<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 Commission file number 0-8415
ended December 31, 1994
DAUPHIN DEPOSIT CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1938831
- ------------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
ofincorporation or organization) Number)
213 Market Street, Harrisburg,
Pennsylvania 17105
- ------------------------------------- -------------------------------------
(Address of principal executive (Zip Code)
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
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(Title of Class)
Common Stock Repurchase Rights
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(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: $658,402,022 at February 1, 1995
List documents incorporated by reference herein:
Proxy Statement to be dated as of March 17, 1995- 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 Outstanding at February 1, 1995
Common Stock, $5 Par Value 30,948,885
- ------------------------------------- -------------------------------------
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. [X]
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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.......................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........ 8
Item 4A. Executive Officers of the Registrant....................... 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Selected Financial Data.................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 8. Financial Statements and Supplementary Data................ 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 59
PART III
Item 10. Directors and Executive Officers of the Registrant......... 60
Item 11. Executive Compensation..................................... 60
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 60
Item 13. Certain Relationships and Related Transactions............. 60
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 61
SIGNATURES 63
</TABLE>
2
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DAUPHIN DEPOSIT CORPORATION
PART I
------
ITEM 1. BUSINESS
Dauphin Deposit Corporation (Dauphin) is a bank holding company, incorporated
under the laws of the Commonwealth of Pennsylvania in 1974. Dauphin's wholly-
owned bank subsidiary is Dauphin Deposit Bank and Trust Company (Dauphin Bank),
which includes the Bank of Pennsylvania, Valleybank and Farmers Bank Divisions,
through which Dauphin provides banking services. Dauphin Bank is 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. Dauphin Bank is a Pennsylvania chartered bank and trust company and
is not a member of the Federal Reserve System. Dauphin Bank's deposits are
insured by the Federal Deposit Insurance Corporation (FDIC) to the extent
provided by law.
On January 1, 1994, Valley Bank and Trust Company of Chambersburg,
Pennsylvania (Valleybank) merged into Dauphin Bank, with Dauphin Bank as the
surviving institution. Valleybank had its principal place of business in
Chambersburg, Franklin County, Pennsylvania. Valleybank maintained 14 offices
and had total deposits of $285,310,000 and total loans of $219,255,000. The
former Valleybank offices are now operated by Dauphin Bank as its Valleybank
Division.
On February 1, 1994, Dauphin sold 100% of the issued and outstanding stock of
Farmers Bank, a Federal Savings Bank (Farmers Savings) for a cash purchase
price of $797,000. Farmers Savings operated one office in Baltimore City and
one office in Baltimore County, Maryland. Farmers Savings became a wholly-owned
subsidiary of Dauphin on July 1, 1992 as a result of the merger of FB&T
Corporation with and into Dauphin. Farmers Savings had total assets of $12.7
million at December 31, 1993. The sale of Farmers Savings did not have a
material impact on the financial condition or results of operations for Dauphin
in 1994.
On July 1, 1994, Dauphin Bank merged with Farmers Bank and Trust Company of
Hanover, Pennsylvania (Farmers Bank), with Dauphin Bank as the surviving bank.
Farmers Bank had its principal place of business in Hanover, York County,
Pennsylvania. Both Dauphin Bank and Farmers Bank, at the time of merger, were
wholly-owned subsidiaries of Dauphin. Farmers Bank maintained 15 offices and
had total deposits of $477,003,000 and total loans of $380,199,000. The former
Farmers Bank offices are now operated by Dauphin Bank as its Farmers Bank
Division.
Also on July 1, 1994, Dauphin Bank acquired 100% of the issued and
outstanding stock of Eastern Mortgage Services, Inc. (Eastern Mortgage), a full
service mortgage banking company which originates, services and sells first and
second residential mortgage loans of varying types. Eastern Mortgage primarily
serves the eastern Pennsylvania and New Jersey mortgage markets. Eastern
Mortgage packages its mortgage loans for sale in the secondary mortgage market
and is an approved mortgage lender by, among others, FNMA, FHLMC, FHA, GNMA and
VA.
Dauphin is registered with and is subject to regulatory supervision by the
Board of Governors of the Federal Reserve System (Federal Reserve Board) under
the Bank Holding Company Act of 1956, as amended. Following the sale of Farmers
Savings, Dauphin is no longer subject to regulatory supervision by the Office
of Thrift Supervision (OTS). Dauphin 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 operation of Dauphin Bank, 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 AND TRUST COMPANY
- ------------------------------
Dauphin Bank, which includes the Bank of Pennsylvania, Valleybank and Farmers
Bank Divisions, maintains 104 offices with 94 automated teller machines located
in Adams, Berks, Chester, Cumberland, Dauphin, Franklin,
3
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DAUPHIN DEPOSIT CORPORATION
Lancaster, Lebanon, Lehigh, Montgomery, Northampton and York Counties,
Pennsylvania. 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. Dauphin Bank
maintains multiple offices in nine south central Pennsylvania counties. Single
offices are located in each of Chester, Montgomery and Northampton County, in
near proximity to the boundary lines with Berks and Lehigh Counties. The
amounts of deposits attributable to zip code areas within Chester, Montgomery
and Northampton Counties are insignificant in terms of the amounts of deposits
attributable to zip code areas in the other nine counties. Accordingly, the
Adams, Berks, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Lehigh and
York nine county region constitutes the principal geographic area for Dauphin
Bank.
At December 31, 1994, Dauphin Bank had total deposits of $3,515,621,000 and
total loans of $2,863,455,000.
NON-BANKING SUBSIDIARIES
- ------------------------
Eastern Mortgage Services, Inc. (Eastern Mortgage) is a Pennsylvania mortgage
banking corporation which was acquired by Dauphin Bank on July 1, 1994. Eastern
Mortgage is a full service mortgage banking company which originates, services
and sells first and second residential mortgage loans of varying types
primarily to the eastern Pennsylvania and New Jersey mortgage markets.
Dauphin Life Insurance Company (Dauphin Life) is an Arizona corporation which
was formed in 1979 as a wholly-owned subsidiary of Dauphin. Dauphin Life
reinsures credit life, health and accident insurance directly related to
extensions of credit by Dauphin Bank and is presently limited to those
activities by regulations of the Federal Reserve Board. Directors of Dauphin
Life are officers or directors of Dauphin. 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 Dauphin Life.
Dauphin Investment Company (Dauphin Investment) is a Delaware corporation
which was formed in 1982 as a wholly-owned subsidiary of Dauphin. Dauphin
Investment manages equity investments for Dauphin. Directors of Dauphin
Investment are officers or directors of Dauphin.
Financial Realty, Inc. is a wholly-owned subsidiary of Dauphin. 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. (Hopper Soliday) is a wholly-owned subsidiary of
Dauphin acquired effective July 1, 1991. Hopper Soliday 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
Dauphin acquired through the merger of FB&T Corporation on July 1, 1992.
Farmers Mortgage was organized in 1983 as a Pennsylvania mortgage banking
corporation. Following Dauphin Bank's acquisition of Eastern Mortgage on July
1, 1994, Farmers Mortgage has been inactive.
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 Dauphin on July 1, 1992, is now a wholly-
owned subsidiary of Dauphin. FARMCO is a real estate holding company which
holds property leased to Dauphin Bank for its branch office locations.
4
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DAUPHIN DEPOSIT CORPORATION
Financial Mineral Corporation is a Pennsylvania corporation wholly-owned by
Dauphin Bank which was formed to hold assets acquired in loan liquidations.
Dauphin is in the process of dissolving Financial Mineral Corporation.
Financial Land Corporation is a Pennsylvania corporation wholly-owned by
Dauphin Bank which was formed to hold assets acquired in loan liquidations.
Reliance Consumer Discount Company (Discount Company) was a wholly-owned
subsidiary of Dauphin acquired through the merger of FB&T Corporation on July
1, 1992. The assets of Discount Company were sold by Dauphin in October 1992
and Discount Company was dissolved during 1994.
COMPETITION
- -----------
The banking industry in Dauphin Bank's service area 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. Mortgage
banking firms, real estate investment trusts, insurance companies, leasing
companies, financial affiliates of industrial companies, brokerage and
factoring companies and government agencies also provide additional competition
for loans and for many other financial services. Some of the financial services
providers operating in Dauphin's market area operate on a regional and, in some
cases, national scale, and possess resources greater than those of Dauphin.
SUPERVISION AND REGULATION
- --------------------------
Dauphin is subject to regulation by the Pennsylvania Department of Banking,
the Federal Reserve Board and the Securities and Exchange Commission. The
deposits of Dauphin Bank are insured by the FDIC and Dauphin Bank is a member
of the Bank Insurance Fund which is administered by the FDIC. Dauphin Bank is
subject to regulation and supervision by the Pennsylvania Department of Banking
and the FDIC. On January 31, 1995, Dauphin Bank applied to become a member bank
of the Federal Reserve System by filing an application for membership with the
Federal Reserve Bank of Philadelphia. Upon effectiveness of the application,
Dauphin Bank's primary federal banking regulator will be the Federal Reserve
Board rather than the FDIC. Dauphin Bank's deposits will continue to be insured
by the FDIC following membership in the Federal Reserve System and the impact
to Dauphin Bank from a regulatory and supervisory point of view is expected to
be minimal.
Dauphin 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 (BHC Act). The
Federal Reserve Board may also make examinations of Dauphin 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, Dauphin 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 Dauphin 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
5
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DAUPHIN DEPOSIT CORPORATION
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
(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, Maine, Maryland, Michigan, New
Jersey, New York, Ohio, Oregon, Rhode Island, Utah, Vermont, Washington, West
Virginia and Wyoming authorize interstate ownership of banks and bank holding
companies in each of those states and Pennsylvania. 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.
Prior to the passage of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Riegle-Neal Act) in September 1994, interstate banking
was restricted under the terms of the Douglas Amendment to the BHC Act which
prohibited the Federal Reserve Board from approving an application by a bank
holding company located in one state to acquire a bank or all of its assets
located in another state unless the acquisition was specifically authorized by
a reciprocal interstate banking statute, such as the statute adopted in
Pennsylvania in 1990, specifically permitting interstate acquisitions.
Similarly, interstate branching was prohibited for national banks and state-
chartered member banks by the McFadden Act, although some states, not including
Pennsylvania, had passed laws permitting limited interstate branching by non-
Federal Reserve member state banks. The Riegle-Neal Act, which was signed by
President Clinton on September 29, 1994, permits an adequately capitalized,
adequately managed bank holding company to acquire a bank in another state as
of September 29, 1994, whether or not the state permits the acquisition,
subject to certain deposit concentration caps and the Federal Reserve Board's
approval. A state may not impose discriminatory requirements on acquisitions by
out-of-state holding companies. In addition, beginning on June 1, 1997, under
the Riegle-Neal Act, a bank can expand interstate by merging with a bank in
another state and also may consolidate the acquired bank into new branch
offices of the acquiring bank, unless the other state affirmatively opts out of
the legislation before that date. A state may also opt into the legislation
earlier than June 1, 1997 if it wishes to do so. The Riegle-Neal Act also
permits de novo interstate branching as of June 1, 1997 but only if a state
affirmatively opts in by appropriate legislation. Once a state opts in to
interstate branching, it may not opt out at a later date. The Riegle-Neal Act
also allows foreign banks to branch by merger or de novo branch to the same
extent as banks from the foreign bank's home state. The Riegle-Neal Act also
subjects foreign banks to some additional requirements, including extending
obligations under the Community Reinvestment Act to certain foreign bank
acquisitions and regulating the types of activities off-shore branches of
foreign banks may conduct. The Pennsylvania Legislature has not taken any
action at this time to either opt in or opt out of the provisions of the
Riegle-Neal Act and management of Dauphin cannot predict with any reasonable
degree of certainty the effects, if any, which the Riegle-Neal Act may have on
Dauphin.
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. During
1993, a risk-based assessment was established which requires banks to pay an
assessment rate based on the combination of their 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
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DAUPHIN DEPOSIT CORPORATION
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, 1994, Dauphin and Dauphin Bank were deemed to be well-capitalized.
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 that generally restricts federally insured
state banks, such as Dauphin Bank, to activities permitted to national banks.
Under final FDIC rules implementing Section 303, 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 Dauphin Bank's 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. On October 7,
1994, the agencies published revised proposed regulations. The public comment
period expired November 21, 1994. The revised 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
revised proposed regulations may require changes in certain operating
procedures and additional costs, both of which cannot currently be determined.
EMPLOYEES
- ---------
At December 31, 1994, Dauphin and its subsidiaries employed approximately
2,300 persons.
ITEM 2. PROPERTIES
Dauphin's principal office is located in Dauphin Bank's main banking offices
at 213 Market Street, Harrisburg, Pennsylvania. Dauphin owns no real estate.
Dauphin Bank, Financial Realty, Inc. and FARMCO Realty, Inc. own 71 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. Eastern Mortgage leases 13 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 Dauphin's
last fiscal year did not exceed five percent of its operating expenses.
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DAUPHIN DEPOSIT CORPORATION
ITEM 3. LEGAL PROCEEDINGS
Various legal actions or proceedings are pending involving Dauphin and/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 Dauphin as
of February 1, 1995 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.
<TABLE>
<CAPTION>
POSITION AND
BUSINESS EXPERIENCE
NAME AGE DURING PAST 5 YEARS
---- --- -------------------
<S> <C> <C>
Christopher R. Jennings. 51 Chairman of the Board and Chief Executive Officer
(January 1995 to date) of Dauphin and Dauphin
Bank, President (1987 to 1995), Chief Operating
Officer (1992 to 1995) of Dauphin.
Robert L. Fryer, Jr. ... 46 President and Chief Operating Officer (February
1995 to date) of Dauphin, Chairman of the Board
and Chief Executive Officer (1991 to date),
President (1991 to 1994) of Hopper Soliday & Co.,
Inc., formerly, President, W.H. Newbold's Son and
Co.
Lawrence J. LaMaina, Jr. 60 Vice Chairman (1992 to date) of Dauphin, President
(1994 to date) of the Southern Division of Dauphin
Bank, formerly Chairman, President and Chief
Executive Officer of Farmers Bank and Trust
Company.
Paul B. Shannon......... 47 Vice Chairman (1994 to date), Senior Executive
Vice President (1990 to 1994), Chief Credit Policy
Officer (1990 to date) of Dauphin, President (1992
to date) and Chief Credit Policy Officer (1990 to
date) of Dauphin Bank.
Dennis L. Dinger........ 44 Senior Executive Vice President, Chief Fiscal and
Administrative Officer (1994 to date), Executive
Vice President and Chief Financial Officer (1989
to 1994) of Dauphin and Dauphin Bank.
Richard B. Brokenshire.. 53 Executive Vice President and Chief Operations
Officer of Dauphin and Dauphin Bank.
Kenneth H. Sallade...... 43 Executive Vice President and Chief Investment
Officer (1994 to date) of Dauphin and Dauphin
Bank, Senior Vice President (1988 to 1994) of
Dauphin Bank.
</TABLE>
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DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
POSITION AND
BUSINESS EXPERIENCE
NAME AGE DURING PAST 5 YEARS
---- --- -------------------
<S> <C> <C>
Joseph T. Lysczek, Jr. . 46 Senior Vice President and Treasurer (1992 to date)
of Dauphin, Senior Vice President and Treasurer
(1994 to date), Vice President (1991 to 1994) of
Dauphin Bank, Vice President and Investment
Officer (1988 to 1991) of the Bank of Pennsylvania
Division of Dauphin Bank.
Claire D. Flemming...... 60 Senior Vice President and Secretary of Dauphin and
Dauphin Bank.
James J. Trupp, Jr. .... 48 Senior Vice President and General Auditor (1992 to
date) of Dauphin and Dauphin Bank, Vice
President--Audit Manager (1991 to 1992) of
Dauphin, Vice President and Treasurer (1988 to
1991) of the Bank of Pennsylvania Division of
Dauphin Bank.
</TABLE>
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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 DEPOSIT CORPORATION STOCK AND DIVIDENDS PAID
The price information provided below reflects actual high, low and closing
prices as quoted on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
DECLARED
HIGH LOW CLOSING PER SHARE
------- ------- ------- ---------
<S> <C> <C> <C> <C>
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
1994
First Quarter................................. $26 $22 3/4 $23 3/4 $.23
Second Quarter................................ 27 1/2 22 3/4 26 1/4 .23
Third Quarter................................. 27 1/4 24 3/4 25 .23
Fourth Quarter................................ 25 1/2 22 1/2 23 5/8 .25
</TABLE>
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DAUPHIN DEPOSIT CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993* 1992* 1991* 1990*
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income..... $ 178,466 $ 176,273 $ 166,759 $ 151,832 $ 141,836
Provision for loan loss-
es..................... 7,494 10,141 11,627 10,836 9,801
Non-interest income..... 60,947 60,051 55,683 45,599 40,713
Non-interest expense.... 139,118 136,281 131,308 116,263 102,365
Net income.............. 70,039 67,917 61,031 56,179 55,589
Per share:
Net income............ 2.18 2.08 1.89 1.79 1.74
Cash dividends de-
clared............... .94 .83 .77 .74 1/2 .71 3/4
Weighted average number
of shares outstanding.. 32,169,734 32,636,150 32,240,583 31,430,992 31,958,534
AT YEAR-END
Total assets............ $5,070,352 $4,916,855 $4,905,702 $4,578,941 $4,368,272
Earning assets.......... 4,706,198 4,653,015 4,568,334 4,264,580 4,029,473
Short-term investments.. 15,040 16,523 91,950 34,787 136,438
Investment securities... 1,783,803 2,041,204 2,056,109 1,821,148 1,586,294
Loans................... 2,861,133 2,586,085 2,411,772 2,402,778 2,302,085
Deposits................ 3,514,884 3,586,135 3,692,209 3,614,070 3,475,682
Long-term debt.......... 91,954 92,454 92,863 44,183 49,019
Stockholders' equity.... 466,649 506,075 462,111 409,694 371,673
Book value per share
Including unrealized
impact of securities
available-for-sale... 15.08 15.57 14.28 13.03 11.94
Excluding unrealized
impact of securities
available-for-sale... 16.41 15.57 14.28 13.03 11.94
Number of shares out-
standing............... 30,945,167 32,507,414 32,356,559 31,430,305 31,126,261
RATIOS
Return on average as-
sets................... 1.42% 1.40% 1.31% 1.27% 1.34%
Return on average stock-
holders' equity
Including unrealized
impact of securities
available-for-sale... 13.81 14.06 13.93 14.46 15.34
Excluding unrealized
impact of securities
available-for-sale... 13.72 14.06 13.93 14.46 15.34
Dividend payout......... 43.12 39.90 40.74 41.62 41.24
Average equity to aver-
age assets............. 10.27 9.99 9.37 8.79 8.73
</TABLE>
- --------
* Restated to reflect pooling-of-interests.
11
<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, Farmers Bank and Valleybank Divisions. The
other primary subsidiaries include Hopper Soliday & Co., Inc., a broker/dealer,
and Eastern Mortgage Services, Inc., a mortgage banking company. This
discussion and analysis should be read in conjunction with the financial
statements which appear elsewhere in this report.
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. Accordingly,
financial data presented for prior periods has been restated to reflect this
acquisition as if it had occurred at the beginning of the periods presented.
On August 23, 1993 Dauphin entered into an agreement to sell 100% of the
stock of Farmers Savings Bank, a Federal Savings Bank (Farmers Savings), for
$797,000. The sale was consummated on February 1, 1994. Farmers Savings had
total assets of $11,674,000 million at January 31, 1994. The sale of Farmers
Savings did not have a material impact on the financial condition or results of
operations for Dauphin in 1994.
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.
On January 1, 1994, Dauphin adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities". 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, net of deferred
taxes. Management determined that the entire investment securities portfolio
would be classified as available-for-sale. On January 1, 1994, this change
resulted in an increase in investment securities of $64.7 million and an
increase in stockholders' equity of $42.1 million, representing the after tax
impact. On December 31, 1994, this accounting change resulted in a decrease in
investment securities of $63.1 million and a decrease in stockholders' equity
of $41.0 million, representing the after tax impact.
RESULTS OF OPERATIONS
SUMMARY
Dauphin recorded net income of $70.0 million for 1994, compared with $67.9
million recorded in 1993. On a per common share basis, net income rose to $2.18
from $2.08 in 1993 and $1.89 in 1992. The 1994 results of operations represent
the 23rd consecutive year that Dauphin has reported increased earnings per
share.
12
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Return on average total assets was 1.42% for 1994, compared with 1.40% for
1993 and 1.31% for 1992. Return on average equity, excluding the SFAS 115
adjustment, was 13.72% for 1994 compared with 14.06% for 1993 and 13.93% for
1992. Return on average stockholders' equity, including the SFAS 115
adjustment, was 13.81% for 1994.
During 1994 average earning assets increased 1.9% to $4.6 billion and the net
interest margin decreased from 4.21% to 4.17%. This growth in earning assets
and the reduction in net interest margin resulted in an increase of $2.2
million or 1.2% 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 .64% of year-end loans and other real
estate owned, down from 1.07% at December 31, 1993. The allowance for loan
losses was 1.41% of year-end loans at December 31, 1994 compared with 1.52% at
December 31, 1993. Non-performing loans were covered 2.7 times by the allowance
for loan losses. The allowance includes $1.7 million which is not allocated to
any specific loan category. Because of this strong asset quality, the provision
for loan losses was decreased by $2.6 million in 1994.
Non-interest income, other than securities gains, increased $.8 million, or
1.4%. Increased income was the result of growth in fiduciary activities,
increase in volume of merchant credit card processing and mortgage banking
activities. Offsetting these increases was a decline in commission and fee
income generated by Hopper Soliday & Co., Inc. (Hopper Soliday) and the 1993
non-recurring tax refund from a settlement with the Commonwealth of
Pennsylvania.
Non-interest expense items increased $2.8 million, or 2.1%. Contributing to
this increase were normal salary adjustments and controlled additions to
staffing levels and the addition of the results of Eastern Mortgage.
Additionally, other non-interest expenses decreased due to reduced professional
fees and other 1993 merger-related expenses.
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.
13
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 1--AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994 1993 1992
--------------------------- --------------------------- ---------------------------
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
deposits.............. $ 5,481 $ 338 6.17% $ 5,764 $ 219 3.80% $ 3,998 $ 179 4.48%
Federal funds sold and
securities purchased
under agreements to
resell................ 11,325 603 5.32 11,333 388 3.42 22,013 865 3.93
---------- -------- ---------- -------- ---------- --------
Total short-term
investments........... 16,806 941 5.60 17,097 607 3.55 26,011 1,044 4.01
---------- -------- ---------- -------- ---------- --------
Investment securities
U.S. government and
agency obligations.... 1,436,724 87,820 6.11 1,519,457 94,740 6.24 1,383,179 98,182 7.10
State and municipals... 407,287 38,826 9.53 372,129 37,902 10.19 371,345 37,732 10.16
Other securities....... 98,965 6,537 6.61 147,600 10,455 7.08 199,799 15,722 7.87
---------- -------- ---------- -------- ---------- --------
Total investment
securities............ 1,942,976 133,183 6.85 2,039,186 143,097 7.02 1,954,323 151,636 7.76
---------- -------- ---------- -------- ---------- --------
Assets held for sale,
primarily mortgage
loans.................. 29,586 2,136 7.22 36,071 1,845 5.11 12,129 920 7.59
---------- -------- ---------- -------- ---------- --------
Loans (1)
Commercial............. 1,444,884 114,184 7.90 1,404,581 103,731 7.39 1,373,611 109,420 7.97
Residential mortgages
(2)................... 700,886 55,343 7.90 645,292 53,401 8.28 553,765 50,946 9.20
Consumer (3)........... 504,780 40,463 8.02 409,664 37,511 9.16 472,598 47,865 10.13
---------- -------- ---------- -------- ---------- --------
Total loans............ 2,650,550 209,990 7.92 2,459,537 194,643 7.91 2,399,974 208,231 8.68
---------- -------- ---------- -------- ---------- --------
Total earning assets... 4,639,918 346,250 7.46 4,551,891 340,192 7.47 4,392,437 361,831 8.24
-------- -------- --------
Other assets............ 301,091 283,655 283,263
---------- ---------- ----------
Total assets........... $4,941,009 7.01% $4,835,546 7.04% $4,675,700 7.74%
========== ==== ========== ===== ========== =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
deposits
Demand deposits........ $ 564,592 9,579 1.70% $ 530,503 13,010 2.45% $ 475,026 15,338 3.23%
Savings deposits....... 1,050,580 27,096 2.58 1,120,871 29,826 2.66 1,052,305 37,472 3.56
Time deposits of
$100,000 or more...... 286,612 15,140 5.28 302,795 14,226 4.70 336,601 17,530 5.21
Other time deposits.... 1,196,905 62,072 5.19 1,222,214 65,536 5.36 1,396,324 86,904 6.22
---------- -------- ---------- -------- ---------- --------
Total interest bearing
deposits.............. 3,098,689 113,887 3.68 3,176,383 122,598 3.86 3,260,256 157,244 4.82
Short-term borrowings... 778,906 32,056 4.12 646,187 19,436 3.01 482,979 17,048 3.53
Long-term debt.......... 92,048 6,698 7.28 92,521 6,738 7.28 78,342 5,930 7.57
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities........... 3,969,643 152,641 3.85 3,915,091 148,772 3.80 3,821,577 180,222 4.72
-------- -------- --------
Non-interest bearing
demand deposits........ 407,556 392,129 363,907
Other liabilities....... 56,598 45,237 51,969
Stockholders' equity.... 507,212 483,089 438,247
---------- ---------- ----------
Total liabilities and
stockholders' equity.. $4,941,009 3.09% $4,835,546 3.08% $4,675,700 3.85%
========== ==== ========== ===== ========== =====
Interest rate spread.... 3.61% 3.67% 3.52%
Effect of non-interest
bearing funds.......... .56 .54 .61
---- ----- -----
Net interest
income/margin.......... $193,609 4.17% $191,420 4.21% $181,609 4.13%
======== ==== ======== ===== ======== =====
</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.
14
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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 1994 and 1993 and
34% for 1992.
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, 1994.
TABLE 2--NET INTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Total interest income................................ $331,107 $325,045 $346,981
Total interest expense............................... 152,641 148,772 180,222
-------- -------- --------
Net interest income.................................. 178,466 176,273 166,759
Tax equivalent adjustment............................ 15,143 15,147 14,850
-------- -------- --------
Net interest income (fully taxable equivalent)....... $193,609 $191,420 $181,609
======== ======== ========
</TABLE>
TABLE 3--RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994/1993 1993/1992
------------------------- ---------------------------
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
investments.......... $ (11) $ 345 $ 334 $ (307) $ (130) $ (437)
Investment securities. (4,938) (4,976) (9,914) 5,399 (13,938) (8,539)
Assets held for sale.. (377) 668 291 1,311 (386) 925
Loans................. 16,015 (668) 15,347 5,325 (18,913) (13,588)
------- ------- ------- ------- -------- --------
Total interest
income............. 10,689 (4,631) 6,058 11,728 (33,367) (21,639)
------- ------- ------- ------- -------- --------
Interest expense
Interest bearing
deposits............. (3,181) (5,530) (8,711) (7,832) (26,814) (34,646)
Short-term borrowings. 4,518 8,102 12,620 5,160 (2,772) 2,388
Long-term borrowings.. (34) (6) (40) 1,040 (232) 808
------- ------- ------- ------- -------- --------
Total interest
expense............ 1,303 2,566 3,869 (1,632) (29,818) (31,450)
------- ------- ------- ------- -------- --------
Net interest income..... $ 9,386 $(7,197) $ 2,189 $13,360 $ (3,549) $ 9,811
======= ======= ======= ======= ======== ========
</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 $193.6
million in 1994, an increase of $2.2 million or 1.1% from $191.4 million in
1993. Net interest income in 1993 was up 5.4% from $181.6 million in 1992.
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 1994 there was an increase in net interest income of $9.4 million due
to changes in volume and a decrease of $7.2 million due to changes in rate. In
1993 there was an increase of $13.3 million due to changes in volume and a
decrease of $3.5 million due to changes in rate.
15
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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 were $4.6 billion in 1994 and
in 1993 and $4.4 billion in 1992. The interest rate spread for 1994 was 3.61%
compared with 3.67% for 1993 and 3.52% for 1992. The net interest margin for
1994 was 4.17% compared with 4.21% for 1993 and 4.13% for 1992.
TABLE 4--INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
1994 1993 1992
------------ ------------ ------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
(Taxable equivalent)
Earning assets....................... $4,640 7.46% $4,552 7.47% $4,392 8.24%
====== ====== ======
Interest bearing liabilities......... $3,970 3.85 $3,915 3.80 $3,822 4.72
---- ---- ----
Interest rate spread................. 3.61 3.67 3.52
Interest free sources used to fund
earning assets...................... 670 637 570
------ ---- ------ ---- ------ ----
Total sources of funds............... $4,640 3.29 $4,552 3.26 $4,392 4.11
====== ---- ====== ---- ====== ----
Net interest margin.................. 4.17% 4.21% 4.13%
==== ==== ====
</TABLE>
Interest rates rose during 1994. The average prime rate in 1994 was 7.17%
compared with 6.00% in 1993. The average federal funds rate increased to 4.23%
for 1994 compared with 3.02% for 1993. During 1994, compared with 1993, the
average yield on earning assets decreased 1 basis point while the average cost
of funds increased 5 basis points resulting in a decrease in the interest rate
spread of 6 basis points. The yield on the investment portfolio decreased 17
basis points due to the reinvestment of maturities at significantly lower
rates, when compared with the yield of the security maturing. Average loans,
which represent the highest yielding earning assets, increased $191.0 million
or 7.8% and produced a yield of 7.92% in 1994 compared with 7.91% in 1993. This
slight increase was the result of a higher interest rate environment during
1994, somewhat offset by fee income which is included in interest income. The
reduction of fees, due to lower refinancings in residential mortgages, reduced
the yield by 2 basis points. Average loans represented 57.1% of the average
earning assets for 1994. The cost of interest bearing deposits decreased to
3.68% in 1994 compared with 3.86% in 1993. Rates paid on interest bearing
transaction accounts decreased in early 1994 and remained relatively flat
throughout the year. Interest rates on time deposits have recently been rising.
Consequently, depositors are shifting from transaction accounts to higher
yielding time deposits, reversing the trend of the prior three years. The
increase in the cost of short-term borrowings (111 basis points) was caused
primarily by the rise in the federal funds rate. While the interest rate spread
decreased 6 basis points, the increased value of non-interest bearing funds in
a higher interest rate environment, resulted in only a 4 basis point decline in
net interest margin.
Interest rates fell 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 92 basis points resulting in an increase in the
interest rate spread of 15 basis points. The yield on the investment portfolio
decreased 74 basis points due to the reinvestment of maturities at
significantly lower rates. Average loans, which represent the highest yielding
earning assets, increased $59.6 million or 2.5% and produced a yield of 7.91%
in 1993 compared with 8.68% in 1992. This 77 basis point decrease in yield was
16
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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 54.0% of the
average earning assets for 1993. The cost of interest bearing deposits
decreased to 3.80% in 1993 compared with 4.72% 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. The increase in the interest rate spread, adjusted by
the decline in the value of non interest bearing deposits in a lower interest
rate environment, negatively affected the increase in the net interest margin.
Dauphin's cost of interest bearing funds is generally higher, and its net
interest margin is generally lower, when compared with banking companies of
Dauphin's asset size. An important factor in these comparative differences is
certain individual retirement accounts which are invested in eighteen (18)
month variable interest rate products with a minimum interest rate of 10% as
discussed herein under "Deposits". If these interest rate products had paid
interest at Dauphin's weighted average cost of funds for all other retail
certificates of deposit, Dauphin's cost of interest bearing liabilities would
have decreased by 24 basis points, 21 basis points and 15 basis points for
1994, 1993 and 1992, respectively.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged against earnings was $7.5 million in
1994 compared with $10.1 million in 1993, a decrease of 26.1%. This decrease
was mainly due to the improved 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 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 .24% in
1994 from .29% in 1993 and the level of non-accruing loans and restructured
loans decreased to $15.2 million (.53% of year-end loans) at December 31, 1994
from $24.8 million (.96% of year-end loans) at December 31, 1993.
NON-INTEREST INCOME
Total non-interest income increased $.9 million or 1.5% in 1994 compared with
an increase of $4.4 million or 7.8% in 1993. Excluding gains on investment
securities, the 1994 increase was $.8 million or 1.4% compared with an increase
of $5.1 million or 9.9% for 1993.
Income from fiduciary activities increased $1.1 million or 7.4% in 1994.
Revenue in 1994 increased in the areas of employee benefits and personal trust.
The increase of $.3 million or 1.7% in 1993 was negatively impacted by a
decline in trust income fees as interest rates fell during 1993. Estate fees
also declined in 1993 when compared to 1992.
Service charges on deposit accounts decreased $1.0 million or 8.1% during
1994. In 1993, an increase of $1.1 million or 9.2% was realized. Management
continuously monitors the fee structure and makes changes where appropriate.
The 1994 decrease was primarily due to a lower number of fees assessed for
services in 1994.
17
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Other service charges and fees increased $2.1 million or 23.4% in 1994
compared with an increase of $1.1 million or 14.0% in 1993. The increase for
1994 and 1993 was due to increases in volume of merchant credit card processing
and other fees relating to increased volume in consumer lending.
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. Gross income decreased
26.8% primarily as a result of a 35% decrease in volume of bond issues
underwritten. The national decrease of bond issues underwritten was 44%.
The mortgage banking subsidiary, Eastern Mortgage, was purchased as of July
1, 1994. The increase of $5.1 million in mortgage banking income is due to the
acquisition of a full service mortgage banking operation for six months. Prior
year's income includes a limited mortgage banking operation within other
subsidiaries.
Securities gains totaled $3.3 million in 1994 as compared with $3.2 million
in 1993 and $4.0 million in 1992. The sale of debt securities generated $2.4
million in net gains for 1994. The sale of equity securities generated $.9
million in net gains. During 1993 the sale of debt securities generated $1.5
million in net gains compared with $1.7 million in net gains from equity
securities transactions.
Other non-interest income decreased $3.7 million for 1994 compared with 1993.
In 1993, compared with 1992, other non-interest income increased $3.1 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 was the result of
litigation contesting the Commonwealth's ability to tax United States
Obligations.
TABLE 5--NON-INTEREST INCOME
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994/1993 1993/1992
---------------------- ------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
-------------- -------------
1994 AMOUNT % 1993 AMOUNT % 1992
------- ------- ----- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiduciary activities.... $16,363 $ 1,126 7.4% $15,237 $ 258 1.7% $14,979
Service charges on
deposit accounts....... 11,598 (1,028) (8.1) 12,626 1,064 9.2 11,562
Other service charges
and fees............... 11,272 2,134 23.4 9,138 1,124 14.0 8,014
Broker/dealer
commissions and fees... 7,783 (2,851) (26.8) 10,634 (613) (5.5) 11,247
Mortgage banking........ 7,462 5,131 220.1 2,331 214 10.1 2,117
Securities gains, net... 3,304 78 2.4 3,226 (738) (18.6) 3,964
Other................... 3,165 (3,694) (53.9) 6,859 3,059 80.5 3,800
------- ------- ------- ------ -------
Total................. $60,947 $ 896 1.5% $60,051 $4,368 7.8% $55,683
======= ======= ===== ======= ====== ===== =======
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense increased $2.8 million or 2.1% in 1994 compared with an
increase of $5.0 million or 3.8% in 1993. Without including the expenses of
Hopper Soliday and Eastern Mortgage, a decrease of $5.0 million or 4.0% was
realized in 1994 compared with an increase of $5.3 million or 4.4% for 1993.
Salaries and employee benefits increased 5.8% in 1994 and 1.3% in 1993. The
$6.3 million increase for 1994 was, for the most part, due to the addition of
Eastern Mortgage, which was partially offset by a $1.8 million decrease in
Hopper Soliday's salaries and employee benefits due to the decreased commission
and fee income produced. Without Hopper Soliday and Eastern Mortgage, salaries
and employee benefits decreased $.5 million
18
<PAGE>
DAUPHIN DEPOSIT CORPORATION
or .9% for 1994 compared with 1993. For 1993, compared with 1992, the increase
was $1.1 million or 1.8%. Included in 1993 results is the impact of adopting
SFAS 112 which amounted to an incremental cost of $.5 million. As explained in
more detail in Note 14 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
8.1% to 2,300 at December 31, 1994 compared with 2,127 at year-end 1993. The
addition of Eastern Mortgage increased full-time employees by 318. The ratio of
average assets (millions) per average full-time equivalent employees was $2.31
for 1994 compared with $2.27 for 1993.
All other non-interest expense items decreased $1.2 million or 1.7% in 1994
and increased $4.1 million or 6.5% in 1993. Without the effect of Hopper
Soliday and Eastern Mortgage, the decrease would have been $4.5 million or 6.9%
for 1994 and an increase of $4.1 million or .3% for 1993. The decrease for 1994
was primarily the result of decreases in professional fees, other merger
related activities and the consolidation of Valley Bancorp., Inc. The increase
in 1993 included $.5 million in merger expenses in connection with the
acquisition of Valley Bancorp., Inc. along with increases in insurance,
occupancy expenses, professional fees, computer processing, purchased software
costs, merchant processing interchange expense and advertising expense.
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.
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. Recently, proposals have been made that, after the Bank Insurance
Fund reaches 1.25% of all insured deposits, could result in significant
reductions in Dauphin's deposit insurance.
TABLE 6--NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994/1993 1993/1992
--------------------- ------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
------------ -----------
1994 AMOUNT % 1993 AMOUNT % 1992
-------- ------ ---- -------- ------ --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits................ $ 72,556 $3,987 5.8% $ 68,569 $ 859 1.3% $ 67,710
Net occupancy expense.... 8,990 518 6.1 8,472 479 6.0 7,993
Furniture and equipment
expense................. 9,567 348 3.8 9,219 765 9.0 8,454
Deposit insurance........ 7,909 (194) (2.4) 8,103 (55) (.7) 8,158
Other.................... 40,096 (1,822) (4.3) 41,918 2,925 7.5 38,993
-------- ------ -------- ------ --------
Total.................. $139,118 $2,837 2.1% $136,281 $4,973 3.8% $131,308
======== ====== ==== ======== ====== === ========
</TABLE>
PROVISION FOR INCOME TAXES
Income tax expense amounted to $22.8 million in 1994 as compared with $22.0
million in 1993 and $18.5 million in 1992. Dauphin's effective tax rate for
1994 was 24.5% compared with 24.5% in 1993 and 23.2% in 1992. 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 year 1992 was increased by
$.5 million. 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 13 of the Notes to
Consolidated Financial Statements.
19
<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 $88.0 million or 1.9% in 1994 as compared with an increase of $159.5
million or 3.6% in 1993.
TABLE 7--SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994 1993 1992
--------------------------- ---------------------------- ----------
INCREASE INCREASE
(DECREASE) (DECREASE)
AVERAGE ---------------- AVERAGE ----------------- AVERAGE
BALANCE AMOUNT % BALANCE AMOUNT % BALANCE
---------- --------- ----- ---------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Short-term
investments.......... $ 16,806 $ (291) (1.7)% $ 17,097 $ (8,914) (34.3)% $ 26,011
Taxable investment
securities........... 1,535,689 (131,368) (7.9) 1,667,057 84,079 5.3 1,582,978
Tax exempt investment
securities........... 407,287 35,158 9.4 372,129 784 .2 371,345
Assets held for sale.. 29,586 (6,485) (18.0) 36,071 23,942 197.4 12,129
Loans................. 2,650,550 191,013 7.8 2,459,537 59,563 2.5 2,399,974
---------- --------- ---------- --------- ----------
Total uses.......... $4,639,918 $ 88,027 1.9% $4,551,891 $ 159,454 3.6% $4,392,437
========== ========= ===== ========== ========= ====== ==========
Funding sources:
Interest bearing
demand deposits...... $ 564,592 $ 34,089 6.4% $ 530,503 $ 55,477 11.7% $ 475,026
Savings deposits...... 1,050,580 (70,291) (6.3) 1,120,871 68,566 6.5 1,052,305
Time deposits......... 1,483,517 (41,492) (2.7) 1,525,009 (207,916) (12.0) 1,732,925
Short-term borrowings. 778,906 132,719 20.5 646,187 163,208 33.8 482,979
Long-term borrowings.. 92,048 (473) (.5) 92,521 14,179 18.1 78,342
Non-interest bearing
funds (net)(1)....... 670,275 33,475 5.3 636,800 65,940 11.6 570,860
---------- --------- ---------- --------- ----------
Total sources....... $4,639,918 $ 88,027 1.9% $4,551,891 $ 159,454 3.6% $4,392,437
========== ========= ===== ========== ========= ====== ==========
</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,
decreased $96.5 million or 4.7% during 1994 compared with an increase of $75.9
million or 3.8% during 1993. During 1994 loan growth exceeded the funding
source of both deposits and short-term borrowings and the investment portfolio
maturities were allocated for loan growth. During 1993 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 8.5 years at
year-end 1994. 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, 1994.
Dauphin had no investments in any foreign country that aggregated more than
1% of assets at December 31, 1994, 1993 or 1992.
20
<PAGE>
DAUPHIN DEPOSIT CORPORATION
At December 31, 1994, net unrealized losses in the portfolio were $63.1
million consisting of gross unrealized gains of $11.2 million and gross
unrealized losses of $74.3 million. Dauphin adopted 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 determined that the entire investment
securities portfolio would be classified as available-for-sale. The impact of
this change on January 1, 1994 resulted in an increase in investment securities
of $64.7 million and an increase in stockholders' equity of $42.1 million,
representing the after tax impact. The impact of this change on December 31,
1994 resulted in a decrease in investment securities of $63.1 million and a
decrease in stockholders' equity of $41.0 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, 1994
Maturity-amortized cost
basis
Within one year....... $ 84,158 $ 15,487 $ 5,514 $ 55,069 $ $ 160,228 6.04%
One to five years..... 150,793 225,914 31,597 24,493 432,797 6.41%
Five to ten years..... 16,842 227,642 64,984 370 309,838 7.40%
Over ten years........ 664,204 266,966 931,170 7.55%
No set maturity....... 12,903 12,903
-------- ---------- -------- -------- ------- ----------
Amortized cost.......... $251,793 $1,133,247 $369,061 $ 79,932 $12,903 $1,846,936
======== ========== ======== ======== ======= ==========
Fair value.............. $247,191 $1,077,822 $366,712 $ 79,179 $12,899 $1,783,803
Taxable equivalent
yield.................. 5.60% 6.60% 9.83% 6.83%
Average maturity........ 8.5 years
DECEMBER 31, 1993
Book value.............. $264,318 $1,263,299 $406,241 $ 93,592 $13,754 $2,041,204
DECEMBER 31, 1992
Book value.............. $316,032 $1,189,758 $367,491 $167,531 $15,297 $2,056,109
</TABLE>
LOANS
Average loans increased $191.0 million or 7.8% during 1994 compared with an
increase of $60.0 million or 2.5% in 1993. Loan demand continued to improve in
1994, primarily in the area of consumer loans.
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.
Loan balances during 1994 were influenced by the improving economy and, as a
result, balances in both the commercial and consumer areas increased.
Additionally, as interest rates increased, many residential mortgages were
originated into lower adjustable rate products. Dauphin continues to sell fixed
rate mortgages in the secondary market in order to avoid taking interest rate
risk.
21
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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, 1994.
TABLE 9--LOANS OUTSTANDING, NET OF UNEARNED INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural:
Commercial secured by
real estate.......... $ 466,657 $ 433,055 $ 435,899 $ 466,241 $ 490,742
Agricultural.......... 34,960 40,748 38,306 31,709 32,616
Other................. 680,113 665,514 641,161 650,969 577,207
Real estate, construc-
tion................... 183,673 184,523 138,023 136,037 110,654
Real estate, residential
(1).................... 913,445 804,205 786,396 757,284 730,590
Consumer................ 483,889 431,420 360,893 347,619 343,885
Lease financing......... 101,919 30,488 15,409 16,760 20,329
Unamortized net loan
fees................... (3,523) (3,868) (4,315) (3,841) (3,938)
---------- ---------- ---------- ---------- ----------
Total............... $2,861,133 $2,586,085 $2,411,772 $2,402,778 $2,302,085
========== ========== ========== ========== ==========
</TABLE>
- --------
(1) Includes home equity loans
TABLE 10--LOAN MATURITIES AND INTEREST SENSITIVITY (1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1994
------------------------------------------
ONE YEAR ONE THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricul-
tural.............................. $406,214 $290,567 $484,949 $1,181,730
Real estate, construction........... 42,950 17,778 122,945 183,673
-------- -------- -------- ----------
Total............................. $449,164 $308,345 $607,894 $1,365,403
======== ======== ======== ==========
Loans with predetermined interest
rate............................... $ 51,210 $133,154 $358,813 $ 543,177
Loans with variable interest rate... 397,954 175,191 249,081 822,226
-------- -------- -------- ----------
Total............................. $449,164 $308,345 $607,894 $1,365,403
======== ======== ======== ==========
</TABLE>
- --------
(1) Excludes residential mortgages, consumer loans and lease financing
DEPOSITS
Average deposits, including non-interest bearing demand deposits, decreased
$62.3 million or 1.7% during 1994 compared with a decrease of $55.7 million or
1.5% in 1993. Dauphin's subsidiary bank, like many other commercial banks, has
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. Rates paid
on interest bearing transaction accounts decreased in early 1994. Rates paid on
time deposits have been increasing due to rising interest rates. Depositors
appear to be shifting from transaction accounts to time deposits, reversing the
trend of the prior three years. Included in interest bearing deposits are
certain individual retirement accounts (IRA) totaling $173.5 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 the products in accordance with the terms
of the IRA contract. In furtherance of its right to terminate this investment
product, Dauphin commenced a legal action for a
22
<PAGE>
DAUPHIN DEPOSIT CORPORATION
declaratory judgment in 1994 seeking a judicial determination from the Court
permitting Dauphin to discontinue the 18 month variable rate investment product
at issue and/or to charge an annual maintenance fee and an additional fee on
rollovers or transfers into the IRA accounts. Dauphin's right to terminate the
variable rate investment product and to charge a service fee is in dispute and
is being challenged by the holders of the IRA accounts in question. It is
management's opinion that continuation of the 18 month variable rate investment
product is not in the best interests of Dauphin. Management intends to
vigorously assert its legal right to discontinue the 18 month variable rate
investment product. Also during 1994 and 1993 average time deposits decreased
$41.5 million and $207.9 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 11.6% in 1994, 11.0% for 1993 and 10.0% for 1992.
Dauphin's banking subsidiary has remained interest rate competitive and has
introduced new deposit products to maintain and attract deposits.
SHORT-TERM BORROWINGS
Average short-term borrowings increased $132.7 million or 20.5% during 1994
compared with an increase of $163.2 million or 33.8% in 1993. 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
1994 and 1993 was the result of a need to replace the decrease in time
deposits. The average cost of short-term borrowings decreased from 3.53% in
1992 to 3.01% in 1993 and increased to 4.12% in 1994.
NON-PERFORMING ASSETS
Table 11 reflects Dauphin's non-performing assets for the five years ended
December 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. 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 an in-substance foreclosure.
Loan quality is maintained through diversification of risk, strict
enforcement of credit control practices and continued monitoring of the loan
portfolio.
At December 31, 1994, 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 $11.1 million at December 31, 1994 compared with $7.0 million at
December 31, 1993.
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
23
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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 $8.2
million at December 31, 1994 and $7.2 at December 31, 1993 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,
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans................. $ 9,569 $17,450 $18,945 $18,033 $15,611
Restructured loans................ 5,599 7,352 6,327 194 202
------- ------- ------- ------- -------
Total non-performing loans.... 15,168 24,802 25,272 18,227 15,813
Other real estate owned........... 3,056 2,981 3,981 3,434 2,135
------- ------- ------- ------- -------
Total non-performing assets... $18,224 $27,783 $29,253 $21,661 $17,948
======= ======= ======= ======= =======
Ratios:
Non-performing loans to total
loans.......................... .53% .96% 1.05% .76% .69%
Non-performing assets to total
loans and other real estate
owned.......................... .64 1.07 1.21 .90 .78
Allowance for loan losses to
non-performing loans........... 265.14 157.98 143.35 175.34 184.59
Loans past due 90 or more days as
to interest or principal......... $ 5,149 $ 2,823 $ 5,409 $ 6,065 $ 7,605
======= ======= ======= ======= =======
</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,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------- --------------- --------------- --------------- ---------------
% 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....... $27,469 41.3% $28,147 44.0% $18,596 46.2% $17,391 47.7% $13,523 47.7%
Real estate,
construction........... 1,973 6.4 1,383 7.1 1,322 5.7 1,278 5.7 1,059 4.8
Real estate,
residential............ 3,711 31.9 1,286 31.1 956 32.5 698 31.5 775 31.7
Consumer................ 4,800 16.9 4,314 16.7 2,595 14.9 3,351 14.4 3,376 14.9
Lease financing......... 581 3.5 457 1.1 154 .7 168 .7 203 .9
Unallocated............. 1,682 3,595 12,604 9,073 10,254
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. $40,216 100.0% $39,182 100.0% $36,227 100.0% $31,959 100.0% $29,190 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- --------
Gross loans represent loans before unamortized net loan fees.
24
<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 Bank's allowance for loan
losses. Such agencies may require the Bank 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 $7.5 million exceeded the net charge-offs of
$6.4 million. The allowance for loan losses was increased from $39.2 million in
1993 to $40.2 million in 1994. The allowance for loan losses as a percentage of
year-end loans was 1.41% at December 31, 1994 and 1.52% at December 31, 1993.
TABLE 13--ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $ 39,182 $ 36,227 $ 31,959 $ 29,190 $ 26,134
Provision charged to op-
erating expenses....... 7,494 10,141 11,627 10,836 9,801
Allowance of subsidiary
sold................... (101)
Loans charged off:
Commercial, financial
and agricultural..... 5,971 7,406 6,217 6,074 5,517
Real estate, residen-
tial................. 933 480 464 172 161
Consumer.............. 2,428 2,547 3,445 4,242 3,170
Lease financing....... 68 88 129 190 284
---------- ---------- ---------- ---------- ----------
Total loans charged
off................ 9,400 10,521 10,255 10,678 9,132
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial
and agricultural..... 1,368 2,132 1,330 1,369 1,541
Real estate, residen-
tial................. 533 26 245 103 85
Consumer.............. 1,121 1,152 1,303 1,084 746
Lease financing....... 19 25 18 55 15
---------- ---------- ---------- ---------- ----------
Total recoveries.... 3,041 3,335 2,896 2,611 2,387
---------- ---------- ---------- ---------- ----------
Net charge-offs......... 6,359 7,186 7,359 8,067 6,745
---------- ---------- ---------- ---------- ----------
Balance, end of period.. $ 40,216 $ 39,182 $ 36,227 $ 31,959 $ 29,190
========== ========== ========== ========== ==========
Total loans:
Average............... $2,650,550 $2,459,537 $2,399,974 $2,332,828 $2,260,421
Year-end.............. 2,861,133 2,586,085 2,411,772 2,402,778 2,302,085
Ratios:
Net charge-offs to:
Average loans......... .24% .29% .31% .35% .30%
Loans at year-end..... .22 .28 .31 .34 .29
Allowance for loan
losses............... 15.81 18.34 20.31 25.24 23.11
Provision for loan
losses............... 84.85 70.86 63.29 74.45 68.82
Allowance for loan
losses to:
Average loans......... 1.52 1.59 1.51 1.37 1.29
Loans at year-end..... 1.41 1.52 1.50 1.33 1.27
</TABLE>
25
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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. In October 1994,
Statement of Financial Accounting Standards No. 118 (SFAS 118), "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" was
issued. SFAS 118 amended SFAS 114. SFAS 114 and SFAS 118 are effective for
fiscal years beginning after December 15, 1994 and earlier adoption is
permitted. Dauphin will adopt SFAS 114 and SFAS 118 on January 1, 1995.
Management does not believe the adoption will have a significant impact on its
financial statements. On January 1, 1995 the balance of impaired loans was
$17.4 million and the reserve on these loans was $3.9 million.
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. This established credit arrangement
provides the Bank with increased liquidity.
The generation of deposit balances is the primary source of liquidity from
liability categories. Total deposits decreased by $71.3 million or 2.0% from
year-end 1993 to year-end 1994. As previously mentioned, this funding source
was replaced by overnight federal funds. Table 14 reflects the change 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. As shown in Table 16, 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,
--------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Non-interest bearing deposits................. $ 464,919 $ 423,641 $ 447,757
NOW accounts.................................. 527,892 562,565 527,437
Savings deposits.............................. 481,982 502,673 449,053
Money market deposit accounts................. 529,852 604,484 645,720
Time deposits................................. 1,239,462 1,192,437 1,308,618
Time deposits of $100,000 or more............. 270,777 300,335 313,624
---------- ---------- ----------
Total....................................... $3,514,884 $3,586,135 $3,692,209
========== ========== ==========
</TABLE>
26
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 15--MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Three months or less................................ $162,820 $177,852 $177,456
Over three months through six months................ 26,882 32,578 44,052
Over six months through twelve months............... 27,526 24,974 42,719
Over twelve months.................................. 53,549 64,931 49,397
-------- -------- --------
Total............................................. $270,777 $300,335 $313,624
======== ======== ========
</TABLE>
TABLE 16--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Amount outstanding at year-end.................... $940,777 $680,386 $608,326
Average interest rate at year-end................. 5.88% 3.03% 2.99%
Maximum amount outstanding at any month-end....... $940,777 $765,169 $608,326
Average amount outstanding........................ $778,906 $646,187 $482,979
Weighted average interest rate.................... 4.12% 3.01% 3.53%
</TABLE>
CAPITAL RESOURCES
During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding common stock. Available
investments were 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 1994, Dauphin repurchased 1,744,500 shares for
$42.4 million.
Total stockholders' equity decreased $39.4 million or 7.8% in 1994 compared
with an increase of $44.0 million or 9.5% in 1993. The decrease for 1994 was
primarily due to the repurchase of outstanding common stock throughout the year
and the SFAS 115 valuation for net unrealized losses on investments available-
for-sale. The increase for 1993 was, for the most part, retained earnings or
internal capital generation. The ratio of average equity to average assets
amounted to 10.27% for 1994, compared with 9.99% for 1993 and 9.37% for 1992.
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 7.9% for 1994 compared with 8.6% for
1993 and 8.3% for 1992.
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 17 presents the capital ratios for
Dauphin for the past three years calculated at year-end in accordance with
these guidelines. At December 31, 1994, Dauphin and its banking subsidiary
exceeded all capital requirements and is considered to be "well-capitalized".
27
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 17--CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Risk-based capital
Tier 1 ratio............................................. 13.82% 15.52% 14.89%
Total capital ratio (tier 1 and tier 2).................. 14.92 17.24 16.90
Leverage ratio............................................. 9.65 10.16 9.58
</TABLE>
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 18 presents an interest sensitivity analysis of Dauphin's assets and
liabilities at December 31, 1994, 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 18
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 18 is a summary of the gap, as viewed by certain
regulatory authorities, which presents these interest bearing deposits as being
subject to immediate repricing.
28
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 18--INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1994
------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
------------------------------------------------------------
MONTH QUARTER SIX MONTHS ANNUAL 5 YEARS
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earning assets:
Short-term invest-
ments................ $ 15,040 $ 15,040 $ 15,040 $ 15,040 $ 15,040
Investment securities. 398,057 493,806 688,479 907,318 1,688,692
Assets held for sale.. 46,222 46,222 46,222 46,222 46,222
Loans................. 1,135,700 1,225,238 1,406,586 1,665,585 2,546,620
----------- ----------- ---------- ---------- ----------
Total............... $ 1,595,019 $ 1,780,306 $2,156,327 $2,634,165 $4,296,574
=========== =========== ========== ========== ==========
Interest bearing liabil-
ities:
Deposits.............. $ 1,239,877 $ 1,430,524 $1,577,036 $1,741,955 $2,345,357
Short-term borrowings. 890,777 940,777 940,777 940,777 940,777
Long-term debt........ 19 33 51,054 51,096 91,672
----------- ----------- ---------- ---------- ----------
Total............... $ 2,130,673 $ 2,371,334 $2,568,867 $2,733,828 $3,377,806
=========== =========== ========== ========== ==========
Interest sensitivity
gap.................. $ (535,654) $ (591,028) $ (412,540) $ (99,663) $ 918,768
Interest sensitive as-
sets to interest sen-
sitive liabilities
ratio................ .75 .75 .84 .96 1.27
Regulatory presentation:
Interest sensitivity
gap.................. $(1,018,598) $(1,073,972) $ (895,484) $ (582,607) $ 435,824
Interest sensitive as-
sets to interest sen-
sitive liabilities
ratio................ .61 .62 .71 .82 1.11
</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.
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.
29
<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............................................... 31
Consolidated Statements of Income......................................... 32
Consolidated Statements of Stockholders' Equity........................... 33
Consolidated Statements of Cash Flows..................................... 34
Notes to Consolidated Financial Statements................................ 35
Independent Auditors' Report................................................ 58
</TABLE>
30
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 202,911 $ 151,845
---------- ----------
Short-term investments
Interest bearing deposits............................ 3,738 13,573
Federal funds sold and securities purchased under
agreements to resell................................ 11,302 2,950
---------- ----------
Total short-term investments....................... 15,040 16,523
---------- ----------
Investment securities
(Fair value $1,783,803 and $2,105,944, respectively... 1,783,803 2,041,204
Assets held for sale, primarily mortgage loans......... 46,222 9,203
Loans (net of unearned income)......................... 2,861,133 2,586,085
Allowance for loan losses.............................. (40,216) (39,182)
---------- ----------
Total net loans.................................... 2,820,917 2,546,903
---------- ----------
Bank premises and equipment............................ 67,088 64,348
Other assets........................................... 134,371 86,829
---------- ----------
Total assets....................................... $5,070,352 $4,916,855
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing................................. $ 464,919 $ 423,641
Interest bearing..................................... 3,049,965 3,162,494
---------- ----------
Total deposits..................................... 3,514,884 3,586,135
---------- ----------
Short-term borrowings
Federal funds purchased and securities sold under
agreements to repurchase............................ 894,511 628,100
U.S. Treasury tax and loan notes..................... 46,266 52,286
---------- ----------
Total short-term borrowings........................ 940,777 680,386
---------- ----------
Long-term debt......................................... 91,954 92,454
Accrued expenses and taxes............................. 56,088 51,805
---------- ----------
Total liabilities.................................. 4,603,703 4,410,780
---------- ----------
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 issued of
which 1,696,447 and 134,200 shares are held as
treasury stock, respectively........................ 163,208 163,208
Surplus.............................................. 11,770 11,213
Retained earnings.................................... 373,921 333,774
Unrealized gains (losses) on securities available-
for-sale, net of deferred taxes..................... (41,036)
---------- ----------
507,863 508,195
Less: Treasury stock--at cost........................ (41,214) (2,120)
---------- ----------
Total stockholders' equity......................... 466,649 506,075
---------- ----------
Total liabilities and stockholders' equity......... $5,070,352 $4,916,855
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans
and leases.................. $207,648 $192,042 $205,305
Interest and dividends on
investment securities
Taxable.................... 96,797 107,195 116,048
Exempt from federal income
taxes..................... 23,602 23,373 23,678
Interest on deposits......... 337 218 158
Interest on assets held for
sale........................ 2,120 1,829 908
Interest on federal funds
sold and other short-term
investments................. 603 388 884
--------------- --------------- ---------------
Total interest income...... 331,107 325,045 346,981
--------------- --------------- ---------------
Interest expense
Interest on deposits
Savings deposits........... 36,675 42,836 52,810
Time deposits.............. 62,072 65,536 86,904
Time deposits in
denominations of $100,000
or more................... 15,140 14,226 17,530
--------------- --------------- ---------------
113,887 122,598 157,244
Interest on short-term
borrowings.................. 32,056 19,436 17,048
Interest on long-term debt... 6,698 6,738 5,930
--------------- --------------- ---------------
Total interest expense..... 152,641 148,772 180,222
--------------- --------------- ---------------
Net interest income........ 178,466 176,273 166,759
Provision for loan losses...... 7,494 10,141 11,627
--------------- --------------- ---------------
Net interest income after
provision for loan losses. 170,972 166,132 155,132
--------------- --------------- ---------------
Non-interest income
Fiduciary activities......... 16,363 15,237 14,979
Service charges on deposit
accounts.................... 11,598 12,626 11,562
Other service charges and
fees........................ 11,272 9,138 8,014
Broker/dealer commissions and
fees........................ 7,783 10,634 11,247
Mortgage banking............. 7,462 2,331 2,117
Securities gains, net........ 3,304 3,226 3,964
Other........................ 3,165 6,859 3,800
--------------- --------------- ---------------
Total non-interest income.. 60,947 60,051 55,683
--------------- --------------- ---------------
Non-interest expense
Salaries and employee
benefits.................... 72,556 68,569 67,710
Net occupancy expense........ 8,990 8,472 7,993
Furniture and equipment
expense..................... 9,567 9,219 8,454
Deposit insurance............ 7,909 8,103 8,158
Other........................ 40,096 41,918 38,993
--------------- --------------- ---------------
Total non-interest expense. 139,118 136,281 131,308
--------------- --------------- ---------------
Income before income taxes..... 92,801 89,902 79,507
Provision for income taxes..... 22,762 21,985 18,476
--------------- --------------- ---------------
Net income..................... $ 70,039 $ 67,917 $ 61,031
=============== =============== ===============
Net income per share........... $ 2.18 $ 2.08 $ 1.89
Cash dividends declared per
share......................... $ .94 $ .83 $ .77
Weighted average number of
shares outstanding............ 32,169,734 32,636,150 32,240,583
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NET UNREALIZED
COMMON STOCK TREASURY STOCK GAIN (LOSS) ON TOTAL
------------------- RETAINED -------------------- SECURITIES STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS SHARES AMOUNT AVAILABLE-FOR-SALE EQUITY
---------- -------- -------- -------- ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1991................... 17,563,874 $ 87,819 $ 82,765 $255,635 (548,400) $(16,525) $ $409,694
Net income.............. 61,031 61,031
Cash dividends declared
By Dauphin............. (22,091) (22,091)
By pooled bank prior to
acquisition........... (2,419) (2,419)
Sale of treasury stock.. 1,587 350,000 11,007 12,594
Sale of treasury stock
to Employee Stock
Purchase 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 to
common stock........... 33,878 169 919 1,088
Issuance of shares as a
two-for-one stock
split, including
treasury 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 to
common stock........... 26,898 135 297 432
Tax benefit of stock
option transactions.... 95 95
Reversal of unrealized
loss on marketable
equity securities...... 37 37
---------- -------- -------- -------- ---------- -------- --------
BALANCE, DECEMBER 31,
1992................... 32,623,869 163,119 10,620 292,193 (267,310) (3,821) 462,111
Net income.............. 67,917 67,917
Cash dividends declared
By Dauphin............. (24,802) (24,802)
By pooled bank prior to
acquisition........... (1,534) (1,534)
Sale of treasury stock
to Employee Stock
Purchase 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 to
common stock........... 17,745 89 203 3,113 43 335
Tax benefit of stock
option transactions.... 80 80
---------- -------- -------- -------- ---------- -------- -------- --------
BALANCE, DECEMBER 31,
1993................... 32,641,614 163,208 11,213 333,774 (134,200) (2,120) 506,075
Cumulative effect of
adoption of SFAS 115,
net of taxes........... 42,080 42,080
Net income.............. 70,039 70,039
Cash dividends declared. (29,892) (29,892)
Acquisition of treasury
stock.................. (1,744,500) (42,413) (42,413)
Sale of treasury stock
to Employee Stock
Purchase Plan.......... 419 70,340 1,068 1,487
Sale of treasury stock
under the Stock Option
Plan of 1986........... (21) 24,409 317 296
Sale of treasury stock
under the Dividend
Reinvestment and Stock
Purchase Plan.......... (26) 60,606 1,539 1,513
Debentures converted to
common stock........... 37 26,898 395 432
Change in net unrealized
gain (loss) on
investments available-
for-sale, net of taxes. (83,116) (83,116)
Tax benefit of stock
option transactions.... 148 148
---------- -------- -------- -------- ---------- -------- -------- --------
BALANCE, DECEMBER 31,
1994................... 32,641,614 $163,208 $ 11,770 $373,921 (1,696,447) $(41,214) $(41,036) $466,649
========== ======== ======== ======== ========== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
--------- --------- -----------
<S> <C> <C> <C>
Operating activities
Net income........................ $ 70,039 $ 67,917 $ 61,031
Adjustments:
Provision for loan losses....... 7,494 10,141 11,627
Provision for depreciation,
amortization and accretion..... 9,441 11,050 7,703
Amortization of goodwill........ 1,335 938 937
Deferred income taxes........... (3,994) (784) (2,117)
Securities gains, net........... (3,304) (3,226) (3,964)
(Increase) decrease in interest
receivable..................... (2,222) 4,023 4,565
Increase (decrease) in accrued
expenses and taxes............. (3,064) 1,612 (15,069)
Capitalized interest on
deposits....................... 44,108 45,770 48,090
Amortization of purchased and
excess mortgage servicing
rights......................... 1,091 629 803
Gain on sale of mortgages and
loans held for sale............ (1,473) (1,325) (865)
Loans originated for sale....... 247,445 107,746 89,318
Sale of mortgage loans held for
sale........................... (224,445) (114,054) (92,665)
Purchase of mortgage loans held
for sale....................... (22,995)
Other, net...................... (6,351) (21,685) (10,369)
--------- --------- -----------
Net cash provided by operating
activities................... 113,105 108,752 99,025
--------- --------- -----------
Investing activities
Proceeds from sales of investment
securities....................... 201,395 48,978 88,073
Proceeds from maturities of
investment securities............ 480,030 733,822 691,532
Purchases of investment
securities....................... (481,357) (758,783) (1,015,798)
Net (increase) decrease in assets
held for sale, other than loans
held for sale.................... (299) 732 711
Net increase in loans............. (330,366) (165,771) (11,112)
Sale of residential mortgage and
other consumer loans............. 52,544 4,876
Net purchases of bank premises and
equipment........................ (8,268) (2,646) (5,234)
Net proceeds from sale of
subsidiary, Farmers Savings Bank,
FSB.............................. 797
Purchase of Eastern Mortgage
Services, Inc.................... (21,038)
--------- --------- -----------
Net cash used by investing
activities................... (106,562) (138,792) (251,828)
--------- --------- -----------
Financing activities
Net increase (decrease) in deposit
accounts......................... (104,518) (149,755) 32,587
Net increase in short-term
borrowings....................... 224,869 72,060 162,594
Net increase (decrease) in long-
term debt........................ (122) (74) 50,200
Issuance of common stock and
treasury stock................... 3,281 1,968 14,244
Acquisition of treasury stock..... (42,413)
Cash dividends paid............... (29,024) (25,406) (23,290)
--------- --------- -----------
Net cash provided (used) by
financing activities......... 52,073 (101,207) 236,335
--------- --------- -----------
Increase (decrease) in cash
and cash equivalents......... 58,616 (131,247) 83,532
Cash and cash equivalents at
beginning of period................ 152,295 283,542 200,010
--------- --------- -----------
Cash and cash equivalents at end of
period............................. $ 210,911 $ 152,295 $ 283,542
========= ========= ===========
Total interest paid................. $ 109,419 $ 107,225 $ 141,972
Total income taxes paid............. 20,495 24,061 21,243
Schedule of non-cash investing and
financing activities:
Loans charged off................. 9,400 10,521 10,255
Net loan transfers to other real
estate owned..................... 4,563 1,574 992
Conversion of convertible
subordinated debentures.......... 432 335 1,520
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
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 subsidiary,
Dauphin Deposit Bank and Trust Company, which includes the Bank of
Pennsylvania, Farmers Bank and Valleybank Divisions (the Bank). All material
intercompany balances and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES
Dauphin adopted Statement of Financial Accounting Standards No. 115 (SFAS
115), "Accounting for Certain Investments in Debt and Equity Securities" on
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.
Prior to January 1, 1994, investment debt securities were carried at cost
adjusted for amortization of premiums and accretion of discounts. Debt
securities were carried at cost since Dauphin had the ability and intent to
hold securities to maturity. Marketable equity securities were carried at the
lower of cost or market value. Unrealized losses on equity securities were
reported as a reduction of investment securities and net of taxes as a
reduction of stockholders' equity.
Premiums and discounts are amortized and accreted over the term of the
related securities using a method that approximates the interest method.
Realized gains or losses on the sale of investment securities (determined by
the specific identification method) are shown separately in the statements of
income.
ASSETS HELD FOR SALE
Assets held for sale consist of the securities inventory of Hopper Soliday &
Co., Inc., Dauphin's broker/dealer subsidiary, and mortages held for sale,
primarily the inventory of Eastern Mortgage Services, Inc. (Eastern Mortgage).
The securities inventory is recorded at current quoted market value. The
mortgages held for sale are carried at the lower of aggregate cost or estimated
market value with unrealized losses recognized
35
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
through a provision included in other income. Gains and losses on the sale of
mortgages held for sale are determined using the specific identification
method.
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 charged against current earnings. Non-accruing loans
are returned to accruing status after at least six consecutive months of
current performance. Lease income is recorded using the finance method which
provides for a level rate of return on the investment outstanding.
Loan fees and costs of loan origination are deferred and recognized over the
life of the loan as a component of interest income. The amortization of
deferred fees and costs is discontinued on non-accrual loans.
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 Bank. 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 Bank's allowance for loan
losses. Such agencies may require the Bank 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. In October 1994,
Statement of Financial Accounting Standards No. 118 (SFAS 118), Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" was
issued. SFAS 118 has amended SFAS 114. SFAS 114 and SFAS 118 are effective for
fiscal years beginning after December 15, 1994 and earlier adoption is
permitted. Dauphin will adopt SFAS 114 and SFAS 118 on January 1, 1995.
Management does not believe the adoption of SFAS 114 and SFAS 118 will have a
significant impact on its financial statements.
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 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
36
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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.
OTHER ASSETS
Goodwill is the excess of the purchase price over the fair value of net
assets of entities acquired through business combinations that are recorded
using the purchase method of accounting. Included in other assets is $15.5
million and $4.9 million of goodwill at December 31, 1994 and 1993,
respectively. Goodwill is being amortized using the straight-line method over
periods not exceeding 15 years.
Excess servicing fees are computed as the present value of the difference
between the estimated future net 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.
Purchased mortgage servicing rights represent the cost of acquiring the right
from third parties to service mortgage loans. Purchased mortgage servicing
rights are amortized in proportion to, and over the period of, estimated net
servicing revenues. The amortization of purchased mortgage servicing rights is
periodically evaluated in relation to estimated future net servicing revenues
based on management's best estimate of remaining loan lives.
DERIVATIVES
Dauphin's mortgage subsidiary, Eastern Mortgage, has limited involvement with
derivative financial instruments and does not use them for trading purposes.
Derivatives are primarily used to manage well-defined interest rate risks, as
described in Note 16.
TRUST ASSETS
Assets held by the Bank in a fiduciary or agency capacity are not included in
the consolidated financial statements since such assets are not assets of the
Bank. 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 Accounting 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 Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" effective January 1, 1993.
This standard establishes 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.
37
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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.
RECLASSIFICATIONS
Certain reclassifications have been made for 1993 and 1992 due to pooling-of-
interests. Certain other reclassifications have been made for comparability as
reporting requirements have changed.
2--ACQUISITIONS 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, and financial
information for all prior periods presented has been restated to include the
results of operations and financial position of Valley.
On August 23, 1993 Dauphin entered into an agreement to sell 100% of the
stock of Farmers Savings Bank, a Federal Savings Bank (Farmers Savings) for
$797,000. The sale was subject to regulatory approval and was consummated on
February 1, 1994. Farmers Savings had total assets of $12,678,000 at December
31, 1993. The sale of Farmers Savings did not have a material impact on the
financial condition or results of operations for Dauphin in 1994.
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. The excess of
the purchase price over the fair value of the net identifiable assets acquired
of $11.9 million has been recorded as goodwill and is being amortized on a
straight-line basis over 15 years. The acquisition is not material to the
financial position and results of operations of Dauphin, and accordingly, pro
forma information is deemed not necessary.
38
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
3--RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS AND INVESTMENT SECURITIES
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of these required reserve balances at December
31, 1994 and 1993 was approximately $78,522,000 and $76,529,000, respectively.
The Bank is required to maintain an investment in Federal Home Bank of
Pittsburgh stock of $12,652,000 which is included with equity securities.
4--INVESTMENT SECURITIES
As discussed in Note 1, Dauphin adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities" on January 1, 1994. The impact of this change at January 1,
1994 resulted in an increase in investment securities of $64,740,000 and an
increase in stockholders' equity of $42,080,000, representing the after tax
impact. The impact as of December 31, 1994 was a decrease in investment
securities of $63,133,000 and a decrease in stockholders' equity of
$41,036,000, representing the after tax impact.
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1994
-------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and other
U.S. government agencies and
corporations...................... $ 687,005 $ 642 $(22,127) $ 665,520
Obligations of states and political
subdivisions...................... 369,061 9,351 (11,700) 366,712
Debt securities issued by foreign
governments....................... 900 (4) 896
Corporate securities............... 79,032 79 (828) 78,283
Mortgage-backed securities......... 698,035 1,098 (39,640) 659,493
---------- ------- -------- ----------
Total debt securities............ 1,834,033 11,170 (74,299) 1,770,904
Equity securities.................. 12,903 (4) 12,899
---------- ------- -------- ----------
Total investment securities...... $1,846,936 $11,170 $(74,303) $1,783,803
========== ======= ======== ==========
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and other
U.S. government agencies and
corporations...................... $ 732,721 $18,617 $ (341) $ 750,997
Obligations of states and political
subdivisions...................... 406,241 29,268 (928) 434,581
Debt securities issued by foreign
governments....................... 1,899 25 (4) 1,920
Corporate securities............... 83,336 2,657 0 85,993
Mortgage-backed securities......... 803,253 15,211 (443) 818,021
---------- ------- -------- ----------
Total debt securities............ 2,027,450 65,778 (1,716) 2,091,512
Equity securities.................. 13,754 681 (3) 14,432
---------- ------- -------- ----------
Total investment securities...... $2,041,204 $66,459 $ (1,719) $2,105,944
========== ======= ======== ==========
</TABLE>
39
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The amortized cost and fair value of debt securities at December 31, 1994, 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, 1994
---------------------
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................. $ 160,228 $ 159,207
Due after one year through five years............... 432,797 421,364
Due after five years through ten years.............. 276,008 270,858
Due after ten years................................. 266,965 259,982
---------- ----------
1,135,998 1,111,411
Mortgage-backed securities.......................... 698,035 659,493
---------- ----------
Total debt securities............................. $1,834,033 $1,770,904
========== ==========
</TABLE>
Gains and losses from sales of investment securities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Debt securities
Gross gains........................................ $ 3,366 $ 1,540 $ 2,915
Gross losses....................................... (1,007) (6)
-------- ------- -------
Total debt securities............................ 2,359 1,534 2,915
Equity securities, net............................... 945 1,692 1,049
-------- ------- -------
Total securities gains........................... $ 3,304 $ 3,226 $ 3,964
======== ======= =======
Proceeds from sales of investment securities are as follows:
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Debt securities...................................... $199,083 $43,742 $84,819
Equity securities.................................... 2,312 5,236 3,254
-------- ------- -------
Total proceeds................................... $201,395 $48,978 $88,073
======== ======= =======
</TABLE>
Securities with a carrying value of $816,290,000 at December 31, 1994 and
$853,935,000 at December 31, 1993 are pledged to secure public deposits and for
other purposes as provided by law.
40
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
5--LOANS
The loan portfolio, net of unearned income, at December 31, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural:
Commercial secured by real estate................ $ 466,657 $ 433,055
Agricultural..................................... 34,960 40,748
Other............................................ 680,113 665,514
Real estate, construction.......................... 183,673 184,523
Real estate, residential........................... 913,445 804,205
Consumer........................................... 483,889 431,420
Lease financing.................................... 101,919 30,488
Unamortized net loan fees.......................... (3,523) (3,868)
---------- ----------
Total loans.................................... $2,861,133 $2,586,085
========== ==========
</TABLE>
The Bank has 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
aggegate loans totaling less than $60,000 to any one related party, is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance--January 1, 1994.................................... $ 64,999
New loans................................................... 358,072
Repayments.................................................. (362,256)
--------
Balance--December 31, 1994.................................. $ 60,815
========
</TABLE>
Included within the loan portfolio are loans on which the Bank has ceased the
accrual of interest and restructured loans. Such loans amounted to $15,168,000
and $24,802,000 at December 31, 1994 and 1993, respectively. If interest income
had been recorded on all such loans outstanding during the years 1994, 1993 and
1992, interest income would have been increased as shown in the following
table:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Interest income which would have been recorded under
original terms..................................... $1,187 $1,560 $2,184
Interest income recorded during the period.......... 477 700 1,210
------ ------ ------
Net impact on interest income....................... $ 710 $ 860 $ 974
====== ====== ======
</TABLE>
The Bank does not have any significant commitments to lend additional funds
on non-accrual or restructured loans at December 31, 1994.
41
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
6--ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year....................... $39,182 $36,227 $31,959
Allowance of subsidiary sold................... (101)
Provision charged to operations................ 7,494 10,141 11,627
Recoveries on loans charged off................ 3,041 3,335 2,896
------- ------- -------
49,616 49,703 46,482
Loans charged off.............................. 9,400 10,521 10,255
------- ------- -------
Balance, end of year............................. $40,216 $39,182 $36,227
======= ======= =======
</TABLE>
7--BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
ESTIMATED
USEFUL LIFE 1994 1993
------------- -------- --------
<S> <C> <C> <C>
Land.................................... $ 10,522 $ 10,532
Bank premises........................... 5 to 40 years 72,862 69,564
Leasehold improvements.................. 2 to 40 years 2,649 2,733
Equipment............................... 3 to 10 years 48,530 42,278
-------- --------
134,563 125,107
Accumulated depreciation and
amortization........................... (67,475) (60,759)
-------- --------
Total............................... $ 67,088 $ 64,348
======== ========
</TABLE>
Depreciation and amortization amounted to $6,834,000 for 1994, $6,495,000 for
1993 and $6,193,000 for 1992.
8--EXCESS AND PURCHASED MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not included in the consolidated
balance sheet. The outstanding balance of these loans at year-end and gains on
the sale of servicing during the year are presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Total loans serviced for
others at year-end..... $1,015,745 $219,572 $201,596
Gains on sale of
servicing.............. 1,623 26 45
</TABLE>
An analysis of the activity of excess and purchased mortgage servicing rights
for the year ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
EXCESS AND PURCHASED
SERVICING RIGHTS
--------------------
<S> <C>
Balance--January 1, 1994.............................. $ 1,607
Additions............................................. 9,981
Amortization.......................................... (1,091)
-------
Balance--December 31, 1994............................ $10,497
=======
</TABLE>
The balances and activities of excess and purchased mortgage servicing rights
were not significant to the consolidated balance sheets or results of
operations of Dauphin during 1993 and 1992.
42
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
9--TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit of $100,000 or more at December 31, 1994 and
1993 amounted to $270,777,000 and $300,335,000, respectively.
10--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, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Amount outstanding at year-end................. $940,777 $680,386 $608,326
Average interest rate at year-end.............. 5.88% 3.03% 2.99%
Maximum amount outstanding at any month-end.... $940,777 $765,169 $608,326
Average amount outstanding..................... $778,906 $646,187 $482,979
Weighted average interest rate................. 4.12% 3.01% 3.53%
</TABLE>
The securities that serve as collateral for the securities sold under
agreements to repurchase are under Dauphin's control.
The Bank has approved federal funds lines of credit that amounted to
approximately $2,814,000,000 at December 31, 1994.
11--LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
------- -------
<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......... 5,213 5,645
Dauphin Deposit Bank and Trust Company
Advances from The Federal Home Loan Bank of Pittsburgh..... 51,000 51,000
Other Subsidiary
Variable rate mortgage (5 13/16% at December 31, 1994)
(collateralized by bank premises)......................... 270 306
------- -------
91,483 91,951
Obligations under capitalized lease......................... 471 503
------- -------
Total..................................................... $91,954 $92,454
======= =======
</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.
43
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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:
1995--$51,096,000; 1996--$35,094,000; 1997--$105,000; 1998--$84,000; 1999--
$5,293,000
At December 31, 1994, Dauphin and its subsidiaries had unused lines of credit
totaling approximately $3,000,000 with a non-affiliated bank.
12--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. Dauphin Deposit
Corporation and the Bank are required to maintain minimum amounts of capital to
total risk weighted assets as defined by the banking regulators. The
requirement is to have a minimum Tier 1 and total capital ratios of 4.00% and
8.00%, respectively. The Bank may not pay dividends to Dauphin, which would
allow these risk-based capital ratios to fall below the minimum capital
requirements.
13--INCOME TAXES
The provision for income taxes, consisting primarily of Federal income taxes,
for the years 1994, 1993 and 1992, consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current taxes..................................... $18,768 $22,798 $20,593
Deferred taxes (credits).......................... 3,994 (813) (2,117)
------- ------- -------
Total......................................... $22,762 $21,985 $18,476
======= ======= =======
A reconciliation between the effective income tax rate and the statutory rate
follows:
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Statutory Federal income tax rate................. 35.0% 35.0% 34.0%
Tax exempt income................................. (10.5) (10.8) (12.2)
Other, net........................................ .3 1.4
------- ------- -------
Effective income tax rate......................... 24.5% 24.5% 23.2%
======= ======= =======
</TABLE>
44
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Gross unrealized losses on investment
securities................................... $ 22,096 $ $
Allowance for loan losses..................... 13,904 13,298 11,754
Deferred loan fees and costs.................. 468 1,409 1,568
Purchase accounting adjustments to loans...... 492 975 1,421
Employee benefit programs..................... 1,861 1,180 513
Other......................................... 1,473 1,691 903
-------- ------- -------
Total gross deferred tax assets............. 40,294 18,553 16,159
-------- ------- -------
Deferred tax liabilities:
Depreciation.................................. (3,007) (3,194) (3,224)
Investment securities discount................ (376) (283) (155)
Lease financing transactions.................. (6,338) (3,074) (2,898)
Prepaid pension............................... (978) (914) (935)
Mortgage servicing rights..................... (3,608) (428) (563)
Prepaid expenses.............................. (2,118) (823)
Other......................................... (681) (575) (486)
-------- ------- -------
Total gross deferred tax liabilities........ (17,106) (9,291) (8,261)
-------- ------- -------
Net deferred tax asset...................... $ 23,188 $ 9,262 $ 7,898
======== ======= =======
</TABLE>
Included in the table above is the recognition of certain temporary
differences for which no deferred tax expense or benefit was recognized in the
consolidated statements of income. Such items include unrealized gain and
losses on certain investments in debt and equity securities accounted for under
SFAS 115 and book and tax basis differences relating to business combinations
accounted for under the purchase method of accounting.
Management is of the opinion that it is more likely than not that the
deferred tax asset of $40,294,000 will be realized since Dauphin has had a long
history of 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.
14--BENEFIT PLANS
The Bank has a noncontributory defined benefit pension plan covering
substantially all employees. The Plan's 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.
45
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The following table sets forth the pension plan's funded status and amounts
recognized in Dauphin's consolidated financial statements at December 31, 1994
and 1993:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested.................................................. $35,057 $37,162
Non-vested.............................................. 1,312 1,553
------- -------
Accumulated benefit obligation........................ 36,369 38,715
Effects of future compensation levels..................... 7,031 9,427
------- -------
Projected benefit obligation.............................. 43,400 48,142
Plan assets at fair value................................. 55,249 57,018
------- -------
Excess of plan assets over the projected benefit
obligation............................................... 11,849 8,876
Unrecognized net asset being amortized over 15 years...... (4,412) (5,155)
Unrecognized prior service cost........................... 372 469
Unrecognized gain......................................... (3,784) (215)
------- -------
Prepaid pension cost included in the consolidated
financial statements..................................... $ 4,025 $ 3,975
======= =======
</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>
1994 1993
---- ----
<S> <C> <C>
Expected return on plan assets................................... 8.00% 8.00%
Discount rate.................................................... 8.00 7.00
Rate of increase in future compensation levels................... 5.00 4.50
</TABLE>
Net pension expense (credit) for 1994, 1993 and 1992 was comprised of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost...................................... $ 1,812 $ 1,791 $ 1,833
Interest cost on projected benefit obligation..... 3,312 2,980 2,959
Return on plan assets............................. (402) (4,198) (4,149)
Net amortization and deferral..................... (4,623) (646) (708)
------- ------- -------
Net pension expense (credit).................... $ 99 $ (73) $ (65)
======= ======= =======
</TABLE>
Plan assets are primarily invested in listed stocks (including 100,000 and
86,000 shares of Dauphin at December 31, 1994 and 1993) and U.S. Treasury and
federal agency securities.
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.
46
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Dauphin's postretirement benefits other than pensions are currently not
funded. The status of the plan at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
------- --------
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees............................................. $11,651 $ 10,175
Fully eligible active plan participants.............. 635 948
Other active plan participants....................... 5,266 4,698
------- --------
17,552 15,821
Unrecognized transition liability being amortized over
20 years.............................................. (9,607) (10,173)
Unrecognized prior service cost........................ (739)
Unrecognized net loss.................................. (2,514) (2,878)
------- --------
Accrued postretirement obligation...................... $ 4,692 $ 2,770
======= ========
</TABLE>
The assumptions used in determining the actuarial present value of the
accumulated postretirement benefit obligation are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................... 8.00% 7.00%
Rate of increase in future compensation levels................... 5.00 4.50
</TABLE>
The cost for postretirement benefits other than pensions for 1994, 1993 and
1992 consisted of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost........................................... $ 506 $ 359 $ 314
Interest cost on accumulated postretirement benefit
obligation............................................ 1,313 1,064 937
Amortization of transition obligation.................. 565 565 581
Amortization of past service cost...................... 65
Net amortization and deferral.......................... 174 45
------ ------ ------
Net postretirement benefit cost...................... $2,623 $2,033 $1,832
====== ====== ======
</TABLE>
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 (14 1/2%
at December 31, 1994) 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, a one-percentage-point increase in the assumed
health care cost trend would increase the accumulated postretirement benefit
obligation by $2,100,000 at December 31, 1994 and increase the aggregate of the
service and interest cost components by $264,000 for the year ended December
31, 1994.
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 $563,000, $468,000 and $405,000
during 1994, 1993 and 1992, respectively.
47
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
In 1993, Dauphin adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits". The adoption resulted in
an incremental cost of $30,000 and $500,000 to salaries and benefits expense in
1994 and 1993, respectively. This accrual was established to record the
liability for benefits to former or inactive employees after employment but
before retirement. The balance at December 31, 1994 is $530,000.
15--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 658,545 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, 1994.
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.
Stock option transactions during 1994, 1993 and 1992 are summarized below:
<TABLE>
<CAPTION>
PRICE
SHARES RANGE PER SHARE
-------- ---------------
<S> <C> <C>
Balance, December 31, 1991......................... 570,801 $ 9.48--$16.57
Granted.......................................... 161,810 $14.04--$23.72
Exercised........................................ (102,110) $ 9.48--$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
Granted.......................................... 160,500 $25.63
Exercised........................................ (31,057) $11.36--$24.88
Terminated....................................... (2,400) $14.28--$24.88
--------
Balance, December 31, 1994......................... 829,439 $ 9.48--$25.63
========
Exercisable, December 31, 1994..................... 417,921
========
</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
48
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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.
During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding common stock. Available
investments were 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 1994, Dauphin repurchased 1,744,500 shares for
$42.4 million.
16--FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk and Concentrations of Credit Risk
In the normal course of business, Dauphin is a party to financial instruments
with off-balance-sheet risk which/or meet the financing needs of its customers
and which reduces Dauphin's exposure to fluctuations 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.
For commitments to extend credit and standby letters of credit, Dauphin's
exposure to credit loss in the event of non-performance by the other party is
represented by the contractual amount of those instruments. Dauphin uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Dauphin had the following off-balance-sheet financial instruments at December
31:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
---------- ----------
<S> <C> <C>
Amounts representing credit risk:
Commitments to extend credit....................... $1,264,539 $1,173,978
Financial and performance standby letters of
credit............................................ 122,568 101,532
Commercial and similar letters of credit........... 842 502
Commitments to purchase securities................. 4,650 37,270
Notional or contract amounts of off-balance-sheet
financial instruments not constituting credit risk:
Forward commitments to sell in the secondary
market............................................ 33,137
Forward commitments to sell to permanent investors. 16,197
Puchased call and put options...................... 2,500
</TABLE>
Commitments to extend credit, which includes loans and lines of 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
49
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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 terms
of the letters of credit vary from one month to 24 months and may have renewal
features. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers. Dauphin holds
collateral supporting those commitments, as deemed necessary.
Most of the Bank's business activity is with customers located within the
Bank's defined market area, principally Central Pennsylvania. The Eastern
Pennsylvania and New Jersey mortgage markets are served by Eastern Mortgage,
the Bank's mortgage subsidiary. However, the Bank will grant commercial,
residential and consumer loans throughout the state. The loan portfolio is well
diversified and the Bank does not have any significant concentrations of credit
risk. However, since a significant share of the Bank's loans are within the
geographic area previously defined, a substantial portion of the Bank's
debtors' ability to honor their contracts may be significantly affected by the
level of economic activity in this area.
Derivative Financial Instruments
Dauphin's mortgage subsidiary, Eastern Mortgage, has limited involvement with
derivative financial instruments and does not use them for trading purposes.
Derivatives are primarily used to manage well-defined interest rate risks.
Eastern Mortgage is exposed to interest rate risk when it extends a
commitment to a borrower for future settlement. As interest rates increase, the
valuation of the commitment to Eastern Mortgage declines. As interest rates
decrease, a borrower is more likely to abandon the commitment, which could
cause a financial loss to Eastern Mortgage if they have committed to sell that
loan for future delivery in the secondary market.
The secondary marketing department at Eastern Mortgage is primarily
responsible for mitigating the exposure to interest rate risk through the use
of certain hedging techniques. This is accomplished by using a combination of
charging non-refundable commitment fees when the borrower elects to lock in
their interest rate; selling loans in the secondary market for future delivery
on a mandatory basis (via forward and future delivery commitments with third-
party investors); and purchasing options.
Forward commitments are contracts wherein Eastern Mortgage agrees to make
delivery of a specified type of loan at a specified future date and price. As
loans close and are pooled for delivery, forward commitments are filled and
executed, and the primary objective of hedging is achieved. However, in the
normal course of business, to the extent that management believes that market
conditions may change favorably, or fewer loans are closed than previously
anticipated, certain forward commitments may be paired-off. In instances where
management paired-off forward commitments on the basis of certain expectations
of market conditions, any gains or losses arising from paired-off transactions
are deferred on the date of the pair-off, and are recognized as an adjustment
to gains (losses) on sale of mortgage loans when the underlying pool of
mortgage loans is sold. When forward commitments are paired-off due to a lack
of loans to fulfill the commitment, the gain or loss is recognized on the date
of the pair-off as an adjustment to gains (losses) on sale of mortgage loans.
Certain future delivery contracts to third parties stipulate the duration of
the commitment and the amount of loans deliverable under the commitment and may
require the payment of a fee. Commitment fees are capitalized when paid and
expensed as a component of gains (losses) on sale of mortgage loans when the
commitment expires or is delivered into.
50
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Purchased call or put options are contracts that allow the holder of the
option to purchase or sell a financial instrument at a specified price and
within a specified period of time from the seller, or "writer," of the option.
Eastern Mortgage purchases call options on treasury securities and put options
on mortgage backed securities as part of its interest rate risk management
strategy. The risk of loss is limited to the price paid for the option. The
cost of all such options is expensed as an adjustment to gains (losses) on sale
of mortgage loans when the options expire. Any gain realized at the time an
option is exercised is deferred, and subsequently recognized when the
underlying pool of loans is sold.
In the ordinary course of business, Eastern Mortgage deliberately exposes a
portion of its mortgage loan portfolio (warehouse and pipeline, net of
estimated fall-out) to interest rate risk, as volume and market conditions
warrant. This exposure represents those loans which have closed or are expected
to close which are not hedged at a given point in time. At December 31, 1994,
the maximum exposure position authorized by management is $12 million. The
secondary marketing department produces a daily exposure report summarizing the
exposure position. This report is reviewed and adjustments to the exposure
position, to the extent considered necessary by management, are made daily.
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.
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 inventory 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 the estimated present
value of the difference between the anticipated future servicing fees and
normal servicing fees using discount rates that approximate market rates and
management's estimate of future prepayment rates.
51
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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 current rates for 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.
Off-balance-sheet financial instruments
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.
The fair value of options is estimated based on quoted market prices.
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. Also, the estimates do not reflect any additional premium or
discount that could result from the sale of Dauphin's entire holdings of a
particular instrument.
52
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
At December 31, 1994 and 1993, Dauphin's estimated fair values of financial
instruments based on disclosed assumptions are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.......... $ 202,911 $ 202,911 $ 151,845 $ 151,845
Short-term investments........... 15,040 15,040 16,523 16,523
Investment securities............ 1,783,803 1,783,803 2,041,204 2,107,068
Assets held for sale............. 46,222 46,222 9,203 9,203
Loans
Commercial..................... 1,489,879 1,461,530 1,412,420 1,439,270
Residential mortgages.......... 622,003 611,984 563,844 579,363
Consumer....................... 739,682 728,104 592,371 604,707
Non-accrual.................... 9,569 17,450
Allowance for loan losses...... (40,216) (39,182)
---------- ---------- ---------- ----------
Net loans.................... 2,820,917 2,801,618 2,546,903 2,623,340
Other financial assets........... 37,990 40,935 34,948 34,948
Financial liabilities:
Deposits
Non-interest bearing demand.... 464,919 464,919 423,641 423,641
Interest bearing demand and
savings....................... 1,539,726 1,539,726 1,669,722 1,669,722
Time deposits.................. 1,510,239 1,527,245 1,492,772 1,563,286
---------- ---------- ---------- ----------
Total deposits............... 3,514,884 3,531,890 3,586,135 3,656,649
Short-term borrowings............ 940,777 940,897 680,386 680,386
Long-term debt................... 91,954 91,713 92,454 100,795
Accrued interest payable......... 20,668 20,668 21,290 21,290
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---------------------------- -----------------------------
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
AMOUNT AMOUNT (1) VALUE AMOUNT AMOUNT (1) VALUE
---------- ---------- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Off-balance-sheet
financial instruments:
Commitments to extend
credit............... $1,264,539 $791 $ 854 $1,173,978 $403 $ 194
Financial and
performance standby
letters of credit.... 122,568 1,226 101,532 983
Commercial and similar
letter of credit..... 842 8 502 5
Commitments to
purchase securities.. 4,650 4,650 37,270 37,270
Forward commitments to
sell in the secondary
market............... 33,137 68 68
Forward commitments to
sell to permanent
investors............ 16,197
Purchased call and put
options.............. 2,500 11 11
</TABLE>
- --------
(1)The amounts shown under "carrying amount" represent accruals or deferred
income arising from those unrecognized financial instruments.
53
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
17--CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY
Dauphin Deposit Corporation (Parent Company Only) Condensed Balance Sheets
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Assets:
Due from Bank (subsidiary)................................ $ 36 $ 107
Investment securities..................................... 37,243 57,214
Investment in subsidiaries
Banking subsidiary...................................... 448,582 463,139
Non-banking subsidiaries................................ 29,185 29,161
-------- --------
Total investment in subsidiaries...................... 477,767 492,300
Other assets.............................................. 1,255 1,167
-------- --------
Total assets.......................................... $516,301 $550,788
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Accrued expenses and taxes.............................. $ 9,439 $ 4,068
Long-term debt.......................................... 40,213 40,645
-------- --------
Total liabilities..................................... 49,652 44,713
-------- --------
Stockholders' Equity:
Common stock............................................ 163,208 163,208
Surplus................................................. 11,770 11,213
Retained Earnings....................................... 333,040 333,774
Unrealized loss on securities available-for-sale........ (155)
-------- --------
507,863 508,195
Less: Treasury stock--at cost........................... (41,214) (2,120)
-------- --------
Total stockholders' equity............................ 466,649 506,075
-------- --------
Total liabilities and stockholders' equity............ $516,301 $550,788
======== ========
</TABLE>
54
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of
Income
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue
Dividend income:
Banking subsidiary.............................. $ 44,130 $ 28,347 $ 28,573
Non-banking subsidiaries........................ 93
Interest on investment securities................. 2,155 2,841 2,376
Interest on time deposits with Bank............... 191 89 338
Interest on advance to subsidiary................. 42
Gains on sales of investment securities........... 345 2 433
-------- -------- --------
Total revenue................................. 46,821 31,279 31,855
-------- -------- --------
Expenses
Interest on long-term debt........................ 3,516 3,555 3,670
Other expenses.................................... 783 1,242 3,372
-------- -------- --------
Total expenses................................ 4,299 4,797 7,042
-------- -------- --------
Income before income taxes and equity in
undistributed net income of subsidiaries........... 42,522 26,482 24,813
Income tax benefit.................................. 602 618 746
-------- -------- --------
Income before equity in undistributed net income of
subsidiaries....................................... 43,124 27,100 25,559
Equity in undistributed net income:
Banking subsidiary................................ 25,389 39,351 32,850
Non-banking subsidiaries.......................... 1,526 1,466 2,622
-------- -------- --------
Net income.................................... $ 70,039 $ 67,917 $ 61,031
======== ======== ========
</TABLE>
55
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of Cash
Flows
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income..................................... $ 70,039 $ 67,917 $ 61,031
Adjustments
Equity in undistributed net income of
subsidiaries................................ (26,915) (40,817) (35,472)
Other, net................................... 4,736 (1,602) 10,586
-------- -------- --------
Net cash provided by operating activities.. 47,860 25,498 36,145
-------- -------- --------
Investing activities
Proceeds from investment securities............ 43,484 11,955 19,802
Purchase of investment securities.............. (24,488) (14,627) (52,218)
Sale of subsidiary............................. 797
-------- -------- --------
Net cash provided (used) by investing
activities................................ 19,793 (2,672) (32,416)
-------- -------- --------
Financing activities
Reduction in short-term borrowings............. (26)
Reduction in long-term debt.................... (1,520)
Issuance of common stock....................... 23
Issuance of treasury stock..................... 3,713 1,968 14,221
Repurchase of treasury stock................... (42,413)
Cash dividends paid............................ (29,024) (25,406) (23,290)
-------- -------- --------
Net cash used by financing activities...... (67,724) (23,438) (10,592)
-------- -------- --------
Decrease in cash and cash equivalents...... (71) (612) (6,863)
Cash and cash equivalents at beginning of year... 107 719 7,582
-------- -------- --------
Cash and cash equivalents at end of year......... $ 36 $ 107 $ 719
======== ======== ========
</TABLE>
56
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1994, 1993 AND 1992
18--CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993
------------------------------- -------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $87,789 $83,608 $81,215 $78,495 $79,482 $82,104 $81,455 $82,004
Interest expense........ 42,573 39,077 36,436 34,555 35,839 37,226 37,218 38,489
------- ------- ------- ------- ------- ------- ------- -------
Net interest income..... 45,216 44,531 44,779 43,940 43,643 44,878 44,237 43,515
Provision for loan
losses................. 1,870 1,870 1,870 1,884 2,824 2,372 2,499 2,446
Non-interest income..... 16,998 16,569 13,706 13,674 16,190 13,862 15,601 14,398
Non-interest expense.... 37,969 36,336 32,807 32,006 36,723 33,237 34,366 31,955
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 22,375 22,894 23,808 23,724 20,286 23,131 22,973 23,512
Provision for income
taxes.................. 5,542 5,556 5,841 5,823 4,721 5,940 5,565 5,759
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $16,833 $17,338 $17,967 $17,901 $15,565 $17,191 $17,408 $17,753
======= ======= ======= ======= ======= ======= ======= =======
Net income per share.... $ .53 $ .54 $ .56 $ .55 $ .48 $ .52 $ .54 $ .54
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
19--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.
57
<PAGE>
(LETTERHEAD)
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in notes 1 and 4 to the consolidated financial statements,
Dauphin changed its method of accounting for investment securities in 1994 to
adopt the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities".
[LOGO]
January 27, 1995
[LOGO]
58
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
59
<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 in Dauphin's 1995 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 1995
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 and Security Ownership of Management in the 1995 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is incorporated by reference to Transactions with Management in the
1995 Proxy Statement.
60
<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 Dauphin, are
incorporated herein by reference to Exhibit 3(b) to Dauphin's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (Commission File Number 0-8415).
(3)(b) Board of Directors Resolutions amending By-Laws of Dauphin.
(3)(c) The By-Laws, as amended, of Dauphin.
(10)(a) Dauphin's Stock Option Plan of 1986, as amended, is incorporated
herein by reference to Exhibit 4.1 to Amendment No. 1 to Dauphin's
Registration Statement on Form S-8, as filed with the Commission
on April 28, 1993 (Commission File Number 33-17401).
(10)(b) Dauphin's Annual Management Performance Incentive Plan is
incorporated herein by reference to Exhibit 10(b) to Dauphin'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
Dauphin'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 Dauphin'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
Dauphin and Christopher R. Jennings is incorporated herein by
reference to Exhibit 10(f) to Dauphin'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>
<S> <C>
(10)(g) Change in Control Agreement, dated as of December 15, 1987,
between Dauphin, Dauphin Bank and Paul B. Shannon (the "Shannon
Agreement") is incorporated herein by reference to Exhibit 10(g)
to Dauphin'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
Dauphin's Annual Report on Form 10-K for the year ended December
31, 1992 (Commission File Number 0-8415).
(10)(i) Employment and Consulting Agreement, dated as of January 27, 1992,
between FB&T Corporation, Dauphin and Lawrence J. LaMaina, Jr.
(the "LaMaina Agreement") is incorporated herein by reference to
Exhibit 10(k) to Dauphin's Annual Report on Form 10-K for the year
ended December 31, 1992 (Commission File Number 0-8415).
(10)(j) First Amendment, dated as of April 2, 1993, to the LaMaina
Agreement is incorporated herein by reference to Exhibit 10(l) to
Dauphin's Annual Report on Form 10-K for the year ended December
31, 1993 (Commission File Number 0-8415).
(11) Statement regarding computation of per share earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
(99) The Rights Agreement, dated as of January 22, 1990, between Dauphin
and Dauphin Bank, as Rights Agent, is incorporated herein by
reference to Exhibit 1 to Dauphin'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
A current report on Form 8-K, dated October 24, 1994, was filed with the
Securities and Exchange Commission on November 23, 1994. The report was
filed under Item 5--Other Events and disclosed that the Board of Directors
had authorized the repurchase of up to 1,000,000 shares of Dauphin's
outstanding common stock.
There were no other reports on Form 8-K filed for the three months ended December 31, 1994.
</TABLE>
62
<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 21, 1995
By: /s/ Christopher R. Jennings
__________________________________
CHRISTOPHER R. JENNINGS 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/ Christopher R. Jennings Chairman of the February 21, 1995
- ------------------------------------ Board, Chief
CHRISTOPHER R. JENNINGS Executive Officer
and Director
/s/ Robert L. Fryer, Jr. President, Chief February 21, 1995
- ------------------------------------ Operating Officer
ROBERT L. FRYER, JR. and Director
/s/ Paul B. Shannon Vice Chairman and February 21, 1995
- ------------------------------------ Chief Credit
PAUL B. SHANNON Policy Officer
/s/ Lawrence J. LaMaina, Jr. Vice Chairman and February 21, 1995
- ------------------------------------ Director
LAWRENCE J. LAMAINA, JR.
/s/ Dennis L. Dinger Senior Executive February 21, 1995
- ------------------------------------ Vice President,
DENNIS L. DINGER Chief Fiscal and
Administrative
Officer (Principal
Financial and
Accounting
Officer)
/s/ William H. Alexander Director February 21, 1995
- ------------------------------------
WILLIAM H. ALEXANDER
/s/ James O. Green Director February 21, 1995
- ------------------------------------
JAMES O. GREEN
/s/ Derek C. Hathaway Director February 21, 1995
- ------------------------------------
DEREK C. HATHAWAY
63
<PAGE>
DAUPHIN DEPOSIT CORPORATION
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Alfred G. Hemmerich Director February 21, 1995
- -------------------------------------
ALFRED G. HEMMERICH
/s/ Lee H. Javitch Director February 21, 1995
- -------------------------------------
LEE H. JAVITCH
Director February , 1995
- -------------------------------------
WILLIAM J. KING
/s/ William T. Kirchhoff Director February 21, 1995
- -------------------------------------
WILLIAM T. KIRCHHOFF
/s/ Andrew Maier, II Director February 21, 1995
- -------------------------------------
ANDREW MAIER, II
/s/ James E. Marley Director February 21, 1995
- -------------------------------------
JAMES E. MARLEY
/s/ Robert F. Nation Director February 21, 1995
- -------------------------------------
ROBERT F. NATION
/s/ Elmer E. Naugle Director February 21, 1995
- -------------------------------------
ELMER E. NAUGLE
Director February , 1995
- -------------------------------------
WALTER F. RAAB
/s/ Paul C. Raub Director February 21, 1995
- -------------------------------------
PAUL C. RAUB
/s/ Henry W. Rhoads Director February 21, 1995
- -------------------------------------
HENRY W. RHOADS
/s/ Jean D. Seibert Director February 21, 1995
- -------------------------------------
JEAN D. SEIBERT
/s/ R. Champlin Sheridan, Jr. Director February 21, 1995
- -------------------------------------
R. CHAMPLIN SHERIDAN, JR.
64
<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 Dauphin,
are incorporated herein by reference to Exhibit 3(b) to
Dauphin's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992 (Commission File Number 0-
8415).
(3)(b) Board of Directors Resolutions amending By-Laws of
Dauphin. 67
(3)(c) The By-Laws, as amended, of Dauphin. 69
(10)(a) Dauphin's Stock Option Plan of 1986, as amended, is
incorporated herein by reference to Exhibit 4.1 to
Amendment No. 1 to Dauphin's Registration Statement on
Form S-8, as filed with the Commission on April 28, 1993
(Commission File Number 33-17401).
(10)(b) Dauphin's Annual Management Performance Incentive Plan
is incorporated herein by reference to Exhibit 10(b) to
Dauphin'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
Dauphin'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 Dauphin'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 Dauphin'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 Dauphin and Christopher R. Jennings is
incorporated herein by reference to Exhibit 10(f) to
Dauphin'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 Dauphin, Dauphin Bank and Paul B. Shannon
(the "Shannon Agreement") is incorporated herein by
reference to Exhibit 10(g) to Dauphin'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 Dauphin's Annual Report on Form 10-K
for the year ended December 31, 1992 (Commission File
Number 0-8415).
(10)(i) Employment and Consulting Agreement, dated as of January
27, 1992, between FB&T Corporation, Dauphin and Lawrence
J. LaMaina, Jr. (the "LaMaina Agreement") is
incorporated herein by reference to Exhibit 10(k) to
Dauphin's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File Number 0-8415).
(10)(j) First Amendment, dated as of April 2, 1993, to the
LaMaina Agreement is incorporated herein by reference to
Exhibit 10(l) to Dauphin's Annual Report on Form 10-K
for the year ended December 31, 1993 (Commission File
Number 0-8415).
</TABLE>
65
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
------- -----------
<C> <S> <C>
(11) Statement regarding computation of per share earnings. 78
(21) Subsidiaries of the Registrant. 79
(23) Independent Auditors' Consent 80
(27) Financial Data Schedule. 81
(99) The Rights Agreement, dated as of January 22, 1990,
between Dauphin and Dauphin Bank, as Rights Agent, is
incorporated herein by reference to Exhibit 1 to
Dauphin's Current Report on Form 8-K, dated January 22,
1990, and filed with the Securities and Exchange
Commission on February 9, 1990.
</TABLE>
66
<PAGE>
EXHIBIT 3(B)
DAUPHIN DEPOSIT CORPORATION
RESOLUTIONS
JANUARY 23, 1995
WHEREAS, the Board of Directors deems it advantageous to amend the By-Laws of
the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that effective February 1, 1995 the following
sections of the By-Laws of the Corporation are hereby amended to read as
follows:
ARTICLE 3
BOARD OF DIRECTORS
Section 5. Regular meetings of the Board of Directors shall be held, without
notice, at 11:00 o'clock a.m. on the third Monday of February, April, June,
August, October and December at the registered office of the Corporation or at
such other time and place as shall be determined by the Board. When such
meeting falls upon a holiday, the meeting shall be held on the next succeeding
business day.
Special meetings may be called by the Chairman of the Board or the President
or the Chief Executive Officer, and shall be called at the request of any three
Directors. Notice of the special meeting shall be given each member of the
Board by the Secretary at least one day before the date of such meeting.
ARTICLE 4
COMMITTEES
Section 1. There shall be five standing committees named in this Article
which shall be appointed by the Chief Executive Officer with approval by the
Board of Directors at its annual meeting for reorganization, or as soon
thereafter as may be convenient; the Chairman of the Board, the President, the
Chief Executive Officer and the Chairman of the Executive Committee shall, ex-
officio, be members of all standing committees.
Section 2. (a) The Executive Committee shall consist of the Chairman of the
Board, the Chief Executive Officer, the President, the Chairman of the
Executive Committee and not less than 4 nor more than 9 other Directors, the
number of such other Directors to be determined from time to time by the Board.
The Executive Committee shall meet at least once a month and report its
proceedings to the Board.
(b) The Executive Committee shall have general supervision of and
responsibility for the finances of the Corporation and its investments, and the
maintenance of asset quality and balance sheet integrity. It shall also have
responsibility for strategic and profit planning. The Committee shall have and
exercise the authority of the Board of Directors in the intervals between the
meetings of the Board so far as may be permitted by law.
Section 3. (a) The Auditing Committee shall consist of no less than 3
Directors in addition to the ex-officio members, the number of such Directors
to be determined from time to time by the Board. The Audit Committee shall meet
at least four times each year.
(b) The Audit Committee shall have responsibility to assure an adequate
system of internal controls and overall audit coverage and to monitor
regulatory compliance.
Section 4. The Corporate Governance Committee shall consist of no less than
three (3) directors in addition to the ex-officio members, the number of such
directors to be determined from time to time by the
67
<PAGE>
Board. The Corporate Governance Committee shall act as the nominating committee
of the Board. It shall also monitor the integrity and effectiveness of the
corporate governance of the Corporation. The Corporate Governance Committee
shall meet no less than four (4) times each year.
Section 5. The Management Development and Compensation Committee shall
consist of no less than (3) directors in addition to the ex-officio members,
the number of such directors to be determined from time to time by the Board.
The Management Development and Compensation Committee shall assure that the
compensation available to corporate officers and other senior management
enables the Corporation to attract and retain high quality leadership and that
the Corporation's compensation methodologies align management's interests with
shareholders' interests. The Committee shall also have responsibility for human
resource matters including management development, succession and changes;
executive and employee compensation; and employee benefits.
Section 6. The Risk Management Committee shall consist of no less than (3)
directors in addition to the ex-officio members, the number of such directors
to be determined from time to time by the Board. The Risk Management
Committee's responsibility shall be to assure that the Corporation's assets are
adequately protected against loss (other than interest rate, credit and
financially related risks) and to review the Corporation's risk management and
loss control programs.
ARTICLE 5
OFFICERS
Section 1. The officers of the Company shall be a Chairman of the Board, a
Chief Executive Officer, the President, the Chairman of the Executive
Committee, one or more Vice Chairmen and Vice Presidents, a Treasurer, one or
more Assistant Treasurers, a Secretary, one or more Assistant Secretaries, an
Auditor, and such other officers as in the judgment of the Board shall be
necessary. Where this section authorizes one or more officers with the same
title, the number and identity of such officers, other than the Chairman of the
Board, Chief Executive Officer, President, Chairman of the Executive Committee,
Secretary, Treasurer and Auditor, may be determined by the Chief Executive
Officer and shall be ratified at the annual reorganization meeting of the
Board.
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 1. Whenever written notice is required to be given to any person
under the provisions of the Business Corporation Law, the Articles or By-Laws,
it may be given to such person in any manner authorized by the Pennsylvania
Business Corporation Law. Such notice shall specify the place, day and hour of
the meeting and in the case of a special meeting of shareholders, the general
nature of the business to be transacted.
Section 4. All references herein to the masculine gender shall be deemed to
include the feminine gender as applicable.
FURTHER RESOLVED, that the proper officers of this Corporation are hereby
authorized to take all action necessary or appropriate to the implementation of
the foregoing Resolutions.
68
<PAGE>
EXHIBIT 3(C)
BY-LAWS
OF THE
DAUPHIN DEPOSIT CORPORATION
ARTICLE 1
SEAL
The corporate seal shall have inscribed thereon the name of the Corporation,
the year of its organization and the words "Corporate Seal, Pennsylvania".
ARTICLE 2
MEETINGS OF SHAREHOLDERS
Section 1. The annual meeting of the shareholders shall be held during the
month of April, in each year, at such date and time as the Board of Directors
shall fix, at the principal office of the Corporation or at any other place in
the Commonwealth. The election of Directors shall be held at each such meeting.
If for any reason no election of Directors is held on that day, the meeting
may be adjourned as provided in the Pennsylvania Business Corporation law.
Section 2. Special meetings of the shareholders may be called at any time by
the Chairman of the Board, the President or the Board of Directors.
Section 3. A written or printed notice of the time and place of every regular
meeting shall be mailed, charges prepaid, to every shareholder of record
entitled to vote at the meeting, at his address appearing on the books of the
Corporation, at least five days before the date of the meeting. Notification of
special meetings shall, in addition to the foregoing requirements, contain the
purpose of the meeting and be mailed to shareholders of record at least ten
days before the date of such meeting.
Section 4. The Board of Directors may fix a date for the determination of the
shareholders entitled to receive notice of and to vote at any meeting or to
receive any dividend, distribution or allotment of rights or a date for any
change, conversion or exchange of shares by fixing a record date not more than
fifty (50) days prior thereto.
Section 5. The presence, in person or by proxy, of the holders of a majority
of the outstanding shares entitled to vote shall constitute a quorum. Less than
a quorum may adjourn any meeting from time to time and at such place as they
may determine, and the meeting may be held as adjourned without further notice.
A majority of the votes cast shall decide every question or matter submitted to
the shareholders at any meeting unless otherwise provided by law.
A shareholder may vote in person or by proxy duly authorized in writing in
accordance with the law, and be entitled to one vote for each share standing in
his name on the books of the Corporation.
Section 6. The Board of Directors shall appoint three judges, not candidates
for office and who need not be shareholders, to conduct the election or vote at
any meeting. After a meeting, the judges shall certify a report in writing of
any question or matter determined by them which certificate the Secretary shall
cause to be recorded in the minutes of the meeting. If any judge of election
shall not be present at a meeting, the vacancy shall be filled by the chairman
of the meeting.
Section 7. Except as otherwise provided in the Articles or By-Laws of this
Corporation, any action which may be taken at a meeting of the shareholders may
be taken without a meeting, if a consent or consents in writing, setting forth
the action so taken, shall be signed by all of the shareholders who would be
entitled to vote at a meeting for such purpose and shall be filed with the
Secretary of the Corporation.
69
<PAGE>
ARTICLE 3
BOARD OF DIRECTORS
Section 1. (a) The business and affairs of the Corporation shall be managed
by a Board of Directors of not less than five nor more than thirty Directors,
all of whom shall be stockholders of the Corporation. The number of Directors
within the above limits shall be determined by the Directors each year prior to
the annual meeting of the stockholders, held for the election of Directors.
Between annual meetings of the stockholders, a majority of all of the Directors
may, at any regular meeting of the Board of Directors, increase the number of
Directors by not more than six in any one year until the next meeting of the
stockholders at which Directors are elected, provided that the total of the
Directors shall not exceed 30. A majority of the remaining members of the Board
may elect Directors to fill any vacancies created by an increase in the number
of Directors, as above provided in this section; any such increase in the
number of Directors made as above provided in this section shall remain in
effect only until the next meeting of the stockholders at which Directors are
elected; each Director so elected shall be a Director until his successor is
elected by the stockholders who shall make such election at the next annual
meeting of stockholders or at any special meeting called for that purpose prior
thereto. The term of office for all Directors elected at an annual
stockholders' meeting shall be one year from said annual meeting at which they
are elected, or until their successors are duly elected and qualified.
(b) The compulsory retirement age for Directors shall be 72; no person having
attained the age of 72 shall be elected a member of the Board, and the term of
a person who attains the age of 72 while a member of the Board shall end upon
the attainment of said age. Whenever any person who is a member of the Board of
Directors becomes ineligible as a Director, he/she shall be eligible for
election as a Director Emeritus, provided that he/she has then been, for a
period of 10 years or more, a member of this Board and/or of a Board of a
Corporation the stock of which is owned by this Corporation and/or of a Board
of a Corporation which is a predecessor of a Corporation, the stock of which is
owned by this Corporation. Whenever a person who is a member of the Board of
Directors shall retire from the Board, he/she shall be eligible for election as
a Director Emeritus, provided he/she has then attained the age of 65 and has
then been, for a period of 20 years or more, a member of this Board and/or of a
Board of a Corporation the stock of which is owned by this Corporation and/or
of a Board of a Corporation which is a predecessor of a Corporation, the stock
of which is owned by this Corporation.
Section 2. The Board shall have full power to do all acts and adopt all
measures which it shall deem best for the interest of the stockholders.
Section 3. The Board shall, at its first meeting after the annual election,
organize and elect from its number a Chairman of the Board, a President, a
Chairman of the Executive Committee, and such other officers as are listed in
Article 5 herein. The Board shall, from time to time, designate one of the
officers as the Chief Executive Officer. One person may simultaneously hold
more than one office, to the extent permitted by law.
Section 4. The Board shall prescribe the powers and duties not inconsistent
with the law or these By-Laws, and fix the compensation of all officers, and
the amount of the fidelity bond to be given by each; the cost of premium on
such bonds shall be paid by the Corporation.
Section 5. Regular meetings of the Board of Directors shall be held, without
notice, at 11:00 o'clock a.m. on the third Monday of February, April, June,
August, October and December at the registered office of the Corporation or at
such other time and place as shall be determined by the Board. When such
meeting falls upon a holiday, the meeting shall be held on the next succeeding
business day.
Special meetings may be called by the Chairman of the Board or the President
or the Chief Executive Officer, and shall be called at the request of any three
Directors. Notice of the special meeting shall be given each member of the
Board by the Secretary at least one day before the date of such meeting.
Section 6. A majority of the Directors shall constitute a quorum. When a
quorum is present, a majority of those present may decide any question on
request, the yeas and nays shall be noted on the minutes.
70
<PAGE>
If less than a majority is present at a meeting, they may adjourn the meeting
from time to time, and the meeting may be held as adjourned without further
notice.
Section 7. At the annual meeting of the stockholders, the Chairman of the
Board or the President shall render a report showing the condition of the
property and affairs of the Corporation for the previous year.
Section 8. The Board shall designate the financial institutions which shall
be used as depositories for the funds of the Corporation.
Section 9. In case of a vacancy occurring on the Board, it shall have the
power to fill such vacancy until the next stockholders' annual election.
Section 10. The Board of Directors and each committee hereinafter provided
for shall each keep minutes of its meetings. Minutes of the committees shall be
submitted at the next regular meeting of the Board of Directors, and any action
taken by the Board of Directors with respect thereto shall be entered in the
minutes of the Board of Directors.
Section 11. Each Director and Director Emeritus, not a salaried officer, may
receive a fee for attendance at each meeting of the Board of Directors, or any
committee, in such amount as the Board of Directors may from time to time
determine.
Section 12. Any action which may be taken at a meeting of the directors or
the members of the executive or other committee may be taken without a meeting,
if a consent or consents in writing setting forth the action so taken shall be
signed by all of the Directors or the members of the Committee, as the case may
be, and shall be filed with the Secretary of the Corporation.
ARTICLE 4
COMMITTEES
Section 1. There shall be five standing committees named in this Article
which shall be appointed by the Chief Executive Officer with approval by the
Board of Directors at its annual meeting for reorganization, or as soon
thereafter as may be convenient; the Chairman of the Board, the President, the
Chief Executive Officer and the Chairman of the Executive Committee shall, ex-
officio, be members of all standing committees.
Section 2. (a) The Executive Committee shall consist of the Chairman of the
Board, the Chief Executive Officer, the President, the Chairman of the
Executive Committee and not less than 4 nor more than 9 other Directors, the
number of such other Directors to be determined from time to time by the Board.
The Executive Committee shall meet at least once a month and report its
proceedings to the Board.
(b) The Executive Committee shall have general supervision of and
responsibility for the finances of the Corporation and its investments, and the
maintenance of asset quality and balance sheet integrity. It shall also have
responsibility for strategic and profit planning. The Committee shall have and
exercise the authority of the Board of Directors in the intervals between the
meetings of the Board so far as may be permitted by law.
Section 3. (a) The Auditing Committee shall consist of no less than 3
Directors in addition to the ex-officio members, the number of such Directors
to be determined from time to time by the Board. The Audit Committee shall meet
at least four times each year.
(b) The Audit Committee shall have responsibility to assure an adequate
system of internal controls and overall audit coverage and to monitor
regulatory compliance.
Section 4. The Corporate Governance Committee shall consist of no less than
three (3) directors in addition to the ex-officio members, the number of such
directors to be determined from time to time by the
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Board. The Corporate Governance Committee shall act as the nominating committee
of the Board. It shall also monitor the integrity and effectiveness of the
corporate governance of the Corporation. The Corporate Governance Committee
shall meet no less than four (4) times each year.
Section 5. The Management Development and Compensation Committee shall
consist of no less than (3) directors in addition to the ex-officio members,
the number of such directors to be determined from time to time by the Board.
The Management Development and Compensation Committee shall assure that the
compensation available to corporate officers and other senior management
enables the Corporation to attract and retain high quality leadership and that
the Corporation's compensation methodologies align management's interests with
shareholders' interests. The Committee shall also have responsibility for human
resource matters including management development, succession and changes;
executive and employee compensation; and employee benefits.
Section 6. The Risk Management Committee shall consist of no less than (3)
directors in addition to the ex-officio members, the number of such directors
to be determined from time to time by the Board. The Risk Management
Committee's responsibility shall be to assure that the Corporation's assets are
adequately protected against loss (other than interest rate, credit and
financially related risks) and to review the Corporation's risk management and
loss control programs.
ARTICLE 5
OFFICERS
Section 1. The Officers of the Company shall be a Chairman of the Board, a
Chief Executive Officer, the President, the Chairman of the Executive
Committee, one or more Vice Chairmen and Vice Presidents, a Treasurer, one or
more Assistant Treasurers, a Secretary, one or more Assistant Secretaries, an
Auditor, and such other officers as in the judgment of the Board shall be
necessary. Where this section authorizes one or more officers with the same
title, the number and identity of such officers, other than the Chairman of the
Board, Chief Executive Officer, President, Chairman of the Executive Committee,
Secretary, Treasurer and Auditor, may be determined by the Chief Executive
Officer and shall be ratified at the annual reorganization meeting of the
Board.
Section 2. The officers of the Corporation shall hold office until their
successors are elected unless sooner relieved by the Board.
Section 3. The Chief Executive Officer shall, subject to the powers of the
Board and the Executive Committee, conduct its business and exercise direct
supervision over its affairs, and all officers and employees of the Company
shall be subject to his direction.
Section 4. In case of a vacancy in the office of the Chairman of the Board or
the sickness, absence or disability of the Chairman of the Board, the President
shall, unless the Board of Directors shall provide otherwise, have all the
powers and duties of the Chairman of the Board until his recovery or return or
until such vacancy shall be filled.
In case of a vacancy in the office of the President, or the sickness, absence
or disability of the President, the Chairman of the Board shall, unless the
Board of Directors shall provide otherwise, have all the powers and duties of
the President until his recovery or return or until such vacancy shall be
filled.
The President shall preside at all meetings of the shareholders, and shall
perform such further duties as shall be assigned to him by the Board of
Directors or by the Chief Executive Officer.
Section 5. The Chairman of the Board shall preside at all meetings of the
Board, and shall possess and exercise such powers as are granted to him in
these By-Laws and by action of the Board of Directors.
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Section 6. The Chairman of the Executive Committee shall preside at all
meetings of the Executive Committee, and shall possess and exercise such powers
as are granted to him in these By-Laws and by action of the Board of Directors.
Section 7. Such officers as the Board may designate shall have power to enter
satisfaction upon, or assign, release or postpone the lien of, the whole or any
part of all mortgages or judgments held by the Corporation and shall report
such action to the Board.
Section 8. The Treasurer shall be responsible for all money, funds,
securities and other valuables belonging to the Corporation; shall cause to be
kept proper records of the transactions of the Corporation; and shall perform
such other duties as may be assigned to him from time to time by the Board of
Directors or the Chief Executive Officer.
Section 9. Unless otherwise directed by the Board, the Treasurer shall see
that all registered securities owned by the Corporation are registered in the
name of the Corporation.
Section 10. The Secretary shall give notice of all meetings of the Board to
the members, and either himself, or under his direction, keep a record of their
proceedings, and, if requested, attend the meetings of the standing or special
committees, and keep a record of their proceedings as above.
Section 11. The Secretary shall see that proper notice is given of all
meetings of the stockholders.
Section 12. The Secretary shall have charge of the record of stock of the
Corporation, of their transfers and the books showing the ownership thereof.
Section 13. The Secretary shall have charge of the seal of the Company and
either he or an Assistant Secretary, or such other officers as the Board may
determine, shall cause it to be affixed to all papers requiring it and attest
the same.
Section 14. The Secretary shall have the custody of bonds given for the
faithful performance of duty by the officers and employees and report to the
Board when received.
Section 15. The Senior Executive Vice Presidents, Executive Vice Presidents,
Senior Vice Presidents and Vice Presidents shall have such duties and powers as
may from time to time be assigned to them by the Board of Directors or by the
Chief Executive Officer in the absence of any assignment by the Board of
Directors.
Section 16. The Auditor shall have charge of auditing the books, records and
accounts. He shall report directly to the Board of Directors or the Audit
Committee.
Section 17. Each Assistant Officer shall assist in the performance of the
duties of the Officer to whom he is assistant and shall perform such duties in
the absence of the Officer. He shall perform such additional duties as the
Board of Directors, the Chief Executive Officer or the Officer to whom he is
assistant may from time to time assign to him.
ARTICLE 6
AUTHORITY OF CERTAIN OFFICERS
Section 1. The Chairman of the Board, President, Senior Executive Vice
President, or any Executive Vice President, Senior Vice President, or Vice
President, acting in conjunction with the Secretary or Treasurer or Assistant
Secretary or Assistant Treasurer, is authorized to perform such corporate and
official acts as are necessary to carry on the business of the Corporation,
subject to the directions of the Board of Directors and the Executive
Committee. They are fully empowered:
(a) To sell, assign and transfer any and all shares of stock, bonds or
other personal property standing in the name of the Corporation;
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(b) To assign and transfer any and all registered bonds and to execute
requests for payment or reissue of any such bonds that may be issued now or
hereinafter and held by the Corporation;
(c) To sell at public or private sale, lease, mortgage or otherwise
dispose of any real estate or interest therein held or acquired by the
Corporation, except the real estate and buildings occupied by the
Corporation in the transaction of its business, and to execute and deliver
any instrument necessary to completion of the transaction;
(d) To receive and receipt for any sums of money or property due or owing
to this Corporation, and to execute any instrument of satisfaction therefor
or any lien of record;
(e) To execute and deliver any deeds, contracts, agreements, leases,
conveyances, bills of sale, petitions, writings, instruments, releases,
acquittances and obligations necessary in the exercise of the corporate
powers of the Corporation.
Section 2. Such of the officers and other employees as may from time to time
be designated by the Board of Directors or Executive Committee shall have the
authority to sign checks, drafts, letters of credit, orders, receipts, and to
endorse checks, bills of exchange, orders, drafts and vouchers made payable or
endorsed to the Corporation.
Section 3. The Chairman of the Board, President, any Senior Executive Vice
President, any Executive Vice President, Senior Vice President or Vice
President, the Secretary or the Treasurer, acting in conjunction with any other
of these designated officers, may effect loans on behalf of this Corporation
from any institution, executing notes or obligations and pledging assets of
this Corporation therefor.
ARTICLE 7
STOCKS
Section 1. Transfers of stock shall be made only on the books of the
Corporation maintained by the Corporation or its transfer agent. Evidence of
authority to make such transfers shall be produced and, if required, shall be
left with the Corporation or its transfer agent.
Section 2. No transfers shall be made until the certificate granted to the
transferor is given to the Corporation (except as provided in Section 6 of this
Article as to lost certificates).
Section 3. The mere possession of a stock certificate shall not vest any
ownership.
Section 4. Upon the transfer and surrender of any stock certificate, it shall
be canceled and the original or a copy thereof shall be retained in the
permanent records of the Corporation, and the cancellation shall be recorded
with the date on the Corporation's records at the proper number.
Section 5. A record of each certificate issued, the number thereof, the
number of shares, and the owner shall be kept by the Secretary or the transfer
agent.
Section 6. If the owner of any stock has lost the certificate and shall
present to the Corporation his affidavit of the fact and the circumstances, and
a bond of indemnity from a corporation surety in an amount satisfactory to the
Corporation, a duplicate certificate may be issued to him.
Section 7. Stock certificates of this Corporation shall bear the original or
facsimile signature of one of the following officers (Chairman of the Board,
President, Vice President or Treasurer) and of the Secretary or an Assistant
Secretary and shall be signed by the transfer agent.
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<PAGE>
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 1. Whenever written notice is required to be given to any person
under the provisions of the Business Corporation Law, the Articles or By-Laws,
it may be given to such person in any manner authorized by the Pennsylvania
Business Corporation Law. Such notice shall specify the place, day and hour of
the meeting and in the case of a special meeting of shareholders, the general
nature of the business to be transacted.
Section 2. Whenever any written notice is required to be given under the
provisions of the Business Corporation Law, the Articles or By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
shareholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting shall
constitute a waiver of notice of such meeting, except where a person attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
Section 3. One or more Directors or shareholders may participate in a meeting
of the Board, of a Committee of the Board or of the shareholders by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
Section 4. All references herein to the masculine gender shall be deemed to
include the feminine gender as applicable.
ARTICLE 9
AMENDMENTS
These By-Laws may be altered, amended or repealed by a vote of the majority
of the Board of Directors of this institution present at any regular or special
meeting regularly called, notice of the proposed alteration, amendment or
repeal having been mailed to each Director at least ten days preceding such
meeting. Provided, however, that such powers of the Board of Directors shall be
subject to the power of the shareholders to change or repeal such By-Laws.
ARTICLE 10
OFFICES
The offices of the Corporation at which its business shall be conducted shall
be the registered office thereof located at 213 Market Street, Harrisburg,
Pennsylvania, and all other legally authorized locations which may be leased or
acquired by the Corporation to carry on its business. During an emergency
declared by the President of the United States or the person performing his
function resulting in any authorized place of business of this Corporation
being unable to function, the business ordinarily conducted at such location
shall be relocated elsewhere in suitable quarters, in addition to or in lieu of
the location heretofore mentioned, as may be designated by the Board of
Directors or by the Executive Committee or by such persons as are then, in
accordance with resolutions adopted from time to time by the Board of Directors
dealing with the exercise of authority in the time of such emergency,
conducting the affairs of this Corporation. Any temporarily relocated place of
business of this Corporation shall be returned to its legally authorized
location as soon as practicable and such temporary place of business shall then
be discontinued.
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ARTICLE 11
EMERGENCIES
Section 1. In the event of an emergency declared by the President of the
United States or the person performing his functions, of sufficient severity to
prevent the conduct and management of the affairs and business of this
Corporation by its Directors and officers as contemplated by these By-Laws, the
officers and employees of this Corporation shall continue to conduct the
affairs of the Corporation under such guidance from the Directors as may be
available except as to matters which by statute require specific approval of
the Board of Directors and subject to conformance with any governmental
directives during the emergency.
Section 2. The Board of Directors shall have the power to delegate the powers
and duties of an officer who becomes unavailable or disabled or who refuses to
act, to any other officer or to any Directors, for the time being.
Section 3. In the event of such an emergency of sufficient severity to
prevent the conduct and management of the affairs and business of this
Corporation by its Directors and officers as contemplated by these By-Laws any
three or more available members of the then incumbent Executive Committee shall
constitute a quorum of that Committee for the full conduct and management of
the affairs and business of the Company in accordance with the provisions of
Article 4 of these By-Laws. In the event of the unavailability at such time of
a minimum of three members of the then incumbent Executive Committee, any three
available Directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the foregoing provisions of this section so far as may be
permitted by law. This By-Law shall be subject to implementation by resolutions
of the Board of Directors passed from time to time for that purpose, and any
provisions of these By-Laws (other than this section) and any resolutions which
are contrary to the provisions of this section or to the provisions of any such
implementary resolution shall be suspended until it shall be determined by any
interim Executive Committee acting under this section that it shall be to the
advantage of this Corporation to resume the conduct and management of its
affairs and business under all of the provisions of these By-Laws.
ARTICLE 12
INDEMNIFICATION
Subject to the limitations hereinafter set forth, the Corporation shall
indemnify each director, officer or employee of the Corporation or of any
organization that he is serving as a director, officer or employee at the
request of the Corporation, and his heirs, executors or administrators, to the
full extent permitted by law, against all judgments, fines and liabilities,
and/or reimburse him for all reasonable expense (including, but not limited to,
court costs, attorneys' fees and any amount paid in any settlement), which
judgments, fines and liabilities and expense were incurred or expended in
connection with any claim, suit, action or proceeding, whether civil, criminal,
administrative or investigative, and whether or not the indemnified liability
arises or arose from any action by or in the right of the Corporation, in which
he was involved because of anything he may have done or omitted to do as a
director, officer or employee of the Corporation or of any organization that he
may have served as a director, officer or employee at the request of the
Corporation,--but such indemnification and/or reimbursement can be made only if
a Determination is made as hereinafter provided that such indemnification
and/or reimbursement should be made. Such indemnification and/or reimbursement
shall not impair any other right any such person may have. Said indemnification
and/or reimbursement can be made only if a Determination has been made, with
the advice of Counsel for the Corporation, by members of the Board of Directors
not involved in the claim or proceeding, or by a disinterested person or
persons named by said members of the Board of Directors not involved in the
claim or proceeding, or by independent legal counsel in a written opinion: (1)
that the director, officer or employee acted or failed to act in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, and
(2) that the
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amount of the proposed indemnification and/or reimbursement is reasonable, and
(3) that the proposed indemnification and/or reimbursement is just and proper
and can be legally made by the Corporation under then existing law, and (4)
that the indemnification and/or reimbursement shall be made by the Corporation
in an amount stated in the Determination. The indemnification provided for
herein shall be available so long as the act or failure to act giving rise to
the claim for indemnification is not determined by a court to have constituted
willful misconduct or recklessness. The Corporation shall have the power to buy
and maintain insurance and to establish and fund a self-insurance
indemnification reserve fund on behalf of the directors, officers and employees
of the Corporation and a person serving at the request of the Corporation as a
director, officer or employee of another organization, against liability
incurred in any such capacity, or arising out of his status as such. The
invalidity of any portion of this Article 12 shall not affect the validity of
the remainder hereof.
ARTICLE 13
PERSONAL LIABILITY OF DIRECTORS
A Director of this Corporation shall not be personally liable for monetary
damages as such for any action taken, or any failure to take any action,
unless: (1) the Director has breached or failed to perform the duties of his
office in good faith, in a manner he reasonably believes to be in the best
interests of the Corporation, and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use under similar
circumstances; and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
ARTICLE 14
CONTROL SHARE ACQUISITION NOT APPLICABLE
The provisions contained in Subchapter G to Chapter 25 of Article C of the
Pennsylvania Business Corporation Law of 1988, as amended by the Act of April
27, 1990, Act 36, 15 Pa. C.S.A. (S)(S)2561-2567, regarding control share
acquisitions, shall not be applicable to the Corporation.
CERTIFICATION
I, the undersigned, Secretary of Dauphin Deposit Corporation, a corporation
duly organized and existing under the laws of the Commonwealth of Pennsylvania
and having its principal place of business in the City of Harrisburg,
Pennsylvania, hereby certify that the foregoing is a true copy of the By-Laws
of Dauphin Deposit Corporation, including the amendments to ARTICLE 3, Section
5; ARTICLE 4, Section 1, 2, 3, 4, 5, and 6; ARTICLE 5, Section 1 and ARTICLE 8,
Section 1 and 4 which were duly adopted by the Board of Directors of the said
Corporation on January 23, 1995.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of the said Corporation on this 23rd day of January, 1995.
Dauphin Deposit Corporation
(ART)
Claire D. Flemming
Senior Vice President & Secretary
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DAUPHIN DEPOSIT CORPORATION
EXHIBIT (11)
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Earnings
Net income............................ $70,039,000 $67,917,000 $61,031,000
=========== =========== ===========
Shares
Weighted average common shares
outstanding.......................... 31,998,308 32,450,480 32,080,697
Stock options considered to be common
stock equivalents.................... 171,426 185,670 159,886
----------- ----------- -----------
Weighted average common stock and
common stock equivalents outstanding. 32,169,734 32,636,150 32,240,583
=========== =========== ===========
Primary earnings per common share....... $2.18 $2.08 $1.89
===== ===== =====
FULLY DILUTED EARNINGS PER COMMON SHARE
Earnings
Net income............................ $70,039,000 $67,917,000 $61,031,000
After tax interest expense applicable
to convertible debenture............. 305,897 331,695 412,497
----------- ----------- -----------
$70,344,897 $68,248,695 $61,443,497
=========== =========== ===========
Shares
Weighted average common shares
outstanding.......................... 31,998,308 32,450,480 32,080,697
Assuming conversion of 9.00%
convertible debentures issued June
30, 1989............................. 327,988 353,440 437,702
Stock options considered to be common
stock equivalents.................... 171,426 193,490 205,387
----------- ----------- -----------
Weighted average common stock and
common stock equivalents outstanding. 32,495,593 32,997,410 32,723,786
=========== =========== ===========
Fully diluted earnings per common share. $2.16 $2.07 $1.88
===== ===== =====
</TABLE>
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DAUPHIN DEPOSIT CORPORATION
EXHIBIT (21)
Subsidiaries
The Registrant has seven direct wholly-owned subsidiaries: Dauphin Deposit
Bank and Trust Company; Dauphin Life Insurance Company; Dauphin Investment
Company; Financial Realty, Inc.; Hopper Soliday & Co., Inc.; 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.
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 Bank.
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.
Farmers Mortgage Company, incorporated under the laws of Pennsylvania is a
mortgage banking corporation acquired through the merger of FB&T Corporation on
July 1, 1992. Following Dauphin Bank's acquisition of Eastern Mortgage
Services, Inc. on July 1, 1994, Farmers Mortgage Corporation has been inactive.
FARMCO Realty, Inc., incorporated under the laws of Pennsylvania, is a real
estate holding company which holds property leased to Dauphin Bank for its
branch office locations.
In addition to the above, Dauphin Bank has three 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 and Eastern Mortgage Services, Inc., a Pennsylvania mortgage
banking corporation acquired on July 1, 1994.
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<PAGE>
EXHIBIT (23)
(LETTERHEAD)
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 and registration
statement (No. 33-53793) on Form S-3 of Dauphin Deposit Corporation of our
report dated January 27, 1995, relating to the consolidated balance sheets of
Dauphin Deposit Corporation and subsidiaries as of December 31, 1994 and 1993,
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,
1994, which report appears in the December 31, 1994 annual report on Form 10-K
of Dauphin Deposit Corporation.
Harrisburg, Pennsylvania
March 14, 1995
(ART)
80
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<PAGE>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 202,911
<INT-BEARING-DEPOSITS> 3,738
<FED-FUNDS-SOLD> 11,302
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,783,803
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<DEPOSITS> 3,514,884
<SHORT-TERM> 940,777
<LIABILITIES-OTHER> 56,088
<LONG-TERM> 91,954
<COMMON> 163,208
0
0
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<TOTAL-LIABILITIES-AND-EQUITY> 5,070,352
<INTEREST-LOAN> 207,648
<INTEREST-INVEST> 120,399
<INTEREST-OTHER> 3,060
<INTEREST-TOTAL> 331,107
<INTEREST-DEPOSIT> 113,887
<INTEREST-EXPENSE> 152,641
<INTEREST-INCOME-NET> 178,466
<LOAN-LOSSES> 7,494
<SECURITIES-GAINS> 3,304
<EXPENSE-OTHER> 139,118
<INCOME-PRETAX> 92,801
<INCOME-PRE-EXTRAORDINARY> 70,039
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,039
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.16
<YIELD-ACTUAL> 7.46
<LOANS-NON> 9,569
<LOANS-PAST> 5,149
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,072
<ALLOWANCE-OPEN> 39,182
<CHARGE-OFFS> 9,400
<RECOVERIES> 3,041
<ALLOWANCE-CLOSE> 40,216
<ALLOWANCE-DOMESTIC> 40,216
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,682
</TABLE>
