In the event that no
election is made, payment to the Executive will be made on a monthly basis
during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Savings Bank or the
Holding Company followed at any time during the term of this Agreement by the
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Savings Bank shall cause to be be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Savings Bank for the Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months.
(c) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Bank on his
behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
the Executive's behalf to the extent that such benefits are not otherwise paid
to the Executive under a separate provision of this Agreement.
Notwithstanding the preceding paragraphs of this Section 3, in the event that:
the aggregate payments or benefits to be made or afforded to the Executive under
said paragraphs (the "Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the Internal Revenue Code of
1986 (the Code) or any successor thereto, and
if such Termination Benefits were reduced to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount equal to
three (3) times Executive's "base amount" as determined in accordance with said
Section 280G, and the Non-Triggering Amount would be greater than the aggregate
value of the Termination Benefits (without such reduction) minus the amount of
tax required to be paid by the Executive thereon by Section 4999 of the Code,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Savings Bank, the Holding Company or
by Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of executive's
employment under the provision so indicated.
"Date of Termination" shall mean the date specified in the Notice of Termination
which, in the instance of Termination for Cause, shall be immediate.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Savings
Bank. The Holding Company, however, guarantees payment and provision of all
amounts due hereunder to the Executive and, if such amounts and benefits due
from the savings Bank are not timely paid or provided by the Savings Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
Page 36
<PAGE>
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Savings Bank and the Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Savings Bank or shall impose on the Savings Bank any
obligation to employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Savings Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
This Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board, other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under the Agreement. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2 hereinabove.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
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<PAGE>
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Pennsylvania law.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled to seek specific performance of
his right to be paid until the Date of Termination during the pendency of an
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Savings Bank (which payments are guaranteed
by the Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
The Savings Bank shall provide Executive (including his or her legal
representatives, successors, and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including his or her legal representatives,
successors, and assigns) to the fullest extent permitted under Pennsylvania law
against all expenses and liabilities reasonably incurred by Executive in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a trustee or officer of the Savings
Bank (whether or not he continues to be trustee or officer at the time of
incurring such expenses or liabilities); such expenses or liabilities to
include, but not limited to, judgments, court costs and attorneys' fees and the
cost of reasonable settlements for reasonable costs and expenses incurred by
Executive in defending or settling any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal, or otherwise, including any
appeal or other proceeding for review.
Indemnification by the Savings Bank shall be made only upon the final
judgment on the merits in favor of the Executive, in case of settlement, in case
of final judgment against Executive or in the case of final judgment in favor of
Executive other than on the merits, if a majority of the disinterested directors
of the Savings Bank determine Executive was acting in good faith within the
scope of Executive's employment or authority.
Any such indemnification of Executive for such expenses and liabilities are
to include, but not be limited to, judgments, court costs and attorneys' fees
and the cost of reasonable settlements, such settlements to be approved by the
Board of Directors of the Savings Bank, if such action is brought against the
Executive in his or her capacity as an officer or trustee of the Savings Bank,
provided however, such indemnity shall not extend to matters as to which the
Executive is finally adjudged to be liable for willful misconduct in the
performance of his or her duties.
16. SUCCESSOR TO THE BANK.
The Savings Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Savings Bank or the Holding
Page 38
<PAGE>
Company, expressly and unconditionally to assume and agree to perform the
Savings Bank's obligations under this Agreement, in the same manner and to the
same extent that the Savings bank would be required to perform if no such
succession or assignment had taken place.
17. SIGNATURES.
IN WITNESS WHEREOF, Harris Savings Bank and Harris Financial, MHC have
caused this Agreement to be executed by their duly authorized officers, and
Executives have signed this Agreement, on the 14 day of April, 1998.
ATTEST:
HARRIS SAVINGS BANK
/s/ Richard C. Ruben BY: /s/ Charles C. Pearson, Jr.
- -------------------- ---------------------------
Corporate Secretary President/Chief Executive Officer
SEAL
ATTEST: HARRIS FINANCIAL
(Guarantor)
/s/ Richard C. Ruben BY: /s/ Charles C. Pearson, Jr.
- -------------------- ---------------------------
Corporate Secretary President/Chief Executive Officer
SEAL
WITNESS:
/s/ Barbara E. Roth By: /s/ Jane B. Tompkins
- ------------------- --------------------
(EXECUTIVE)
Page 39
Exhibit 10.2
This AGREEMENT is made effective as of April 29, 1998 by and among Harris
Savings Bank (the "Savings Bank") a Pennsylvania chartered savings bank, with
its principal administrative office at Second and Pine Streets, Harrisburg,
Pennsylvania, Harris Financial, MHC (the "Holding Company"), a corporation
organized under the laws of the Commonwealth of Pennsylvania which is the
holding company for the Savings Bank, and John Atkinson (the "Executive").
WHEREAS, the Savings Bank recognizes the substantial contribution Executive
has made to the Savings Bank and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has been selected to, and has agreed to serve in the
position of EVP, Chief Operations Officer for the Savings Bank, a position of
substantial responsibility.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. The Agreement will be up for consideration for
renewal each March 31st, after the Board of Directors completes a formal
performance evaluation of the Executive. The purpose of this evaluation will be
to determine whether or not to extend the Agreement. The results of this
evaluation will be included in the Minutes of the next Board Meeting. The
Agreement will renew for an additional year so that the remaining term shall be
three (3) years unless written notice is provided to the Executive at least ten
(10) days, but not more than twenty (20) days prior to the anniversary date,
that this Agreement shall cease at the end of the thirty-six (36) months
following such anniversary date.
2. PAYMENTS TO THE EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Savings Bank or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the voluntary (for any of the bases set below) or involuntary
termination of Executive's employment, other than for Cause, as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation, relocation of his principal
place of employment by more than 30 miles from its location immediately prior to
the Change in Control or the failure to continue in effect any vacation
benefits, pension plan, dental plan, life insurance plan, health, accident or
disability plan in which Executive is participating immediately prior to Change
in Control.
"Change in Control" of the Bank or the Holding Company shall mean (i) a plan of
reorganization, merger, merger conversion, consolidation or sale of all or
substantially all of the assets of the Bank or the Holding Company or a similar
transaction occurs in which the Bank or the Holding Company is not the resulting
entity; (ii) individuals who constitute the board of directors of the Bank or
the board of trustees of the Holding Company on the date hereof cease for any
reason to constitute a majority thereof; or (iii) a change in control within the
meaning of 12 C.F.R. ss.303.4(a) or 12 C.F.R. ss.225.41(b) occurs, as
determined by the board of directors of the Bank or the board of trustees of the
Holding Company. In the event the Holding Company converts from the mutual form
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<PAGE>
of organization to the stock form of organization at any time subsequent to the
effective date of this Agreement ("Stock Holding Company"), a "change in
control" of the Bank or the Stock Holding Company for purposes of this Agreement
shall mean an event of a nature that: (I) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); or (II) results in a Change in Control of the Savings Bank
or the Stock Holding Company within the meaning of the Change in Bank Control
Act and the Rules and Regulations promulgated by the Federal Deposit Insurance
Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Savings Bank
and the Board of Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
ss.225.41(b) with respect to the Stock Holding Company, as in effect on the
date hereof; (III) results in a transaction requiring prior FRB approval under
the Bank Holding Company Act of 1956 and the regulations promulgated thereunder
by the FRB at C.F.R. 225.11, as in effect on the date hereof; or (IV) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of Securities of the Bank or
the Stock Holding Company representing 20% or more of the Bank's or the Stock
Company's outstanding securities except for any securities of the Bank purchased
by the Stock Company in connection with the conversion of the Company to the
stock form and any securities purchased by the Bank's employee stock ownership
plan and trust; or (b) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Stock Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or Stock Company or similar transaction occurs in which the
Bank or Stock Company is not the resulting entity; or (d) a proxy statement
shall be distributed soliciting proxies from stockholders of the Stock Company,
by someone other than the current management of the Stock Company, seeking
stockholder approval of a plan of reorganization, merger, or consolidation of
the Stock Company or Bank or similar transaction with one or more corporations
as a result of which the outstanding shares of the class of securities then
subject to such plan or transaction are exchanged for or converted into cash or
property or securities not issued by the Bank or the Stock Company; or (e) a
tender offer is accepted for 20% or more of the voting securities of the Bank or
Stock Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any material provision of
this Agreement. For purposes of this Section, no act, or the failure to act on
Executive's part shall be "willful" unless done or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Holding Company or the Savings Bank. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a Notice of Termination
which shall include a copy of a resolution duly adopted by the affirmative vote
of not less than two-thirds of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to the Executive
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in good faith opinion of the Board, the Executive was
guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause. Any
stock options or limited rights granted to Executive under any stock option plan
or any unvested awards granted to Executive under a Recognition and Retention
Plan of the Savings Bank, the Company or any subsidiary or affiliate thereof,
shall become null and void effective upon Executive's receipt of Notice of
Termination for Cause and shall not be exercisable by Executive at any time
subsequent to such Termination for Cause.
Page 41
<PAGE>
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of the
Executive's employment, other than for Termination for Cause, the Savings Bank
and the Company shall pay the Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times the
average of the three preceding years' base salary, including bonuses and any
other cash or deferred compensation paid, or to be paid, to the Executive for
such years and such benefits as are otherwise payable to Executive under such
plans upon a Change in Control. At the election of the Executive such payment
may be made in a lump sum or paid in equal monthly installments during the
twelve (12) months following the Executive's termination. In the event that no
election is made, payment to the Executive will be made on a monthly basis
during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Savings Bank or the
Holding Company followed at any time during the term of this Agreement by the
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Savings Bank shall cause to be be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Savings Bank for the Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months.
(c) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Bank on his
behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
the Executive's behalf to the extent that such benefits are not otherwise paid
to the Executive under a separate provision of this Agreement.
Notwithstanding the preceding paragraphs of this Section 3, in the event that:
the aggregate payments or benefits to be made or afforded to the Executive under
said paragraphs (the "Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the Internal Revenue Code of
1986 (the Code) or any successor thereto, and
if such Termination Benefits were reduced to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount equal to
three (3) times Executive's "base amount" as determined in accordance with said
Section 280G, and the Non-Triggering Amount would be greater than the aggregate
value of the Termination Benefits (without such reduction) minus the amount of
tax required to be paid by the Executive thereon by Section 4999 of the Code,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Savings Bank, the Holding Company or
by Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of executive's
employment under the provision so indicated.
"Date of Termination" shall mean the date specified in the Notice of Termination
which, in the instance of Termination for Cause, shall be immediate.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Savings
Page 42
<PAGE>
Bank. The Holding Company, however, guarantees payment and provision of all
amounts due hereunder to the Executive and, if such amounts and benefits due
from the savings Bank are not timely paid or provided by the Savings Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Savings Bank and the Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Savings Bank or shall impose on the Savings Bank any
obligation to employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Savings Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
This Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No term or condition this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board, other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under the Agreement. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2 hereinabove.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
Page 43
<PAGE>
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Pennsylvania law.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled to seek specific performance of
his right to be paid until the Date of Termination during the pendency of an
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Savings Bank (which payments are guaranteed
by the Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
The Savings Bank shall provide Executive (including his or her legal
representatives, successors, and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including his or her legal representatives,
successors, and assigns) to the fullest extent permitted under Pennsylvania law
against all expenses and liabilities reasonably incurred by Executive in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a trustee or officer of the Savings
Bank (whether or not he continues to be trustee or officer at the time of
incurring such expenses or liabilities); such expenses or liabilities to
include, but not limited to, judgments, court costs and attorneys' fees and the
cost of reasonable settlements for reasonable costs and expenses incurred by
Executive in defending or settling any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal, or otherwise, including any
appeal or other proceeding for review.
Indemnification by the Savings Bank shall be made only upon the final
judgment on the merits in favor of the Executive, in case of settlement, in case
of final judgment against Executive or in the case of final judgment in favor of
Executive other than on the merits, if a majority of the disinterested directors
of the Savings Bank determine Executive was acting in good faith within the
scope of Executive's employment or authority.
Any such indemnification of Executive for such expenses and liabilities are
to include, but not be limited to, judgments, court costs and attorneys' fees
and the cost of reasonable settlements, such settlements to be approved by the
Page 44
<PAGE>
Board of Directors of the Savings Bank, if such action is brought against the
Executive in his or her capacity as an officer or trustee of the Savings Bank,
provided however, such indemnity shall not extend to matters as to which the
Executive is finally adjudged to be liable for willful misconduct in the
performance of his or her duties.
16. SUCCESSOR TO THE BANK.
The Savings Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Savings Bank or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Savings Bank's obligations under this Agreement, in the same manner and to the
same extent that the Savings bank would be required to perform if no such
succession or assignment had taken place.
17. SIGNATURES.
IN WITNESS WHEREOF, Harris Savings Bank and Harris Financial, MHC have
caused this Agreement to be executed by their duly authorized officers, and
Executives have signed this Agreement, on the 29 day of April, 1998.
ATTEST:
HARRIS SAVINGS BANK
/s/ Richard C. Ruben BY: /s/ Charles C. Pearson, Jr.
- -------------------- -----------------------------
Corporate Secretary President/Chief Executive Officer
SEAL
ATTEST: HARRIS FINANCIAL
(Guarantor)
/s/ Richard C. Ruben BY: /s/ Charles C. Pearson, Jr.
- ---------------------- ---------------------------
Corporate Secretary President/Chief Executive Officer
SEAL
WITNESS:
/s/ Barbara Roth By: /s/ John W. Atkinson
- ---------------- ---------------------
Page 45
Exhibit 11
Statement Regarding the Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the quarter ending
March 31,
--------------------------
1998(1) 1997(1)
----------- -----------
<S> <C> <C>
Weighted average shares outstanding:
Total average shares outstanding 33,876,815 33,115,344
Average allocated ESOP shares 3,699 18,564
----------- -----------
Basic average shares 33,880,514 33,133,908
----------- -----------
Common Stock Equivalents (1)
Option plans Mgt/Directors 271,729 238,284
RRP Management 27,877 21,876
----------- -----------
Total average allocated award shares 299,606 260,160
----------- -----------
Fully diluted average shares outstanding 34,180,120 33,394,068
=========== ===========
Net income for the period $ 5,749,000 $ 4,709,000
Basic Earnings per share $ 0.17 $ 0.14
=========== ===========
Diluted earnings per share $ 0.17 $ 0.14
=========== ===========
</TABLE>
(1) The 1997 earnings per share calculations reflect the retroactive effect of
a 3 for 1 stock split effected in the form of a dividend that was approved
by the Board of Directors on October 22, 1997. The dividend was declared to
stockholders of record as of November 4, 1997 and was paid on November 18,
1997.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 8,014
<INT-BEARING-DEPOSITS> 49,143
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,209,273
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 917,234
<ALLOWANCE> 9,048
<TOTAL-ASSETS> 2,260,301
<DEPOSITS> 1,139,174
<SHORT-TERM> 325,689
<LIABILITIES-OTHER> 34,491
<LONG-TERM> 577,189
0
0
<COMMON> 339
<OTHER-SE> 183,419
<TOTAL-LIABILITIES-AND-EQUITY> 2,260,301
<INTEREST-LOAN> 19,246
<INTEREST-INVEST> 21,161
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 40,407
<INTEREST-DEPOSIT> 12,980
<INTEREST-EXPENSE> 26,309
<INTEREST-INCOME-NET> 14,098
<LOAN-LOSSES> 830
<SECURITIES-GAINS> 2,384
<EXPENSE-OTHER> 9,823
<INCOME-PRETAX> 8,373
<INCOME-PRE-EXTRAORDINARY> 8,373
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,749
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 7.51
<LOANS-NON> 8,011
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,895
<ALLOWANCE-OPEN> 8,614
<CHARGE-OFFS> 441
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 9,048
<ALLOWANCE-DOMESTIC> 6,013
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,035
</TABLE>
