SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended:
September 30, 1995
Commission File No.: 0-17913
FIRST HARRISBURG BANCOR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1597970
- ----------------------- ---------------------
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
234 North Second Street, Harrisburg, PA 17101
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 232-6661
--------------
Indicate by check mark whether Registrant (a) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (b) 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 issuer's classes of
common stock as of the latest practicable date:
TITLE OF CLASS OUTSTANDING AT November 6, 1995
-------------- --------------------------------
Common Stock, $.01 par value 2,337,284 shares
<PAGE>
FIRST HARRISBURG BANCOR, INC.
INDEX
Part I - Financial Statements
Item 1. Financial Statements
Consolidated Statements of Financial
Condition, September 30, 1995
and December 31, 1994 (unaudited)
Consolidated Statements of Operations,
Three and nine months ended September 30, 1995
and 1994 (unaudited)
Consolidated Statements of Cash Flows,
Nine months ended Septemer 30, 1995 and
1994 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Part II - Other Information:
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit 11. Computation of Earnings Per Share
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1995 1994
----------- -----------
(In thousands) (unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks ........................ $ 4,115 $ 6,608
Interest-bearing deposits .............................. 2,765 1,898
----------- -----------
Total cash and cash equivalents .......................... 6,880 8,506
Investment securities (fair value: 1995, $21,198;
1994, $15,806) ......................................... 20,979 16,385
Mortgage-backed securities (fair value:
1995, $41,590; 1994, $36,593) .......................... 41,853 38,074
Loans receivable, net .................................... 189,058 170,130
Loans held for sale ...................................... 40,022 26,104
Accrued interest receivable .............................. 1,624 1,471
Real estate:
Acquired in settlement of loans, net ................... 200 1,154
Acquired for development, net .......................... 216 249
Property and equipment, net .............................. 1,835 1,772
Federal Home Loan Bank stock, at cost .................... 5,502 4,306
Deferred tax asset ....................................... 435 535
Servicing rights and premiums on sale of loans, net ...... 210 250
Prepaid expenses and other assets ........................ 882 1,049
----------- -----------
Total assets ........................................... $ 309,696 $ 269,985
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................. $ 167,843 $ 151,460
Short-term borrowings .................................... 39,069 64,980
Advances from Federal Home Loan Bank ..................... 70,964 22,011
Funds due remittance service and other ................... 557 1,578
Advances from borrowers for taxes and insurance .......... 3,323 3,836
Long-term debt ........................................... 209 278
Other liabilities ........................................ 2,831 2,043
Income taxes payable ..................................... 232 400
----------- -----------
Total liabilities ...................................... 285,028 246,586
----------- -----------
<PAGE>
<CAPTION>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
September 30, December 31,
1995 1994
----------- -----------
(In thousands) (unaudited)
<S> <C> <C>
Stockholders' equity:
Preferred stock: 5,000,000 shares authorized; none issued
Common stock: $.01 par; 10,000,000 shares
authorized; 2,389,162 and 2,357,464 shares issued
and outstanding in 1995 and 1994, respectively, of which
51,878 and 0 shares are held in Treasury stock ......... 24 24
Capital in excess of par ................................. 15,298 15,197
Retained earnings, partially restricted .................. 10,073 8,531
Unrealized gain (loss) on securities available for sale .. 123 (75)
Employee stock ownership plan obligation ................. (209) (278)
----------- -----------
25,309 23,399
Less Treasury stock at cost .............................. (641) --
Total stockholders' equity ............................. 24,668 23,399
Total liabilities and stockholders' equity ............... $ 309,696 $ 269,985
=========== ===========
</TABLE>
Common stock issued and outstanding at December 31, 1994 has been adjusted to
reflect the recognition of the two for one stock split of January 1995.
<PAGE>
<TABLE>
<CAPTION>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
(In thousands, except per share data) September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable ............................. $ 3,847 $ 3,368 $ 11,302 $ 9,322
Loanss held for sale ......................... 929 560 2,086 1,544
Investment securities held for sale .......... 35 10 107 44
Investment securities held to maturity ....... 497 324 1,347 709
Mortgage-backed securities available for sale 199 234 618 760
Mortgage backed securities held to maturity .. 494 371 1,348 1,074
---------- ---------- ---------- ----------
Total interest income ...................... 6,001 4,867 16,808 13,453
---------- ---------- ---------- ----------
Interest expense:
Deposits ..................................... 2,030 1,450 5,609 4,518
FHLB advances ................................ 910 276 1,721 774
Short-term borrowings ........................ 695 652 2,570 1,211
---------- ---------- ---------- ----------
Total interest expense ..................... 3,635 2,378 9,900 6,503
---------- ---------- ---------- ----------
Net interest income ............................... 2,366 2,489 6,908 6,950
Provision for loan losses ......................... -- -- -- --
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 2,366 2,489 6,908 6,950
---------- ---------- ---------- ----------
Noninterest income:
Other fees and charges ....................... 163 246 495 690
Servicing fee income ......................... 147 136 457 398
Gain (loss) on sale of:
Trading account securities ................. -- -- -- (11)
Securities available for sale .............. -- -- 1 --
Mortgages .................................. 644 303 1,295 1,198
Property and equipment, net ................ -- (6) -- (8)
Servicing .................................. -- -- -- 114
Income (loss) from real estate operations .... 3 12 30 109
Other ........................................ 1 1 (1) 9
---------- ---------- ---------- ----------
Total noninterest income ................... 958 692 2,277 2,499
---------- ---------- ---------- ----------
<PAGE>
<CAPTION>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
Three Months Ended Nine Months Ended
(In thousands, except per share data) September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits ............... 1,000 1,052 2,926 3,255
Occupancy, net ............................... 380 315 1,041 980
Data processing services ..................... 48 49 147 154
Federal insurance premiums ................... 112 109 322 334
Marketing .................................... 74 80 359 265
Professional fees ............................ 85 104 253 238
Provision for real estate losses ............. 14 (205) 19 (200)
Other ........................................ 384 284 1,035 926
---------- ---------- ---------- ----------
Total noninterest expense .................. 2,097 1,788 6,102 5,952
---------- ---------- ---------- ----------
Income before income taxes ........................ 1,227 1,393 3,083 3,497
Income taxes ...................................... 458 567 1,153 1,479
---------- ---------- ---------- ----------
Net income ........................................ $ 769 $ 826 $ 1,930 $ 2,018
========== ========== ========== ==========
Earnings per common and common equivalent share*: . $ 0.32 $ 0.34 $ 0.80 $ 0.84
========== ========== ========== ==========
Cash dividends paid per share* .................... $ 0.055 $ 0.055 $ .165 $ 0.10
========== ========== ========== ==========
</TABLE>
*1994 per share figures adjusted for the two for one stock split of January
1995.
<PAGE>
<TABLE>
<CAPTION>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended
(In thousands) September 30,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................. $ 1,930 $ 2,018
---------- ----------
Adjustments:
Depreciation .......................................................... 283 257
Interest credited on deposits ......................................... 5,593 4,506
Provision for real estate losses ...................................... 19 (200)
Purchase of investment securities held in trading account ............. -- (1,497)
Proceeds from sale of investment securities held in trading account ... -- 1,485
(Gain) loss on sale of:
Investment securities held in trading account ....................... -- 11
Investment securities available for sale ............................ (1) --
Mortgages ........................................................... (1,295) (1,197)
Servicing ........................................................... -- (114)
Real estate acquired:
In settlement of loans ....................................... 4 (104)
For development .............................................. (54) (61)
Property and equipment .............................................. -- 1
Loss on abandonment of property and equipment ......................... -- 7
(Increase) decrease in provision for deferred income taxes ............ (25) 406
Loans held for sale, sold ............................................. 348,854 324,503
Proceeds from the sale of servicing ................................... -- 114
Investment in loans held for sale ..................................... (90,493) (86,956)
Loans held for sale, purchased ........................................ (271,850) (226,286)
Amortization of loan costs (fees) ..................................... 24 (106)
Amortization of servicing rights and premiums on sale of loans ........ 40 26
Increase in servicing rights and premiums on sale of loans ............ -- (5)
Increase in accrued interest receivable ............................... (153) (188)
Decrease (increase) in prepaid expenses and other assets .............. 167 (465)
Increase (decrease) in other liabilities .............................. 788 (742)
Decrease in income taxes payable ...................................... (168) (103)
---------- ----------
Total adjustments ................................................... (8,267) 13,292
---------- ----------
Net cash (used in) provided by operating activities ........................ (6,337) 15,310
---------- ----------
<PAGE>
<CAPTION>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
Nine Months Ended
(In thousands) September 30,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from investing activities:
Principal payments on loans ........................................... 26,304 31,714
Investment in loans ................................................... (25,033) (58,993)
Loans purchased ....................................................... (18,797) --
(Costs) fees deferred on loans and mortgages .......................... (833) 453
Change in undisbursed loans in process ................................ 215 (822)
Purchase of:
Investment and mortgage-backed securities available for sale ........ (4,821) --
Investment and mortgage-backed securities held to maturity .......... (16,128) (10,104)
Property and equipment .............................................. (346) (303)
FHLB stock .......................................................... (1,196) (19)
Proceeds from:
Maturities and principal reductions of investment and mortgage-backed
securities available for sale .................................... 882 2,440
Maturities and principal reductions of investment and mortgage-backed
securities held to maturity ...................................... 11,331 9,171
Sales of investment and mortgage-backed securities available for sale 687 5,939
Sales of real estate acquired:
In settlement of loans ............................................ 989 1,009
For development ................................................... 87 485
Sales of property and equipment ................................... -- 1
Investment in real estate acquired for development and in
settlement of loans ................................................. -- 29
---------- ----------
Net cash used in investing activities ...................................... ($ 26,659) ($ 19,000)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits ................................... $ 10,790 ($ 15,900)
Net increase (decrease) in:
Federal Home Loan Bank advances ..................................... 48,953 (2,544)
Short-term borrowings ............................................... (25,911) 21,286
Funds due remittance service and other .............................. (1,021) 2,664
Advance payments by borrowers for taxes and insurance ............... (513) (575)
Proceeds from issuance of stock ....................................... 102 114
Payments to acquire treasury stock .................................... (641) --
Cash dividends ........................................................ (389) (351)
---------- ----------
Net cash provided by financing activities .................................. 31,370 4,694
---------- ----------
Net (decrease) increase in cash and cash equivalents ...................... (1,626) 1,004
Cash and cash equivalents, beginning of period ............................. 8,506 9,872
---------- ----------
Cash and cash equivalents, end of period ................................... $ 6,880 $ 10,876
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest on deposits, FHLB advances and other short-term borrowings . $ 5,371 $ 2,656
Income Taxes ........................................................ 1,220 1,179
</TABLE>
<PAGE>
FIRST HARRISBURG BANCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
Supplemental schedule of noncash investing and financing activities:
Real estate in settlement of loans has been acquired without the use of
cash or cash equivalents. Such additions to real estate acquired in
settlement of loans amounted to $58 and $359 in 1995 and 1994,
respectively.
<PAGE>
FIRST HARRISBURG BANCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of First Harrisburg
Bancor, Inc. (the "Company") and its wholly-owned subsidiary, First Federal
Savings and Loan Association of Harrisburg (the "Association"). All significant
intercompany items have been eliminated.
Loans Receivable:
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees and costs.
Provisions for losses on loans are charged to operations based upon management's
evaluation of potential losses. Specific provisions are established on loans
where a decline in value has been identified. In addition, general provisions
are established for losses based upon the overall portfolio composition and
general market conditions. Collection efforts on charged-off consumer loans are
pursued through professional collection agencies.
Recognition of interest income on loans is computed using the effective interest
method. An allowance for uncollected interest is established for loans that are
past due based on management's periodic evaluation. The allowance is established
by a charge to interest income equal to all interest previously accrued. Loans
are returned to accrual status, when the collectibility of past due principal
and interest is reasonably assured.
The Company adopted the provisions of Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114) and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosure" (SFAS 118) on January 1, 1995.
SFAS 114, as amended by SFAS 118, addresses the accounting by creditors for
impairment of certain loans. The Standards require that impaired loans that are
within the scope of the Statements be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
alternatively, at the loan's market price or the fair value of the collateral if
the loan is collateral dependent.
The Company did not have any loans deemed to be impaired at January 1, 1995 and
September 30, 1995.
<PAGE>
Investment Securities:
The Company accounts for investment securities in accordance with the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). Under SFAS 115, the
Company classifies its debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those debt securities for which the
Company has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses on available-for-sale securities, net of the related tax effect, are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method. Dividend
and interest income are recognized when earned. Realized gains and losses are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
At September 30, 1995, the unrealized gains on investment securities resulted in
an increase to investment and mortgage-backed securities of $200,000 and an
after-tax increase to stockholders' equity of $123,000.
<PAGE>
The amortized cost and fair values of investment securities are summarized as
follows:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------------ ------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment securities available for sale .... $ 2,248 $ 2,317 $ 1,026 $ 1,061
Investment securities held to maturity ...... 18,662 18,881 15,324 14,745
Mortgage-backed securities available for sale 7,048 7,179 7,930 7,772
Mortgage-backed securities held to maturity . 34,674 34,411 30,302 28,821
-------- -------- -------- --------
$ 62,632 $ 62,788 $ 54,582 $ 52,399
======== ======== ======== ========
</TABLE>
Loan Servicing Rights:
The cost of loan servicing rights acquired is amortized in proportion to, and
over the period of, estimated net servicing revenues. The cost of loan servicing
rights acquired, and the amortization thereon, is periodically evaluated in
relation to estimated future net servicing revenues based on management's best
estimate of remaining loan lives.
In May 1995, FASB issued Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No.
65" (SFAS 122), SFAS 122 amends Statement 65 to require an institution to
recognize as separate assets the rights to service mortgage loans for others
when a mortgage loan is sold or securitized and servicing rights retained. SFAS
122 also requires an entity to measure the impairment of servicing rights based
on the difference between the carrying amount of the servicing rights and their
current fair value.
The Company presently does not know and cannot reasonably estimate the impact of
adopting the provisions of SFAS 122 on its financial condition or results of
operations.
SFAS 122 is to be applied prospectively in fiscal years beginning after December
15, 1995, with early application encouraged, to transactions in which an
institution sells or securitizes mortgage loans with servicing rights released.
In addition, the provisions of SFAS 122 should be applied to the measurement of
impairment for all capitalized servicing rights, including servicing rights
capitalized prior to the initial adoption of SFAS 122. The Company expects to
adopt the provisions of SFAS 122 effective January 1, 1996.
Loan Origination and Commitment Fees and Related Costs:
All loan origination and commitment fees and certain related direct costs are
offset and the net deferred amount is recognized as an adjustment to interest
income, based on the interest method over the life of the loans.
<PAGE>
Loans Held For Sale:
Loans held for sale are reported at the lower of cost or market, determined as
of the balance sheet date. The amount by which cost exceeds market value in the
aggregate is accounted for as a valuation allowance. Changes in the valuation
allowance are included in the determination of net income of the period in which
the change occurs. Gains and losses on the sale of loans are determined using
the specific identification method.
Real Estate:
Real estate acquired in settlement of loans is recorded at the lower of cost or
estimated fair value minus estimated cost to sell at the date of foreclosure. At
the time of foreclosure the excess, if any, of cost over the estimated fair
value of the property is charged to the allowance for loan losses. Fair values
are determined by independent appraisals or by discounting cash flows for income
producing properties. Real estate acquired for development is carried at the
lower of cost, including the cost of improvements and amenities incurred
subsequent to acquisition, or estimated net realizable value. Costs relating to
development and improvement of property are capitalized, whereas costs relating
to holding property are expensed.
Valuations are performed periodically by management on both real estate acquired
for development and real estate acquired in settlement of loans. An allowance
for losses is established by a charge to operations if the carrying value of
real estate acquired for development exceeds its estimated net realizable value,
or the carrying value of real estate acquired in settlement of loans exceeds its
estimated fair value.
Derivatives:
Premiums paid for interest rate cap agreements are amortized into interest
expense over the term of the agreements. Interest expense is reduced when the
index rate exceeds the interest rate cap specified in the agreement on a
purchased cap. Unamortized premiums are included in prepaid expenses in the
consolidated statements of financial condition.
Property and Equipment and Depreciation:
Land is carried at cost. Buildings, leasehold improvements, furniture and
equipment are carried at cost less accumulated depreciation. Depreciation is
based on the straight-line method over the estimated useful lives of the assets
of 25-33 years for buildings, 20 years for land improvements, 5-7 years for
furniture and equipment, and over the terms of the related lease or estimated
useful life for leasehold improvements.
Income Taxes:
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires the asset and liability method in computing
income tax expense for financial reporting purposes. The objective of the asset
and liability method is to establish deferred tax assets and liabilities for
temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
<PAGE>
Earnings Per Common and Common Equivalent Share:
Earnings per common share have been computed based upon the weighted average
number of common and common equivalent shares outstanding, adjusted
retroactively to reflect the two for one stock split of January 1995. Stock
options are regarded as common stock equivalents and are computed using the
treasury stock method. In addition, cash dividends paid per share have been
adjusted retroactively to reflect the two for one stock split of January 1995.
Unaudited Financial Statements:
The unaudited financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly state the results of operations for such periods.
The results of operations for the three- and nine-month periods ended September
30, 1995 and 1994 are not necessarily indicative of the results of operations
expected for the full year.
The unaudited financial statements and notes are condensed and do not include
all information that is required to be included in a complete set of financial
statements by generally accepted accounting principles.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Office of Thrift Supervision (the "OTS") prescribes by regulation the
liquidity ratios that insured member institutions must maintain. The liquidity
ratio represents the percentage of cash and other eligible investments to net
withdrawable deposits plus borrowings due in one year or less. The current
minimum liquidity requirement is 5%, but is subject to change from time-to-time
by the OTS. Penalties are assessed for failure to comply with minimum regulatory
levels. Savings deposits, borrowings, and loan repayments, together with
interest on investments and interest and fees on loans, provide the majority of
the sources of funds for liquidity. The Association has traditionally maintained
its liquidity ratio above required levels to assure prompt funding of loan
commitments and to meet depositors' requirements and other short-term funding
needs. The Association's average liquid assets were approximately $31.3 million
and $24.7 million at September 30, 1995 and December 31, 1994, respectively,
representing average liquidity ratios of 11.5% and 10.3%, respectively, at those
dates.
The Association's liquidity targets are regularly reviewed and are based on the
Association's commitment to make loans and investments and its ability to
generate funds. The targets are also affected by the yields on available
investments, the attractiveness of such yields and the Association's
expectations as to future yields and deposit and borrowing costs.
During the nine months ended September 30, 1995, the Association had an increase
of $18.9 million in the loan portfolio. In that period, loan originations and
purchases were $43.8 million, premiums and deferred costs were $1.5 million,
principal loan repayments were $26.3 million and foreclosures totaled $58,000.
Loans receivable increased primarily due to the purchase of variable rate loans.
The Association purchases adjustable and fixed rate mortgage loans from
independent originators, its AVSTAR Mortgage Corporation ("AMC") subsidiary and
from mortgage-banking companies participating in the Association's FirstFunding
program. Loans purchased from independent originators and AMC are generally held
in the Association's loan portfolio. Financing for the FirstFunding program is
provided by the Federal Home Loan Bank ("FHLB") FundLine Program. Loans
purchased for the FirstFunding program are held in the loans held for sale
portfolio until such time as they are resold in the secondary market. These
purchased loans meet strict portfolio criteria of interest rate and credit risk
underwriting standards.
Loans held for sale and mortgage-backed securities increased $13.9 million and
$3.8 million, respectively, during the nine months ended September 30, 1995.
Loans held for sale increased primarily due to higher loan origination activity
at AMC and higher purchases of loans through the FirstFunding program.
Mortgage-backed securities increased due to the purchase of variable rate
securities which was partially offset by principal repayments.
<PAGE>
Approximately 68.6% of total loans, loans held for sale and mortgage-backed
securities had adjustable rates or short terms at September 30, 1995, compared
to 61.8% at December 31, 1994. During 1995, the Assocaition purchased $18.4
million of variable rate loans which has resulted in a $15.0 million increase in
the mortgage loan portfolio at September 30, 1995. Funding for such loans was
provided by borrowings at the FHLB. The Association continues to emphasize
consumer lending to take advantage of higher yields and shorter maturities.
During the nine months ended September 30, 1995, the consumer loan portfolio,
consisting primarily of home improvement and equity lines of credit, increased
by $3.9 million. At September 30, 1995, the Association had signed mortgage
commitments of approximately $19.1 million and had available lines of credit, on
the borrowers' home equity, of $33.9 million of which $18.3 million has been
drawn as of September 30, 1995.
Deposits during the nine month period ended September 30, 1995 increased 16.4
million. The primary reason for the increase was due to higher interest rates
during 1995 and the more aggressive approach the Association has taken in
setting rates on certificates of deposit to attract new deposits. The
Association has outstanding FHLB advances and borrowings of $110.0 million.
These FHLB borrowings consist of : $71.0 million of long-term advances; $12.2
million of short-term borrowings; and $26.8 million in short-term borrowings
through the FundLine Program.
The Association continues to have capital in excess of all current regulatory
capital requirements. On September 30, 1995, First Federal had ratios of
tangible capital of 7.2%, core leverage capital of 7.2%, and risk-based capital
of 11.6%. Federal regulations require tangible capital of 1.5%, core leverage
capital of 3.0%, and risk-based capital of 8.0%.
RESULTS OF OPERATIONS:
Summary:
Annualized return on average equity for the three- and nine-month periods ended
September 30, 1995 was 12.6% and 10.7%, respectively, compared with 14.7% and
12.2% for the same periods in 1994. Annualized return on average assets for the
three- and nine- month periods ended September 30, 1995 was 1.0% and .9%,
respectively, compared with 1.2% and 1.0% for the same periods in 1994.
Net interest income and income taxes decreased and noninterest expense increased
during the three- and nine-month periods ended September 30, 1995, over the same
periods in 1994. Noninterest income increased in the three month period and
decreased in the nine month period ended September 30, 1995, over the same
periods in 1994. Net interest income decreased due to higher funding costs to
attract new deposits and higher borrowing costs. Noninterest income increased in
the three-month period due to increased gains on the sale of mortgages.
Noninterest income decreased in the nine month period primarily from a decline
in fees earned through INVEST as well as a gain on the sale of servicing at AMC
and a gain on the sale of real estate owned during 1994. Noninterest expense
increased due to the reduction of real estate reserves for land development
projects in 1994, higher occupancy, office expense and in the nine month period,
increased marketing expense all of which were partially offset by a reduction in
salaries and benefits.
<PAGE>
Interest Income:
Interest income on loans increased $479,000 or 14.2% and $2.0 million or 21.2%
in the three- and nine-month periods ended September 30, 1995, over the same
periods in 1994. The increase in both periods was attributable to the increase
in loan originations and purchases of loans by the Association from AMC and
loans purchased by the Association from independent loan originators increasing
the average balance of the loan portfolio 14.3% and 20.4% for the three- and
nine- month periods ended September 30, 1995. The average yield of the loan
portfolio was consistent at 8.66% and 8.59% for the three- and nine-month
periods ended September 30, 1995 compared with 8.66% and 8.53% for the same
periods in 1994.
Interest income on loans held for sale increased $369,000 or 65.9% and 542,000
or 35.1% in the three- and nine-month periods ended September 30, 1995, over the
same periods in 1994. These increases were primarily due to an increase in the
average loans held for sale portfolio of 50.7% and 9.2% for the three- and
nine-month periods ended September 30, 1995 as a result of increased volume in
the Association's FirstFunding program and originations at AMC. In addition, the
average yield of the loans held for sale portfolio increased to 8.69% and 8.59%
for the three- and nine-month periods ended September 30, 1995 compared with
7.89% and 6.94% over the same periods in 1994.
Interest income on mortgage-backed securities increased $88,000 or 14.5% and
$132,000 or 7.2% in the three- and nine-month periods ended September 30, 1995,
over the same periods in 1994. These increases were the result of an increase in
the average yield of the mortgage-backed securities portfolio to 6.60% and 6.53%
for the three- and six- month period ended September 30, 1995 from 5.97% and
5.83% in the same period in 1994. The average balance of the mortgage-backed
securities portfolio increased 3.7% for the three-month period ended September
30, 1995 and decreased 4.2% for the nine month period ended September 30, 1995.
Interest income on investment securities increased $198,000 or 59.3% and
$701,000 or 93.1% in the three-and nine-month periods ended September 30, 1995,
compared to the same periods in 1994. These increases resulted from a 35.6% and
44.3% increase in the average balance of the investment portfolio and an
increase in the average yield to 7.22% and 7.28% in the three- and nine-month
periods ended September 30, 1995 from 6.15% and 5.43% in the same periods in
1994. The increase in the average investment portfolio was due to the purchase
of government agency securities based on management's desire to grow the
portfolio which is consistent with asset/liability management strategies.
<PAGE>
Interest Expense:
Interest expense on deposits increased $580,000 or 40.0% and $1.1 million or
24.2% in the three- and nine- month periods ended September 30, 1995, compared
to the same periods in 1994. These increases were due to an increase in the
average cost of deposits to 4.78% and 4.59% for the three- and nine-month
periods ended September 30, 1995 from 3.82% and 3.83% for the same periods in
1994. As a result of the efforts to attract new deposits, average deposits
increased 11.7% and 3.4% in the three- and nine- month periods ended September
30, 1995.
Interest expense on FHLB advances increased $634,000 or 229.7% and $947,000 or
122.4% in the three- and nine-month periods ended September 30, 1995, over the
same periods in 1994. The increases were due to an increase in average advances
of $37.6 million and $16.0 million in the three- and nine-month periods ended
September 30, 1995 as well as increases in the average cost of advances to 6.10%
and 6.00% in this same period compared to 4.99% and 4.64%, respectively, in
1994. These advances were used to fund the purchase of loans and securities.
Interest expense on short-term borrowings increased $43,000 or 6.6% and $1.4
million or 112.2% in the three- and nine-month periods ended September 30, 1995,
over the same periods in 1994. The increase in the three month period resulted
from an increase to 6.54% in the average cost of short-term borrowings from
5.01% in the prior period which was partially offset by an 18.4% decline in
average draws against lines of credit. The increase in the nine month period was
a result of a $16.9 million increase in average reverse repurchase agreements
and in average draws against lines of credit from the FHLB over this same period
in 1994. These lines of credit were primarily used to fund loan purchases by the
Association of loans originated at AMC in 1994 and loan purchases through the
Association's FirstFunding program. In addition, the average cost of short-term
borrowings increased to 6.43% in the nine-month period ended September 30, 1995
from 4.43% in the same period in 1994.
Provision for Loan Losses:
There were no additions to the provision for loan losses during the three- and
nine-month periods ending September 30, 1995. The quality of the loan and real
estate owned portfolio continues to improve. Nonperforming assets declined to
$2.3 million at September 30, 1995 from $2.5 million at December 31, 1994.
Management is of the opinion that adequate valuation allowances have been
established. As experience dictates or as economic changes occur, the allowance
for losses will be reviewed and, if necessary, will be adjusted.
<PAGE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Balance at beginning of period .............................. $ 1,098 $ 1,224
Commercial real estate loan charge-offs ..................... (136) --
Consumer loan charge-offs ................................... (58) (146)
Consumer loan recoveries .................................... 2 20
Provision for losses ........................................ -- --
-------- --------
Balance at end of period .................................... $ 906 $ 1,098
======== ========
Allowance for loan losses as a percent of total loans ....... .5% .7%
Allowance for loan losses as a percent of nonperforming loans 42.5% 84.7%
Net charge-offs as a percent of average loans outstanding ... .1% .1%
</TABLE>
Nonperforming assets are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Nonaccrual residential real estate loans .................... $ 898 $ 586
Loans serviced with recourse ................................ 593 173
Nonaccrual consumer loans ................................... 641 537
-------- --------
Total nonperforming loans ................................ 2,132 1,296
Real estate owned, net ...................................... 200 1,154
-------- --------
Total nonperforming assets .................................. $ 2,332 $ 2,450
======== ========
Total nonperforming loans as a percent of total loans ....... 1.1% .8%
Total nonperforming assets as a percent of total assets ..... .8% .9%
</TABLE>
Noninterest Income:
Noninterest income increased $266,000 or 38.4% and decreased $222,000 or 8.9% in
the three- and nine-month periods ended September 30, 1995, over the same
periods in 1994. The increase in the three month period was largely due to an
increase in gains from the sale of mortgages at AMC due to an increase in
mortgage refinancing activity. This increase in gains on sale of mortgages was
partially offset by a decline in fees earned by First Harrisburg Service
Corporation's INVEST division due to lower sales volume. The decrease in the
nine month period was largely due to the decline in fees earned by the INVEST
division and gains in the prior period from the sale of real estate owned and
the sale of servicing at AMC all of which were partially offset by an increase
in gains from the sale of mortgages at AMC due to an increase in mortgage
refinancing activity and increased loan servicing fee income.
<PAGE>
Noninterest Expense:
Noninterest expense increased $309,000 or 17.3% and $150,000 or 2.5% during the
three and nine-month periods ended September 30, 1995, over the same periods in
1994. Salaries and benefits decreased in both periods due to reduced salary
costs resulting from a reduction in personnel associated with loan origination
activity and reduced incentive accruals. Additionally, contributing to the
decline in the nine month period was a payment in the prior period to two AMC
officers for the termination of an employment agreement which was based on the
net value of the mortgage servicing portfolio. Occupancy expense increased in
both periods due to higher office building maintenance and system upgrades
including development of a wide area network and its associated communication
costs. Federal insurance premiums decreased in the nine month period due to
lower savings balances at the time the semi-annual premium was calculated.
Discussions are currently ongoing pertaining to the recapitalization of the
Savings Association Insurance Fund (SAIF). Marketing expense increased in both
periods due to advertising campaigns for new savings products and consumer
loans. Professional fees decreased in the three month period due to costs
connected with the review of acquisition proposals in 1994 which was offset in
the nine month period by costs associated with a new loan application system,
the deferred compensation program, the ESOP and foreclosure costs connected with
two loans. Provision for real estate losses increased in both periods due to a
$217,000 reduction in real estate reserves on Second Harrisburg Service Corp's
(SHSC) land development projects in 1994. The reductions were made possible by
SHSC's sale of its interest in a joint venture and reductions in land
development projects in 1994. SHSC is a second tier subsidiary of the
Association. Other noninterest expense increased in both periods due to
increased costs associated with new retail savings products such as check
imaging and debit cards and office expense associated with the opening of two
new branch locations for AMC and increased loan origination volume.
Income Taxes and Cumulative Effect of Change in Accounting Principle:
The Company incurred for 1995 financial accounting purposes, effective federal
and state income tax rates of 30.9% and 6.5%, respectively. For the same period
in 1994 the effective federal and state income tax rates were 33.8% and 8.5%,
respectively.
Net Income:
Net income decreased $57,000 or 6.9% and $88,000 or 4.8% for the three- and
nine-month periods ended September 30, 1995, over the same periods in 1994.
New Accounting Standards:
In May 1995, FASB issued Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No.
65" (SFAS 122). SFAS 122 amends Statement 65 to require an institution to
recognize as separate assets the rights to service mortgage loans for others
when a mortgage loan is sold or securitized and servicing rights retained. SFAS
122 also requires an entity to measure the impairment of servicing rights based
on the difference between the carrying amount of the servicing rights and their
current fair value.
<PAGE>
The Company presently does not know and cannot reasonable estimate the impact of
adopting the provisions of SFAS 122 on its financial condition or results of
operations.
SFAS 122 is to be applied prospectively in fiscal years beginning after December
15, 1995, with early application encouraged, to transactions in which an
institution sell or securitizes mortgage loans with servicing rights released.
In addition, the provisions of SFAS 122 should be applied to the measurement of
impairment for all capitalized servicing rights, including servicing rights
capitalized prior to the initial adoption of SFAS 122. The Company expects to
adopt the provisions of SFAS 122 effective January 1, 1996.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 establishes
a new method of accounting for stock-based compensation arrangements with
employees. The new method is a fair value based method rather than the intrinsic
value based method that is currently utilized. However, SFAS 123 does not
require an entity to adopt the new fair value based method for purposes of
preparing basic financial statements. If an entity chooses not to adopt the fair
value based method, SFAS 123 requires an entity to display in the footnotes pro
forma net income and earnings per share information as if the fair value based
method had been adopted.
Currently, the Bank has not determined whether it will adopt the fair value
based method and accordingly, cannot estimate the impact on the basic financial
statements that SFAS 123 will have upon adoption.
SFAS 123 is effective for financial statements with fiscal years beginning after
December 15, 1995.
Pending Legislation:
The Congress is currently considering imposing a one-time recapitalization
assessment by the Federal Deposit Insurance Corporation on Savings Association
Insurance Fund (SAIF) members. This assessment is expected to be in the range of
80 to 90 basis points and would result in a pre-tax charge of approximately $1.3
million to $1.4 million. The assessment is expected to be imposed prior to March
31, 1996. Subsequent to the one-time assessment, the Association expects a
substantial reduction in its deposit insurance premium rates.
In addition to the one-time recapitalization assessment, Congress is also
considering various other legislation which would impact the thrift industry.
These items consist of federal tax issues, thrift charter issues, and SAIF
structural changes. At the present time, the Association cannot reasonably
estimate the impact of these legislative issues on the Association's financial
condistion or results of operations.
IMPACT OF INFLATION AND CHANGING PRICES
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services as measured by the consumer price index.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
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
Exhibit 1. Computation of Earnings Per Share
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST HARRISBURG BANCOR, INC.
By: /s/ J. Frederic Redslob
------------------------------------
J. Frederic Redslob, Duly Authorized
and Chief Financial Officer
Dated: November 10, 1994
Exhibit 11: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding*:
Common stock 2,338,748 2,351,136 2,351,817 2,345,766
Common stock equivalents-stock options 61,301 70,305 67,408 66,188
---------- ---------- ---------- ----------
Total weighted shares outstanding 2,400,049 2,421,441 2,419,225 2,411,954
========= ========= ========= =========
Net income $ 769,000 $ 826,000 $1,930,000 $2,018,000
========= ========= ========== ==========
Earnings per share $0.32 $0.34 $0.80 $0.84
===== ===== ===== =====
Fully diluted:
Weighted average shares outstanding*:
Common stock 2,338,748 2,351,136 2,351,817 2,345,766
Common stock equivalents-stock options 61,301 74,526 68,763 72,006
---------- ---------- ---------- ----------
Total weighted shares outstanding 2,400,049 2,425,662 2,420,580 2,417,772
========= ========= ========= =========
Net income $ 769,000 $ 826,000 $1,930,000 $2,018,000
========= ========= ========== ==========
Earnings per share $0.32 $0.34 $0.80 $0.84
===== ===== ===== =====
</TABLE>
*Net of Treasury stock
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,115
<INT-BEARING-DEPOSITS> 2,765
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,496
<INVESTMENTS-CARRYING> 53,336
<INVESTMENTS-MARKET> 53,292
<LOANS> 229,080
<ALLOWANCE> 906
<TOTAL-ASSETS> 309,696
<DEPOSITS> 167,843
<SHORT-TERM> 39,069
<LIABILITIES-OTHER> 6,943
<LONG-TERM> 71,173
<COMMON> 24
0
0
<OTHER-SE> 24,644
<TOTAL-LIABILITIES-AND-EQUITY> 309,696
<INTEREST-LOAN> 13,388
<INTEREST-INVEST> 3,420
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,808
<INTEREST-DEPOSIT> 5,609
<INTEREST-EXPENSE> 9,900
<INTEREST-INCOME-NET> 6,908
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 6,102
<INCOME-PRETAX> 3,083
<INCOME-PRE-EXTRAORDINARY> 1,930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,930
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
<YIELD-ACTUAL> 3.35
<LOANS-NON> 2,132
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,098
<CHARGE-OFFS> 194
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 906
<ALLOWANCE-DOMESTIC> 758
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 148
</TABLE>
