<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1993 Commission file number 0-8415
DAUPHIN DEPOSIT CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1938831
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
213 Market Street, Harrisburg, 17105
Pennsylvania -------------------------------------
- ------------------------------------- (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (717) 255-2121
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE NONE
------------------- ------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $5 per share
- --------------------------------------------------------------------------------
(Title of Class)
Common Stock Repurchase Rights
- --------------------------------------------------------------------------------
(Title of Class)
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
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: $752,208,358 at February 3, 1994
List Documents incorporated by reference herein:
Proxy Statement to be dated as of March 18, 1994-Part III, Items 10, 11,
12 and 13
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Common Stock, $5 Par Value Outstanding at February 3, 1994
- ------------------------------------- 32,532,913
-------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
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<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
Item 1. Business................................................... 3
Item 2. Properties................................................. 7
Item 3. Legal Proceedings.......................................... 7
Item 4. Submission of Matters to a Vote of Security Holders........ 7
Item 4A. Executive Officers of the Registrant....................... 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data.................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11
Item 8. Financial Statements and Supplementary Data................ 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 55
PART III
Item 10. Directors and Executive Officers of the Registrant......... 56
Item 11. Executive Compensation..................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 56
Item 13. Certain Relationships and Related Transactions............. 56
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 57
Signatures
</TABLE>
2
<PAGE>
DAUPHIN DEPOSIT CORPORATION
PART I
------
ITEM 1. BUSINESS
Dauphin Deposit Corporation (the "Corporation") is a bank holding company
incorporated under the laws of the Commonwealth of Pennsylvania in 1974. The
Corporation's principal banking subsidiaries are Dauphin Deposit Bank and Trust
Company ("Dauphin Bank") and Farmers Bank and Trust Company of Hanover
("Farmers Bank") (hereinafter sometimes collectively referred to as the
"Banks"), through which the Corporation provides banking services. The Banks
are engaged in the commercial and retail banking and trust business including
the taking of time and regular savings and demand deposits, the making of
commercial and consumer loans and mortgage loans, the providing of credit
cards, safe deposit services and the performance of personal, corporate and
pension trust services. Auxiliary services such as cash management are provided
to commercial customers. The Banks are Pennsylvania chartered bank and trust
companies and are not members of the Federal Reserve System. The Banks'
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to
the extent provided by law.
Effective February 1, 1994, the Corporation sold 100% of the issued and
outstanding stock of Farmers Bank, a Federal Savings Bank ("Farmers Savings")
for a cash purchase price of $796,872. Farmers Savings operates one office in
Baltimore City and one office in Baltimore County, Maryland. Both Farmers Bank
and Farmers Savings became wholly-owned subsidiaries of the Corporation on July
1, 1992 as a result of the merger of FB&T Corporation with and into the
Corporation. Farmers Savings had total assets of $12.7 million at December 31,
1993. The sale of Farmers Savings will not have a material impact on the
financial condition or results of operations for the Corporation in 1994.
The Corporation is registered with and is subject to regulatory supervision
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended. Following the
sale of Farmers Savings, the Corporation is no longer subject to regulatory
supervision by the Office of Thrift Supervision (the "OTS"). The Corporation is
restricted to activities which are found by the Federal Reserve Board to be
bank-related and which are expected to produce benefits for the public that
will outweigh any potentially adverse effects. The operations of the Banks, as
well as those of other banks, are significantly affected by the monetary and
credit policies and regulations of the federal regulatory agencies.
DAUPHIN BANK
- ------------
Dauphin Bank, which includes the Bank of Pennsylvania Division, operates
primarily in central and eastern Pennsylvania. Dauphin Bank presently operates
83 banking offices with 60 automated teller machines serving Dauphin, Berks,
Chester, Cumberland, Lancaster, Lebanon, Lehigh, Montgomery, Northampton and
York Counties. In addition to its main office in Harrisburg, Dauphin County,
Dauphin Bank owns an office building in Harrisburg which is used as an
administrative center and includes one of the banking offices.
At December 31, 1993, Dauphin Bank had total deposits of $2,792,775,000 and
total loans of $1,986,790,000.
FARMERS BANK
- ------------
Farmers Bank operates primarily in the south central Pennsylvania counties of
York, Adams, Franklin and Cumberland. Farmers Bank presently operates 15
banking offices with eight automated teller machines and one loan production
office.
At December 31, 1993, Farmers Bank had total deposits of $498,578,000 and
total loans of $376,464,000.
3
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DAUPHIN DEPOSIT CORPORATION
NON-BANKING SUBSIDIARIES
- ------------------------
Dauphin Life Insurance Company (the "Insurance Company") is an Arizona
corporation which was formed in 1979 as a wholly-owned subsidiary of the
Corporation. The Insurance Company reinsures credit life, health and accident
insurance directly related to extensions of credit by Dauphin Bank and Farmers
Bank and is presently limited to those activities by regulations of the Federal
Reserve Board. Directors of the Insurance Company are officers or directors of
the Corporation. Effective January 1, 1993, Center Square Life Insurance
Company, a credit life insurance company acquired through the merger of FB&T
Corporation on July 1, 1992, was merged into the Insurance Company.
Dauphin Investment Company (the "Investment Company") is a Delaware
corporation which was formed in 1982 as a wholly-owned subsidiary of the
Corporation. The Investment Company manages equity investments for the
Corporation. Directors of the Investment Company are officers or directors of
the Corporation.
Financial Realty, Inc. is a wholly-owned subsidiary of the Corporation. It is
incorporated under the laws of the State of Delaware, and commenced operations
in 1982. Financial Realty, Inc. holds title to certain bank buildings which are
leased to Dauphin Bank.
Hopper Soliday & Co., Inc. ("HSC") is a wholly-owned subsidiary of the
Corporation acquired effective July 1, 1991. HSC is a Delaware corporation
which engages in municipal finance, institutional sales, financial advisory and
other general securities businesses permitted for bank holding companies and
their non-bank subsidiaries.
Farmers Mortgage Company ("Farmers Mortgage") is a wholly-owned subsidiary of
the Corporation acquired through the merger of FB&T Corporation on July 1,
1992. Farmers Mortgage was organized in 1983 as a Pennsylvania corporation.
Farmers Mortgage makes and acquires loans and other extensions of credit
secured by real estate mortgages and deeds of trust.
FARMCO Realty, Inc. ("FARMCO") is a Pennsylvania corporation organized in
1967 as a subsidiary of Farmers Bank. Effective September 30, 1985, FARMCO
became a wholly-owned subsidiary of FB&T Corporation and, as a consequence of
the merger of FB&T Corporation with and into the Corporation on July 1, 1992,
is now a wholly-owned subsidiary of the Corporation. FARMCO is a real estate
holding company which holds property leased to Farmers Bank for its branch
office locations.
Financial Land Corporation is a Pennsylvania corporation wholly-owned by
Dauphin bank which was formed to hold assets acquired in loan liquidations.
Financial Mineral Corporation is a Pennsylvania corporation wholly-owned by
Dauphin Bank which was formed to hold assets acquired in loan liquidations.
Reliance Consumer Discount Company (the "Discount Company") is a wholly-owned
subsidiary of the Corporation acquired through the merger of FB&T Corporation
on July 1, 1992. The Discount Company was organized in 1982 as a Pennsylvania
corporation. The assets of the Discount Company were sold by the Corporation in
October, 1992 and the Discount Company is no longer an operating subsidiary.
COMPETITION
- -----------
The banking industry in the Banks' service areas continues to be extremely
competitive, both among commercial banks and with other financial service
providers such as consumer finance companies, thrifts, investment firms, mutual
funds and credit unions. The increased competition has resulted from a changing
legal and regulatory climate, as well as from the economic climate.
4
<PAGE>
DAUPHIN DEPOSIT CORPORATION
SUPERVISION AND REGULATION
- --------------------------
The Corporation is subject to regulation by the Pennsylvania Department of
Banking, the Federal Reserve Board and the Securities and Exchange Commission.
Prior to the sale of Farmers Savings on February 1, 1994, the Corporation also
was subject to regulation by the OTS. The deposits of the Banks are insured by
the FDIC and the Banks are members of the Bank Insurance Fund which is
administered by the FDIC. The Banks are subject to regulation and supervision
by the Pennsylvania Department of Banking and the FDIC.
The Corporation is required to file with the Federal Reserve Board an annual
report and such additional information as the Federal Reserve Board may require
pursuant to the Bank Holding Company Act of 1956, as amended (the "BHC Act").
The Federal Reserve Board may also make examinations of the Corporation and
each of its non-bank subsidiaries. The BHC Act requires each bank holding
company to obtain the approval of the Federal Reserve Board before it may
acquire substantially all the assets of any bank, or before it may acquire
ownership or control of any voting shares of any bank if, after such
acquisition, it would own or control, directly or indirectly, more than five
percent of the voting shares of such bank.
Pursuant to provisions of the BHC Act and regulations promulgated by the
Federal Reserve Board thereunder, the Corporation may only engage in or own
companies that engage in activities deemed by the Federal Reserve Board to be
so closely related to the business of banking or managing or controlling banks
as to be a proper incident thereto, and the Corporation must gain permission
from the Federal Reserve Board prior to engaging in most new business
activities.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the BHC Act on any extensions of credit to the bank
holding company or any of its subsidiaries, investments in the stock or
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. A bank holding company and its subsidiaries are also
prevented from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Since March 4, 1990, the Pennsylvania Banking Code of 1965, as amended (the
"Banking Code"), has authorized reciprocal interstate banking without any
geographic limitation. Reciprocity between states exists when a foreign state's
law authorizes Pennsylvania bank holding companies to acquire banks or bank
holding companies located in that state on terms and conditions substantially
no more restrictive than those applicable to such an acquisition by a bank
holding company located in that state. Currently, the state banking statutes in
Alaska, Delaware, Idaho, Indiana, Kentucky, Louisiana, Maine, Maryland,
Michigan, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio,
Oklahoma, Oregon, Rhode Island, South Dakota, Texas, Utah, Vermont, Washington,
West Virginia and Wyoming authorize interstate ownership of banks and bank
holding companies in each of those states and Pennsylvania. Other states also
are considering legislation to authorize reciprocal interstate banking.
Congress may pass interstate banking legislation that would accelerate the
authorization for interstate banking. The Pennsylvania Banking Department is
responsible for determining whether the laws of other states satisfy the
reciprocity requirements on a case-by-case basis and also shall determine
whether the interstate banking statutes in the above states continue to be
reciprocal following any amendments to such statutes.
In addition, pursuant to provisions of the Banking Code, since March 4, 1990,
the number of Pennsylvania banks owned or controlled by a bank holding company
is not limited.
During 1989, Congress passed new legislation (the Financial Institutions
Reform, Recovery and Enforcement Act of 1989) to provide a workable solution to
the financial problems of the financial services industry. The direct effect of
this legislation on the banking industry was to substantially increase the
assessments banks pay to the FDIC for the insurance of bank deposits. The
effect of this legislation on the Corporation was to increase the FDIC
insurance assessment by approximately 84% or $3.1 million for 1991 over 1990.
In 1992, the FDIC insurance assessment increase over 1991 was approximately $.8
million. During 1993, a risk-based assessment was
5
<PAGE>
DAUPHIN DEPOSIT CORPORATION
established which requires banks to pay an assessment rate based on the
combination of its capital and supervisory condition.
On December 19, 1991, the President signed into law the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The primary purpose
of FDICIA was to authorize approximately $70 billion in Federal Government
loans to the FDIC's Bank Insurance Fund, which is used to satisfy the deposit
insurance claims of customers of failed banks and thrifts. FDICIA also created
a strict uniform system of capital-based regulation, which became effective on
December 19, 1992. FDICIA established five different levels of capitalization
of financial institutions, with "prompt corrective actions" and significant
operational restrictions imposed on institutions that are capital deficient
under the categories. The five categories are: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.
To be considered well capitalized, an institution must have a total risk-
based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at
least 6%, a leverage capital ratio of 5%, and must not be subject to any order
or directive requiring the institution to improve its capital level. An
institution falls within the adequately capitalized category if it has a total
risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of
at least 4% and a leverage capital ratio of at least 4%. Institutions with
lower capital levels are deemed to be undercapitalized, significantly
undercapitalized or critically undercapitalized, depending on their actual
capital levels. In addition, the appropriate federal regulatory agency may
downgrade an institution to the next lower capital category upon a
determination that the institution is in an unsafe or unsound condition or is
engaged in an unsafe or unsound practice. Institutions are required under
FDICIA to monitor closely their capital levels and to notify their appropriate
regulatory agency of any basis for a change in capital category. On December
31, 1993, the Corporation and its banking subsidiaries all exceeded the minimum
capital levels of the well capitalized category.
Regulatory oversight of an institution becomes more stringent with each lower
capital category, with certain "prompt corrective actions" imposed depending on
the level of capital deficiency.
FDICIA also includes a provision (Section 303) that generally restricts
federally insured state banks, such as the Banks, to activities permitted to
national banks. On December 8, 1993, the FDIC published its final rule
implementing Section 303. Under the rule, state chartered banks must obtain the
FDIC's prior consent before engaging as a principal in any activity not
permissible for a national bank, unless one of the exceptions contained in the
rule applies. Among the exceptions are activities that the Federal Reserve
Board, by regulation (Regulation Y) or order, has found to be closely related
to banking for purposes of the BHC Act. Compliance with the rule is not
expected to have a material adverse effect on the Banks' operations.
On December 21, 1993, the Federal Reserve Board, FDIC, OTS and Office of the
Comptroller of the Currency published a Joint Notice of Proposed Rule Making
relating to proposed Community Reinvestment Act regulations. The proposed
regulations would substitute a performance based evaluation system in lieu of
the 12 Assessment Factors set forth in the current regulations. If adopted,
compliance with the proposed regulations may require changes in certain
operating procedures and additional costs, both of which cannot currently be
determined.
EMPLOYEES
- ---------
At December 31, 1993, the Corporation and its subsidiaries employed
approximately 1,950 persons.
MERGERS AND ACQUISITIONS
- ------------------------
On January 1, 1994 (the "Effective Date"), Valley Bancorp., Inc., a
Pennsylvania corporation and bank holding company ("Valley"), was merged with
and into the Corporation (the "Merger"). The Merger was approved by the
shareholders of Valley at a special shareholders meeting held on October 21,
1993.
6
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Pursuant to the Agreement and Plan of Merger dated June 16, 1993 (the "Plan
of Merger"), by and between Valley and the Corporation, each issued and
outstanding share of Valley Common Stock was converted into 2.1401 shares of
Dauphin common stock, par value $5.00 per share ("Dauphin Common Stock"), and
cash in lieu of fractional shares of Dauphin Common stock.
As of the Effective Date, there were 1,236,480 shares of Valley Common Stock
issued and outstanding, including 21,000 shares owned by the Corporation. As a
result of the Merger, outstanding Valley shares (other than those owned by the
Corporation, which were canceled) were converted into approximately 2,600,643
shares of Dauphin Common Stock, plus cash in the approximate aggregate amount
of $15,767 in lieu of fractional share interests. On December 31, 1993, the
last trading day before the Merger, the closing sale price of Dauphin Common
Stock in the NASDAQ National Market System was $25.25. Thus, the total
consideration paid by the Corporation to the holders of Valley Common Stock in
dollar equivalent terms was approximately $65.7 million as of the Effective
Date.
Simultaneously with the Merger of Valley into the Corporation, Valley Bank
and Trust Company ("Valleybank"), a subsidiary of Valley and a Pennsylvania
chartered bank, was merged (the "Bank Merger") with and into Dauphin Bank, with
Dauphin Bank being the surviving corporation. Valleybank, which operates 13
branch banking offices in south central Pennsylvania (primarily Franklin
County, Pennsylvania), will be operated after the Effective Date as the
Valleybank Division of Dauphin Deposit Bank.
Valley had total assets of $324 million at December 31, 1993. The Merger was
accounted for as a pooling-of-interests.
ITEM 2. PROPERTIES
The Corporation's principal office is located in Dauphin Bank's main banking
offices at 213 Market Street, Harrisburg, Pennsylvania. The Corporation owns no
real estate.
The Banks, Financial Realty, Inc. and FARMCO Realty, Inc. own 67 of the
branch offices and lease 35 other offices including two leases which are
treated as capitalized leases for financial reporting purposes. Hopper Soliday
& Co., Inc. leases three of its sales offices. Leases expire intermittently
through 2010 and most contain options to renew.
Aggregate annual rentals for real estate and equipment paid during the
Corporation's last fiscal year did not exceed five percent of its operating
expenses.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions or proceedings are pending involving Dauphin or its
subsidiaries. Management believes that the aggregate liability or loss, if any,
will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all of the executive officers of the
Corporation as of February 3, 1994 are listed below along with their business
experience during the past five years. Executive officers are appointed by the
Board of Directors. There are no family relationships among these executive
officers, nor any arrangement or understanding between any executive officer
and any other person pursuant to which the executive officer was selected.
7
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
POSITION AND
BUSINESS EXPERIENCE
NAME AGE DURING PAST 5 YEARS
---- --- -------------------
<C> <C> <S>
William J. King........... 64 Chairman of the Board (July 1987 to date),
Chief Executive Officer (April 1986 to date),
Chairman of the Executive Committee (April
1982 to date) of the Corporation and Dauphin
Bank, President (April 1990 to May 1992) of
Dauphin Bank.
Christopher R. Jennings... 50 President (July 1987 to date), Chief
Operating Officer (May 1992 to date) of the
Corporation, formerly Partner, Coopers &
Lybrand, Philadelphia, Pennsylvania (national
accounting firm).
Lawrence J. LaMaina, Jr. . 59 Vice Chairman (July 1992 to date) of the
Corporation, Chairman, President and Chief
Executive Officer of Farmers Bank.
Paul B. Shannon........... 46 President (May 1992 to date) and Chief Credit
Officer (April 1990 to date) of Dauphin Bank,
Senior Executive Vice President and Chief
Credit Officer (April 1990 to date) of the
Corporation.
Harry L. Nicholson........ 63 Executive Vice President and Chief Investment
Officer (April 1986 to date) of the
Corporation, President and Chief Operating
Officer (March 1988 to April 1991) of the
Bank of Pennsylvania Division.
Dennis L. Dinger.......... 43 Executive Vice President and Chief Financial
Officer (January 1989 to date), Senior Vice
President and Chief Financial Officer (April
1986 to January 1989) of the Corporation and
Dauphin Bank.
Richard B. Brokenshire.... 52 Executive Vice President and Chief Operations
Officer (April 1989 to date) of the
Corporation and Dauphin Bank, Executive Vice
President-Chief Information Systems Officer
(October 1987 to April 1989) of Dauphin Bank.
Joseph T. Lysczek, Jr. ... 45 Senior Vice President and Treasurer (January
1992 to date) of the Corporation, Vice
President and Treasurer (December 1991 to
date) of Dauphin Bank, Vice President (May
1991 to December 1991) of Dauphin Bank, Vice
President and Investment Officer (January
1988 to April 1991) of the Bank of
Pennsylvania Division.
Claire D. Flemming........ 59 Senior Vice President and Secretary (April
1989 to date) of the Corporation, Secretary
(April 1986 to April 1989) of the
Corporation, Senior Vice President and
Secretary (April 1988 to date) of Dauphin
Bank.
James J. Trupp, Jr. ...... 47 Senior Vice President and General Auditor
(April 1992 to date) of the Corporation, Vice
President-Audit Manager (May 1991 to April
1992) of the Corporation, Vice President and
Treasurer (April 1988 to May 1991) of the
Bank of Pennsylvania Division, Vice
President-Finance (December 1987 to April
1988) of the Bank of Pennsylvania Division.
</TABLE>
8
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DAUPHIN DEPOSIT CORPORATION
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF DAUPHIN COMMON STOCK AND DIVIDENDS PAID
The price information provided below reflects actual high, low and closing
sales prices as quoted on the NASDAQ National Market System.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
DECLARED
HIGH LOW CLOSING PER SHARE
---- ---- ------- ---------
<S> <C> <C> <C> <C>
1992
First Quarter................................. $21 $17 5/8 $19 $.19
Second Quarter................................ 24 18 1/2 22 .19
Third Quarter................................. 24 1/2 20 3/4 21 1/2 .19
Fourth Quarter................................ 25 3/4 20 7/8 23 1/2 .20
1993
First Quarter................................. $28 $22 1/2 $26 3/4 $.20
Second Quarter................................ 27 1/4 22 1/2 24 1/2 .20
Third Quarter................................. 25 3/4 22 3/4 24 1/4 .20
Fourth Quarter................................ 27 22 1/2 25 1/4 .23
</TABLE>
9
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DAUPHIN DEPOSIT CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income..... $ 162,036 $ 153,427 $ 140,618 $ 130,943 $ 127,052
Provision for loan loss-
es..................... 9,365 10,944 10,463 9,341 8,407
Non-interest income..... 58,251 53,986 44,015 39,309 36,293
Non-interest expense.... 125,972 122,092 107,703 94,528 87,750
Net income.............. 64,492 57,223 53,137 52,355 50,105
Per share:
Net income............. 2.15 1.93 1.84 1.78 1.68
Cash dividends de-
clared................ .83 .77 .74 1/2 .71 3/4 .68 3/4
Weighted average number
of shares outstanding.. 30,035,507 29,639,940 28,830,038 29,355,908 29,819,238
AT YEAR-END
Total assets............ $4,596,410 $4,572,586 $4,260,692 $4,068,679 $3,778,513
Earning assets.......... 4,344,424 4,257,116 3,967,208 3,752,121 3,480,367
Short-term investments.. 8,494 91,950 23,406 92,809 202,196
Investment securities... 1,959,897 1,961,328 1,738,154 1,539,170 1,268,035
Loans................... 2,366,830 2,195,335 2,199,781 2,115,486 2,007,414
Deposits................ 3,300,825 3,401,110 3,331,231 3,209,703 3,045,153
Long-term debt.......... 92,454 92,863 44,183 49,019 56,182
Stockholders' equity.... 472,604 430,531 380,550 344,343 331,236
Book value per share.... 15.80 14.47 13.20 11.99 11.11
Number of shares out-
standing............... 29,906,771 29,755,916 28,829,662 28,708,986 29,824,642
RATIOS
Return on average as-
sets................... 1.43% 1.31% 1.29% 1.35% 1.36%
Return on average
stockholders' equity... 14.33 14.07 14.75 15.58 16.06
Dividend payout......... 38.60 39.90 40.49 40.31 40.92
</TABLE>
10
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section presents management's discussion and analysis of the financial
condition and results of operations of Dauphin Deposit Corporation and
subsidiaries (Dauphin), including Dauphin Deposit Bank and Trust Company, which
includes the Bank of Pennsylvania Division, and Farmers Bank and Trust Company
of Hanover (the Banks). This discussion and analysis should be read in
conjunction with the financial statements which appear elsewhere in this
report.
In 1993 the provisions of Statement of Financial Accounting Standards No. 112
(SFAS 112), "Employers' Accounting for Postemployment Benefits" were adopted.
Effective January 1, 1992, Dauphin adopted the provisions of Statement of
Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions". Also during 1992, Dauphin adopted
the provisions of Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes".
Effective July 1, 1991, Hopper Soliday & Co., Inc. (Hopper Soliday), a
securities broker/dealer, was acquired for $3.3 million in cash pursuant to a
stock purchase agreement signed in November 1990. The acquisition was accounted
for using the purchase method of accounting. Therefore, the results of
operations of Hopper Soliday since the date of acquisition are included with
the results of Dauphin.
RESULTS OF OPERATIONS
SUMMARY
Dauphin Deposit Corporation recorded net income of $64.5 million for 1993,
compared with $57.2 million recorded in 1992. On a per common share basis, net
income rose to $2.15 from $1.93 in 1992 and $1.84 in 1991. The 1993 results of
operations represent the 22nd consecutive year that Dauphin has reported
increased earnings per share.
Return on average total assets was 1.43% for 1993, compared with 1.31% for
1992 and 1.29% for 1991. Return on average equity for 1993 was 14.33%, compared
with 14.07% for 1992 and 14.75% for 1991.
During 1993 average earning assets increased 3.9% to $4.2 billion and the net
interest margin increased from 4.11% to 4.16%. This growth in earning assets
and the improved net interest margin produced an increase of $8.9 million or
5.3% in fully taxable equivalent net interest income.
Dauphin continues to maintain a high quality loan portfolio. The percentage
of non-performing assets, comprised of non-accrual loans, restructured loans
and other real estate owned represented 1.10% of year-end loans and other real
estate owned, down from 1.26% at December 31, 1992. The allowance for loan
losses was maintained at 1.53% of year-end loans. The allowance exceeds non-
performing loans by 56% and includes $17.7 million which is not allocated to
any specific loan category. Because of this strong asset quality, the provision
for loan losses was decreased by $1.6 million in 1993.
Non-interest income, other than securities gains, increased $5.0 million, or
10.0%. Included in other non-interest income is a $3.6 million non-recurring
tax refund from a settlement with the Commonwealth of Pennsylvania. Increased
income was also the result of growth in fiduciary activities, service charges
on deposit accounts, credit card related activities, mortgage sales and
servicing and letter of credit fees. Offsetting these increases somewhat was a
decline in commission and fee income generated by Hopper Soliday.
Non-interest expense items increased $3.9 million, or 3.2%. Effective January
1, 1993, Dauphin adopted SFAS 112. The incremental effect of SFAS 112 was to
increase non-interest expense by $.5 million. Also contributing to this
increase were normal salary adjustments and controlled additions to staffing
levels, a $1.0 million increase in professional fees and increases in other
miscellaneous expenses. 1992 included $2.4 million in merger related expenses
in connection with the acquisition of Farmers Bank and Trust Company of
Hanover.
11
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 1--AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1993 1992 1991
--------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments
Interest bearing depos-
its................... $ 5,510 $ 217 3.94% $ 3,703 $ 160 4.32% $ 7,171 $ 421 5.87%
Federal funds sold and
securities
purchased under agree-
ments to resell....... 4,995 199 3.98 14,047 578 4.11 54,727 4,366 7.98
---------- -------- ---------- -------- ---------- --------
Total short-term in-
vestments............. 10,505 416 3.96 17,750 738 4.16 61,898 4,787 7.73
---------- -------- ---------- -------- ---------- --------
Investment securities
U.S. government and
agency obligations.... 1,462,921 91,092 6.23 1,340,759 95,083 7.09 1,044,331 86,109 8.25
State and municipals... 356,065 36,856 10.35 352,340 36,235 10.28 369,815 38,305 10.36
Other securities....... 131,943 9,369 7.10 173,325 13,735 7.92 216,016 18,608 8.61
---------- -------- ---------- -------- ---------- --------
Total investment secu-
rities................ 1,950,929 137,317 7.04 1,866,424 145,053 7.77 1,630,162 143,022 8.77
---------- -------- ---------- -------- ---------- --------
Assets held for sale.... 36,071 1,845 5.11 12,129 920 7.59 6,015 520 8.65
---------- -------- ---------- -------- ---------- --------
Loans (1)
Commercial............. 1,301,360 94,814 7.29 1,278,259 100,751 7.88 1,252,620 121,841 9.73
Residential mortgages
(2)................... 553,838 46,073 8.32 533,467 48,756 9.14 518,666 53,535 10.32
Consumer (3)........... 390,062 35,503 9.10 377,050 39,421 10.46 367,887 41,573 11.30
---------- -------- ---------- -------- ---------- --------
Total loans............ 2,245,260 176,390 7.86 2,188,776 188,928 8.63 2,139,173 216,949 10.14
---------- -------- ---------- -------- ---------- --------
Total earning assets... 4,242,765 315,968 7.45 4,085,079 335,639 8.22 3,837,248 365,278 9.52
-------- -------- --------
Other assets............ 267,158 266,616 271,865
---------- ---------- ----------
Total assets........... $4,509,923 7.01% $4,351,695 7.71% $4,109,113 8.89%
========== ===== ========== ===== ========== =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing depos-
its
Demand deposits........ $ 502,929 12,336 2.45% $ 449,156 14,383 3.20% $ 399,493 16,867 4.22%
Savings deposits....... 985,819 26,125 2.65 922,805 32,856 3.56 822,293 40,618 4.94
Time deposits of
$100,000 or more...... 292,560 13,814 4.72 329,999 17,155 5.20 349,658 23,726 6.79
Other time deposits.... 1,131,953 61,051 5.39 1,295,523 80,688 6.23 1,379,307 103,378 7.49
---------- -------- ---------- -------- ---------- --------
Total interest bearing
deposits.............. 2,913,261 113,326 3.89 2,997,483 145,082 4.84 2,950,751 184,589 6.26
Short-term borrowings... 644,375 19,388 3.01 481,343 17,000 3.53 373,091 20,967 5.62
Long-term borrowings.... 92,521 6,738 7.28 78,342 5,930 7.57 46,717 4,220 9.03
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities........... 3,650,157 139,452 3.82 3,557,168 168,012 4.72 3,370,559 209,776 6.22
-------- -------- --------
Non-interest bearing de-
mand deposits.......... 364,579 338,037 325,801
Other liabilities....... 45,295 49,844 52,549
Stockholders' equity.... 449,892 406,646 360,204
---------- ---------- ----------
Total liabilities and
stockholders' equity.. $4,509,923 3.09% $4,351,695 3.86% $4,109,113 5.11%
========== ===== ========== ===== ========== =====
Interest rate spread.... 3.63% 3.50% 3.30%
Effect of non-interest
bearing funds.......... .53 .61 .75
----- ----- -----
Net interest
income/margin.......... $176,516 4.16% $167,627 4.11% $155,502 4.05%
======== ===== ======== ===== ======== =====
</TABLE>
- --------
(1) Includes fees on loans. Average loan balances include non-accruing loans.
(2) Includes home equity loans.
(3) Loans outstanding net of unearned income.
12
<PAGE>
DAUPHIN DEPOSIT CORPORATION
NET INTEREST INCOME
Net interest income is the product of the volume of average earning assets
and the average rates earned on them, less the volume of average interest
bearing liabilities and the average rates paid thereon. The amount of net
interest income is affected by changes in interest rates, account balances, or
volume, and the mix of earning assets and interest bearing liabilities.
For analytical purposes, net interest income is adjusted to a taxable
equivalent basis. This adjustment facilitates performance comparisons among
taxable and tax exempt assets by increasing tax exempt income by an amount
equivalent to the federal income taxes which would have been paid if this
income were taxable at the federal statutory rate of 35% for 1993 and 34% for
prior years.
Table 2 presents the net interest income on a fully taxable equivalent basis
for each of the years in the three year period ended December 31, 1993.
TABLE 2--NET INTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Total interest income................................ $301,488 $321,439 $350,394
Total interest expense............................... 139,452 168,012 209,776
-------- -------- --------
Net interest income.................................. 162,036 153,427 140,618
Tax equivalent adjustment............................ 14,480 14,200 14,884
-------- -------- --------
Net interest income (fully taxable equivalent)....... $176,516 $167,627 $155,502
======== ======== ========
</TABLE>
TABLE 3--RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993/1992 1992/1991
--------------------------- ---------------------------
CHANGE DUE TO CHANGE DUE TO
----------------- TOTAL ----------------- TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Taxable equivalent)
Interest income
Short-term invest-
ments................ $ (289) $ (33) $ (322) $(2,461) $ (1,588) $ (4,049)
Investment securities. 5,527 (13,263) (7,736) 16,957 (14,926) 2,031
Assets held for sale.. 1,311 (386) 925 472 (72) 400
Loans................. 4,908 (17,446) (12,538) 4,956 (32,977) (28,021)
------- -------- -------- ------- -------- --------
Total interest in-
come............... 11,457 (31,128) (19,671) 19,924 (49,563) (29,639)
------- -------- -------- ------- -------- --------
Interest expense
Interest bearing de-
posits............... (7,648) (24,108) (31,756) (770) (38,737) (39,507)
Short-term borrowings. 5,155 (2,767) 2,388 5,096 (9,063) (3,967)
Long-term borrowings.. 1,039 (231) 808 2,481 (771) 1,710
------- -------- -------- ------- -------- --------
Total interest ex-
pense.............. (1,454) (27,106) (28,560) 6,807 (48,571) (41,764)
------- -------- -------- ------- -------- --------
Net interest income..... $12,911 $ (4,022) $ 8,889 $13,117 $ (992) $ 12,125
======= ======== ======== ======= ======== ========
</TABLE>
Note: The changes not due solely to change in volume or solely to change in
rate are allocated proportionally to both change in volume and rate.
Net interest income on a fully taxable equivalent basis totaled $176.5
million in 1993, an increase of $8.9 million or 5.3% from $167.6 million in
1992. Net interest income in 1992 was up 7.8% from $155.5 million in 1991.
13
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Table 1 presents average balances, taxable equivalent interest income and
expense and average rates earned and paid for Dauphin's assets and liabilities.
Table 3 analyzes the changes attributable to the volume and rate components of
net interest income.
During 1993 there was an increase in net interest income of $12.9 million due
to changes in volume and a decrease of $4.0 million due to changes in rate. In
1992 there was an increase of $13.1 million due to changes in volume and a
decrease of $1.0 million due to changes in rate.
The change in the net interest margin attributable to interest rates can be
understood by analyzing the interest rate spread and the net interest margin on
earning assets. While the interest rate spread considers only the difference
between the average rate earned on earning assets and the average rate paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.
As reflected in Table 4, average earning assets increased to $4.2 billion in
1993 from $4.1 billion in 1992 and $3.8 billion in 1991. The interest rate
spread for 1993 was 3.63% compared with 3.50% for 1992 and 3.30% for 1991. The
net interest margin for 1993 was 4.16% compared with 4.11% for 1992 and 4.05%
for 1991.
TABLE 4--INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
1993 1992 1991
------------ ------------ ------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
(Taxable equivalent)
Earning assets....................... $4,243 7.45% $4,085 8.22% $3,837 9.52%
====== ====== ======
Interest bearing liabilities......... $3,650 3.82 $3,557 4.72 $3,371 6.22
---- ---- ----
Interest rate spread................. 3.63 3.50 3.30
Interest free sources used to fund
earning assets...................... 593 528 466
------ ---- ------ ---- ------ ----
Total sources of funds............... $4,243 3.29 $4,085 4.11 $3,837 5.47
====== ---- ====== ---- ====== ----
Net interest margin.................. 4.16% 4.11% 4.05%
==== ==== ====
</TABLE>
Interest rates continued to fall during 1993. The average prime rate in 1993
was 6.00% compared with 6.25% in 1992. The average federal funds rate decreased
to 3.02% for 1993 compared with 3.53% for 1992. During 1993, compared with
1992, the average yield on earning assets decreased 77 basis points while the
average cost of funds decreased 90 basis points resulting in an increase in the
interest rate spread of 13 basis points. The yield on the investment portfolio
decreased 73 basis points due to the reinvestment of maturities at
significantly lower rates. Average loans, which represent the highest yielding
earning assets, increased $56.5 million or 2.6% and produced a yield of 7.86%
in 1993 compared with 8.63% in 1992. This 77 basis point decrease in yield was
caused by the decrease in the prime interest rate affecting variable rate
loans, the amount of refinancings of fixed rate loans and the interest rates on
consumer loans compared with 1992. Average loans represented 52.9% of the
average earning assets for 1993. The cost of interest bearing deposits
decreased to 3.89% in 1993 compared with 4.84% in 1992. The overall interest
rates offered on these deposits continued to decline during 1993. Additionally,
the mix of these deposits continued to change significantly as depositors
allowed longer term certificates of deposit to mature and decided to reinvest
these proceeds into shorter term instruments. The decrease in the cost of
short-term borrowings (52 basis points) was caused primarily by the decline in
the federal funds rate. As in recent prior years, the increase in the net
interest margin, compared with the increase in the interest rate spread, was
negatively affected by the decreased value of non-interest bearing funds in a
lower interest rate environment.
14
<PAGE>
DAUPHIN DEPOSIT CORPORATION
During 1992, compared with 1991, the average yield on earning assets
decreased 130 basis points while the average cost of interest bearing
liabilities decreased 150 basis points resulting in an increase in the interest
rate spread of 20 basis points. The increase in the interest rate spread was
the result of several factors. The yield on the investment portfolio decreased
only moderately (100 basis points) due to the longer maturity structure of the
portfolio, the amount of state and municipal securities in the portfolio at
higher rates and the increased yield generated from mortgage-backed securities.
Average loans increased $49.6 million or 2.3% and represented 53.6% of the
average earning assets for 1992 compared with 55.7% for 1991. The average prime
interest rate for 1992 was 6.25% compared with 8.48% for 1991, a decrease of
223 basis points. This decrease in the average prime interest rate was the
primary reason for the 151 basis point decrease in the overall average loan
yield for 1992 compared with 1991. The cost of interest bearing deposits
decreased to 4.84% in 1992 compared with 6.26% in 1991. This decline was caused
by lower rates offered and the change in the mix of deposits from longer term
instruments to shorter term instruments. Finally, the average cost of short-
term borrowings decreased 209 basis points during 1992 as a result of the lower
federal funds rate during 1992 compared with 1991. While the interest rate
spread increased 20 basis points, the net interest margin increased six basis
points. As previously mentioned, the net interest margin was negatively
affected by the decreased value of non-interest bearing funds in a lower
interest rate environment.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged against earnings was $9.4 million in
1993 compared with $10.9 million in 1992, a decrease of 14.4%. This decrease
was mainly due to the good asset quality of the loan portfolio. The provision
is based on management's estimate of the amount needed to maintain an adequate
allowance for loan losses. This estimate is based on the review of the loan
portfolio, the level of net credit losses, past loan loss experience, the
general economic outlook and other factors that management feels are
appropriate.
Management takes an aggressive approach to charging off loans partly due to
its analysis of the general economic outlook. This does not necessarily
indicate a material decline in the asset quality of the loan portfolio.
Several improvements were seen in certain measures of loan portfolio
performance. The ratio of net charge-offs to average loans decreased to .31% in
1993 from .33% in 1992 and the level of non-accruing loans and restructured
loans decreased to $23.1 million (.98% of year-end loans) from $24.2 million
(1.10% of year-end loans) at December 31, 1992.
NON-INTEREST INCOME
Total non-interest income increased $4.3 million or 7.9% in 1993 compared
with an increase of $10.0 million or 22.7% in 1992. Excluding gains on
investment securities, the 1993 increase was $ 5.0 million or 10.0% compared
with $8.8 million or 21.4% for 1992.
Income from fiduciary activities increased $.2 million or 1.1% in 1993.
Revenue in 1993 was negatively impacted by a decline in trust income fees as
interest rates fell during 1993. Also, estate fees declined in 1993 when
compared to 1992. The increase of $.5 million or 3.9% in 1992 was primarily the
result of revenue improvements in the areas of corporate services and employee
benefits.
Service charges on deposit accounts increased $1.1 million or 9.6% during
1993. In 1992, this increase was $.8 million or 8.1%. Management continuously
monitors the fee structure and makes changes where appropriate. These increases
reflect both the growth in fee-based accounts and changes in the fee structure.
Included in 1993 is $.5 million from new fees on certain individual retirement
accounts.
Other service charges and fees increased $1.0 million or 10.8% in 1993
compared with a decrease of $.6 million or 6.6% in 1992. The increase in 1993
was due to increases in credit card related activities, mortgage sales and
servicing and letter of credit fees. The decrease for 1992 was primarily the
result of the negative impact on the valuation of the excess servicing rights
due to the large amount of home mortgage refinancings in 1992.
15
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Broker/dealer commissions and fees represent the income generated by Hopper
Soliday. This income is generated from underwriting securities which are
predominantly general obligations of Central Pennsylvania municipalities,
providing financial advisory services, selling securities to individual and
institutional investors and other related activities.
Securities gains totaled $3.2 million in 1993 as compared with $4.0 million
in 1992 and $2.8 million in 1991. The sale of debt securities generated $1.5
million in net gains for 1993. The sale of equity securities generated $1.7
million in net gains. During 1992 the sale of debt securities generated $2.9
million in net gains compared with $1.1 million in net gains from equity
securities transactions.
Other non-interest income increased $3.5 million for 1993 compared with 1992.
In 1992, compared with 1991, other non-interest income increased $.4 million.
In December 1993 a settlement with the Commonwealth of Pennsylvania was entered
into which resulted in a refund of $3.6 million in previously paid Bank Shares
Tax plus interest. This non-recurring refund is the result of litigation
contesting the Commonwealth's ability to tax United States Obligations. Gains
from loan sales, primarily fixed rate residential mortgages, included in other
non-interest income amounted to $1.6 million for 1993 and 1992 compared with
$1.3 million for 1991.
TABLE 5--NON-INTEREST INCOME
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1993/1992 1992/1991
--------------------- ------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
------------- -------------
1993 AMOUNT % 1992 AMOUNT % 1991
------- ------ ----- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiduciary activities..... $14,318 $ 160 1.1% $14,158 $ 529 3.9% $13,629
Service charges on de-
posit accounts.......... 11,979 1,051 9.6 10,928 817 8.1 10,111
Other service charges and
fees.................... 9,761 953 10.8 8,808 (623) (6.6) 9,431
Broker/dealer commissions
and fees................ 10,634 (613) (5.5) 11,247 7,731 219.9 3,516
Securities gains, net.... 3,215 (745) (18.8) 3,960 1,145 40.7 2,815
Other.................... 8,344 3,459 70.8 4,885 372 8.2 4,513
------- ------ ------- ------ -------
Total.................. $58,251 $4,265 7.9% $53,986 $9,971 22.7% $44,015
======= ====== ===== ======= ====== ===== =======
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense increased $3.9 million or 3.2% in 1993 compared with an
increase of $14.4 million or 13.4% in 1992. Without including the expenses of
Hopper Soliday, the increase for 1993 would have been $4.2 million or 3.8% and
$7.8 million or 7.5% for 1992.
Salaries and employee benefits increased .9% in 1993 and 17.7% in 1992. The
increase for 1993 was, for the most part, due to normal salary adjustments and
increased benefits costs, which were partially offset by a $.3 million decrease
in Hopper Soliday's salaries and employee benefits due to the decreased
commission and fee income produced. Without Hopper Soliday, salaries and
employee benefits increased $1.1 million or 2.0% for 1993 compared with 1992.
For 1992, compared with 1991, this increase was $4.5 million or 8.8%. 1993
includes the impact of adopting SFAS 112 which amounted to an incremental cost
of $.5 million. As explained in more detail in Note 13 of the Notes to
Consolidated Financial Statements, SFAS 112 changed the practice of accounting
for postemployment benefits from a pay-as-you-go basis to an accrual basis.
Full-time equivalent employees increased 1.7% to 1,950 at December 31, 1993
compared with 1,917 at year-end 1992. The ratio of average assets (millions)
per full-time equivalent employee was 2.31 at December 31, 1993 compared with
2.27 at December 31, 1992.
16
<PAGE>
DAUPHIN DEPOSIT CORPORATION
All other non-interest expense items increased $3.3 million or 5.6% in 1993
and $5.0 million or 9.1% in 1992. Without the effect of Hopper Soliday, the
increase would have been $3.1 million or 5.4% for 1993 and $3.3 million or 6.2%
for 1992. The increase for 1993 was primarily the result of increases in
insurance, occupancy expenses, professional fees, computer processing,
purchased software costs, merchant processing interchange expense, advertising
costs and $.5 million in merger expenses in connection with the acquisition of
Valley Bancorp., Inc. (see Note 2 of the Notes to Consolidated Financial
Statements). The increase in 1992 included $2.4 million in merger expenses in
connection with the acquisition of Farmers Bank and Trust Company of Hanover
along with increases in occupancy expenses, professional fees, deposit
insurance, computer processing and purchased software costs. Increases in
computer processing and purchased software costs are, in most cases, brought
about by increases in volume of transactions and the acquisition of new
software and hardware for future growth and expansion.
During 1989 Congress passed legislation (The Financial Institutions Reform,
Recovery and Enforcement Act of 1989) to provide a workable solution to the
financial problems of the financial services industry. The direct effect of
this legislation on the banking industry was to substantially increase both the
expense and burden of regulation and the assessment banks pay to the FDIC, the
entity which insures a bank's depositors of their funds deposited with a bank.
The effect of this increase on Dauphin was to increase this expense by 11.3% or
$.8 million for 1992. During 1993 a risk-based assessment was established which
required banks to pay an assessment rate based on the combination of its
capital and supervisory condition.
TABLE 6--NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1993/1992 1992/1991
-------------------- -------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
----------- ------------
1993 AMOUNT % 1992 AMOUNT % 1991
-------- ------ --- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits................ $ 63,147 $ 544 .9% $ 62,603 $ 9,432 17.7% $ 53,171
Net occupancy expense.... 8,028 427 5.6 7,601 235 3.2 7,366
Furniture and equipment
expense................. 8,578 760 9.7 7,818 196 2.6 7,622
Deposit insurance........ 7,455 (61) (.8) 7,516 763 11.3 6,753
Other.................... 38,764 2,210 6.0 36,554 3,763 11.5 32,791
-------- ------ -------- ------- --------
Total.................. $125,972 $3,880 3.2% $122,092 $14,389 13.4% $107,703
======== ====== === ======== ======= ==== ========
</TABLE>
PROVISION FOR INCOME TAXES
Income tax expense amounted to $20.5 million in 1993 as compared with $17.2
million in 1992 and $13.3 million in 1991. Dauphin's effective tax rate for
1993 was 24.1% compared with 23.1% in 1992 and 20.1% in 1991. In 1992 Dauphin
adopted the provisions of SFAS 109 (see Note 1 of the Notes to Consolidated
Financial Statements) and elected to restate prior years financial statements.
In connection with this adoption, net income for the years 1992 and 1991 was
increased by $.5 million and $1.2 million, respectively. Additionally, during
1993 new tax legislation was enacted retroactive to January 1, 1993. The
immediate impact, among other things, was to increase the corporate tax rate
from 34% to 35%. This increased rate resulted in additional income tax expense
of $.3 million for 1993. For a more comprehensive analysis of income tax
expense, refer to Note 12 of the Notes to Consolidated Financial Statements.
17
<PAGE>
DAUPHIN DEPOSIT CORPORATION
FINANCIAL CONDITION
SOURCES AND USES OF FUNDS
Dauphin's financial condition can be evaluated in terms of trends in its
sources and uses of funds. The comparison of average balances in Table 7
indicates how Dauphin has managed these elements. Average funding uses
increased $157.7 million or 3.9% in 1993 as compared with an increase of $247.8
million or 6.5% in 1992.
TABLE 7--SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1993 1992 1991
------------------------------- ------------------------------- ----------
INCREASE (DECREASE) INCREASE (DECREASE)
AVERAGE -------------------- AVERAGE -------------------- AVERAGE
BALANCE AMOUNT % BALANCE AMOUNT % BALANCE
---------- ------------ ------- ---------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Short-term invest-
ments................ $ 10,505 $ (7,245) (40.8)% $ 17,750 $ (44,148) (71.3)% $ 61,898
Taxable investment se-
curities............. 1,594,864 80,780 5.3 1,514,084 253,737 20.1 1,260,347
Tax exempt investment
securities........... 356,065 3,725 1.1 352,340 (17,475) (4.7) 369,815
Assets held for sale.. 36,071 23,942 197.4 12,129 6,114 101.6 6,015
Loans................. 2,245,260 56,484 2.6 2,188,776 49,603 2.3 2,139,173
---------- ----------- ---------- ----------- ----------
Total uses.......... $4,242,765 $ 157,686 3.9% $4,085,079 $ 247,831 6.5% $3,837,248
========== =========== ======= ========== =========== ======= ==========
Funding sources:
Interest bearing
demand deposits...... $ 502,929 $ 53,773 12.0% $ 449,156 $ 49,663 12.4% $ 399,493
Savings deposits...... 985,819 63,014 6.8 922,805 100,512 12.2 822,293
Time deposits......... 1,424,513 (201,009) (12.4) 1,625,522 (103,443) (6.0) 1,728,965
Short-term borrowings. 644,375 163,032 33.9 481,343 108,252 29.0 373,091
Long-term borrowings.. 92,521 14,179 18.1 78,342 31,625 67.7 46,717
Non-interest bearing
funds (net)(1)....... 592,608 64,697 12.3 527,911 61,222 13.1 466,689
---------- ----------- ---------- ----------- ----------
Total sources....... $4,242,765 $ 157,686 3.9% $4,085,079 $ 247,831 6.5% $3,837,248
========== =========== ======= ========== =========== ======= ==========
</TABLE>
- --------
(1) Non-interest bearing liabilities and stockholders' equity less non-interest
bearing assets.
INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS
Average short-term investments and investment securities, in the aggregate,
increased $77.3 million or 4.1% during 1993 compared with an increase of $192.1
million or 11.4% during 1992. During both 1993 and 1992 funds provided from
increases in deposits and short-term borrowings exceeded the increase in the
loan portfolio.
The balances maintained for short-term investments and investment securities
are, for the most part, supported by short-term deposits such as money market
and NOW accounts, short-term borrowings and time deposits. As reflected in
Table 8, the average maturity of the investment portfolio was 6.8 years at
year-end 1993. Included in the portfolio are state and municipal securities and
mortgage-backed securities that have a longer term maturity but are sometimes
either called before maturity or have repricing characteristics that occur
before final maturity. The average life to call or repricing of the portfolio
was 1.8 years at December 31, 1993.
18
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Dauphin had no investments in any foreign country that aggregated more than
1% of assets at December 31, 1993, 1992 or 1991.
At December 31, 1993, net unrealized appreciation in the portfolio was $63.2
million consisting of gross unrealized gains of $64.9 million and gross
unrealized losses of $1.7 million. Dauphin will adopt Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities" as of January 1, 1994. SFAS 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. These
investments are to be classified in one of three categories and accounted for
as follows: 1) debt securities that a company has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost; 2) debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings; and 3) debt and equity securities not
classified as either held-to-maturity or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity.
Management has determined that the entire investment securities portfolio
will be classified as available-for-sale. The impact of this change will result
in an increase in investment securities of $63.2 million and an increase in
stockholders' equity of $41.1 million, representing the after tax impact.
TABLE 8--ANALYSIS OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
TAXABLE
U.S. FEDERAL STATE & OTHER EQUIVALENT
TREASURY AGENCIES MUNICIPAL BONDS STOCKS TOTAL YIELD
-------- ---------- --------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
Maturity--book value
Within one year....... $ 51,321 $ 30,420 $ 3,347 $ 3,244 $ $ 88,332 7.10%
One to five years..... 149,408 157,936 16,990 72,562 396,896 6.11%
Five to ten years..... 29,583 289,267 69,917 110 388,877 7.45%
Over ten years........ 764,103 298,314 10,360 1,072,777 6.84%
No set maturity....... 13,015 13,015
-------- ---------- -------- -------- ------- ----------
Book value.............. $230,312 $1,241,726 $388,568 $ 86,276 $13,015 $1,959,897
======== ========== ======== ======== ======= ==========
Market value............ $236,635 $1,267,002 $416,392 $ 88,755 $14,356 $2,023,140
Taxable equivalent
yield.................. 5.78% 5.97% 10.20% 6.66%
Average maturity........ 6.8 years
DECEMBER 31, 1992
Book value.............. $277,772 $1,174,990 $349,748 $143,060 $15,758 $1,961,328
DECEMBER 31, 1991
Book value.............. $248,320 $ 951,831 $356,150 $164,235 $17,618 $1,738,154
</TABLE>
LOANS
Average loans increased $56.5 million or 2.6% during 1993 compared with an
increase of $49.6 million or 2.3% in 1992. Loan demand improved slightly as
1993 progressed.
The economy in our market area is diversified and has been relatively stable.
This affords Dauphin the opportunity to select quality commercial credits and
stabilizes our consumer business.
19
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Loan balances during 1993 were influenced by the improving economy and, as a
result, balances in both the commercial and consumer areas increased.
Additionally, as interest rates continued to fall, many residential mortgages
were refinanced into lower fixed rate mortgages. These fixed rate mortgages
were sold in the secondary mortgage market. It has been Dauphin's policy to
sell and continue to service these mortgages in order to avoid taking interest
rate risk.
Dauphin's policy is to make the vast majority of its loans and commitments in
the market area it serves. This tends to reduce risk and gives Dauphin the
opportunity to deliver its many products to the same customer base. Dauphin had
no foreign loans in its portfolio at December 31, 1993.
TABLE 9--LOANS OUTSTANDING, NET OF UNEARNED INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural:
Commercial secured by
real estate.......... $ 397,197 $ 399,048 $ 427,996 $ 453,578 $ 458,566
Agricultural.......... 26,737 27,180 23,022 25,229 29,473
Other................. 622,381 600,790 619,553 555,336 461,800
Real estate, construc-
tion................... 181,893 132,224 132,928 109,551 71,413
Real estate, residential
(1).................... 703,102 691,769 656,942 630,642 623,798
Consumer................ 408,900 333,230 326,421 324,759 348,835
Lease financing......... 30,488 15,409 16,760 20,329 18,545
Unamortized net loan
fees................... (3,868) (4,315) (3,841) (3,938) (5,016)
---------- ---------- ---------- ---------- ----------
Total............... $2,366,830 $2,195,335 $2,199,781 $2,115,486 $2,007,414
========== ========== ========== ========== ==========
</TABLE>
- --------
(1) Includes home equity loans
TABLE 10--LOAN MATURITIES AND INTEREST SENSITIVITY (1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1993
------------------------------------------
ONE YEAR ONE THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricul-
tural.............................. $383,190 $267,968 $395,157 $1,046,315
Real estate, construction........... 54,350 13,913 113,630 181,893
-------- -------- -------- ----------
Total............................. $437,540 $281,881 $508,787 $1,228,208
======== ======== ======== ==========
Loans with predetermined interest
rate............................... $ 83,960 $113,043 $300,696 $ 497,699
Loans with variable interest rate... 353,580 168,838 208,091 730,509
-------- -------- -------- ----------
Total............................. $437,540 $281,881 $508,787 $1,228,208
======== ======== ======== ==========
</TABLE>
- --------
(1) Excludes residential mortgages, consumer loans and lease financing
DEPOSITS
Average deposits, including non-interest bearing demand deposits, decreased
$57.7 million or 1.7% during 1993 compared with an increase of $59.0 million or
1.8% in 1992. Dauphin's subsidiary banks, like many other commercial banks,
have experienced slow deposit growth as the competition for depositors' funds
has become more intense. Competition for deposits has come from other
commercial banks, thrift institutions, credit unions, brokerage houses and
mutual funds. Deposit growth is also affected by the movement of interest
rates. During
20
<PAGE>
DAUPHIN DEPOSIT CORPORATION
1993 and 1992 interest rates offered on time deposits have fallen
substantially, whereby rates offered on longer term instruments are not
materially higher than short-term instruments. This resulted in a greater
increase in interest bearing demand deposits and savings deposits compared with
certificates of deposit. Included in interest bearing deposits are certain
individual retirement accounts (IRA) totaling $157.8 million which are invested
in 18 month variable interest rate products with a minimum interest rate of
10%. During 1993, Dauphin charged a service fee on these products, and
initiated the process to discontinue them in accordance with the terms of the
IRA contract. Litigation was filed against Dauphin challenging the right to
charge fees on these particular products. The right to terminate this product
is also in dispute. Management intends, however, to vigorously defend its
entitlement to charge fees and its right to terminate these products in
accordance with their terms. Also during 1993 and 1992 average time deposits of
$100,000 or more decreased $37.4 million and $19.7 million, respectively. This
funding source was replaced by lower costing overnight federal funds.
Additionally, the growth of non-interest bearing deposits has been relatively
slow in recent years. The percentage of average non-interest bearing demand
deposits to average total deposits amounted to 11.1% in 1993, 10.1% for 1992
and 9.9% for 1991. Dauphin's banking subsidiaries have remained interest rate
competitive and have introduced new deposit products to maintain and attract
deposits.
SHORT-TERM BORROWINGS
Average short-term borrowings increased $163.0 million or 33.9% during 1993
compared with an increase of $108.3 million or 29.0% in 1992. Short-term
borrowings are primarily represented by federal funds purchased and securities
sold under agreements to repurchase. The level of short-term borrowings is
dependent upon many items such as loan growth, deposit growth and the interest
rates paid for these funds. As previously mentioned, a portion of the growth in
1993 and 1992 was the result of a need to replace the decrease in time deposits
of $100,000 or more. The average cost of short-term borrowings decreased from
5.62% in 1991 to 3.53% in 1992 and to 3.01% in 1993.
NON-PERFORMING ASSETS
Table 11 reflects Dauphin's non-performing assets for the five years ended
December 31, 1993. Dauphin's policy is to discontinue the accrual of interest
on commercial loans on which principal or interest is past due 90 days or more
and on commercial mortgages on which principal or interest is past due 120 days
or more. Consumer loans, excluding residential mortgages, which are 150 days
past due are charged off. Residential mortgages are placed on non-accrual
status after becoming 180 days past due. When a loan is placed on non-accrual
status, any unpaid interest is generally charged against income. Management
believes that strict adherence to this policy with regard to non-accruals and
charge-offs will insure that the historically high quality of the loan
portfolio will be maintained. Other real estate owned represents property
acquired through foreclosure or considered to be in an in-substance foreclosure
status.
Loan quality is maintained through diversification of risk, strict
enforcement of credit control practices and continued monitoring of the loan
portfolio.
At December 31, 1993, Dauphin had no loan concentrations exceeding 10% of
total loans. Loan concentrations are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities which
would cause them to be similarly affected by economic or other industry
specific conditions.
Loans which are not included in non-performing and are current as to payments
of principal and interest but have a somewhat higher than normal risk of
becoming non-accrual or reduced rate in the future are estimated to total
approximately $7.0 million at December 31, 1993 compared with $7.4 million at
December 31, 1992.
21
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Federal regulatory authorities have defined "highly leveraged transactions"
(HLT's) as a credit of $20 million or more which is extended in connection with
an acquisition by, or a restructuring of, an organization, and the extension of
credit results in "high leverage" or is made to an already highly leveraged
organization. It is the policy of Dauphin to consider financing HLT's for its
customers or for potential customers in its market area which usually involves
the change of ownership from one generation of a family to the next, or from
present owners to the existing management team. The amount of HLT's, as defined
by the Federal regulatory authorities, was $10.2 million at December 31, 1993
and $7.2 million at December 31, 1992 and represents Dauphin's portion of a
shared national credit within its market area.
TABLE 11--NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans................. $15,777 $17,827 $16,687 $14,276 $11,555
Restructured loans................ 7,352 6,327 194 202 460
------- ------- ------- ------- -------
Total non-performing loans.... 23,129 24,154 16,881 14,478 12,015
Other real estate owned........... 2,922 3,475 3,393 322 558
------- ------- ------- ------- -------
Total non-performing assets... $26,051 $27,629 $20,274 $14,800 $12,573
======= ======= ======= ======= =======
Ratios:
Non-performing loans to total
loans.......................... .98% 1.10% .77% .68% .60%
Non-performing assets to total
loans and other real estate
owned.......................... 1.10 1.26 .92 .70 .63
Allowance for loan losses to
non-performing loans........... 156.12 139.21 177.24 188.54 202.80
Loans past due 90 or more days as
to interest or principal......... $ 2,413 $ 4,208 $ 5,136 $ 6,216 $ 5,900
======= ======= ======= ======= =======
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's continuing evaluation
of the loan portfolio, assessment of economic conditions, the diversification
and size of the portfolio, adequacy of collateral, past and anticipated loss
experience and the amount and quality of non-performing loans. Table 12
presents the allocation of the allowance for loan losses by major loan category
for the past five years. The specific allocations in any particular category
may prove excessive or inadequate and consequently may be re-allocated in the
future to reflect then current conditions. Accordingly, the entire allowance is
considered available to absorb losses in any category.
TABLE 12--ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------------------------------------------
1993 1992 1991 1990 1989
--------------- --------------- --------------- --------------- ---------------
% GROSS % GROSS % GROSS % GROSS % GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural....... $12,353 44.1% $16,860 46.7% $16,149 48.6% $12,557 48.8% $10,969 47.2%
Real estate,
construction........... 1,998 7.7 1,322 6.0 1,278 6.0 1,059 5.2 667 3.5
Real estate, residen-
tial................... 698 29.7 831 31.4 559 29.8 701 29.8 572 31.0
Consumer................ 3,072 17.2 2,505 15.1 3,210 14.8 3,223 15.3 3,088 17.3
Lease financing......... 305 1.3 154 .8 168 .8 203 .9 185 1.0
Unallocated............. 17,683 11,952 8,556 9,554 8,885
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. $36,109 100.0% $33,624 100.0% $29,920 100.0% $27,297 100.0% $24,366 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
22
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Banks' allowance for loan
losses. Such agencies may require the Banks to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.
Table 13 reflects an analysis of the allowance for loan losses for the past
five years.
The provision for loan losses of $9.4 million exceeded the net charge-offs of
$6.9 million, thereby increasing the allowance for loan losses from $33.6
million in 1992 to $36.1 million in 1993. The allowance for loan losses as a
percentage of year-end loans was 1.53% at December 31, 1993 and 1992.
TABLE 13--ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $ 33,624 $ 29,920 $ 27,297 $ 24,366 $ 21,099
Provision charged to op-
erating expenses....... 9,365 10,944 10,463 9,341 8,407
Loans charged off:
Commercial, financial
and agricultural..... 7,196 6,192 5,985 5,274 5,148
Real estate, residen-
tial................. 480 462 148 125 245
Consumer.............. 2,417 3,326 4,111 3,073 2,508
Lease financing....... 88 129 190 284 26
---------- ---------- ---------- ---------- ----------
Total loans charged
off.................. 10,181 10,109 10,434 8,756 7,927
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial
and agricultural..... 2,129 1,325 1,369 1,541 1,858
Real estate, residen-
tial................. 26 239 95 50 147
Consumer.............. 1,121 1,287 1,075 740 768
Lease financing....... 25 18 55 15 14
---------- ---------- ---------- ---------- ----------
Total recoveries...... 3,301 2,869 2,594 2,346 2,787
---------- ---------- ---------- ---------- ----------
Net charge-offs......... 6,880 7,240 7,840 6,410 5,140
---------- ---------- ---------- ---------- ----------
Balance, end of period.. $ 36,109 $ 33,624 $ 29,920 $ 27,297 $ 24,366
========== ========== ========== ========== ==========
Total loans:
Average............... $2,245,260 $2,188,776 $2,139,173 $2,076,120 $1,939,767
Year-end.............. 2,366,830 2,195,335 2,199,781 2,115,486 2,007,414
Ratios:
Net charge-offs to:
Average loans......... .31% .33% .37% .31% .26%
Loans at year-end..... .29 .33 .36 .30 .26
Allowance for loan
losses............... 19.05 21.53 26.20 23.48 21.09
Provision for loan
losses............... 73.47 66.15 74.93 68.62 61.14
Allowance for loan
losses to:
Average loans......... 1.61 1.54 1.40 1.31 1.26
Loans at year-end..... 1.53 1.53 1.36 1.29 1.21
</TABLE>
In May 1993, Statement of Financial Accounting Standards No. 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan" was issued. SFAS 114
addresses the accounting by creditors for impairment of certain
23
<PAGE>
DAUPHIN DEPOSIT CORPORATION
loans. SFAS 114 requires that impaired loans that are within the scope of the
Statement be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, at the loan's market price
of the fair value of the collateral if the loan is collateral dependent.
Management presently does not know and cannot reasonably estimate the impact of
SFAS 114 on its financial statements. SFAS 114 is effective for fiscal years
beginning after December 15, 1994 and earlier adoption is permitted. Dauphin
expects to adopt SFAS 114 in January 1995.
LIQUIDITY
Liquidity management involves meeting the funds flow requirements of
customers who may be either depositors wanting to withdraw funds, or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Liquidity from asset categories is provided primarily through investment
securities with maturities of less than one year and short-term investments,
such as deposits with other banks, federal funds sold and other short-term
investments. Dauphin's asset liquidity position is strong because of the
investment portfolio's maturity structure (Table 8), the amount of short-term
investments, the funds provided by loan maturities (Table 10) and the funds
available to Dauphin by established federal funds lines of credit.
Additionally, in 1991 Dauphin Deposit Bank and Trust Company became a member of
the Federal Home Loan Bank of Pittsburgh. These established credit arrangements
provide the Banks with increased liquidity.
The generation of deposit balances is the primary source of liquidity from
liability categories. Total deposits decreased by $100.3 million or 2.9% from
year-end 1992 to year-end 1993. As previously mentioned, this funding source
was replaced by lower costing overnight federal funds. Table 14 reflects the
growth in the major classifications of deposits by comparing the year-end
balances for the past three years and Table 15 reflects the maturity of large
dollar deposits for the same periods. Federal funds purchased and other forms
of short-term borrowings are also significant sources of liquidity. Dauphin
continues to maintain diverse liability funding sources.
TABLE 14--DEPOSITS BY MAJOR CLASSIFICATION
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
--------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Non-interest bearing deposits................. $ 394,016 $ 420,202 $ 389,940
NOW accounts.................................. 528,719 495,502 418,082
Savings deposits.............................. 428,008 379,585 317,526
Money market deposit accounts................. 553,841 588,229 531,270
Time deposits................................. 1,108,568 1,213,064 1,375,623
Time deposits of $100,000 or more............. 287,673 304,528 298,790
---------- ---------- ----------
Total....................................... $3,300,825 $3,401,110 $3,331,231
========== ========== ==========
</TABLE>
TABLE 15--MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Three months or less................................ $173,958 $175,313 $169,422
Over three months through six months................ 30,385 40,294 43,919
Over six months through twelve months............... 20,668 41,003 45,039
Over twelve months.................................. 62,662 47,918 40,410
-------- -------- --------
Total............................................. $287,673 $304,528 $298,790
======== ======== ========
</TABLE>
24
<PAGE>
DAUPHIN DEPOSIT CORPORATION
CAPITAL RESOURCES
Total stockholders' equity increased $42.1 million or 9.8% in 1993 compared
with an increase of $50.0 million or 13.1% in 1992. The increase for 1993 was,
for the most part, retained earnings or internal capital generation. The
increase for 1992 was primarily the result of retained earnings and the $12.6
million net proceeds received from the reissuance of 700,000 shares of
previously acquired treasury stock in a public offering. The purpose of the
offering was to enable the acquisition of Farmers Bank and Trust Company of
Hanover to be accounted for as a pooling-of-interests. The proceeds have been
used for general corporate purposes. The ratio of average equity to average
assets amounted to 9.98% for 1993, compared with 9.34% for 1992 and 8.77% for
1991. Internal capital generation is measured as the percent of return on
average equity multiplied by the percent of earnings retained. The resulting
internal capital generation percentage amounted to 8.8% for 1993 compared with
8.4% for 1992 and 9.1% for 1991.
Common measures of adequate capitalization for banking institutions are
ratios of capital to assets. These ratios indicate the proportion of
permanently committed funds to the total asset base. Guidelines issued by
federal regulatory authorities require both banks and bank holding companies to
meet minimum risk-based capital ratios in an effort to make regulatory capital
more responsive to the risk exposure related to a bank's on- and off-balance
sheet items. Risk-based capital guidelines redefine the components of capital,
categorize assets into different risk classes and include certain off-balance
sheet items in the calculation of capital requirements. The components of risk-
based capital are segregated as Tier 1 and Tier 2 capital. Tier 1 capital is
composed of total stockholders' equity reduced by goodwill and other intangible
assets. Tier 2 capital is the allowance for loan losses (with certain
limitations) and qualifying debt obligations. Regulators have also adopted
minimum Tier 1 leverage ratio standards. Tier 1 capital for the leverage ratio
is the same as the Tier 1 capital definition in the risk-based capital
guidelines. Table 16 presents the capital ratios for Dauphin for the past three
years calculated at year-end in accordance with these guidelines. At December
31, 1993, Dauphin and its banking subsidiaries exceeded all capital
requirements.
TABLE 16--CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Risk-based capital
Tier 1 ratio.............................................. 15.54% 14.95% 13.03%
Total capital ratio (tier 1 and tier 2)................... 17.29 17.03 15.27
Leverage ratio............................................. 10.17 9.57 8.76
Average equity to average assets........................... 9.98 9.34 8.77
</TABLE>
In January 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 1,000,000 shares of its outstanding common stock. Dauphin
expects to use available cash to fund the share repurchases which will be made
from time to time on the open market or in privately negotiated transactions.
Dauphin will use the shares for general corporate purposes, including the
Employee Stock Purchase Plan,Stock Option Plan and other appropriate uses.
INTEREST RATE SENSITIVITY
Interest rate sensitivity management seeks to avoid fluctuating net interest
margins and to enhance consistent growth of net interest income through periods
of changing interest rates.
Rates on different assets and liabilities within a single maturity category
adjust to changes in interest rates to varying degrees and over varying periods
of time. The relationships between prime rates and rates paid on purchased
funds are not constant over time. The rate of growth in interest free sources
of funds will influence
25
<PAGE>
DAUPHIN DEPOSIT CORPORATION
the level of interest sensitive funding sources. In addition, the absolute
level of interest rates will affect the volume of earning assets and funding
sources. As a result of these limitations, the interest sensitivity gap is only
one factor to be considered in estimating the net interest margin.
Table 17 presents an interest sensitivity analysis of Dauphin's assets and
liabilities at December 31,1993 for several time intervals. This table reflects
the interest sensitivity gap in two formats. The detailed presentation
represents management's position on certain interest bearing deposits, such as
passbook savings and NOW accounts, as not being subject to immediate repricing.
Management is of the opinion that historical interest rate movements indicate
that these products do not reprice in direct relation to the change in the
interest rate environment. Additionally, these products have provided Dauphin
with a stable core deposit base. Therefore, the detailed presentation within
Table 17 attempts to reflect these products in the appropriate interest
sensitivity time interval based on their interest sensitivity to the movement
of other interest rates. Also included in Table 17 is a summary of the gap, as
viewed by certain regulatory authorities, which presents these interest bearing
deposits as being subject to immediate repricing.
TABLE 17--INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1993
----------------------------------------------------------
INTEREST SENSITIVITY PERIOD
----------------------------------------------------------
MONTH QUARTER SIX MONTHS ANNUAL 5 YEARS
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earning assets:
Short-term invest-
ments................ $ 8,494 $ 8,494 $ 8,494 $ 8,494 $ 8,494
Investment securities. 441,223 503,036 632,346 952,031 1,763,277
Assets held for sale.. 9,203 9,203 9,203 9,203 9,203
Loans................. 1,074,632 1,134,747 1,236,807 1,430,412 2,086,943
---------- ---------- ---------- ---------- ----------
Total............... $1,533,552 $1,655,480 $1,886,850 $2,400,140 $3,867,917
========== ========== ========== ========== ==========
Interest bearing liabil-
ities:
Deposits.............. $ 885,302 $1,094,873 $1,266,183 $1,426,331 $1,857,916
Short-term borrowings. 505,378 680,378 680,378 680,378 680,378
Long-term borrowings.. 310 318 330 349 86,570
---------- ---------- ---------- ---------- ----------
Total............... $1,390,990 $1,775,569 $1,946,891 $2,107,058 $2,624,864
========== ========== ========== ========== ==========
Interest sensitivity
gap.................. $ 142,562 $ (120,089) $ (60,041) $ 293,082 $1,243,053
Interest sensitive as-
sets to interest sen-
sitive liabilities
ratio................ 1.10 .93 .97 1.14 1.47
Regulatory presentation:
Interest sensitivity
gap.................. $ (696,899) $ (959,550) $ (899,502) $ (546,379) $ 403,568
Interest sensitive as-
sets to interest sen-
sitive liabilities
ratio................ .69 .63 .68 .81 1.12
</TABLE>
An interest sensitivity analysis is measured as of a specified date and,
therefore, is subject to almost immediate change as the maturities of assets
are reinvested and liabilities, such as deposits and short-term borrowings, are
received or mature. The mismatch of assets and liabilities in a specific time
frame is referred to as a sensitivity gap. An asset sensitive gap will benefit
Dauphin during periods of rising interest rates, while a liability sensitive
gap will benefit Dauphin during declining rates. The gap reflects Dauphin's
sensitivity to rate changes over a period of time. Dauphin continuously
monitors and adjusts the gap position, taking into consideration current
interest rate projections, and maintaining flexibility if rates move contrary
to expectations.
26
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ACQUISITION AND DIVESTITURE
On January 1, 1994, Dauphin acquired all the outstanding stock of Valley
Bancorp., Inc. (Valley) in exchange for 2,600,643 shares of Dauphin's common
stock, along with cash of $16,000 in lieu of fractional shares, consummating
the merger announced in June 1993. Valley's principal subsidiary was Valley
Bank and Trust Company. Valley has total assets of $324 million at December 31,
1993. The acquisition was accounted for as a pooling-of-interests.
In addition, on August 23, 1993 Dauphin entered into an agreement to sell
100% of the stock of Farmers Savings Bank, a Federal Savings Bank (FSB), for
$.8 million. The sale was consummated on February 1, 1994. FSB had total assets
of $12.7 million at December 31, 1993. The sale of FSB will not have a material
impact on the financial condition or results of operations for Dauphin in 1994.
EFFECTS OF INFLATION
The impact of inflation upon banks differs from the impact upon non-financial
institutions. Banks, as financial intermediaries, have assets which are
primarily monetary in nature and change corresponding to movements in the
inflation rate. The precise impact of inflation upon Dauphin is difficult to
measure. Inflation may cause non-interest expense items to increase at a more
rapid rate than earning sources. Inflation may also affect the borrowing needs
of consumers, thereby affecting the growth rate of Dauphin's assets. Inflation
may also affect the general level of interest rates, which can have an effect
on the profitability of Dauphin.
27
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and documents are set
forth in this Annual Report on Form 10-K on the following pages:
<TABLE>
<S> <C>
Dauphin Deposit Corporation and Subsidiaries
Consolidated Balance Sheets............................................... 29
Consolidated Statements of Income......................................... 30
Consolidated Statements of Stockholders' Equity........................... 31
Consolidated Statements of Cash Flows..................................... 32
Notes to Consolidated Financial Statements................................ 33
Independent Auditors' Report................................................ 54
</TABLE>
28
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 143,923 $ 204,857
---------- ----------
Short-term investments
Interest bearing deposits............................ 5,544 4,450
Federal funds sold (including term federal funds sold
of $0 and $20,000, respectively) and securities
purchased under agreements to resell................ 2,950 87,500
---------- ----------
Total short-term investments....................... 8,494 91,950
---------- ----------
Investment securities
(Approximate market value $2,023,140 and $2,018,763,
respectively)....................................... 1,959,897 1,961,328
Assets held for sale................................... 9,203 8,503
Loans (net of unearned income)......................... 2,366,830 2,195,335
Allowance for loan losses.............................. (36,109) (33,624)
---------- ----------
Total net loans.................................... 2,330,721 2,161,711
---------- ----------
Bank premises and equipment............................ 59,693 63,733
Other assets........................................... 84,479 80,504
---------- ----------
Total assets....................................... $4,596,410 $4,572,586
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing................................. $ 394,016 $ 420,202
Interest bearing..................................... 2,906,809 2,980,908
---------- ----------
Total deposits..................................... 3,300,825 3,401,110
---------- ----------
Short-term borrowings
Federal funds purchased and securities sold under
agreements to repurchase............................ 628,100 560,433
U.S. Treasury tax and loan notes..................... 52,278 41,652
---------- ----------
Total short-term borrowings........................ 680,378 602,085
---------- ----------
Long-term debt......................................... 92,454 92,863
Accrued expenses and taxes............................. 50,149 45,997
---------- ----------
Total liabilities.................................. 4,123,806 4,142,055
---------- ----------
Stockholders' equity
Preferred stock, $25 par value; 10,000,000 shares au-
thorized but unissued
Common stock, $5 par value; 200,000,000 shares autho-
rized, 30,040,971 and 30,023,226 shares issued, re-
spectively, of which 134,200 and 267,310 shares are
held as treasury stock, respectively................ 150,205 150,116
Surplus.............................................. 18,511 17,918
Retained earnings.................................... 306,008 266,318
---------- ----------
474,724 434,352
Less: Treasury stock--at cost........................ (2,120) (3,821)
---------- ----------
Total stockholders' equity......................... 472,604 430,531
---------- ----------
Total liabilities and stockholders' equity......... $4,596,410 $4,572,586
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1993 1992 1991
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest income
Interest and fees on
loans.................... $174,109 $186,186 $213,975
Interest and dividends on
investment securities
Taxable................. 102,460 110,952 107,756
Exempt from federal in-
come................... 22,675 22,657 23,360
Interest on deposits...... 216 158 417
Interest on assets held
for sale................. 1,829 908 520
Interest on federal funds
sold and other short-term
investments.............. 199 578 4,366
-------- -------- --------
Total interest income... 301,488 321,439 350,394
-------- -------- --------
Interest expense
Interest on deposits
Savings deposits........ 38,461 47,239 57,485
Time deposits........... 61,051 80,688 103,378
Time deposits in denomi-
nations of $100,000 or
more................... 13,814 17,155 23,726
-------- -------- --------
113,326 145,082 184,589
Interest on short-term
borrowings............... 19,388 17,000 20,967
Interest on long-term
borrowings............... 6,738 5,930 4,220
-------- -------- --------
Total interest expense.. 139,452 168,012 209,776
-------- -------- --------
Net interest income..... 162,036 153,427 140,618
Provision for loan losses... 9,365 10,944 10,463
-------- -------- --------
Net interest income af-
ter provision for loan
losses................. 152,671 142,483 130,155
-------- -------- --------
Non-interest income
Fiduciary activities...... 14,318 14,158 13,629
Service charges on deposit
accounts................. 11,979 10,928 10,111
Other service charges and
fees..................... 9,761 8,808 9,431
Broker/dealer commissions
and fees................. 10,634 11,247 3,516
Securities gains, net..... 3,215 3,960 2,815
Other..................... 8,344 4,885 4,513
-------- -------- --------
Total non-interest in-
come................... 58,251 53,986 44,015
-------- -------- --------
Non-interest expense
Salaries and employee ben-
efits.................... 63,147 62,603 53,171
Net occupancy expense..... 8,028 7,601 7,366
Furniture and equipment
expense.................. 8,578 7,818 7,622
Deposit insurance......... 7,455 7,516 6,753
Other..................... 38,764 36,554 32,791
-------- -------- --------
Total non-interest ex-
pense.................. 125,972 122,092 107,703
-------- -------- --------
Income before income taxes.. 84,950 74,377 66,467
Provision for income taxes.. 20,458 17,154 13,330
-------- -------- --------
Net income.................. $ 64,492 $ 57,223 $ 53,137
======== ======== ========
Net income per share........ $ 2.15 $ 1.93 $ 1.84
Cash dividends declared per
share...................... $ .83 $ .77 $ .74 1/2
Weighted average number of
shares outstanding......... 30,035,507 29,639,940 28,830,038
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
COMMON STOCK TREASURY STOCK TOTAL
------------------- RETAINED ------------------ STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS SHARES AMOUNT EQUITY
---------- -------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1990................... 14,843,866 $ 74,219 $ 87,599 $200,088 (582,127) $(17,563) $344,343
Net income.............. 53,137 53,137
Cash dividends declared
By Dauphin............. (18,523) (18,523)
By pooled bank prior to
acquisition........... (1,999) (1,999)
Sale of treasury stock
to Employee Stock Pur-
chase Plan............. (139) 27,563 872 733
Sale of treasury stock
under the Stock Option
Plan of 1986........... (5) 1,664 52 47
Transactions by pooled
bank prior to
acquisition
Stock dividend......... 93,371 467 2,157 (2,624)
Stock sales............ 25,994 130 451 4,500 114 695
Reversal of unrealized
loss on marketable eq-
uity securities........ 2,117 2,117
---------- -------- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31,
1991................... 14,963,231 74,816 90,063 232,196 (548,400) (16,525) 380,550
Net income.............. 57,223 57,223
Cash dividends declared
By Dauphin............. (22,091) (22,091)
By pooled bank prior to
acquisition........... (1,047) (1,047)
Sale of treasury stock.. 1,587 350,000 11,007 12,594
Sale of treasury stock
to Employee Stock Pur-
chase Plan............. 11 31,949 926 937
Sale of treasury stock
under the Stock Option
Plan of 1986........... (37) 19,825 504 467
Sale of common stock by
pooled bank prior to
acquisition............ 1,055 5 18 23
Debentures converted
into common stock...... 33,878 169 919 1,088
Issuance of shares as a
two-for-one stock
split, including trea-
sury stock shares...... 14,998,164 74,991 (74,991) (146,626)
Sale of treasury stock
under the Stock Option
Plan of 1986........... (44) 25,942 267 223
Debentures converted
into common stock...... 26,898 135 297 432
Tax benefit of stock op-
tion transactions...... 95 95
Reversal of unrealized
loss on marketable eq-
uity securities........ 37 37
---------- -------- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31,
1992................... 30,023,226 150,116 17,918 266,318 (267,310) (3,821) 430,531
Net income.............. 64,492 64,492
Cash dividends declared. (24,802) (24,802)
Sale of treasury stock
to Employee Stock Pur-
chase Plan............. 314 76,579 1,122 1,436
Sale of treasury stock
under the Stock Option
Plan of 1986........... (4) 53,418 536 532
Debentures converted
into common stock...... 17,745 89 203 3,113 43 335
Tax benefit of stock op-
tion transactions...... 80 80
---------- -------- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31,
1993................... 30,040,971 $150,205 $ 18,511 $306,008 (134,200) $ (2,120) $472,604
========== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income.................................. $ 64,492 $ 57,223 $ 53,137
Adjustments:
Provision for loan losses................. 9,365 10,944 10,463
Provision for depreciation, amortization
and accretion............................ 9,834 7,592 3,247
Deferred income taxes..................... (680) (1,899) (753)
Securities gains, net..................... (3,215) (3,960) (2,815)
Decrease in interest receivable........... 3,277 4,315 7,490
Increase (decrease) in accrued expenses
and taxes................................ 4,152 (14,687) 3,477
Capitalized interest on deposits.......... 43,681 45,552 62,070
Other, net................................ (22,173) (15,370) (9,467)
--------- --------- ---------
Net cash provided by operating activi-
ties................................... 108,733 89,710 126,849
--------- --------- ---------
Investing activities
Proceeds from investment securities (includ-
ing proceeds from sales of $48,978, $88,073
and $168,041, respectively)................ 754,052 728,087 532,180
Purchases of investment securities.......... (733,863) (953,946) (665,041)
Net increase in assets held for sale........ (700) (2,636) (1,211)
Net (increase) decrease in loans............ (163,972) 10,616 (90,743)
Net purchases of bank premises and equip-
ment....................................... (2,083) (4,859) (6,117)
Purchase of Hopper Soliday & Co., Inc....... (3,679)
--------- --------- ---------
Net cash used by investing activities... (146,566) (222,738) (234,611)
--------- --------- ---------
Financing activities
Net increase in demand deposits and savings
accounts................................... 20,952 216,929 158,993
Net decrease in time deposits............... (164,918) (192,602) (99,535)
Net increase in short-term borrowings....... 78,293 158,041 35,637
Net increase (decrease) in long-term debt... (74) 50,200 (4,836)
Issuance of common stock and treasury stock. 1,968 14,244 1,475
Cash dividends.............................. (23,872) (21,918) (20,501)
--------- --------- ---------
Net cash provided (used) by financing
activities............................. (87,651) 224,894 71,233
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ (125,484) 91,866 (36,529)
Cash and cash equivalents at beginning of pe-
riod......................................... 269,857 177,991 214,520
--------- --------- ---------
Cash and cash equivalents at end of period.... $ 144,373 $ 269,857 $ 177,991
========= ========= =========
</TABLE>
Total interest paid amounted to $97,691, $129,598 and $164,214, respectively.
Total income taxes paid amounted to $22,458, $19,693 and $12,256, respectively.
Total loan sales amounted to $104,541, $89,318 and $67,114, respectively.
See accompanying notes to consolidated financial statements.
32
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting policies of
Dauphin Deposit Corporation and subsidiaries.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. The material estimate that is particularly
susceptible to significant change in the near-term relates to the determination
of the allowance for loan losses.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Dauphin Deposit
Corporation and subsidiaries (Dauphin), including its principal subsidiaries,
Dauphin Deposit Bank and Trust Company, which includes the Bank of Pennsylvania
Division, and Farmers Bank and Trust Company of Hanover (the Banks).
All material intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES
Investment debt securities are carried at cost adjusted for amortization of
premium and accretion of discount. Debt securities are carried at cost since
Dauphin currently has the ability and intent to hold to maturity. Marketable
equity securities are carried at the lower of cost or market value. Unrealized
losses on equity securities are reported as a reduction of investment
securities and net of taxes as a reduction of stockholders' equity. Realized
gains or losses on the sale of investment securities (determined by the
specific identification method) are shown separately in the statements of
income.
Dauphin will adopt Statement of Financial Accounting Standards No. 115 (SFAS
115), "Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994. SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. These investments are to be classified
in one of three categories and accounted for as follows: 1) debt securities
that a company has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost; 2)
debt and equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in earnings;
and 3) debt and equity securities not classified as either held-to-maturity or
trading securities are classified as available-for-sale securities and reported
at fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity.
Management has determined that the entire investment securities portfolio
will be classified as available-for-sale. This change will result in an
increase in investment securities of $63,243,000 and an increase in
stockholders' equity of $41,108,000, representing the after tax impact.
LOANS
Loans are carried at the principal amount outstanding, net of unearned
income. Interest income is accounted for on an accrual basis. Interest income
is not accrued when, in the opinion of management, its collectibility is
doubtful. When a loan is designated as non-accrual, any accrued interest
receivable is generally
33
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
charged against current earnings. Lease income is recorded using the finance
method which provides for a level rate of return on the investment outstanding.
Mortgages held for sale are carried at the lower of aggregate cost or market
value with resulting gains and losses included in other income. Excess
servicing fees are computed as the present value of the difference between the
estimated future net servicing revenues and normal servicing revenues as
established by the federally sponsored secondary market makers. Upon the sale
of mortgage loans, excess servicing fees are deferred and amortized over the
estimated life of the related mortgages.
Loan fees and costs of loan origination are deferred and recognized over the
life of the loan as a component of interest income.
ASSETS HELD FOR SALE
Assets held for sale are comprised of mortgages held for sale and the
securities inventory of Hopper Soliday & Co., Inc., Dauphin's broker/dealer
subsidiary.
Mortgage loans held for sale are recorded at the lesser of current secondary
market value or the actual book value of loans. The securities inventory is
recorded at current quoted market value.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation reserve to absorb losses on
loans which may become uncollectible. The provision for loan losses is
management's estimate of the amount required to establish a reserve adequate to
reflect risks in the loan portfolio of the Banks. Loan losses are charged
directly against the allowance for loan losses, and recoveries on previously
charged off loans are added to the allowance.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Banks' allowance for loan
losses. Such agencies may require the Banks to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.
In May 1993, Statement of Financial Accounting Standards No. 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan" was issued. SFAS 114
addresses the accounting by creditors for impairment of certain loans. SFAS 114
requires that impaired loans that are within the scope of the Statement be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, at the loan's market price or the fair
value of the collateral if the loan is collateral dependent. Management
presently does not know and cannot reasonably estimate the impact of SFAS 114
on its financial statements. SFAS 114 is effective for fiscal years beginning
after December 15, 1994 and earlier adoption is permitted. Dauphin expects to
adopt SFAS 114 in January 1995.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, including capitalized
interest during construction, less accumulated depreciation and amortization.
Bank premises and equipment under capitalized leases are recorded at the lower
of the present value of minimum lease payments or the fair value of the leased
assets determined at the inception of the lease term. Depreciation charged to
operating expense, including amounts
34
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
applicable to capitalized leases, is computed on the straight-line method for
financial reporting and the straight-line and accelerated methods for income
tax purposes. Leasehold improvements are capitalized and amortized over the
lives of the respective leases or the estimated useful life of the leasehold
improvement, whichever is shorter. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income for the period.
Maintenance, repairs and minor improvements are charged to expense as incurred;
significant renewals and betterments are capitalized.
TRUST ASSETS
Assets held by the Banks in a fiduciary or agency capacity are not included
in the consolidated financial statements since such assets are not assets of
the Banks. Income from fiduciary activities is recorded on an accrual basis.
BENEFIT PLANS
Pension plan costs for Dauphin's defined benefit plans are accounted for in
accordance with the requirements of Statement of Financial Accounting Standards
No. 87 "Employers' Accounting for Pensions". The projected unit credit method
is utilized for measuring net periodic pension cost over the employees'
service lives.
Dauphin adopted Statement of Financial Acccounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", as of
January 1, 1992, which established a new accounting principle for the cost of
retiree health care and other postretirement benefits. Prior to 1992, Dauphin
recognized these benefits on a cash basis.
Dauphin adopted Statement of Financial Acccounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" effective January 1, 1993.
This standard established accounting requirements for employers who provide
benefits to former or inactive employees after employment but before
retirement. Prior to 1993, these costs were recognized on a cash basis.
INCOME TAXES
In 1992, Dauphin adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes". SFAS 109 requires the asset and
liability method in computing income tax expense for financial reporting
purposes. Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered 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.
NET INCOME PER SHARE
Net income per share is computed based upon the weighted average number of
common shares outstanding and dilutive common equivalent shares from stock
options using the treasury stock method. The difference between primary and
fully diluted earnings per share is not significant in any year.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, Dauphin considers cash and due
from banks and overnight federal funds sold to be cash and cash equivalents.
35
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
2--ACQUISITION AND DIVESTITURE
On January 1, 1994, Dauphin acquired all the outstanding stock of Valley
Bancorp., Inc. (Valley) in exchange for 2,600,643 shares of Dauphin's common
stock, along with cash of $16,000 in lieu of fractional shares, consummating
the merger announced in June 1993. At December 31, 1993 Valley had total
assets, deposits and equity of $324,164,000, $285,310,000 and $33,948,000,
respectively. Valley's principal subsidiary was Valley Bank and Trust Company.
The acquisition was accounted for as a pooling-of-interests.
The effect of the merger on Dauphin's reported net interest income, net
income and net income per share for the periods presented is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DAUPHIN,
AS
REPORTED VALLEY RESTATED
----------------------- -------------
<S> <C> <C> <C>
1993
Net interest income.................... $ 162,036 $ 14,237 $ 176,273
Net income............................. 64,492 3,425 67,917
Net income per share................... 2.15 2.77 2.08
1992
Net interest income.................... $ 153,427 $ 13,332 $ 166,759
Net income............................. 57,223 3,808 61,031
Net income per share................... 1.93 3.08 1.89
1991
Net interest income.................... $ 140,618 $ 11,214 $ 151,832
Net income............................. 53,137 3,042 56,179
Net income per share................... 1.84 2.46 1.79
</TABLE>
On August 23, 1993 Dauphin entered into an agreement to sell 100% of the
stock of Farmers Savings Bank, a Federal Savings Bank (FSB) for $797,000. The
sale is subject to regulatory approval and is expected to be consummated during
the first quarter of 1994. FSB had total assets of $12,678,000 at December 31,
1993. The sale of FSB will not have a material impact on the financial
condition or results of operations for Dauphin in 1994.
3--RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS AND INVESTMENT SECURITIES
The Banks are required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of those required reserve balances at December
31, 1993 and 1992 was approximately $38,336,000 and $31,678,000, respectively.
Dauphin Deposit Bank and Trust Company is required to maintain an investment
in Federal Home Loan Bank of Pittsburgh stock of $10,651,000 which is included
in equity securities.
36
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
4--INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1993
-------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and other
U.S. government agencies
and corporations.................. $ 696,194 $17,543 $ (341) $ 713,396
Obligations of states and political
subdivisions...................... 388,568 28,752 (928) 416,392
Debt securities issued by foreign
governments....................... 1,899 25 (4) 1,920
Corporate securities............... 76,020 2,491 78,511
Mortgage-backed securities......... 784,201 14,741 (377) 798,565
---------- ------- ------- ----------
Total debt securities............ 1,946,882 63,552 (1,650) 2,008,784
Equity securities.................. 13,015 1,344 (3) 14,356
---------- ------- ------- ----------
Total investment securities...... $1,959,897 $64,896 $(1,653) $2,023,140
========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and other
U.S. government agencies
and corporations.................. $ 744,825 $22,328 $ (435) $ 766,718
Obligations of states and political
subdivisions...................... 349,748 19,944 (2) 369,690
Debt securities issued by foreign
governments....................... 5,896 101 (32) 5,965
Corporate securities............... 125,115 2,521 (566) 127,070
Mortgage-backed securities......... 719,986 12,880 (962) 731,904
---------- ------- ------- ----------
Total debt securities............ 1,945,570 57,774 (1,997) 2,001,347
Equity securities.................. 15,758 1,778 (120) 17,416
---------- ------- ------- ----------
Total investment securities...... $1,961,328 $59,552 $(2,117) $2,018,763
========== ======= ======= ==========
</TABLE>
The amortized cost and estimated market value of debt securities at December
31, 1993, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1993
---------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................. $ 88,332 $ 89,613
Due after one year through five years............... 395,907 404,701
Due after five years through ten years.............. 355,989 375,236
Due after ten years................................. 322,453 340,669
---------- ----------
1,162,681 1,210,219
Mortgage-backed securities.......................... 784,201 798,565
---------- ----------
Total debt securities............................. $1,946,882 $2,008,784
========== ==========
</TABLE>
37
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Gains and losses from sales of investment securities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Debt securities:
Gross gains..................................... $ 1,529 $ 2,911 $ 3,730
Gross losses.................................... (6) (133)
------- ------- --------
Total debt securities......................... 1,523 2,911 3,597
Equity securities, net............................ 1,692 1,049 (782)
------- ------- --------
Total securities gains........................ $ 3,215 $ 3,960 $ 2,815
======= ======= ========
Proceeds from sales of investment securities are as follows:
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Debt securities................................... $43,742 $84,819 $163,266
Equity securities................................. 5,236 3,254 4,775
------- ------- --------
Total proceeds.................................. $48,978 $88,073 $168,041
======= ======= ========
</TABLE>
Securities with a carrying value of $827,404,000 at December 31, 1993 and
$790,706,000 at December 31, 1992 are pledged to secure public deposits and for
other purposes as provided by law.
5--LOANS
The loan portfolio, net of unearned income, at December 31, 1993 and 1992 is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural:
Commercial secured by real estate.................. $ 397,197 $ 399,048
Agricultural....................................... 26,737 27,180
Other.............................................. 622,381 600,790
Real estate, construction............................ 181,893 132,224
Real estate, residential............................. 703,102 691,769
Consumer............................................. 408,900 333,230
Lease financing...................................... 30,488 15,409
Unamortized net loan fees............................ (3,868) (4,315)
---------- ----------
Total loans...................................... $2,366,830 $2,195,335
========== ==========
</TABLE>
The Banks have granted loans to officers, directors and their associates.
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans, which excludes
aggregate loans totaling less than $60,000 to any one related party, is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance--January 1, 1993.................................... $55,145
New loans................................................... 74,050
Repayments.................................................. 50,505
-------
Balance--December 31, 1993.................................. $78,690
=======
</TABLE>
38
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Included within the loan portfolio are loans on which the Banks have ceased
the accrual of interest and restructured loans. Such loans amounted to
$23,129,000 and $24,154,000 at December 31, 1993 and 1992, respectively. If
interest income had been recorded on all such loans outstanding during the
years 1993, 1992 and 1991, interest income would have been increased as shown
in the following table:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Interest income which would have been recorded under
original terms..................................... $1,345 $2,068 $1,623
Interest income recorded during the period.......... 564 1,178 1,077
------ ------ ------
Net impact on interest income....................... $ 781 $ 890 $ 546
====== ====== ======
</TABLE>
6--ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year........................ $33,624 $29,920 $27,297
Provision charged to operations................. 9,365 10,944 10,463
Recoveries on loans charged off................. 3,301 2,869 2,594
------- ------- -------
46,290 43,733 40,354
Loans charged off............................... 10,181 10,109 10,434
------- ------- -------
Balance, end of year.............................. $36,109 $33,624 $29,920
======= ======= =======
</TABLE>
7--BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31, 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
ESTIMATED
USEFUL LIFE 1993 1992
------------- -------- --------
<S> <C> <C> <C>
Land.................................... $ 9,807 $ 10,256
Bank premises........................... 5 to 40 years 65,320 67,232
Leasehold improvements.................. 2 to 35 years 2,618 2,484
Equipment............................... 3 to 10 years 38,113 35,694
-------- --------
115,858 115,666
Accumulated depreciation and amortiza-
tion................................... (56,165) (51,933)
-------- --------
Total............................... $ 59,693 $ 63,733
======== ========
</TABLE>
Depreciation and amortization amounted to $5,957,000 for 1993, $5,673,000 for
1992 and $5,435,000 for 1991.
8--TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit of $100,000 or more at December 31, 1993 and
1992 amounted to $287,673,000 and $304,528,000, respectively.
39
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
9--SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
other short-term borrowings generally mature within one to ninety days from the
transaction date.
A summary of aggregate short-term borrowings is as follows for the years
ended December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Amount outstanding at year-end................. $680,378 $602,085 $444,044
Average interest rate at year-end.............. 3.03% 2.99% 4.08%
Maximum amount outstanding at any month-end.... $763,579 $602,085 $471,218
Average amount outstanding..................... $644,375 $481,343 $373,091
Weighted average interest rate................. 3.01% 3.53% 5.62%
</TABLE>
The Banks have approved federal funds lines of credit that amounted to
approximately $1,600,000,000 at December 31, 1993.
10--LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
------- -------
<S> <C> <C>
Dauphin Deposit Corporation
8.70% Senior Notes due 1996............................ $35,000 $35,000
9% Convertible Subordinated Debentures due June 1999,
convertible into common stock at $16.06 per share..... 5,645 5,980
Dauphin Deposit Bank and Trust Company
Advances from The Federal Home Loan Bank of Pittsburgh. 51,000 51,000
Other Subsidiaries
Variable rate mortgage (4 1/2% at December 31, 1993)
(collateralized by bank premises)..................... 306 343
------- -------
91,951 92,323
Obligations under capitalized lease..................... 503 540
------- -------
Total.................................................. $92,454 $92,863
======= =======
</TABLE>
In November 1986, Dauphin issued $35,000,000, 8.70% Senior Notes due 1996 at
par. These Senior Notes are not subordinated in right of payment to any other
unsecured indebtedness of Dauphin.
Advances from The Federal Home Loan Bank of Pittsburgh consists of two
advances with interest rates ranging from 5.89% to 6.17% and mature in 1995.
These advances are subject to restrictions and penalties if repaid prior to
maturity and are collateralized by qualifying investments.
Aggregate long-term debt maturities, for each of the next five years are as
follows:
1994--$78,000; 1995--$51,087,000; 1996--$35,097,000; 1997--$108,000; 1998--
$86,000
At December 31, 1993, Dauphin and its subsidiaries had unused lines of credit
totaling approximately $3,000,000 with a non-affiliated bank.
40
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
11--RESTRICTION ON PAYMENT OF DIVIDENDS
Certain restrictions exist regarding the ability of the subsidiaries to
transfer funds to Dauphin in the form of cash dividends. Additionally,
regulatory agencies restrict the availability of surplus for the payment of
dividends. As of December 31, 1993, $307,691,000 of undistributed earnings of
the Banks were available for distribution to Dauphin as dividends without
restriction.
12--INCOME TAXES
The provision for income taxes, consisting primarily of Federal income taxes,
for the years 1993, 1992 and 1991, consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Current taxes.................................... $21,138 $19,053 $14,083
Deferred taxes (credits)......................... (680) (1,899) (753)
------- ------- -------
Total.......................................... $20,458 $17,154 $13,330
======= ======= =======
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
income and expense for tax and financial reporting purposes. The sources of
those temporary differences and the related tax effect are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Provision for loan losses........................ $(1,206) $(1,408) $ (563)
Depreciation..................................... (197) (55) (141)
Investment securities discount accretion......... 52 (133) (648)
Deferred loan fees and costs..................... 150 (148) 67
Lease financing transactions..................... 576 5 (17)
Employee benefit programs........................ (485) (408) 73
Mortgage servicing rights........................ (134) (358) 4
Other, net....................................... 564 606 472
------- ------- -------
Total.......................................... $ (680) $(1,899) $ (753)
======= ======= =======
</TABLE>
A reconciliation between the effective income tax rate and the statutory rate
follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Statutory Federal income tax rate................ 35.0% 34.0% 34.0%
Tax exempt income................................ (11.0) (12.5) (14.7)
Other, net....................................... .1 1.6 .8
------- ------- -------
Effective income tax rate........................ 24.1% 23.1% 20.1%
======= ======= =======
</TABLE>
41
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses....................... $12,638 $11,253 $ 9,823
Deferred loan fees and costs.................... 1,409 1,568 1,416
Purchase accounting adjustments to loans........ 975 1,421 1,891
Employee benefit programs....................... 1,145 466
Other........................................... 1,691 903 1,002
------- ------- -------
Total gross deferred tax assets............... 17,858 15,611 14,132
------- ------- -------
Deferred tax liabilities:
Bank premises and equipment..................... (2,749) (2,775) (2,900)
Investment securities discount.................. (283) (155) (269)
Lease financing transactions.................... (3,074) (2,898) (2,554)
Prepaid pension................................. (904) (935) (762)
Mortgage servicing rights....................... (428) (563) (912)
Other........................................... (1,361) (486) (377)
------- ------- -------
Total gross deferred tax liabilities.......... (8,799) (7,812) (7,774)
------- ------- -------
Net deferred tax asset........................ $ 9,059 $ 7,799 $ 6,358
======= ======= =======
</TABLE>
Management is of the opinion that the deferred tax asset is realizable since
Dauphin has had a long history of strong earnings and has carryback potential
greater than the deferred tax asset. Management is not aware of any evidence
that would preclude Dauphin from ultimately realizing this asset.
42
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
13--BENEFIT PLANS
The Banks have noncontributory defined benefit pension plans covering
substantially all employees. The Plans' benefit formulas generally base
payments to retired employees upon their length of service and a percentage of
qualifying compensation during the final years of employment. Dauphin's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future. Pension expense (credit) associated with these plans amounted to
$(269,000), $(262,000) and $(178,000) for 1993, 1992 and 1991, respectively.
The following table sets forth the pension plans' funded status and amounts
recognized in Dauphin's consolidated financial statements at December 31, 1993
and 1992:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested.................................................. $32,182 $25,774
Non-vested.............................................. 1,486 1,063
------- -------
Accumulated benefit obligation........................ 33,668 26,837
Effects of future compensation levels..................... 7,709 6,001
------- -------
Projected benefit obligation.............................. 41,377 32,838
Plan assets at fair value................................. 49,829 46,732
------- -------
Excess of plan assets over the projected benefit obliga-
tion..................................................... 8,452 13,894
Unrecognized net asset being amortized over 15 years...... (4,928) (5,631)
Unrecognized prior service cost........................... 384 472
Unrecognized (gain) loss.................................. 39 (5,204)
------- -------
Prepaid pension cost included in the consolidated finan-
cial statements.......................................... $ 3,947 $ 3,531
======= =======
</TABLE>
The assumptions used in determining the actuarial present value of the
projected benefit obligation and the expected rate of return on plan assets are
as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Expected return on plan assets................................... 8.00% 7.50%
Discount rate.................................................... 7.00 7.50
Rate of increase in future compensation levels................... 4.50 5.00
</TABLE>
Net pension expense (credit) for 1993, 1992 and 1991 was comprised of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Service cost...................................... $ 1,515 $ 1,562 $ 1,465
Interest cost on projected benefit obligation..... 2,507 2,517 2,372
Return on plan assets............................. (3,676) (3,726) (3,400)
Net amortization and deferral..................... (615) (615) (615)
------- ------- -------
Net pension credit.............................. $ (269) $ (262) $ (178)
======= ======= =======
</TABLE>
Plan assets are primarily invested in listed stocks (including 86,000 shares
of Dauphin at December 31, 1993 and 1992) and U.S. Treasury and federal agency
securities.
43
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Effective January 1, 1992, Dauphin adopted Statement of Financial Accounting
Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement
Benefits Other than Pensions". This pronouncement focuses principally on
postretirement health care and life insurance benefits and significantly
changed Dauphin's prior practice of accounting for these benefits on a pay-as-
you-go basis to an accrual basis during the years that the employee renders the
necessary service to eventually receive these benefits.
Dauphin's postretirement benefits other than pensions are currently not
funded. The status of the plan at December 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
------- -------
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees.............................................. $10,175 $7,984
Fully eligible active plan participants............... 948 803
Other active plan participants........................ 4,698 4,280
------- -------
15,821 13,067
Unrecognized transition liability being amortized over
20 years............................................... (10,173) (11,046)
Unrecognized net loss................................... (2,878) (651)
------- -------
Accrued postretirement obligation....................... $ 2,770 $ 1,370
======= =======
</TABLE>
The assumptions used in determining the actuarial present value of the
accumulated postretirement benefit obligation are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate.................................................... 7.00% 7.50%
Rate of increase in future compensation levels................... 4.50 5.00
</TABLE>
The cost for postretirement benefits other than pensions for 1993 and 1992
consisted of the following components:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
1993 1992
------ ------
<S> <C> <C>
Service cost.................................................. $ 359 $ 314
Interest cost on accumulated postretirement benefit obliga-
tion......................................................... 1,064 937
Amortization of transition obligation......................... 565 581
Net amortization and deferral................................. 45
------ ------
Net postretirement benefit cost............................. $2,033 $1,832
====== ======
</TABLE>
Prior to January 1, 1992, Dauphin recognized the cost of retiree health care
and life insurance benefits as an expense as premiums were incurred. These
costs approximated $444,000 for 1991.
The assumed postretirement health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 16 1/2% in 1992, the year of
adoption, decreasing by 1% per year to an ultimate rate of 6% in 2012 and
thereafter over the projected payout period of benefits.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, one-percentage-point increase in the assumed
health care cost trend would increase the accumulated postretirement benefit
obligation by $2,000,000 and $1,500,000 at December 31, 1993 and 1992,
respectively and
44
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
increase the aggregate of the service and interest cost components by $200,000
and $150,000 for the years ended December 31, 1993 and 1992, respectively.
Dauphin offers a savings plan for all eligible employees. Under the plan,
Dauphin contributes 25% of the participants' contribution which cannot exceed
10% of their salaries. Participants' contributions are at all times fully
vested, and Dauphin's contributions become fully vested with two years of
service. Contributions to the plan amounted to $468,000, $405,000 and $312,000
during 1993, 1992 and 1991, respectively.
Farmers Bank and Trust Company of Hanover (FB&T) maintained two defined
contribution plans. A savings plan permitted eligible employees to make Section
401(k) salary withholding contributions. This savings plan also permitted FB&T
to make contributions to the plan on behalf of eligible employees by way of
matching Employer Contributions and Regular Employer Contributions. An Employee
Stock Ownership Plan (ESOP), designed to invest primarily in common stock of
FB&T, was initially funded in 1988 by reversionary assets from FB&T's
terminated employee pension plan. FB&T stock held by the ESOP was periodically
released from the ESOP's suspense account as yearly allocations were made to
eligible employees. Both plans were discontinued during 1992. The expense for
these two plans amounted to $505,000 and $398,000 during 1992 and 1991,
respectively.
In 1993, Dauphin adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits". The adoption resulted in
an incremental cost of $500,000 to salaries and benefits expense. This accrual
was established to record the liability for benefits to former or inactive
employees after employment but before retirement.
14--EMPLOYEE STOCK PURCHASE PLAN, STOCK OPTION PLAN AND STOCKHOLDERS' EQUITY
Under the employee stock purchase plan, all eligible employees may purchase
shares of Dauphin's common stock through payroll deductions (limited to an
amount aggregating 10% of annual base pay). The purchase price, established 30
days prior to the offering date, is not less than 85% or more than 100% of the
average market price on the offering date or exercise date, whichever is lower.
840,000 shares of common stock have been authorized to be offered under the
plan, of which 588,205 shares have been issued. Because of a difference between
the plan offering date, and Dauphin's year-end, no shares were under option at
December 31, 1993.
During 1987, the shareholders approved the adoption of the Stock Option Plan
of 1986 (the Plan). Under the Plan, Dauphin may grant either qualified or non-
qualified stock options to key employees for the purchase of up to 1,193,000
shares of common stock. The exercise price of options granted may not be less
than 85% of the fair market value of Dauphin's common stock at the date of
grant. Options become exercisable over periods of one to five years and expire
ten years from the date of grant.
45
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Stock option transactions during 1993, 1992 and 1991 are summarized below:
<TABLE>
<CAPTION>
PRICE
SHARES RANGE PER SHARE
-------- ---------------
<S> <C> <C>
Balance, December 31, 1990......................... 467,856 $ 6.45--$16.45
Granted.......................................... 155,118 $11.10--$16.57
Exercised........................................ (24,603) $ 6.45--$14.29
Terminated....................................... (27,570) $ 6.45--$16.45
--------
Balance, December 31, 1991......................... 570,801 $ 9.48--$16.57
Granted.......................................... 161,810 $14.04--$23.72
Exercised........................................ (102,110) $ 6.45--$16.57
--------
Balance, December 31, 1992......................... 630,501 $ 9.48--$23.72
Granted.......................................... 152,500 $24.88
Exercised........................................ (77,605) $ 9.48--$16.57
Terminated....................................... (3,000) $24.88
--------
Balance, December 31, 1993......................... 702,396 $ 9.48--$24.88
========
Exercisable, December 31, 1993..................... 328,713
========
</TABLE>
In connection with the adoption of a shareholder rights plan on January 22,
1990, Dauphin declared a dividend distribution of one Common Stock Purchase
Right (a "Right") for each outstanding share of common stock of Dauphin. The
Rights are exercisable only if a person or group of affiliated persons acquires
or announces an intention to acquire 18% of the common stock of Dauphin and
Dauphin's Board of Directors does not redeem the Rights during the specified
redemption period. Initially, each Right, upon becoming exercisable, would
entitle the holder to purchase from Dauphin one share of common stock at the
specified exercise price which is subject to adjustment (currently $50 per
share). Once the Rights become exercisable, if any person or group acquires 18%
of the common stock of Dauphin, the holder of a Right, other than the acquiring
person or group, will be entitled, among other things, to purchase shares of
common stock having a value equal to two times the exercise price of the Right.
The Board of Directors is entitled to redeem the Rights for $.001 per Right at
any time before expiration of the redemption period. The Board of Directors
may, at any time after the Rights become exercisable and prior to the time any
person becomes a 50% beneficial owner of Dauphin's shares of common stock,
exchange each of the outstanding Rights (except Rights of the acquiring person
or group which are voided) for one share of common stock, subject to
adjustment. The Rights will expire on January 22, 2000, unless earlier redeemed
by Dauphin.
In January 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 1,000,000 shares of the outstanding common stock. Dauphin
expects to use available cash to fund the share repurchases which will be made
from time to time on the open market or in privately negotiated transactions.
Dauphin will use the shares for general corporate purposes, including the
Employee Stock Purchase Plan, Stock Option Plan and other appropriate uses.
15--FINANCIAL INSTRUMENTS OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT
RISK
Dauphin is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuation in interest rates. These financial
instruments include commitments to extend credit, financial guarantees and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheet.
46
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Dauphin's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. Dauphin uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
At December 31, 1993 and 1992, Dauphin had the following off-balance sheet
financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
---------- ----------
<S> <C> <C>
Commitments to extend credit........................... $1,129,601 $1,005,380
Financial and performance standby letters of credit.... 98,274 86,153
Commercial and similar letters of credit............... 502 406
Commitments to purchase securities..................... 37,270 53,466
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Dauphin evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by Dauphin upon extension of credit is based on management's
credit evaluation of the customer. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and income-
producing commercial properties.
Standby letters of credit are conditional commitments issued by Dauphin to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The term
of the letters of credit varies from one month to 24 months and may have
renewal features. The credit risk involved in using letters of credit is
essentially the same as that involved in extending loans to customers. Dauphin
holds collateral supporting those commitments for which collateral is deemed
necessary.
Most of Dauphin's business activity is with customers located within
Dauphin's defined market area, principally Central Pennsylvania. Dauphin grants
commercial, residential and consumer loans throughout the state. The loan
portfolio is well diversified and Dauphin does not have any significant
concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" (SFAS 107) requires disclosure of the fair
value of financial instruments. The majority of Dauphin's assets and
liabilities are considered financial instruments. Significant assumptions and
estimates were used in calculation of fair market values.
The following methods and assumptions were used to estimate the fair value of
each class of Dauphin's financial instruments for which it is practicable to
estimate that value:
CASH AND SHORT-TERM INVESTMENTS
The fair value for cash and short-term instruments is estimated to be book
value, due to the short maturity of, and negligible credit concerns within,
those instruments.
47
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
INVESTMENT SECURITIES
The fair value for debt and marketable equity securities is based on quoted
market prices, if available. If quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
ASSETS HELD FOR SALE
The fair value for mortgage loans held for sale is estimated using the
current secondary market rates. For the securities held for sale, the
securities are recorded at the current quoted market value.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings. The residential mortgages and certain consumer loans
include prepayment assumptions.
OTHER FINANCIAL ASSETS
The fair value for accrued interest receivable is estimated to be the current
book value. The fair value for excess servicing fees is calculated based on the
present value of the difference between the estimated future net revenues and
normal servicing.
DEPOSITS
The fair value of deposits with no stated maturity, such as demand deposits,
savings accounts, NOW and money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed maturity certificates of deposit
is based on the discounted value of contractual cash flows, using the rates
currently offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS
The fair value of short-term borrowings is estimated using the current rates
for similar terms and maturities.
LONG-TERM DEBT
The fair value of long-term debt is estimated using debt with similar terms
and remaining maturities.
ACCRUED INTEREST PAYABLE
The fair value of accrued interest payable is estimated to be the current
book value.
COMMITMENTS
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms and
present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements.
LIMITATIONS
The fair values estimated are dependent upon subjective assumptions and
involve significant uncertainties resulting in estimates that vary with changes
in assumptions. Any sales of financial instruments may incur potential tax and
other expenses that would not be reflected in the fair values. Any changes in
assumptions or estimation methodologies may have a material effect on the
estimated fair values disclosed. The reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques.
48
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
At December 31, 1993 and 1992, Dauphin's estimated fair values of financial
instruments based on disclosed assumptions are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993 1992
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.......... $ 143,923 $ 143,923 $ 204,857 $ 204,857
Short-term investments........... 8,494 8,494 91,950 91,950
Investment securities............ 1,959,897 2,023,140 1,961,328 2,018,763
Assets held for sale............. 9,203 9,203 8,503 8,503
Loans
Commercial..................... 1,356,228 1,383,392 1,297,094 1,318,506
Residential mortgages.......... 424,540 438,551 409,967 423,442
Consumer....................... 570,285 582,116 470,447 474,138
Non-accrual.................... 15,777 17,827
Allowance for loan losses...... (36,109) (33,624)
---------- ---------- ---------- ----------
Net loans.................... 2,330,721 2,404,059 2,161,711 2,216,086
Other financial assets........... 33,180 33,180 37,252 37,252
Financial liabilities:
Deposits
Non-interest bearing demand.... 394,016 394,016 420,202 420,202
Interest bearing demand and
savings....................... 1,510,568 1,510,568 1,463,316 1,463,316
Time deposits.................. 1,396,241 1,466,224 1,517,592 1,560,689
---------- ---------- ---------- ----------
Total deposits............... 3,300,825 3,370,808 3,401,110 3,444,207
Short-term borrowings............ 680,378 680,378 602,085 602,085
Long-term debt................... 92,454 100,795 92,863 99,249
Accrued interest payable......... 20,107 20,107 22,027 22,027
Off-balance sheet financial in-
struments:
Commitments to extend credit..... 1,129,601 194 1,005,380 173
Financial and performance standby
letters of credit............... 98,274 983 86,153 862
Commercial and similar letter of
credit.......................... 502 5 406 4
Commitments to purchase securi-
ties............................ 37,270 37,270 53,466 53,466
</TABLE>
49
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
16--CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY
Dauphin Deposit Corporation (Parent Company Only) Condensed Balance Sheets
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
------------------
1993 1992
-------- --------
<S> <C> <C>
Assets:
Due from Banks (subsidiaries)............................. $ 80 $ 520
Investment securities..................................... 55,690 54,049
Investment in subsidiaries
Banking subsidiaries.................................... 432,682 395,189
Non-banking subsidiaries................................ 27,715 26,251
-------- --------
Total investment in subsidiaries...................... 460,397 421,440
Other assets.............................................. 1,134 1,240
-------- --------
Total assets.......................................... $517,301 $477,249
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Accrued expenses and taxes.............................. $ 4,052 $ 5,738
Long-term debt.......................................... 40,645 40,980
-------- --------
Total liabilities..................................... 44,697 46,718
-------- --------
Stockholders' Equity:
Common stock............................................ 150,205 150,116
Surplus................................................. 18,511 17,918
Retained Earnings....................................... 306,008 266,318
-------- --------
474,724 434,352
Less: Treasury stock--at cost........................... (2,120) (3,821)
-------- --------
Total stockholders' equity............................ 472,604 430,531
-------- --------
Total liabilities and stockholders' equity............ $517,301 $477,249
======== ========
</TABLE>
50
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of
Income
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Revenue
Dividend income:
Banking subsidiaries........................... $ 26,814 $ 25,201 $ 31,559
Non-banking subsidiaries....................... 93 97
Interest on investment securities................ 2,750 2,365 1,871
Interest on time deposits with Banks............. 89 338 585
Interest on advance to subsidiary................ 13
Gains (losses) on sales of investment securities. 2 433 (154)
-------- -------- --------
Total revenue................................ 29,655 28,443 33,958
-------- -------- --------
Expenses
Interest on short-term borrowings................ 2
Interest on long-term debt....................... 3,555 3,670 3,959
Other expenses................................... 1,186 3,344 1,244
-------- -------- --------
Total expenses............................... 4,741 7,014 5,205
-------- -------- --------
Income before income taxes and equity in
undistributed net income of subsidiaries.......... 24,914 21,429 28,753
Income tax benefit................................. 618 746 970
-------- -------- --------
Income before equity in undistributed net income of
subsidiaries...................................... 25,532 22,175 29,723
Equity in undistributed net income:
Banking subsidiaries............................. 37,494 32,426 22,532
Non-banking subsidiaries......................... 1,466 2,622 882
-------- -------- --------
Net income................................... $ 64,492 $ 57,223 $ 53,137
======== ======== ========
</TABLE>
51
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of Cash
Flows
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income..................................... $ 64,492 $ 57,223 $ 53,137
Adjustments
Equity in undistributed net income of subsid-
iaries...................................... (38,960) (35,048) (23,414)
Other, net................................... (1,596) 10,605 (1,769)
-------- -------- --------
Net cash provided by operating activities.. 23,936 32,780 27,954
-------- -------- --------
Investing activities
Proceeds from investment securities............ 11,955 21,596 8,805
Purchase of investment securities.............. (14,427) (52,218) (2,587)
Advances to subsidiaries....................... 2,650
Investment in subsidiaries..................... (6,649)
-------- -------- --------
Net cash provided (used) by investing ac-
tivities.................................. (2,472) (30,622) 2,219
-------- -------- --------
Financing activities
Reduction in short-term borrowings............. (26)
Reduction in long-term debt.................... (1,520) (3,600)
Issuance of common stock....................... 23 695
Issuance of treasury stock..................... 1,968 14,221 780
Cash dividends................................. (23,872) (21,918) (20,501)
-------- -------- --------
Net cash used by financing activities...... (21,904) (9,220) (22,626)
-------- -------- --------
Increase (decrease) in cash and cash equiv-
alents.................................... (440) (7,062) 7,547
Cash and cash equivalents at beginning of year... 520 7,582 35
-------- -------- --------
Cash and cash equivalents at end of year......... $ 80 $ 520 $ 7,582
======== ======== ========
</TABLE>
52
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1993, 1992 AND 1991
17--CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
1993
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income................................ $75,987 $75,489 $76,242 $73,770
Interest expense............................... 35,963 34,845 34,981 33,663
------- ------- ------- -------
Net interest income............................ 40,024 40,644 41,261 40,107
Provision for loan losses...................... 2,402 2,377 2,287 2,299
Non-interest income............................ 13,939 15,150 13,403 15,759
Non-interest expense........................... 29,534 31,693 30,690 34,055
------- ------- ------- -------
Income before income taxes..................... 22,027 21,724 21,687 19,512
Provision for income taxes..................... 5,351 5,226 5,444 4,437
------- ------- ------- -------
Net income..................................... $16,676 $16,498 $16,243 $15,075
======= ======= ======= =======
Net income per share........................... $ .56 $ .55 $ .54 $ .50
======= ======= ======= =======
Restated for Valley merger:
Net income................................... $17,753 $17,408 $17,191 $15,565
Net income per share......................... $ .54 $ .54 $ .52 $ .48
<CAPTION>
1992
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income................................ $82,672 $82,107 $79,475 $77,185
Interest expense............................... 44,696 43,831 41,490 37,995
------- ------- ------- -------
Net interest income............................ 37,976 38,276 37,985 39,190
Provision for loan losses...................... 2,187 2,191 3,088 3,478
Non-interest income............................ 13,871 13,878 13,310 12,927
Non-interest expense........................... 30,985 30,993 29,837 30,277
------- ------- ------- -------
Income before income taxes..................... 18,675 18,970 18,370 18,362
Provision for income taxes..................... 4,538 4,401 4,140 4,075
------- ------- ------- -------
Net income..................................... $14,137 $14,569 $14,230 $14,287
======= ======= ======= =======
Net income per share........................... $ .49 $ .49 $ .47 $ .48
======= ======= ======= =======
Restated for Valley merger:
Net income................................... $15,054 $15,505 $15,202 $15,270
Net income per share......................... $ .48 $ .47 $ .47 $ .47
</TABLE>
18--CONTINGENT LIABILITIES
Various legal actions or proceedings are pending involving Dauphin or its
subsidiaries. Management believes that the aggregate liability or loss, if any,
will not be material.
53
<PAGE>
[LOGO OF KPMG PEAT MARWICK APPEARS HERE]
CERTIFIED PUBLIC ACCOUNTANTS
225 Market Street
Suite 300
P.O. Box 1190
Harrisburg, PA 17108-1190
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Dauphin Deposit Corporation
We have audited the accompanying consolidated balance sheets of Dauphin
Deposit Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of Dauphin's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dauphin
Deposit Corporation and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick
January 28, 1994
[LOGO OF MEMBER FIRM OF KLYNVEID PEAT MARWICK GOERDELER APPEARS HERE]
54
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
55
<PAGE>
DAUPHIN DEPOSIT CORPORATION
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relative to directors of the Registrant is incorporated herein by
reference to Election of Directors and Section 16(a) of the Exchange Act in the
Corporation's 1994 Proxy Statement. Information relative to executive officers
of the Registrant is set forth herein in Part I under the caption "EXECUTIVE
OFFICERS OF THE REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
This item is incorporated by reference to Executive Compensation in the 1994
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item is incorporated by reference to Outstanding Stock and Principal
Holders Thereof in the 1994 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is incorporated by reference to Transactions with Management in the
1994 Proxy Statement.
56
<PAGE>
DAUPHIN DEPOSIT CORPORATION
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) 1. Financial Statements
The consolidated financial statements listed on the index to Item 8 of
this Annual Report on Form 10-K are filed as a part of this Annual Report.
(a) 2. Financial Statement Schedules
All schedules applicable to the Registrant are shown in the respective
financial statements or in the notes thereto included in this Annual
Report.
(a) 3. Exhibits
(3)(a) The Articles of Incorporation, as amended, of the Corporation, are
incorporated herein by reference to Exhibit 3(b) to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (Commission File Number 0-8415).
(3)(b) The By-Laws, as amended, of the Corporation are incorporated herein
by reference to Exhibit 3(b) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992 (Commission File
Number 0-8415).
(10)(a) The Corporation's Stock Option Plan of 1986, as amended, is
incorporated herein by reference to Exhibit 4.1 to Amendment No. 1
to the Corporation's Registration Statement on Form S-8, as filed
with the Commission on April 28, 1993 (Commission File Number 33-
17401).
(10)(b) The Corporation's Annual Management Performance Incentive Plan is
incorporated herein by reference to Exhibit 10(b) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File Number 0-8415).
(10)(c) Supplemental Executive Benefit and Change in Control Agreement,
dated as of January 23, 1984, between Dauphin Bank and William J.
King (the "King Agreement") is incorporated herein by reference to
Exhibit 10(c) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992 (Commission File Number 0-8415).
(10)(d) Corrective Amendment, dated as of July 18, 1989, to the King
Agreement is incorporated herein by reference to Exhibit 10(d) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File Number 0-8415).
(10)(e) Amendment, dated as of November 8, 1991, to the King Agreement is
incorporated herein by reference to Exhibit 10(e) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File Number 0-8415).
(10)(f) Supplemental Executive Benefit and Change in Control Agreement, As
Amended and Restated, dated as of October 15, 1992, between the
Corporation and Christopher R. Jennings is incorporated herein by
reference to Exhibit 10(f) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992 (Commission File
Number 0-8415).
</TABLE>
57
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<S> <C>
(10)(g) Change in Control Agreement, dated as of December 15, 1987,
between the Corporation, Dauphin Bank and Paul B. Shannon (the
"Shannon Agreement") is incorporated herein by reference to
Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992 (Commission File Number 0-8415).
(10)(h) Corrective Amendment, dated as of August 7, 1989, to the Shannon
Agreement is incorporated herein by reference to Exhibit 10(h) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File Number 0-8415).
(10)(i) Change in Control Agreement, dated as of May 27, 1988, between the
Corporation, Bank of Pennsylvania and Harry L. Nicholson (the
"Nicholson Agreement") is incorporated herein by reference to
Exhibit 10(i) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992 (Commission File Number
0-8415).
(10)(j) Corrective Amendment, dated as of July 31, 1989, to the Nicholson
Agreement is incorporated herein by reference to Exhibit 10(j) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File Number
0-8415).
(10)(k) Employment and Consulting Agreement, dated as of January 27, 1992,
between FB&T Corporation, the Corporation and Lawrence J. LaMaina,
Jr. (the "LaMaina Agreement") is incorporated herein by reference
to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992 (Commission File Number 0-
8415).
(10)(l) First Amendment, dated as of April 2, 1993, to the LaMaina
Agreement.
(11) Statement regarding computation of per share earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(99) The Rights Agreement, dated as of January 22, 1990, between the
Corporation and Dauphin Bank, as Rights Agent, is incorporated
herein by reference to Exhibit 1 to the Corporation's Current
Report on Form 8-K, dated January 22, 1990, and filed with the
Securities and Exchange Commission on February 9, 1990.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
December 31, 1993.
</TABLE>
58
<PAGE>
DAUPHIN DEPOSIT CORPORATION
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Dauphin Deposit Corporation
February 22, 1994 /s/ William J. King
By: ---------------------------------
WILLIAM J. KING
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT IS SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ William J. King Chairman of the February 22, 1994
- ------------------------------------- Board, Chief
WILLIAM J. KING Executive Officer
and Director
/s/ Christopher R. Jennings President, Chief February 10, 1994
- ------------------------------------- Operating Officer
CHRISTOPHER R. JENNINGS and Director
/s/ Lawrence J. LaMaina, Jr. Vice Chairman and February 14, 1994
- ------------------------------------- Director
LAWRENCE J. LAMAINA, JR.
/s/ Dennis L. Dinger Executive Vice February 10, 1994
- ------------------------------------- President and Chief
DENNIS L. DINGER Financial Officer
/s/ William H. Alexander Director February 14, 1994
- -------------------------------------
WILLIAM H. ALEXANDER
/s/ John A. Arnold Director February 10, 1994
- -------------------------------------
JOHN A. ARNOLD
/s/ Jeffrey J. Burdge Director February 10, 1994
- -------------------------------------
JEFFREY J. BURDGE
59
<PAGE>
DAUPHIN DEPOSIT CORPORATION
SIGNATURES TITLE DATE
/s/ James O. Green Director February 22, 1994
- -------------------------------------
JAMES O. GREEN
/s/ Alfred G. Hemmerich Director February 22, 1994
- -------------------------------------
ALFRED G. HEMMERICH
Director
- -------------------------------------
LEE H. JAVITCH
/s/ William T. Kirchhoff Director February 10, 1994
- -------------------------------------
WILLIAM T. KIRCHHOFF
/s/ James E. Marley Director February 14, 1994
- -------------------------------------
JAMES E. MARLEY
/s/ Robert F. Nation Director February 10, 1994
- -------------------------------------
ROBERT F. NATION
/s/ Elmer E. Naugle Director February 22, 1994
- -------------------------------------
ELMER E. NAUGLE
Director
- -------------------------------------
WALTER F. RAAB
/s/ Paul C. Raub Director February 10, 1994
- -------------------------------------
PAUL C. RAUB
/s/ Henry W. Rhoads Director February 10, 1994
- -------------------------------------
HENRY W. RHOADS
Director
- -------------------------------------
R. CHAMPLIN SHERIDAN, JR.
60
<PAGE>
DAUPHIN DEPOSIT CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
------- -----------
<C> <S> <C>
(3)(a) The Articles of Incorporation, as amended, of the
Corporation, are incorporated herein by reference to
Exhibit 3(b) to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992
(Commission File Number 0-8415).
(3)(b) The By-Laws, as amended, of the Corporation are
incorporated herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992 (Commission File Number 0-8415).
(10)(a) The Corporation's Stock Option Plan of 1986, as amended,
is incorporated herein by reference to Exhibit 4.1 to
Amendment No. 1 to the Corporation's Registration
Statement on Form S-8, as filed with the Commission on
April 28, 1993 (Commission File Number 33-17401).
(10)(b) The Corporation's Annual Management Performance
Incentive Plan is incorporated herein by reference to
Exhibit 10(b) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1992 (Commission
File Number 0-8415).
(10)(c) Supplemental Executive Benefit and Change in Control
Agreement, dated as of January 23, 1984, between Dauphin
Bank and William J. King (the "King Agreement") is
incorporated herein by reference to Exhibit 10(c) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992 (Commission File Number 0-8415).
(10)(d) Corrective Amendment, dated as of July 18, 1989, to the
King Agreement is incorporated herein by reference to
Exhibit 10(d) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1992 (Commission
File Number 0-8415).
(10)(e) Amendment, dated as of November 8, 1991, to the King
Agreement is incorporated herein by reference to Exhibit
10(e) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992 (Commission File
Number 0-8415).
(10)(f) Supplemental Executive Benefit and Change in Control
Agreement, as Amended and Restated, dated as of October
15, 1992, between the Corporation and Christopher R.
Jennings is incorporated herein by reference to Exhibit
10(f) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992 (Commission File
Number 0-8415).
(10)(g) Change in Control Agreement, dated as of December 15,
1987, between the Corporation, Dauphin Bank and Paul B.
Shannon (the "Shannon Agreement") is incorporated herein
by reference to Exhibit 10(g) to the Corporation's
Annual Report on Form 10-K for the year ended December
31, 1992 (Commission File Number 0-8415).
(10)(h) Corrective Amendment, dated as of August 7, 1989, to the
Shannon Agreement is incorporated herein by reference to
Exhibit 10(h) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1992 (Commission
File Number 0-8415).
(10)(i) Change in Control Agreement, dated as of May 27, 1988,
between the Corporation, Bank of Pennsylvania and Harry
L. Nicholson (the "Nicholson Agreement") is incorporated
herein by reference to Exhibit 10(i) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992 (Commission File Number 0-8415).
</TABLE>
61
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
------- -----------
<C> <S> <C>
(10)(j) Corrective Amendment, dated as of July 31, 1989, to the
Nicholson Agreement is incorporated herein by reference
to Exhibit 10(j) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992
(Commission File Number 0-8415).
(10)(k) Employment and Consulting Agreement, dated as of January
27, 1992, between FB&T Corporation, the Corporation and
Lawrence J. LaMaina, Jr. (the "LaMaina Agreement") is
incorporated herein by reference to Exhibit 10(k) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992 (Commission File Number 0-8415).
(10)(l) First Amendment, dated as of April 2, 1993, to the
LaMaina Agreement. 63
(11) Statement regarding computation of per share earnings. 65
(21) Subsidiaries of the Registrant. 66
(23) Consent of Independent Auditors. 67
(99) The Rights Agreement, dated as of January 22, 1990,
between the Corporation and Dauphin Bank, as Rights
Agent, is incorporated herein by reference to Exhibit 1
to the Corporation's Current Report on Form 8-K, dated
January 22, 1990, and filed with the Securities and
Exchange Commission on February 9, 1990.
</TABLE>
62
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DAUPHIN DEPOSIT CORPORATION
EXHIBIT (10)(L)
FIRST AMENDMENT TO
EMPLOYMENT AND CONSULTING AGREEMENT
THIS AMENDMENT made this 2nd day of April, 1993, is by and among DAUPHIN
DEPOSIT CORPORATION ("Dauphin Deposit"), FARMERS BANK AND TRUST COMPANY OF
HANOVER (the "Bank"), a wholly owned subsidiary of Dauphin Deposit and LAWRENCE
J. LaMAINA, JR. ("LaMaina") and amends that certain Employment and Consulting
Agreement dated January 27, 1992 (the "Agreement") by and among the parties
hereto and FB&T Corporation, a corporation which was merged into Dauphin
Deposit on July 1, 1992, a copy of which is attached hereto as Exhibit 1.
W I T N E S S E T H :
WHEREAS, LaMaina is currently employed as Chairman, President and Chief
Executive Officer of the Bank pursuant to the terms and conditions of the
Agreement; and
WHEREAS, the parties hereto desire to extend the term of LaMaina's full-time
employment pursuant to the Agreement and to revise the period of consultancy
thereunder as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained herein and in the Agreement, the parties hereto, intending
to be legally bound, agree as follows:
1. Section 2 of the Agreement is hereby amended to read in its entirety as
follows:
2. Term. The term of LaMaina's engagement hereunder shall commence on the
effective date of the Merger and continue until December 31, 1996, unless
earlier terminated in accordance with the terms of this Agreement. From the
Effective Date of the Merger until January 31, 1996, LaMaina shall be a
full-time employee of the Bank with the duties set forth in Section 3
hereof. If and only if LaMaina's full-time employment is not terminated
prior to January 31, 1996 by LaMaina, by Dauphin Deposit or the Bank for
good cause (as defined herein) or as a result of LaMaina's death or
disability, LaMaina shall thereafter be retained until December 31, 1996 as
a consultant on the terms set forth in Section 4 hereof.
3. Section 3 of the Agreement is hereby amended by deleting from the
introductory clause of the first sentence thereof the following parenthetical:
"(including the one (1) year extension period, if any)".
4. Section 4 of the Agreement is hereby amended to read in its entirety as
follows:
4. Duties as a Consultant. If (i) neither Dauphin Deposit nor the Bank
terminate LaMaina's full-time employment hereunder prior to January 31,
1996, for good cause or as a result of LaMaina's death or disability, or
(ii) LaMaina does not terminate such full-time employment prior to January
31, 1996, LaMaina shall be retained as a consultant to the Bank and Dauphin
Deposit for the period February 1, 1996 through December 31, 1996, and
during said period as a consultant, LaMaina shall:
(a) Render to the Bank and Dauphin Deposit such services of an
advisory or consultative nature as Dauphin Deposit or the Bank may
reasonably request, so that such parties may have the benefit of
LaMaina's experience and knowledge of the affairs of the Bank and his
reputation and contacts in the community, and he will be available for
advice and counsel to the officers and directors of the Bank and
Dauphin Deposit at all reasonable times (but not on a full-time basis)
by telephone, letter or in person; provided, however, that his failure
to render such services or give such advice and counsel by reason of
his illness or other incapacity shall not affect his right to receive
his compensation during such period; and
63
<PAGE>
DAUPHIN DEPOSIT CORPORATION
(b) Refrain from becoming employed by, associated with or rendering
advice or service to any other bank or bank holding company in
competition with the Bank, Dauphin Deposit or any other banking
subsidiary of Dauphin Deposit or the Bank.
5. Paragraph (b) of Section 5 of the Agreement is hereby amended to read in
its entirety as follows:
(b) During Period of Consultancy (If Any). If, pursuant to Section 4
hereof, LaMaina is retained as a consultant to the Bank and/or Dauphin
Deposit for the specified eleven (11) month period after the period of
his full-time employment hereunder, LaMaina shall be paid by the Bank
during said eleven (11) month period a consulting fee equal to Two
Hundred Twenty Thousand Six Hundred Eighty Seven Dollars and Fifty
Cents ($220,687.50), payable in bi-weekly installments, subject to
withholding (if any) and other applicable taxes and payroll deductions
(if any). Except for continuation of medical insurance benefits in
accordance with Section 8 hereof, LaMaina shall not be entitled to any
other payments or fringe benefits during the consulting period. During
the period of consulting, if any, hereunder, LaMaina shall be an
independent contractor only and not an employee of the Bank or Dauphin
Deposit.
6. Except as amended hereby, the Agreement shall remain in full force and
effect, without further amendment or modification. All references in the
Agreement as amended hereby to "this Agreement" and the terms "hereof",
"hereunder" and similar terms shall hereafter refer to the Agreement as amended
hereby.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have set their hands and seals as of the day and year first above written.
ATTEST: FARMERS BANK AND TRUST COMPANY OF
HANOVER
/s/ Elizabeth F. Carson /s/ Mary Ann Williams
- ------------------------------------- By: ---------------------------------
(Asst). Secretary Vice President
(Seal)
DAUPHIN DEPOSIT CORPORATION
/s/ Claire D. Flemming /s/ Christopher R. Jennings
- ------------------------------------- By: ---------------------------------
Secretary Christopher R. Jennings
(Seal) President and Chief
Operating Officer
WITNESS:
/s/ Donna J. Winters /s/ Lawrence J. LaMaina, Jr.
- ------------------------------------- -------------------------------------
Lawrence J. LaMaina, Jr.
64
<PAGE>
DAUPHIN DEPOSIT CORPORATION
EXHIBIT (11)
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
<S> <C> <C>
Net income.................................. $64,492,000 $57,223,000
Shares outstanding
Primary................................... 30,035,507 29,639,940
Fully diluted............................. 30,396,767 30,123,143
Earnings per share
Primary................................... $2.15 $1.93
Fully diluted............................. $2.13 $1.92
</TABLE>
65
<PAGE>
DAUPHIN DEPOSIT CORPORATION
EXHIBIT (21)
Subsidiaries
The Registrant has ten subsidiaries, Dauphin Deposit Bank and Trust Company;
Farmers Bank and Trust Company of Hanover; Farmers Bank, a Federal Savings
Bank; Dauphin Life Insurance Company; Dauphin Investment Company; Financial
Realty, Inc.; Hopper Soliday & Co., Inc.; Reliance Consumer Discount Company;
Farmers Mortgage Company and FARMCO Realty, Inc.
Dauphin Deposit Bank and Trust Company, a bank and trust company chartered
under the Pennsylvania Banking Code of 1965, as amended, is engaged in the
commercial and retail banking and trust business.
Farmers Bank and Trust Company of Hanover, a bank and trust company chartered
under the Pennsylvania Banking Code of 1965, as amended, is engaged in the
commercial and retail banking and trust business.
Farmers Bank, a Federal Savings Bank, a federally chartered capital stock
savings bank, is engaged in the commercial and retail banking business.
Effective February 1, 1994 the Corporation sold 100% of the issued and
outstanding stock of this subsidiary.
Dauphin Life Insurance Company, incorporated under the laws of Arizona,
reinsures credit life, health and accident insurance directly related to
extensions of credit by the Banks.
Dauphin Investment Company, incorporated under the laws of Delaware, is
engaged in investment of securities and the maintenance of said investments for
its own account.
Financial Realty, Inc., incorporated under the laws of Delaware, is engaged
in the leasing of certain bank buildings to Dauphin Bank.
Hopper Soliday & Co., Inc., incorporated under the laws of Delaware, is
engaged in municipal finance, institutional sales, financial advisory and other
general securities businesses permitted for bank holding companies and their
non-bank subsidiaries.
Reliance Consumer Discount Company, incorporated under the laws of
Pennsylvania, was sold in October 1992 and is no longer an operating
subsidiary.
Farmers Mortgage Company, incorporated under the laws of Pennsylvania, makes
and acquires loans and other extensions of credit secured by real estate
mortgages and deeds of trust.
FARMCO Realty, Inc., incorporated under the laws of Pennsylvania, is a real
estate holding company which holds property leased to Farmers Bank for its
branch office locations.
In addition to the above, Dauphin Bank has two subsidiaries, Financial Land
Corporation and Financial Mineral Corporation, both of which were incorporated
under the laws of Pennsylvania for the purpose of holding assets acquired in
loan liquidations.
66
<PAGE>
EXHIBIT (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Dauphin Deposit Corporation
We consent to incorporation by reference in the registration statements (Nos.
33-17401, 33-61848, 33-50172 and 2-73258) on Form S-8 of Dauphin Deposit
Corporation of our report dated January 28, 1994, relating to the consolidated
balance sheets of Dauphin Deposit Corporation and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993, which report appears in the December 31, 1993
annual report on Form 10-K of Dauphin Deposit Corporation.
KPMG PEAT MARWICK
Harrisburg, Pennsylvania
March 2, 1994
67
