<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995 Commission File Number 0-8415
-------------- ------
DAUPHIN DEPOSIT CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1938831
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
213 Market Street, Harrisburg, Pennsylvania 17105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 255-2121
-----------------
NOT APPLICABLE
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 27, 1995
- -------------------------- -----------------------------
Common Stock, $5 Par Value 30,881,569 Shares
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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FORM 10-Q
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For the Quarter Ended March 31, 1995
Contents
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1995,
December 31, 1994 and March 31, 1994
Consolidated Statements of Income for the Three
Month Periods Ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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2
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Part I
------
For the Quarter Ended March 31, 1995
Item 1. Financial Statements
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31, March 31,
1995 1994 1994
---------- ---------- ----------
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $201,838 $202,911 $203,041
---------- ---------- ----------
Short-term investments
Interest bearing deposits 3,788 3,738 6,219
Federal funds sold and securities purchased under agreements to resell 7,300 11,302
---------- ---------- ----------
Total short-term investments 11,088 15,040 6,219
---------- ---------- ----------
Investment securities available-for-sale, at fair value 1,793,026 1,783,803 2,081,001
Assets held for sale, primarily mortgage loans 67,161 46,222 8,121
Loans (net of unearned income) 2,846,003 2,861,133 2,556,766
Allowance for loan losses (40,936) (40,216) (39,046)
---------- ---------- ----------
Total net loans 2,805,067 2,820,917 2,517,720
---------- ---------- ----------
Bank premises and equipment 66,909 67,088 63,708
Other assets 106,022 134,371 89,228
---------- ---------- ----------
Total assets $5,051,111 $5,070,352 $4,969,038
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $443,672 $464,919 $418,283
Interest bearing 3,103,312 3,049,965 3,062,440
---------- ---------- ----------
Total deposits 3,546,984 3,514,884 3,480,723
---------- ---------- ----------
Short-term borrowings
Federal funds purchased and securities sold under agreements to repurchase 808,887 894,511 765,679
U.S. Treasury tax and loan notes 36,463 46,266 51,042
---------- ---------- ----------
Total short-term borrowings 845,350 940,777 816,721
---------- ---------- ----------
Long-term debt 91,866 91,954 92,034
Accrued expenses and taxes 67,854 56,088 57,913
---------- ---------- ----------
Total liabilities 4,552,054 4,603,703 4,447,391
---------- ---------- ----------
Stockholders' equity
Preferred stock, $25 par value; 10,000,000 shares authorized but unissued
Common stock, $5 par value; 200,000,000 shares authorized,
32,641,614 shares issued, of which 1,782,476, 1,696,447
and 233,911 shares are held as treasury stock, respectively 163,208 163,208 163,208
Surplus 11,098 11,770 11,275
Retained earnings 381,426 373,921 344,222
Unrealized gains (losses) on securities available-for-sale, net of deferred taxes (13,413) (41,036) 7,852
---------- ---------- ----------
542,319 507,863 526,557
Less: Treasury stock - at cost (43,262) (41,214) (4,910)
---------- ---------- ----------
Total stockholders' equity 499,057 466,649 521,647
---------- ---------- ----------
Total liabilities and stockholders' equity $5,051,111 $5,070,352 $4,969,038
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
Three Months
Ended March 31,
-----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Interest income
Interest and fees on loans $59,760 $46,941
Interest and dividends on investment securities
Taxable 24,092 25,107
Exempt from federal income taxes 5,111 6,165
Interest on deposits 108 92
Interest on assets held for sale 1,354 182
Interest on federal funds sold and other short-term investments 187 8
----------- -----------
Total interest income 90,612 78,495
----------- -----------
Interest expense
Interest on deposits
Savings deposits 8,817 9,211
Time deposits 18,076 14,845
Time deposits in denominations of $100,000 or more 4,991 3,001
----------- -----------
31,884 27,057
Interest on short-term borrowings 12,809 5,835
Interest on long-term borrowings 1,659 1,663
----------- -----------
Total interest expense 46,352 34,555
----------- -----------
Net interest income 44,260 43,940
Provision for loan losses 1,870 1,884
----------- -----------
Net interest income after provision for loan losses 42,390 42,056
----------- -----------
Non-interest income
Fiduciary activities 4,391 4,068
Service charges on deposit accounts 2,666 2,831
Other service charges and fees 2,729 2,278
Broker/dealer commissions and fees 1,676 1,900
Mortgage banking 2,712 242
Securities gains, net 6 1,538
Other 983 817
----------- -----------
Total non-interest income 15,163 13,674
----------- -----------
Non-interest expense
Salaries and employee benefits 19,470 16,629
Net occupancy expense 2,498 2,339
Furniture and equipment expense 2,766 2,330
Deposit insurance 1,958 1,991
Other 10,806 8,717
----------- -----------
Total non-interest expense 37,498 32,006
----------- -----------
Income before income taxes 20,055 23,724
Provision for income taxes 4,836 5,823
----------- -----------
Net income $15,219 $17,901
=========== ===========
Net income per share $0.49 $0.55
Cash dividends declared per share $0.25 $0.23
Weighted average number of shares outstanding 31,059,625 32,644,863
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
1995 1994
-------- --------
<S> <C> <C>
Operating activities
Net income $ 15,219 $ 17,901
Adjustments:
Provision for loan losses 1,870 1,884
Provision for depreciation, amortization and accretion 1,916 2,210
Amortization of goodwill 442 234
Deferred income taxes 104 89
Securities gains, net (6) (1,538)
Increase in interest receivable (1,300) (5,249)
Increase (decrease) in accrued expenses and taxes (3,078) 1,304
Capitalized interest on deposits 12,497 11,419
Amortization of purchased and excess mortgage servicing rights 133 146
Gain on sale of mortgage loans held for sale (593) (247)
Sale of mortgages loans held for sale 82,679 25,941
Loans originated for sale (91,698) (27,036)
Purchase of mortgage loans held for sale (9,619)
Other, net 26,318 795
-------- --------
Net cash provided by operating activities 34,884 27,853
-------- --------
Investing activities
Proceeds from sales of investment securities 9,663 40,426
Proceeds from maturities of investment securities 71,299 150,612
Purchases of investment securities (47,199) (211,457)
Net increase in assets held for sale, other than loans held for sale (1,708) (453)
Net (increase) decrease in loans (22,694) 21,172
Sale of residential mortgage and other consumer loans 39,507 2,630
Net proceeds from sale of subsidiary, Farmers Savings Bank, FSB 797
Net purchases of bank premises and equipment (1,647) (1,152)
-------- --------
Net cash provided by investing activities 47,221 2,575
-------- --------
Financing activities
Net increase (decrease) in demand deposits and savings accounts (132,135) 52,881
Net increase (decrease) in time deposits 151,738 (158,871)
Net increase (decrease) in short-term borrowings (95,427) 136,335
Net decrease in long-term debt (88) (20)
Issuance of common stock and treasury stock 1,865 83
Acquisition of treasury stock (4,585) (3,212)
Cash dividends paid (7,746) (6,878)
-------- --------
Net cash provided (used) by financing activities (86,378) 20,318
-------- --------
Increase (decrease) in cash and cash equivalents (4,273) 50,746
Cash and cash equivalents at beginning of period 210,911 152,295
-------- --------
Cash and cash equivalents at end of period $206,638 $203,041
======== ========
Total interest paid $30,389 $23,426
Total income taxes paid 725 72
Schedule of non-cash investing and financing activities:
Loans charged off 2,193 2,442
Net loan transfers to other real estate owned 637 3,138
Conversion of convertible subordinated debentures 55 400
</TABLE>
See accompanying notes to consolidated financial statements.
5
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Note 1 - Accounting Policies
The consolidated financial statements include the accounts of Dauphin
Deposit Corporation and subsidiaries (Dauphin), including its banking
subsidiary, Dauphin Deposit Bank and Trust Company, which includes the Bank of
Pennsylvania, Farmers Bank and Valleybank Divisions. All material intercompany
balances and transactions have been eliminated in consolidation.
The information contained in the financial statements is unaudited. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of interim periods have been
made. Operating results for the three month period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995.
The accounting policies followed in the presentation of interim financial
results are the same as those followed on an annual basis, with the exception of
the accounting policies related to impairment of loans which are discussed
further in Note 5. These policies are presented on pages 35 through 38 of the
1994 Securities and Exchange Commission Form 10-K included in the Annual Report
to Stockholders.
Note 2 - Investment Securities
A summary of the amortized cost and fair value of investment securities at
March 31, 1995, December 31, 1994 and March 31, 1994 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, 1995 December 31, 1994 March 31, 1994
---------------------- ---------------------- ----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S. $665,655 $656,852 $687,005 $665,520 $749,191 $748,326
government agencies and corporations
Obligations of states and political subdivision 341,219 348,791 369,061 366,712 408,811 418,661
Debt securities issued by foreign governments 900 895 900 896 2,412 2,419
Corporate securities 73,475 73,328 79,032 78,283 81,075 82,469
Mortgage-backed securities 717,171 697,941 698,035 659,493 814,060 815,482
---------- ---------- ---------- ---------- ---------- ----------
Total debt securities 1,798,420 1,777,807 1,834,033 1,770,904 2,055,549 2,067,357
Equity securities 15,241 15,219 12,903 12,899 13,372 13,644
---------- ---------- ---------- ---------- ---------- ----------
Total investment securities $1,813,661 $1,793,026 $1,846,936 $1,783,803 $2,068,921 $2,081,001
========== ========== ========== ========== ========== ==========
</TABLE>
6
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Note 3 - Income Taxes
Income tax expense includes a provision for deferred taxes which are
related to income and expense items being recognized in one accounting period
for financial reporting purposes and another period for income tax reporting
purposes.
A reconciliation between the effective income tax rate and the statutory
rate follows:
<TABLE>
<CAPTION>
Percentage of
pre-tax income
----------------
Three months
ended March 31,
----------------
1995 1994
---- ----
<S> <C> <C>
Statutory federal income tax rate 35.0% 35.0%
Tax exempt income (10.9) (10.7)
Other, net 0.2
---- ----
Effective income tax rate 24.1% 24.5%
==== ====
</TABLE>
Note 4 - Commitments and Contingent Liabilities
In the normal course of business, there are commitments and contingent
liabilities which are not presented in the accompanying financial statements.
The commitments and contingent liabilities include various guarantees,
commitments to extend credit and letters of credit. Dauphin does not anticipate
any material losses as a result of the commitments.
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.
The contingent liability at March 31, 1995 represented by letters of credit
issued to customers amounted to approximately $118.2 million.
Note 5 - New Accounting Standards
On January 1, 1995, Dauphin adopted Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118 (SFAS 118), "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures".
SFAS 114 addresses the accounting by creditors for impairment of certain loans.
SFAS 114 requires that impairment 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. SFAS
118 amends SFAS 114 to allow a creditor to use existing methods for recognizing
interest income on an impaired loan and to required additional disclosure on
interest income recognition related to impaired loans.
On January 1, 1995 the balance of impaired loans was $17.4 million and
the allowance for loan losses on these loans was $3.9 million. On March 31, 1995
the balance of impaired loans was $10.7 million and the allowance for loan
losses on these loans was $3.0 million. All impaired loans have a related
allowance for loan losses balance associated with the loan. The impaired loans
consist of loans where it is probable that Dauphin will be unable to collect all
amounts due according to the contractual term of the loan agreement. Interest
income for impaired loans that are on non-accrual status is recognized using the
cash basis, while interest on impaired loans that are still accruing is
recognized using the accrual method. The average balance of impaired loans for
the first quarter of 1995 was $14.0 million and the interest recognized for the
quarter was $.2 million. The interest income includes $.1 million that was
recorded on the cash basis.
7
<PAGE>
Item 2. 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, Farmers Bank and Valleybank Divisions. This
discussion and analysis should be read in conjunction with the financial
statements which appear elsewhere in this report.
On July 1, 1994, Dauphin acquired Eastern Mortgage Services, Inc. (Eastern
Mortgage), a mortgage banking company headquartered in Trevose, Pennsylvania,
for approximately $21.0 million in cash pursuant to a definitive agreement
signed in May 1994. The acquisition was accounted for using the purchase method
of accounting. Therefore, the results of operations of Eastern Mortgage from
the date of acquisition are included with the results of Dauphin.
SUMMARY
Dauphin recorded net income for the first quarter of 1995 of $15.2 million,
compared with $17.9 million recorded for the same quarter of 1994. Net income
per share for the first quarter of 1995 was $.49 compared with $.55 for the same
period in 1994, a decrease of 10.9%.
Dauphin's return on average total assets was 1.23% for the first quarter of
1995, compared with 1.46% for the first quarter of 1994. Return on average
stockholders' equity, excluding the SFAS 115 adjustment, was 12.14% for the
first quarter of 1995 compared with 14.33% for the same period of 1994. Return
on average stockholders' equity, including the SFAS 115 adjustment, was 12.89%
for the first quarter of 1995 compared with 13.35% for the first quarter of
1994.
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
8
<PAGE>
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 statutory rate of 35%.
Table 1 presents the net interest income on a fully taxable equivalent
basis for the first quarter of 1995 and 1994. Net interest income on a fully
taxable equivalent basis totaled $47.6 million for the first quarter of 1995, a
decrease of $.3 million or .5% from $47.9 million for the same period of 1994.
Table 2 analyzes the changes attributable to the volume and rate components
of net interest income. Table 3 presents average balances, taxable equivalent
interest income and expense and average yields earned and rates paid for
Dauphin's assets and liabilities.
During the first quarter of 1995, as compared with the first quarter of
1994, as shown in Table 2, there was a decrease in net interest income of $2.9
million due to changes in volume and an increase of $2.7 due to changes in
rates.
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
earnings assets. While the interest rate spread considers only the difference
between the average rates earned on earning assets and the average rates paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.
Average earning assets were $4.7 billion for the first quarter of 1995 and
the first quarter of 1994. The interest rate spread for the first quarter of
1995 was 3.43% compared with 3.55% for the first quarter of 1994. The net
interest margin amounted to 4.04% for the first quarter of 1995 compared with
4.11% for the same period of 1994. The net interest margin, excluding the SFAS
115 market value adjustment, amounted to 4.00% and 4.16% for the first quarter
of 1995 and 1994, respectively.
Interest rates during the first quarter of 1995 were higher than the rates
experienced in the first quarter of 1994. The average prime rate in 1995 was
8.83% compared with 6.02% in 1994. The average federal funds rate increased to
5.81% for 1995 compared with 3.21% in 1994. During the first quarter of 1995,
compared with the same period of 1994 the average yield on earning assets
increased 92 basis points while the average cost of interest bearing liabilities
increased 104 basis points resulting in a decrease in the interest rate spread
of 12 basis points. The yield on the investment securities portfolio increased
66 basis points primarily due to the reinvestment of
9
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maturities at significantly higher rates. Average loans, which represent the
highest yielding earning assets, increased $313.6 million or 12.3% for the first
quarter of 1995 compared with the first quarter of 1994 due to the increased
loan demand in 1995. The increasing rates in 1995, with new loans issued at the
then current market levels, was the primary reason for the 99 basis point
increase in the overall average loan yield. The cost of interest bearing
deposits increased to 4.20% in 1995 compared with 3.54% in 1994. The overall
interest rates offered for these deposits continued to increase during 1995.
Additionally, the mix of these deposits changed as depositors invested in longer
term certificates of deposit, moving from shorter term instruments. The increase
in the cost of short-term borrowings (247 basis points) was caused primarily by
the rise in the federal funds rate. While the interest rate spread decreased 12
basis points, the increased value of non-interest bearing funds in a higher rate
environment, resulted in only a 7 basis point decline in net interest margin.
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 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 4 presents an interest sensitivity analysis of Dauphin's assets and
liabilities at March 31, 1995 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
savings 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 4 attempts
to reflect these products in the appropriate interest sensitivity time interval
based on their interest
10
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sensitivity to the movement of other interest rates. Also included in Table 4
is a summary of the gap, as viewed by certain regulatory authorities, which
presents these interest bearing deposits as being subject to immediate
repricing.
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. Generally, 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.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $1.9 million for the
first quarter of 1995 and the first quarter of 1994. 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. Table 5
reflects an analysis of the allowance for loan losses for the first quarter of
1995 and 1994.
NON-PERFORMING ASSETS
Table 6 reflects Dauphin's non-performing assets at March 31, 1995,
December 31, 1994 and March 31, 1994. 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.
Other real estate owned represents property acquired through foreclosure or
considered to be in an in-substance foreclosure status.
On January 1, 1995, Dauphin adopted Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118 (SFAS 118), "Accounting
by Creditors for
11
<PAGE>
Impairment of a Loan - Income Recognition and Disclosures". 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. SFAS 118 amends SFAS 114 to
allow a creditor to use existing methods for recognizing interest income on an
impaired loan and to require additional disclosure on interest income
recognition related to impaired loans. On January 1, 1995 the balance of
impaired loans was $17.4 million and the reserve on these loans was $3.9
million. On March 31, 1995 the balance of impaired loans was $10.7 million and
the reserve on these loans was $3.0 million.
NON-INTEREST INCOME
Non-interest income increased $1.5 million or 10.9% for the first quarter
of 1995 when compared with the first quarter of 1994. Exclusive of securities
gains, the increase was $3.0 million or 24.9%. Service charges on deposit
accounts decreased $.2 million or .6%. Other service charges and fees increased
$.5 million as a result of credit card related activities. The results of
operations of Hopper Soliday & Co., Inc. (Hopper Soliday) decreased non-interest
income by $.2 million for 1995. The increase of $2.5 million in mortgage banking
income is due to the acquisition of Eastern Mortgage, a full service mortgage
banking operation, as of July 1, 1994. Prior year's income includes a limited
mortgage banking operation within other subsidiaries. Other non-interest income
increased $.2 million as a result of gains on the sale of consumer loans.
NON-INTEREST EXPENSE
Non-interest expense amounted to $37.5 million for the first quarter of
1994 and $32.0 for the first quarter of 1995. Excluding the results of
operations of Hopper Soliday and Eastern Mortgage, non-interest expense
increased $1.2 million for the first quarter of 1995 compared with 1994.
Salaries and employee benefits increased $2.8 million or 17.1%. The $2.8
million increase for 1995 was, for the most part, due to the addition of Eastern
Mortgage. Excluding Hopper Soliday and Eastern Mortgage, salaries and employee
benefits decreased $.4 million in 1995 compared with 1994 primarily due to cost
savings from the operations consolidation of Farmers Bank and Trust Company of
Hanover. The number of full-time equivalent employees was 2,249 at March 31,
1995 and 2,086 at March 31, 1994.
12
<PAGE>
INCOME TAXES
Dauphin's effective tax rate for the first quarter of 1995 was 24.1% and
24.5% for the first quarter of 1994. For a reconciliation of reported income
tax expense to the amount computed by applying the federal statutory rate to
income before income taxes, refer to Note 3 of the Notes to Consolidated
Financial Statements.
CAPITAL MANAGEMENT
During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding stock. In February 1995
an additional 1,500,000 shares were authorized for repurchase. Available
investments are being used to fund the share repurchases. Dauphin will use the
shares for general corporate purposes, including the Employee Stock Purchase
Plan, Stock Option Plan, the Dividend Reinvestment and Stock Purchase Plan and
other appropriate uses. During the first quarter of 1995 and 1994, Dauphin
repurchased 190,000 shares for $4.6 million and 130,000 shares for $3.2 million,
respectively.
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 includes 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. At March 31, 1995, Dauphin and its banking subsidiary exceeded all
capital requirements.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-
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Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 provides guidance for
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and used
and assets to be disposed of.
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, an entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an impairment
loss is not recognized. Measurement of an impairment loss for long-lived assets
and identifiable intangibles that an entity expects to hold and use should be
based on the fair value of the asset.
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell.
Management presently does not know and cannot reasonably estimate the
impact of SFAS 121 on its financial condition or results of operations.
SFAS 121 is effective for financial statements for fiscal years beginning
after December 15, 1995. Earlier application is encouraged. Restatement of
previously issued financial statements is not permitted.
14
<PAGE>
TABLE 1 - Net Interest Income
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
-----------------
1995 1994
------- -------
<S> <C> <C>
Total interest income $90,612 $78,495
Total interest expense 46,352 34,555
------- -------
Net interest income 44,260 43,940
Tax equivalent adjustment 3,382 3,951
------- -------
Net interest income (fully taxable equivalent) $47,642 $47,891
======= =======
</TABLE>
TABLE 2 - Rate-Volume Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
1995/1994
---------------------------
Change due to Total
-----------------
Volume Rate Change
------- ------- -------
<S> <C> <C> <C>
(Taxable equivalent)
Interest income
Short-term investments $ 149 $ 46 $ 195
Investment securities (7,973) 5,351 (2,622)
Assets held for sale 1,167 6 1,173
Loans 5,881 6,921 12,802
------- ------- -------
Total interest income (776) 12,324 11,548
------- ------- -------
Interest expense
Interest bearing deposits 593 4,234 4,827
Short-term borrowings 1,568 5,406 6,974
Long-term borrowings (7) 3 (4)
------- ------- -------
Total interest expense 2,154 9,643 11,797
------- ------- -------
Net interest income $(2,930) $ 2,681 $ (249)
======= ======= =======
</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.
15
<PAGE>
TABLE 3 - Average Balances, Rates and Interest Income and Expense Summary
(Taxable Equivalent Basis)
<TABLE>
<CAPTION>
(Dollars in thousands)
First Quarter 1995 First Quarter 1994
--------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments
Interest bearing deposits $ 5,152 $108 8.50% $ 5,906 $92 6.32%
Federal funds sold and securities
purchased under agreements to resell 11,951 187 6.35 1,061 8 3.06
---------- ------- ---------- -------
Total short-term investments 17,103 295 7.00 6,967 100 5.82
---------- ------- ---------- -------
Investment securities
U.S. government obligations 233,537 3,278 5.69 261,494 3,707 5.75
U.S. government agencies 1,091,738 18,506 6.78 1,310,435 19,038 5.81
State and municipals 357,188 8,646 9.68 433,715 10,084 9.30
Other securities 91,502 1,566 6.85 108,317 1,789 6.61
---------- ------- ---------- -------
Total investment securities 1,773,965 31,996 7.22 2,113,961 34,618 6.56
---------- ------- ---------- -------
Assets held for sale 74,702 1,359 7.31 11,673 186 6.38
---------- ------- ---------- -------
Loans (1)
Commercial 926,531 20,248 8.86 897,513 14,911 6.74
Commercial mortgages 522,981 11,878 9.21 518,874 10,154 7.94
Residential mortgages (2) 821,212 16,447 8.06 674,733 13,206 7.88
Consumer (3) 590,725 11,771 8.08 456,747 9,271 8.23
---------- ------- ---------- -------
Total loans 2,861,449 60,344 8.54 2,547,867 47,542 7.55
---------- ------- ---------- -------
Total earning assets 4,727,219 93,994 8.02 4,680,468 82,446 7.10
------- -------
Other assets 308,606 275,694
---------- ----------
Total assets $5,035,825 7.53% $4,956,162 6.70%
========== ==== ========== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits
Demand deposits and savings deposits $1,482,892 8,817 2.41% $1,663,222 9,211 2.25%
Time deposits of $100,000 or more 307,633 4,991 6.58 268,592 3,001 4.53
Other time deposits 1,289,998 18,076 5.68 1,170,115 14,845 5.15
---------- ------- ---------- -------
Total interest bearing deposits 3,080,523 31,884 4.20 3,101,929 27,057 3.54
Short-term borrowings 925,199 12,809 5.61 753,403 5,835 3.14
Long-term borrowings 91,902 1,659 7.27 92,190 1,663 7.26
---------- ------- ---------- -------
Total interest bearing liabilities 4,097,624 46,352 4.59 3,947,522 34,555 3.55
------- -------
Non-interest bearing demand deposits 413,920 404,640
Other liabilities 45,574 60,310
Stockholders' equity 478,707 543,690
---------- ----------
Total liabilities and
stockholders' equity $5,035,825 3.73% $4,956,162 2.83%
========== ==== ========== ====
Interest rate spread 3.43% 3.55%
Effect of non-interest bearing funds 0.61 0.56
---- ----
Net interest income/margin $47,642 4.04% $47,891 4.11%
======= ==== ======= ====
</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.
16
<PAGE>
TABLE 4 - Interest Sensitivity Analysis
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, 1995
--------------------------------------------------------------
Interest Sensitivity Period
--------------------------------------------------------------
Month Quarter Six Months Annual 5 Years
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earning assets:
Short-term investments $11,088 $11,088 $11,088 $11,088 $11,088
Investment securities 475,385 568,827 716,948 946,841 1,600,435
Assets held for sale 67,161 67,161 67,161 67,161 67,161
Loans 1,124,974 1,212,530 1,344,696 1,630,904 2,529,862
---------- ---------- ---------- ---------- ----------
Total $1,678,608 $1,859,606 $2,139,893 $2,655,994 $4,208,546
========== ========== ========== ========== ==========
Interest bearing liabilities:
Deposits $1,139,941 $1,330,261 $1,501,413 $1,888,585 $2,415,204
Short-term borrowings 845,350 845,350 845,350 845,350 845,350
Long-term borrowings 31,007 51,021 51,042 51,084 90,363
---------- ---------- ---------- ---------- ----------
Total $2,016,298 $2,226,632 $2,397,805 $2,785,019 $3,350,917
========== ========== ========== ========== ==========
Interest sensitivity gap ($337,690) ($367,026) ($257,912) ($129,025) $857,629
Interest sensitive assets to interest
sensitive liabilities ratio 0.83 0.84 0.89 0.95 1.26
Regulatory presentation:
Interest sensitivity gap ($795,133) ($824,469) ($715,355) ($586,468) $400,186
Interest sensitive assets to interest
sensitive liabilities ratio 0.68 0.69 0.75 0.82 1.11
</TABLE>
TABLE 5 - Analysis of Allowance for Loan Losses
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
--------------------
1995 1994
------- -------
<S> <C> <C>
Balance, beginning of period $40,216 $39,182
Provision charged to operating expenses 1,870 1,884
Allowance of subsidiary sold (101)
Total loans charged off 2,193 2,442
Total recoveries 1,043 523
------- -------
Net charge-offs 1,150 1,919
------- -------
Balance, end of period $40,936 $39,046
======= =======
Total loans:
Average $2,861,449 $2,547,867
Period-end 2,846,003 2,556,766
Ratios:
Net charge-offs to average loans (annualized) 0.16% 0.31%
Allowance for loan losses to period-end loans 1.44 1.53
</TABLE>
17
<PAGE>
TABLE 6 - Non-Performing Assets
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31, March 31,
1995 1994 1994
------- ------- -------
<S> <C> <C> <C>
Non-accrual loans $8,562 $9,569 $14,372
Restructured loans 5,732 5,599 7,252
------- ------- -------
Total non-performing loans 14,294 15,168 21,624
Other real estate owned 3,131 3,056 2,576
------- ------- -------
Total non-performing assets $17,425 $18,224 $24,200
======= ======= =======
Ratios:
Non-performing loans to total loans 0.50% 0.53% 0.85%
Non-performing assets to total loans and
other real estate owned 0.61 0.64 0.95
Allowance for loan losses to non-performing
loans 286.39 265.14 180.57
Loans past due 90 or more days as to
interest or principal $5,183 $5,149 $4,860
======= ======= =======
</TABLE>
18
<PAGE>
PART II - OTHER INFORMATION
---------------------------
For the Quarter Ended March 31, 1995
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding Computation of Per Share Earnings.
15(a) Report of KPMG Peat Marwick LLP regarding unaudited
interim financial information of Dauphin for the quarter
ended March 31, 1995.
15(b) Letter of KPMG Peat Marwick LLP regarding unaudited
interim financial information of Dauphin for the quarter
ended March 31, 1995.
27 Financial Data Schedule regarding unaudited interim
financial information of Dauphin for the quarter ended
March 31, 1995.
(b) Reports on Form 8-K
A current report on Form 8-K dated February 21, 1995 was filed
with the Securities and Exchange Commission on or about March 7,
1995. The report was filed under Item 5 - "Other Events" and
disclosed that the Board of Directors of Dauphin has authorized
the repurchase of up to 1,500,000 shares of Dauphin's outstanding
common stock.
There were no other reports on Form 8-K filed for the three months
ended March 31, 1995.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dauphin Deposit Corporation
---------------------------
(Registrant)
Date: May 8, 1995 /s/Christopher R. Jennings
- ------------------------ -------------------------------
Christopher R. Jennings
Chairman of the Board and
Chief Executive Officer
Date: May 8, 1995 /s/Dennis L. Dinger
- ------------------------ -------------------------------
Dennis L. Dinger, Senior
Executive Vice President
and Chief Fiscal and
Administrative Officer
20
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Sequential
Number Page Number
- -------- ------------
11 Statement regarding Computation of
Per Share Earnings.
15(a) Report of KPMG Peat Marwick LLP regarding
unaudited interim financial information
of Dauphin for the quarter ended
March 31, 1995.
15(b) Letter of KPMG Peat Marwick LLP regarding
unaudited interim financial information
of Dauphin for the quarter ended
March 31, 1995.
27 Financial Data Schedule regarding unaudited
interim financial information of Dauphin for
the quarter ended March 31, 1995.
<PAGE>
Statement regarding computation of per share earnings
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
- ---------------------------------
Earnings
Net income $15,219,000 $17,901,000
=========== ===========
Shares
Weighted average common shares outstanding 30,917,906 32,475,333
Stock options considered to be common stock equivalents 141,719 169,530
----------- -----------
Weighted average common stock and common stock equivalents outstanding 31,059,625 32,644,863
=========== ===========
Primary earnings per common share $0.49 $0.55
=========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE
- ---------------------------------------
Earnings
Net income $15,219,000 $17,901,000
After tax interest expense applicable to convertible debenture 75,436 76,708
----------- -----------
$15,294,436 $17,977,708
=========== ===========
Shares
Weighted average common shares outstanding 30,917,906 32,475,333
Assumed conversion of 9.00% convertible debentures issued June 30, 1989 322,101 335,720
Stock options considered to be common stock equivalents 142,446 169,510
----------- -----------
Weighted average common stock and common stock equivalents outstanding 31,382,453 32,980,563
=========== ===========
Fully diluted earnings per common share $0.49 $0.55
=========== ===========
</TABLE>
Exhibit 11
<PAGE>
Independent Accountants' Report
-------------------------------
The Board of Directors
Dauphin Deposit Corporation:
We have reviewed the consolidated balance sheets of Dauphin Deposit Corporation
and subsidiaries as of March 31, 1995 and 1994, and the related consolidated
statements of income and cash flows for the three-month periods ended March 31,
1995 and 1994. These financial statements are the responsibility of Dauphin's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Dauphin Deposit Corporation and
subsidiaries as of December 31, 1994, and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 27, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1994 is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
April 14, 1995
Exhibit 15(a)
<PAGE>
The Board of Directors
Dauphin Deposit Corporation
Re: Registration Statements No. 33-53793
33-17401
33-50172
33-61848
2-73258
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated April 14, 1995 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
May 10, 1995
Exhibit 15(b)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 201,838
<INT-BEARING-DEPOSITS> 3,788
<FED-FUNDS-SOLD> 7,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,793,026
<INVESTMENTS-CARRYING> 1,813,661
<INVESTMENTS-MARKET> 1,793,026
<LOANS> 2,846,003
<ALLOWANCE> 40,936
<TOTAL-ASSETS> 5,051,111
<DEPOSITS> 3,546,984
<SHORT-TERM> 845,350
<LIABILITIES-OTHER> 67,854
<LONG-TERM> 91,866
<COMMON> 163,208
0
0
<OTHER-SE> 335,849
<TOTAL-LIABILITIES-AND-EQUITY> 5,051,111
<INTEREST-LOAN> 59,760
<INTEREST-INVEST> 29,203
<INTEREST-OTHER> 1,649
<INTEREST-TOTAL> 90,612
<INTEREST-DEPOSIT> 31,884
<INTEREST-EXPENSE> 46,352
<INTEREST-INCOME-NET> 44,260
<LOAN-LOSSES> 1,870
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 37,498
<INCOME-PRETAX> 20,055
<INCOME-PRE-EXTRAORDINARY> 15,219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,219
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 8.02
<LOANS-NON> 8,562
<LOANS-PAST> 5,183
<LOANS-TROUBLED> 5,732
<LOANS-PROBLEM> 10,689
<ALLOWANCE-OPEN> 40,216
<CHARGE-OFFS> 2,193
<RECOVERIES> 1,043
<ALLOWANCE-CLOSE> 40,936
<ALLOWANCE-DOMESTIC> 40,936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
