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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
Commission file number 0-8415
[X]For the fiscal year ended December 31, 1995
OR
[_]For the transition period from to
DAUPHIN DEPOSIT CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
23-1938831
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(I.R.S. Employer Identification No.)
213 Market Street, Harrisburg, 17101
Pennsylvania -------------------------------------
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(Address of principal executive
offices)
Registrant's telephone number, including area code: (717) 255-2121
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $5.00 par value
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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 report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing sale price on February 1, 1996 was
approximately $ 781,040,971.
The number of shares of Common Stock outstanding as of February 1, 1996 was
30,586,223.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement dated March 8, 1996 for the Annual Meeting of
Shareholders to be held on April 15, 1996, portions of which are incorporated
by reference in Part III of this Report.
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DAUPHIN DEPOSIT CORPORATION
TABLE OF CONTENTS
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PART I
Item 1. Business................................................... 3
Item 2. Properties................................................. 9
Item 3. Legal Proceedings.......................................... 9
Item 4. Submission of Matters to a Vote of Security Holders........ 10
Item 4A. Executive Officers of the Registrant....................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 11
Item 6. Selected Financial Data.................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 8. Financial Statements and Supplementary Data................ 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 61
PART III
Item 10. Directors and Executive Officers of the Registrant......... 62
Item 11. Executive Compensation..................................... 62
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 62
Item 13. Certain Relationships and Related Transactions............. 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 63
SIGNATURES
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DAUPHIN DEPOSIT CORPORATION
PART I
ITEM 1. BUSINESS
Dauphin Deposit Corporation (Dauphin or Registrant) 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 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.
Commercial lending services provided by Dauphin Bank include short and medium
term loans, revolving credit loans, lines of credit, asset-based lending, real
estate construction loans, agricultural loans, and equipment leasing financial
arrangements. Consumer lending services include various types of secured and
unsecured loans, including installment loans, home equity loans and automobile
leasing. Dauphin Bank had no foreign loans in its portfolio at December 31,
1995. Residential mortgage loans are offered by Eastern Mortgage Services, Inc.
(Eastern Mortgage), a Pennsylvania mortgage banking company acquired as a
wholly-owned subsidiary of Dauphin Bank in July, 1994. Eastern Mortgage offers
the following types of residential mortgage loans: Conventional first and
second mortgage loans; FHA/VA loans; State housing bond loans; residential
construction/permanent financing; and special programs for low and moderate
income borrowers. All conforming conventional residential mortgage loans
originated for sale in the secondary mortgage market under a FNMA or FHLMC
product are generally underwritten to the standards as specified in the Fannie
Mae Selling Guide. All non-conforming loans are underwritten to private
investor standards. FHA and VA loans are processed and underwritten in
accordance with the relevant handbooks and supplementary circular letters
issued respectively by the Department of Housing and Urban Development and by
the Veterans Administration.
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. 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 DEPOSIT BANK AND TRUST COMPANY
Dauphin Bank maintains 101 offices with 87 automated teller machines located
in Adams, Berks, Chester, Cumberland, Dauphin, Franklin, 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. Dauphin Bank
maintains multiple offices in nine south central Pennsylvania counties. Single
offices are located in each of Chester, Montgomery and Northampton Counties, 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, 1995, Dauphin Bank had total deposits of $3,949,801,000,
total loans of $2,981,338,000 and total assets of $5,186,082,000.
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DAUPHIN DEPOSIT CORPORATION
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.
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.
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.
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
General.
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. In addition,
Dauphin Bank is a Pennsylvania bank and trust company and member of the Federal
Reserve System subject to regulation and supervision by the Pennsylvania
Department of Banking and the Federal Reserve Board. The operations of Dauphin
Bank are subject to requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be made and limits upon the types of
services which may be offered. Various consumer laws and regulations also
affect the operations of Dauphin Bank and Eastern Mortgage, its wholly-owned
mortgage banking company subsidiary. Regulatory approvals also are required for
branching and for bank mergers.
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
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DAUPHIN DEPOSIT CORPORATION
(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. Such transfers by Dauphin Bank to Dauphin or any
nonbanking subsidiary are limited in amount to 10% of Dauphin Bank's capital
and surplus and, with respect to Dauphin and all nonbanking subsidiaries, to an
aggregate of 20% of Dauphin Bank's capital and surplus. Such loans and
extensions of credit also are required to be secured in specified amounts, and
all such transactions are required to be on an arm's length basis. A bank
holding company and its subsidiaries are also prevented from engaging in
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services.
Source of Strength Doctrine.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary
banks will generally be considered by the Federal Reserve Board to be an unsafe
and unsound banking practice or a violation of the Federal Reserve Board
regulations or both. This doctrine is commonly known as the "source of
strength" doctrine.
Dividends.
Dividend payments by Dauphin Bank to Dauphin are subject to the Pennsylvania
Banking Code of 1965 (Banking Code) and the Federal Deposit Insurance Act
(FDIA). Under the Banking Code, no dividends may be paid except from
"accumulated net earnings" (generally, undivided profits). Under the FDIA, no
dividends may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. State and federal
regulatory authorities have adopted standards for the maintenance of adequate
levels of capital by banks. Adherence to such standards further limits the
ability of banks to pay dividends.
Under these policies and subject to the restrictions applicable to Dauphin
Bank, Dauphin Bank could declare without prior regulatory approval, aggregate
dividends of $26.0 million, plus net profits for the remainder of 1996.
The payment of dividends by Dauphin Bank may also be affected by other
regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority a bank under
its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound
practice (which,
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DAUPHIN DEPOSIT CORPORATION
depending on the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The Federal Reserve Board and the
FDIC have formal and informal policies which provide that insured banks and
bank holding companies should generally pay dividends only out of current
operating earnings, with some exceptions.
Capital Adequacy.
The Federal Reserve Board adopted risk-based capital guidelines for bank
holding companies, such as Dauphin. The guidelines were phased in over a two
year period ended December 31, 1992. Currently, the required minimum ratio of
total capital to risk-weighted assets (including off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the total capital is
required to be Tier 1 capital, consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term
preferred stock, certain hybrid capital instruments and other debt securities,
perpetual preferred stock and a limited amount of the general loan loss
allowance. During the two-year phase-in period, a limited portion of Tier 2
capital was permitted to be included as Tier 1 capital.
In addition to the risk-based capital guidelines, the Federal Reserve Board
established minimum leverage ratio (Tier 1 capital to total assets) guidelines
for bank holding companies. These guidelines provide for a minimum leverage
ratio of 3% for those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing significant
growth or expansion. All other bank holding companies are required to maintain
a leverage ratio of at least 1% to 2% above the 3% stated minimum. Dauphin Bank
is subject to the same capital requirements since its primary federal regulator
is the Federal Reserve Board. Dauphin and Dauphin Bank exceed all applicable
capital requirements.
FDICIA.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required the federal banking agencies to promulgate regulations specifying the
levels at which an insured institution would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under these regulations, a bank is
considered "well capitalized" if it has (i) a total risk-based capital ratio of
10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii)
a leverage ratio of 5% or greater and (iv) is not subject to any order or
written directive to meet and maintain a specific capital level. An "adequately
capitalized" bank is defined under the regulations as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with the highest composite regulatory examination
rating of 1) and (iv) does not meet the definition of a well capitalized bank.
A bank will be considered (A) "undercapitalized" if it has (i) a total risk-
based capital ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of a
bank with the highest regulatory examination rating of 1); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, (ii) a Tier 1 risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3%; and (C) "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets of equal to or less than
2%. Notwithstanding the foregoing, the applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require an "adequately
capitalized" or "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a reclassification could
be made if the regulatory agency determines that the institution is in an
unsafe or unsound condition (which could include unsatisfactory examination
ratings).
Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration plans
to the appropriate federal banking regulator and are subject to restrictions on
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DAUPHIN DEPOSIT CORPORATION
operations, including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as dividends, and
growing without regulatory approval. On December 31, 1995, Dauphin and Dauphin
Bank exceeded the minimum capital levels of the "well capitalized" category.
Other Provisions of FDICIA.
Each depository institution must submit audited financial statements to its
primary regulator and the FDIC, which reports are made publicly available. In
addition, the audit committee of each depository institution must consist of
outside directors and the audit committee at "large institutions" (as defined
by FDIC regulation) must include members with banking or financial management
expertise. The audit committee at "large institutions" must also have access to
independent outside counsel. In addition, an institution must notify the FDIC
and the institution's primary regulator of any change in the institution's
independent auditor, and annual management letters must be provided to the FDIC
and the depository institution's primary regulator. The regulations define a
"large institution" as one with over $500 million in assets, which would
include Dauphin Bank. Also, under the rule, an institution's independent
auditor must examine the institution's internal controls over financial
reporting and perform agreed-upon procedures to test compliance with laws and
regulations concerning safety and soundness.
Under FDICIA, each federal banking agency must prescribe certain safety and
soundness standards for depository institutions and their holding companies.
Three types of standards must be prescribed: Asset quality and earnings,
operational and managerial, and compensation. Such standards would include a
ratio of classified assets to capital, minimum earnings, and, to the extent
feasible, a minimum ratio of market value to book value for publicly traded
securities of such institutions and holding companies. Operational and
managerial standards must relate to: (i) internal controls, information systems
and internal audit systems, (ii) loan documentation, (iii) credit underwriting,
(iv) interest rate exposure, (v) asset growth, and (vi) compensation, fees and
benefits. In November, 1993, the federal banking agencies released proposed
rules setting forth some of the required safety and soundness standards. Under
such proposed rules, if the primary federal regulator determines that any
standard has not been met, the regulator can require the institution to submit
a compliance plan that describes the steps the institution will take to
eradicate the deficiency. Failure to adopt or implement a compliance plan could
lead to further sanctions by the responsible regulator. Pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994, federal banking
agencies have been given the discretion to adopt safety and soundness
guidelines rather than regulations.
Provisions of FDICIA relax certain requirements for mergers and acquisitions
among financial institutions, including authorization of mergers of insured
institutions that are not members of the same insurance fund, and provide
specific authorization for a federally chartered savings association or
national bank to be acquired by an insured depository institution.
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.
Under FDICIA, all depository institutions must provide 90 days notice to
their primary federal regulator of branch closings, and penalties are imposed
for false reports by financial institutions. Depository institutions with
assets in excess of $250 million must be examined on-site annually by their
primary federal, state regulator or the FDIC.
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FDICIA also sets forth Truth in Savings disclosure and advertising
requirements applicable to all depository institutions.
FDIC Insurance Assessments.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) created two deposit insurance funds to be administered by the FDIC:
the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund
(BIF). Dauphin Bank's deposits are insured under BIF. The FDIC has implemented
a risk-related premium schedule for all insured depository institutions that
results in the assessment of premiums based on capital and supervisory
measures.
Under the risk-related premium schedule, the FDIC assigns, on a semiannual
basis, each institution to one of three capital groups (well capitalized,
adequately capitalized or undercapitalized) and further assigns such
institution to one of three subgroups within a capital group. The institution's
subgroup assignment is based upon the FDIC's judgment of the institution's
strength in light of supervisory evaluations, including examination reports,
statistical analyses and other information relevant to gauging the risk posed
by the institution. Only institutions with a total capital to risk-adjusted
assets ratio of 10% or greater, a Tier 1 capital to risk-adjusted assets ratio
of 6% or greater and a Tier 1 leverage ratio of 5% or greater, are assigned to
the well capitalized group. As of December 31, 1994, Dauphin Bank was subject
to FDIC deposit insurance assessments at the rate of $.23 for every $100 of
deposits.
In the second quarter of 1995, the BIF reached its statutory reserve ratio
requirement. Consequently, the FDIC has significantly reduced the assessment
rates applicable to BIF members and refunded to BIF members that portion of the
assessment for the second and third quarters of 1995 which represented an
overpayment once the BIF had achieved full funding in accordance with the
statutory reserve ratio requirement. Dauphin Bank received a refund from the
FDIC in September 1995 in the amount of $2,215,000, which amount also includes
interest on the refund from June 1 to September 14, 1995. According to the new
rate schedule, BIF institutions deemed to have the highest risk will pay up to
$.31 for every $100 of deposits annually while those deemed to have the least
risk will pay $.04 for every $100 of deposits annually. In the case of Dauphin
Bank, for the second half of 1995, it was assessed at the rate of $.04 for
every $100 of deposits. At the same time, the FDIC has indicated that it
anticipates that the SAIF assessment rate in even the lowest risk-based
category will not fall below the current rate of $.23 for every $100 of
deposits before 2002.
Interstate Banking.
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 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
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DAUPHIN DEPOSIT CORPORATION
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 amended the
Pennsylvania Banking Code of 1965 in July, 1995, to opt in to all of the
provisions of the Riegle-Neal Act, including interstate bank mergers and de
novo interstate branching. The management of Dauphin cannot predict with any
reasonable degree of certainty the effects, if any, which the Riegle-Neal Act
may have on Dauphin.
Proposed Legislation.
Legislation has been introduced in Congress to recapitalize the SAIF via a
one-time special assessment on SAIF deposits and thereafter to merge the SAIF
with the BIF. Legislation also is pending in Congress which would repeal
certain aspects of the Glass-Steagall Act, which prohibits commercial banks
from engaging in securities underwriting activities. It is not anticipated that
the enactment of such legislation, in its current form, would have a material
effect on the financial condition or results of operations of Dauphin.
Employees
At December 31, 1995, Dauphin and its subsidiaries employed approximately
2,681 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 18 of the branch
banking offices which are leased to Dauphin Bank.
Dauphin Bank owns 67 of its branch banking offices and leases 26 other
facilities including two leases which are treated as capitalized leases for
financial reporting purposes. Hopper Soliday & Co., Inc. leases four of its
sales offices. Eastern Mortgage leases 12 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.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions and proceedings are pending involving Dauphin or its
subsidiaries. Management believes that the aggregate liability or loss, if any,
will not be material to Dauphin's financial condition or results of operations.
Included among outstanding litigation is a class action law suit instituted by
Dauphin seeking a declaratory judgment from the Court specifically permitting
Dauphin to discontinue offering an 18 month variable rate investment product
carrying a minimum interest rate of 10% for the 18 month term held in certain
individual retirement accounts (IRA) and/or to charge an annual maintenance fee
and fee on rollovers or transfers into the investment product. 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. Management intends to vigorously assert its right to terminate the 18
month variable rate investment product in accordance with its terms. Pending
the outcome of the litigation, Dauphin has continued to date to pay a 10%
interest rate with regard to the product. Counsel expects the case to go to
trial in the second quarter of 1996 and for a decision to be rendered by the
Court promptly thereafter.
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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, 1996 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.
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POSITION AND
BUSINESS EXPERIENCE
NAME AGE DURING PAST 5 YEARS
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Christopher R. 52 Chairman of the Board, Chief Executive Officer and
Jennings............... Chairman of the Executive Committee (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..... 47 President and Chief Operating Officer (February
1995 to date) of Dauphin, Chairman of the Board,
President and Chief Executive Officer (1991 to
date) of Hopper Soliday & Co., Inc., formerly,
President, W.H. Newbold's Son and Co./Hopper
Soliday & Co., Inc.
Lawrence J. LaMaina, 61 Vice Chairman (1992 to date) of Dauphin, President
Jr..................... (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......... 48 Vice Chairman (1994 to date), Senior Executive
Vice President (1990 to 1994), Chief Credit
Officer (1990 to date) of Dauphin, President (1992
to date) and Chief Credit Policy Officer (1990 to
date) of Dauphin Bank.
Dennis L. Dinger........ 45 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.. 54 Executive Vice President and Chief Operations
Officer of Dauphin and Dauphin Bank.
Kenneth H. Sallade...... 44 Executive Vice President and Chief Investment
Officer (1994 to date) of Dauphin and Dauphin
Bank, Senior Vice President (1988 to 1994) of
Dauphin Bank.
George W. King.......... 54 Executive Vice President, General Counsel and
Secretary (1995 to date) of Dauphin and Dauphin
Bank, Senior Vice President and Counsel (1993 to
1995) to CoreStates Hamilton Bank, Division of
CoreStates Bank, N.A., Senior Vice President,
Corporate Counsel and Secretary (1991 to 1993) of
CoreStates Hamilton Bank.
</TABLE>
10
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
POSITION AND
BUSINESS EXPERIENCE
NAME AGE DURING PAST 5 YEARS
---- --- -------------------
<S> <C> <C>
Joseph T. Lysczek, 47 Senior Vice President and Treasurer (1992 to date)
Jr. ................... 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.
James J. Trupp, Jr. .... 49 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>
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 sales prices of high,
low and closing trades as quoted on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
CASH
LAST DIVIDENDS
TRADE DAY DECLARED
HIGH LOW CLOSING PER SHARE
------- ------- --------- ---------
<S> <C> <C> <C> <C>
1994
First Quarter............................... $26 $23 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
1995
First Quarter............................... $25 1/2 $23 $23 1/4 $.25
Second Quarter.............................. 25 1/2 23 24 1/4 .25
Third Quarter............................... 28 1/2 24 1/4 26 11/16 .25
Fourth Quarter.............................. 31 3/4 26 1/4 28 3/4 .26 1/2
</TABLE>
The approximate number of holders of common stock is 11,585 as of December
31, 1995.
11
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income..... $ 175,713 $ 178,466 $ 176,273 $ 166,759 $ 151,832
Provision for loan loss-
es..................... 5,608 7,494 10,141 11,627 10,836
Non-interest income..... 71,789 60,947 60,051 55,683 45,599
Non-interest expense.... 153,119 139,118 136,281 131,308 116,263
Net income.............. 65,565 70,039 67,917 61,031 56,179
Per share:
Net income............ 2.12 2.18 2.08 1.89 1.79
Cash dividends de-
clared............... 1.01 1/2 .94 .83 .77 .74 1/2
Weighted average number
of shares outstanding.. 30,966,258 32,169,734 32,636,150 32,240,583 31,430,992
AT YEAR-END
Total assets............ $5,297,349 $5,070,352 $4,916,855 $4,905,702 $4,578,941
Earning assets.......... 4,941,562 4,706,198 4,653,015 4,568,334 4,264,580
Short-term investments.. 11,573 15,040 16,523 91,950 34,787
Investment securities... 1,860,869 1,783,803 2,041,204 2,056,109 1,821,148
Loans................... 2,981,338 2,861,133 2,586,085 2,411,772 2,402,778
Deposits................ 3,949,536 3,514,884 3,586,135 3,692,209 3,614,070
Long-term debt.......... 40,599 91,954 92,454 92,863 44,183
Stockholders' equity.... 546,603 466,649 506,075 462,111 409,694
Book value per share
Including unrealized
impact of securities
available-for-sale... 17.85 15.08 15.57 14.28 13.03
Excluding unrealized
impact of securities
available-for-sale... 17.40 16.41 15.57 14.28 13.03
Number of shares out-
standing............... 30,627,843 30,945,167 32,507,414 32,356,559 31,430,305
RATIOS
Return on average as-
sets................... 1.31% 1.42% 1.40% 1.31% 1.27%
Return on average stock-
holders' equity
Including unrealized
impact of securities
available-for-sale... 12.81 13.81 14.06 13.93 14.46
Excluding unrealized
impact of securities
available-for-sale... 12.64 13.72 14.06 13.93 14.46
Dividend payout......... 47.88 43.12 39.90 40.74 41.62
Average equity to aver-
age assets............. 10.23 10.27 9.99 9.37 8.79
</TABLE>
12
<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
(Bank), which includes the Bank of Pennsylvania, Farmers Bank and Valleybank
Divisions. The other primary subsidiaries include Hopper Soliday & Co., Inc.
(Hopper Soliday), a broker/dealer, and Eastern Mortgage Services, Inc. (Eastern
Mortgage), a mortgage banking company. This discussion and analysis should be
read in conjunction with the financial statements which appear elsewhere in
this report.
On July 1, 1994, Dauphin acquired Eastern Mortgage Services, Inc., 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.
RESULTS OF OPERATIONS
SUMMARY
Dauphin Deposit Corporation recorded net income of $65.6 million for 1995,
compared with $70.0 million recorded in 1994. On a per common share basis, net
income was $2.12 in 1995 compared with $2.18 in 1994 and $2.08 in 1993.
Return on average total assets was 1.31% for 1995, compared with 1.42% for
1994 and 1.40% for 1993. Return on average equity, excluding the SFAS 115 (as
defined in "Investment Securities and Other Short-Term Investments")
adjustment, was 12.64% for 1995 compared with 13.72% for 1994 and 14.06% for
1993. Return on average stockholders' equity, including the SFAS 115
adjustment, was 12.81% for 1995 compared with 13.81% for 1994.
During 1995 average earning assets increased 1.4% to $4.7 billion and the
interest rate spread decreased to 3.29% from 3.61%. The decrease in the
interest rate spread was primarily the result of a shifting of deposits from
transaction oriented deposits to time deposits. The result was a decrease of
$5.6 million or 2.9% 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, loans past due 90 or
more days as to principal or interest payments, restructured loans and other
real estate owned, represented .69% of year- end loans and other real estate
owned, down from .82% at December 31, 1994. The allowance for loan losses was
1.40% of year-end loans at December 31, 1995 compared with 1.41% at December
31, 1994. Non-performing loans were covered 2.3 times by the allowance for loan
losses. The allowance includes $ 6.7 million which is not allocated to any
specific loan category. Because of this strong asset quality, the provision for
loan losses was decreased by $1.9 million in 1995.
Non-interest income, other than securities gains, increased $11.9 million, or
20.6%. Increased non-interest 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.
Non-interest expense items increased $14.0 million, or 10.1%. Contributing to
this increase were strategic initiatives implemented, normal salary adjustments
and additions to staffing levels and the inclusion of a full year of results
for Eastern Mortgage. Additionally, other non-interest expenses decreased due
to the industry-wide reduction in FDIC insurance premiums.
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)
1995 1994 1993
--------------------------- --------------------------- ---------------------------
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.............. $ 6,367 $ 365 5.73% $ 5,481 $ 338 6.17% $ 5,764 $ 219 3.80%
Federal funds sold and
securities purchased
under agreements to
resell................ 9,362 714 7.63 11,325 603 5.32 11,333 388 3.42
Other short-term
investments........... 615 41 6.67
---------- -------- ---------- -------- ---------- --------
Total short-term
investments........... 16,344 1,120 6.85 16,806 941 5.60 17,097 607 3.55
---------- -------- ---------- -------- ---------- --------
Investment securities
U.S. government
obligations........... 183,866 10,618 5.77 251,030 14,267 5.68 274,007 17,733 6.47
U.S. government
agencies.............. 1,127,537 75,203 6.67 1,185,694 73,553 6.20 1,245,450 77,007 6.18
State and municipals... 327,617 30,468 9.30 407,287 38,826 9.53 372,129 37,902 10.19
Other securities....... 73,527 5,011 6.82 98,965 6,537 6.61 147,600 10,455 7.08
---------- -------- ---------- -------- ---------- --------
Total investment
securities............ 1,712,547 121,300 7.08 1,942,976 133,183 6.85 2,039,186 143,097 7.02
---------- -------- ---------- -------- ---------- --------
Assets held for sale,
primarily mortgage
loans.................. 79,306 5,626 7.09 29,586 2,136 7.22 36,071 1,845 5.11
---------- -------- ---------- -------- ---------- --------
Loans (1)
Commercial............. 964,883 84,644 8.77 899,376 68,705 7.64 922,920 64,882 7.03
Commercial mortgages... 542,059 49,547 9.14 545,508 45,479 8.34 481,661 38,849 8.07
Residential mortgages
(2)................... 777,247 64,123 8.25 700,886 55,343 7.90 645,292 53,401 8.28
Consumer (3)........... 611,137 49,572 8.11 504,780 40,463 8.02 409,664 37,511 9.16
---------- -------- ---------- -------- ---------- --------
Total loans............ 2,895,326 247,886 8.56 2,650,550 209,990 7.92 2,459,537 194,643 7.91
---------- -------- ---------- -------- ---------- --------
Total earning assets... 4,703,523 375,932 7.99 4,639,918 346,250 7.46 4,551,891 340,192 7.47
-------- -------- --------
Other assets............ 301,502 301,091 283,655
---------- ---------- ----------
Total assets........... $5,005,025 7.51% $4,941,009 7.01% $4,835,546 7.04%
========== ==== ========== ==== ========== =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
deposits
Demand deposits........ $ 507,101 7,493 1.48% $ 564,592 9,579 1.70% $ 530,503 13,010 2.45%
Savings deposits....... 906,945 24,725 2.73 1,050,580 27,096 2.58 1,120,871 29,826 2.66
Time deposits of
$100,000 or more...... 402,085 27,335 6.80 286,612 15,140 5.28 302,795 14,226 4.70
Other time deposits.... 1,482,112 87,949 5.93 1,196,905 62,072 5.19 1,222,214 65,536 5.36
---------- -------- ---------- -------- ---------- --------
Total interest bearing
deposits.............. 3,298,243 147,502 4.47 3,098,689 113,887 3.68 3,176,383 122,598 3.86
Short-term borrowings... 646,537 35,880 5.55 778,906 32,056 4.12 646,187 19,436 3.01
Long-term debt.......... 56,742 4,549 8.02 92,048 6,698 7.28 92,521 6,738 7.28
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities........... 4,001,522 187,931 4.70 3,969,643 152,641 3.85 3,915,091 148,772 3.80
-------- --------
Non-interest bearing
demand deposits........ 431,567 407,556 392,129
Other liabilities....... 60,036 56,598 45,237
Stockholders' equity.... 511,900 507,212 483,089
---------- ---------- ----------
Total liabilities and
stockholders' equity... $5,005,025 3.75% $4,941,009 3.09% $4,835,546 3.08%
========== ==== ========== ==== ========== =====
Interest rate spread.... 3.29% 3.61% 3.67%
Effect of non-interest
bearing funds.......... .71 .56 .54
---- ---- -----
Net interest
income/margin.......... $188,001 4.00% $193,609 4.17% $191,420 4.21%
======== ==== ======== ==== ======== =====
</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%.
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, 1995.
Net interest income on a fully taxable equivalent basis totaled $188.0
million in 1995, a decrease of $5.6 million or 2.9% from $193.6 million in
1994. Net interest income in 1994 was up 1.1% from $191.4 million in 1993.
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.
TABLE 2--NET INTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Total interest income............................... $363,644 $331,107 $325,045
Total interest expense.............................. 187,931 152,641 148,772
-------- -------- --------
Net interest income................................. 175,713 178,466 176,273
Tax equivalent adjustment........................... 12,288 15,143 15,147
-------- -------- --------
Net interest income (fully taxable equivalent)...... $188,001 $193,609 $191,420
======== ======== ========
</TABLE>
TABLE 3--RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995/1994 1994/1993
--------------------------- -------------------------
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.......... $ (51) $ 230 $ 179 $ (11) $ 345 $ 334
Investment
securities........... (16,807) 4,924 (11,883) (4,938) (4,976) (9,914)
Assets held for sale.. 3,528 (38) 3,490 (377) 668 291
Loans................. 19,843 18,053 37,896 16,015 (668) 15,347
-------- ------- -------- ------- ------- -------
Total interest
income............. 6,513 23,169 29,682 10,689 (4,631) 6,058
-------- ------- -------- ------- ------- -------
Interest expense
Interest bearing
deposits............. 18,496 15,119 33,615 (3,181) (5,530) (8,711)
Short-term
borrowings........... (6,064) 9,888 3,824 4,518 8,102 12,620
Long-term debt........ (2,774) 625 (2,149) (34) (6) (40)
-------- ------- -------- ------- ------- -------
Total interest
expense............ 9,658 25,632 35,290 1,303 2,566 3,869
-------- ------- -------- ------- ------- -------
Net interest income..... $ (3,145) $(2,463) $ (5,608) $ 9,386 $(7,197) $ 2,189
======== ======= ======== ======= ======= =======
</TABLE>
Note: The changes not due solely to change in volume or solely to change in
rate are allocated proportionally to both change in volume and rate.
15
<PAGE>
DAUPHIN DEPOSIT CORPORATION
During 1995 there was a decrease in net interest income of $3.1 million due
to changes in volume and a decrease of $2.5 million due to changes in rate. In
1994 there was an increase of $9.4 million due to changes in volume and a
decrease of $7.2 million due to changes in rate.
The change in the net interest margin attributable to interest rates can be
understood by analyzing the interest rate spread and the net interest margin on
earning assets. While the interest rate spread considers only the difference
between the average rate earned on earning assets and the average rate paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.
As reflected in Table 4, average earning assets were $4.7 billion in 1995 and
$4.6 billion in 1994 and 1993. The interest rate spread for 1995 was 3.29%
compared with 3.61% for 1994 and 3.67% for 1993. The net interest margin for
1995 was 4.00% compared with 4.17% for 1994 and 4.21% for 1993.
TABLE 4--INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
1995 1994 1993
------------ ------------ ------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
(Taxable equivalent)
Earning assets...................... $4,704 7.99% $4,640 7.46% $4,552 7.47%
====== ====== ======
Interest bearing liabilities........ $4,002 4.70 $3,970 3.85 $3,915 3.80
---- ---- ----
Interest rate spread................ 3.29 3.61 3.67
Interest free sources used to fund
earning assets..................... 702 670 637
------ ---- ------ ---- ------ ----
Total sources of funds.............. $4,704 3.99 $4,640 3.29 $4,552 3.26
====== ---- ====== ---- ====== ----
Net interest margin................. 4.00% 4.17% 4.21%
==== ==== ====
</TABLE>
Short-term interest rates (prime, federal funds, etc.) continued to rise
during the first half of 1995 followed by a decline in the second half of 1995.
Long-term interest rates, in general, declined steadily for the entire year.
The net result of these interest rate movements was a flattening of the overall
yield curve. The average prime rate in 1995 was 8.83% compared with 7.17% in
1994. The average federal funds rate increased to 5.84% for 1995 compared with
4.23% for 1994. During 1995, compared with 1994, the average yield on earning
assets increased 53 basis points while the average cost of funds increased 85
basis points resulting in a decrease in the interest rate spread of 32 basis
points. The yield on the investment portfolio increased 23 basis points due to
the reinvestment of maturities at higher rates, when compared with the yield of
the security maturing. Average loans, which represent the highest yielding
earning assets, increased $244.8 million or 9.2% and produced a yield of 8.56%
in 1995 compared with 7.92% in 1994. Average loans represented 61.6% of the
average earning assets for 1995. The cost of interest bearing deposits
increased to 4.47% in 1995 compared with 3.68% in 1994. Rates paid on interest
bearing transaction accounts decreased throughout 1995. Interest rates offered
on time deposits have been rising. Consequently, depositors have been shifting
from transaction accounts to higher yielding time deposits. The increase in the
cost of short- term borrowings (143 basis points) was caused primarily by the
rise in the federal funds rate. The interest rate spread decreased 32 basis
points which was partially offset by an increase in the value of non-interest
bearing funds resulting in a net 17 basis point decline in the net interest
margin.
Average interest rates rose during 1994 compared to 1993. 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
16
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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. The
interest rate spread decreased 6 basis points which was partially offset by an
increase in the value of non-interest bearing funds resulting in a 4 basis
point decline 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 18 month variable
interest rate products with a minimum interest rate of 10% for the 18 month
term 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 been decreased by 21 basis points, 24 basis points and 21 basis points for
1995, 1994 and 1993, respectively.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged against earnings was $5.6 million in
1995 compared with $7.5 million in 1994, a decrease of 25.2%. 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. 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 .14% in
1995 from .24% in 1994 and the level of non-accruing loans and restructured
loans decreased to $17.9 million (.60% of year-end loans) at December 31, 1995
from $20.3 million (.71% of year-end loans) at December 31, 1994.
NON-INTEREST INCOME
Table 5 reflects Dauphin's total non-interest income which increased $10.8
million or 17.8% in 1995 compared with an increase of $.9 million or 1.5% in
1994. Excluding gains on investment securities, the 1995 increase was $11.9
million or 20.6% compared with an increase of $.8 million or 1.4% for 1994.
17
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 5--NON-INTEREST INCOME
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1995/1994 1994/1993
-------------------------------- -----------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
-------------- --------------
1995 AMOUNT % 1994 AMOUNT % 1993
------- ------- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Banking:
Fiduciary activities.. $16,807 $ 444 2.7% $16,363 $ 1,126 7.4% $15,237
Service charges on
deposit accounts..... 11,019 (579) (5.0) 11,598 (1,028) (8.1) 12,626
Other service charges
and fees............. 12,554 1,282 11.4 11,272 2,134 23.4 9,138
Securities gains,
net.................. 2,261 (1,043) (31.6) 3,304 78 2.4 3,226
Other................. 4,384 1,219 38.5 3,165 (3,694) (53.9) 6,859
------- ------- ------- ------- -------
47,025 1,323 2.9 45,702 (1,384) (2.9) 47,086
Broker/dealer........... 6,380 (1,391) (17.9) 7,771 (3,215) (29.3) 10,986
Mortgage banking........ 21,577 11,476 113.6 10,101 7,770 333.3 2,331
Intercompany
eliminations........... (3,193) (566) (2,627) (2,275) (352)
------- ------- ------- ------- -------
Total............... $71,789 $10,842 17.8% $60,947 $ 896 1.5% $60,051
======= ======= ===== ======= ======= ===== =======
</TABLE>
In the banking segment of Dauphin, income from fiduciary activities increased
$.4 million or 2.7% in 1995. Revenue in 1995 increased in the areas of employee
benefits and personal trust. The increase of $1.1 million or 7.4% in 1994 was
due to similar increases in the employee benefits and personal trust
departments.
Service charges on deposit accounts decreased $.6 million or 5.0% during
1995. In 1994, a decrease of $1.0 million or 8.1% was realized. Management
continuously monitors the fee structure and makes changes where appropriate.
The 1995 and 1994 decrease was primarily due to a lower number of fees assessed
for services.
Other service charges and fees increased $1.3 million or 11.4% in 1995
compared with an increase of $2.1 million or 23.4% in 1994. The increase for
1995 and 1994 was due to the volume of merchant credit card processing and
other fees relating to increased volume in consumer lending.
Securities gains totaled $2.3 million in 1995 as compared with $3.3 million
in 1994 and $3.2 million in 1993. All gains in 1995 were from the sale of debt
securities. During 1994 the sale of debt securities generated $2.4 million in
net gains compared with $.9 million in net gains from equity securities
transactions.
Other non-interest income increased $1.2 million for 1995 compared with 1994.
In 1994, compared with 1993, other non-interest income decreased $3.7 million.
The increase for 1995 was primarily the result of gains realized on the
disposition of certain branches (including deposits) and the realignment of the
proceeds to new branch locations. 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.
The broker/dealer segment of Dauphin represents broker/dealer commissions and
fees 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. The
broker/dealer income decreased $1.4 million or 17.9% in 1995 and decreased $3.2
million or 29.3% in 1994. These decreases are due to reduced volume of business
in 1995 and 1994, due primarily to a less favorable interest rate environment.
The mortgage banking segment of Dauphin reflects the mortgage banking
subsidiary, Eastern Mortgage. The mortgage banking income increased $11.5
million or 113.6% in 1995 compared with 1994. Because Eastern
18
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Mortgage was acquired July 1, 1994, the income in 1994 represents a full
service mortgage banking operation for only six months.
In addition, effective January 1, 1995, Dauphin adopted Statement of
Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS 122 amended
Statement 65 to require an institution to recognize as separate assets the
rights to service mortgage loans for others when a mortgage loan is sold or
securitized and servicing rights retained. Mortgage servicing rights are
amortized in proportion to, and over the period of, estimated net servicing
income. For the year ended December 31, 1995 the impact of applying the
provisions of SFAS 122 resulted in a net increase in mortgage banking income of
$5.8 million when compared with 1994.
NON-INTEREST EXPENSE
Table 6 reflects Dauphin's non-interest expense which increased $14.0 million
or 10.1% in 1995 compared with an increase of $2.8 million or 2.1% in 1994.
TABLE 6--NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1995/1994 1994/1993
------------------------------ -------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
-------------------- --------------------
1995 AMOUNT % 1994 AMOUNT % 1993
-------- -------------------- -------- -------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Banking:
Salaries and employee
benefits............. $ 61,375 $ 276 .5% $ 61,099 $(558) (.9)% $ 61,657
Net occupancy
expense.............. 7,719 (368) (4.6) 8,087 (78) (1.0) 8,165
Furniture and
equipment expense.... 9,867 947 10.6 8,920 (149) (1.6) 9,069
Deposit insurance..... 4,095 (3,814) (48.2) 7,909 (194) (2.4) 8,103
Other................. 43,086 7,113 19.8 35,973 (3,669) (9.3) 39,642
-------- ---------- -------- ---------- --------
126,142 4,154 3.4 121,988 (4,648) (3.7) 126,636
Broker/dealer........... 7,806 228 3.0 7,578 (2,103) (21.7) 9,681
Mortgage banking........ 21,950 11,962 119.8 9,988 9,988
Intercompany
eliminations........... (2,779) (2,343) (436) (400) (36)
-------- ---------- -------- ---------- --------
Total............... $153,119 $ 14,001 10.1% $139,118 $ 2,837 2.1% $136,281
======== ========== ======== ======== ========== ======== ========
</TABLE>
Dauphin's banking segment non-interest expense increased $4.2 million or 3.4%
in 1995 compared with a decrease of $4.6 million or 3.7% for 1994.
In Dauphin's banking segment, salaries and employee benefits increased .5% in
1995 and decreased .9% in 1994. Full-time equivalent employees increased 5.2%
to 2,024 at December 31, 1995 compared with 1,924 at year-end 1994. Salaries
expense increased 4.1% in 1995, while benefits expense decreased 15.1%,
primarily due to a decrease in health insurance costs. Dauphin goes through a
continual review to control benefit costs.
In the second quarter of 1995, the Bank Insurance Fund (BIF) reached its
statutory reserve ratio requirement of 1.25%. Consequently, the FDIC
significantly reduced the assessment rates applicable to BIF members and
refunded to BIF members that portion of the assessment for the second and third
quarters of 1995 which represented an overpayment once BIF had achieved full
funding in accordance with the statutory reserve ratio requirement. Dauphin
received a refund from the FDIC in September 1995 in the amount of $2.2 million
which included interest from June 1, the date the BIF was fully funded. In
addition, Dauphin's assessment rate was dropped from 23 basis points to 4 basis
points effective from the date of BIF reaching its statutory reserve ratio
requirement. This reduced Dauphin's deposit insurance expense by $3.8 million
when compared to 1994. In 1996, Dauphin will record $1,000 for deposit
insurance for the period from January through June. Deposit insurance
assessments for the second half of 1996 have not yet been determined.
19
<PAGE>
DAUPHIN DEPOSIT CORPORATION
All other non-interest expense items increased $7.7 million or 14.5% in 1995
compared with 1994. The increase for 1995 was primarily the result of increased
expenses to reflect numerous strategic initiatives implemented in 1995. The
other non-interest expense items that increased include depreciation on
technological investments, upgrades to branch facilities, legal, and consulting
fees.
The broker/dealer segment had increased non-interest expense of $.2 million
or 3.0% in 1995 and a decrease of $2.1 million or 21.7% in 1994.
The mortgage banking segment had increased non-interest expense of $12.0
million or 119.8% in 1995 compared with 1994. This significant increase
reflects twelve months of results in 1995 and six months of results in 1994. In
addition, the mortgage banking segment experienced significant volume increases
in 1996, including large refinancing activities in the last quarter of 1995,
which resulted in significantly higher salary expense.
PROVISION FOR INCOME TAXES
Income tax expense amounted to $23.2 million in 1995 as compared with $22.8
million in 1994 and $22.0 million in 1993. Dauphin's effective tax rate for
1995 was 26.1% compared with 24.5% in 1994 and in 1993. The primary increase in
the effective tax rate was due to the decreased level of tax exempt income in
1995 compared with 1994 and 1993. For a more comprehensive analysis of income
tax expense, refer to Note 13 of the Notes to Consolidated Financial
Statements.
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 $63.6 million or 1.4% in 1995 as compared with an increase of $88.0
million or 1.9% in 1994.
TABLE 7--SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1995 1994 1993
------------------------------- ------------------------------- ----------
INCREASE (DECREASE) INCREASE (DECREASE)
AVERAGE -------------------- AVERAGE -------------------- AVERAGE
BALANCE AMOUNT % BALANCE AMOUNT % BALANCE
---------- ------------ ------- ---------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Short-term
investments.......... $ 16,344 $ (462) (2.7)% $ 16,806 $ (291) (1.7)% $ 17,097
Taxable investment
securities........... 1,384,930 (150,759) (9.8) 1,535,689 (131,368) (7.9) 1,667,057
Tax exempt investment
securities........... 327,617 (79,670) (19.6) 407,287 35,158 9.4 372,129
Assets held for sale.. 79,306 49,720 168.1 29,586 (6,485) (18.0) 36,071
Loans................. 2,895,326 244,776 9.2 2,650,550 191,013 7.8 2,459,537
---------- ----------- ---------- ----------- ----------
Total uses.......... $4,703,523 $ 63,605 1.4% $4,639,918 $ 88,027 1.9% $4,551,891
========== =========== ======= ========== =========== ======= ==========
Funding sources:
Interest bearing
demand deposits...... $ 507,101 $ (57,491) (10.2)% $ 564,592 $ 34,089 6.4% $ 530,503
Savings deposits...... 906,945 (143,635) (13.7) 1,050,580 (70,291) (6.3) 1,120,871
Time deposits......... 1,884,197 400,680 27.0 1,483,517 (41,492) (2.7) 1,525,009
Short-term
borrowings........... 646,537 (132,369) (17.0) 778,906 132,719 20.5 646,187
Long-term debt........ 56,742 (35,306) (38.4) 92,048 (473) (.5) 92,521
Non-interest bearing
funds (net)(1)....... 702,001 31,726 4.7 670,275 33,475 5.3 636,800
---------- ----------- ---------- ----------- ----------
Total sources....... $4,703,523 $ 63,605 1.4% $4,639,918 $ 88,027 1.9% $4,551,891
========== =========== ======= ========== =========== ======= ==========
</TABLE>
- --------
(1) Non-interest bearing liabilities and stockholders' equity less non-interest
bearing assets.
20
<PAGE>
DAUPHIN DEPOSIT CORPORATION
INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS
Average short-term investments and investment securities, in the aggregate,
decreased $230.9 million or 11.8% during 1995 compared with a decrease of $96.5
million or 4.7% during 1994. During 1995 and 1994 investment securities
maturing were used to fund loan growth since loan growth exceeded the growth of
traditional funding sources of deposits and short-term borrowings.
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 interest bearing demand accounts, short-term borrowings and time deposits.
As reflected in Table 8, the average maturity of the investment portfolio was
6.0 years at year-end 1995. 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 2.0 years at December 31, 1995.
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, 1995
MATURITY--AMORTIZED COST
BASIS
Within one year....... $ 90,800 $ 123,361 $ 49,139 $11,381 $ $ 274,681 7.01%
One to five years..... 8,692 444,554 61,841 11,785 526,872 6.89%
Five to ten years..... 136,680 40,913 370 177,963 7.35%
Over ten years........ 705,278 135,804 841,082 6.97%
No set maturity....... 19,272 19,272
-------- ---------- -------- ------- ------- ----------
Amortized cost.......... $ 99,492 $1,409,873 $287,697 $23,536 $19,272 $1,839,870
======== ========== ======== ======= ======= ==========
Fair value.............. $100,742 $1,414,233 $302,702 $23,887 $19,305 $1,860,869
======== ========== ======== ======= ======= ==========
Taxable equivalent
yield.................. 6.27% 6.54% 9.44% 7.21%
Average maturity........ 6.0 year
DECEMBER 31, 1994
Amortized cost.......... $251,793 $1,133,247 $369,061 $79,932 $12,903 $1,846,936
DECEMBER 31, 1993
Amortized cost.......... $264,318 $1,263,299 $406,241 $93,592 $13,754 $2,041,204
</TABLE>
Dauphin had no investments in any foreign country that aggregated more than
1% of assets at December 31, 1995, 1994 or 1993.
At December 31, 1995, net unrealized gains in the portfolio were $21.0
million consisting of gross unrealized gains of $29.7 million and gross
unrealized losses of $8.7 million. Dauphin accounts for investment securities
in accordance with the provisions of 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
21
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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 should be classified as available-
for-sale.
LOANS
Average loans increased $244.8 million or 9.2% during 1995 compared with an
increase of $191.0 million or 7.8% in 1994. Loan growth continued to increase
in 1995, primarily in the area of consumer loans, as more emphasis was placed
on this line of business.
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 1995 were influenced by the improving economy and, as a
result, balances in both the commercial and consumer areas increased. Dauphin
continues to sell residential mortgages in the secondary market in order to
avoid taking interest rate risk.
Dauphin's policy is to make the vast majority of its loans and commitments in
the market area it serves. This tends to reduce risk and gives Dauphin the
opportunity to deliver its many products to the same customer base. Dauphin had
no foreign loans in its portfolio at December 31, 1995.
TABLE 9--LOANS OUTSTANDING, NET OF UNEARNED INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural:
Commercial secured by
real estate.......... $ 640,670 $ 466,657 $ 433,055 $ 435,899 $ 466,241
Agricultural.......... 36,415 34,960 40,748 38,306 31,709
Other................. 719,137 680,113 665,514 641,161 650,969
Real estate,
construction........... 97,444 183,673 184,523 138,023 136,037
Real estate,
residential............ 446,059 578,122 461,030 477,833 454,435
Consumer:
Home equity........... 385,194 335,323 343,175 308,563 302,849
Installment and credit
card................. 507,425 483,889 431,420 360,893 347,619
Lease financing......... 150,943 101,919 30,488 15,409 16,760
Unamortized net loan
fees................... (1,949) (3,523) (3,868) (4,315) (3,841)
---------- ---------- ---------- ---------- ----------
Total............... $2,981,338 $2,861,133 $2,586,085 $2,411,772 $2,402,778
========== ========== ========== ========== ==========
</TABLE>
TABLE 10--LOAN MATURITIES AND INTEREST SENSITIVITY (1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1995
------------------------------------------
ONE YEAR ONE THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural...................... $451,991 $311,106 $633,125 $1,396,222
Real estate, construction.......... 39,470 9,348 48,626 97,444
-------- -------- -------- ----------
Total............................ $491,461 $320,454 $681,751 $1,493,666
======== ======== ======== ==========
Loans with predetermined interest
rate.............................. $ 93,645 $140,416 $ 36,925 $ 270,986
Loans with variable interest rate.. 397,816 180,038 644,826 1,222,680
-------- -------- -------- ----------
Total............................ $491,461 $320,454 $681,751 $1,493,666
======== ======== ======== ==========
</TABLE>
- --------
(1) Excludes residential mortgages, home equity, consumer loans and lease
financing
22
<PAGE>
DAUPHIN DEPOSIT CORPORATION
DEPOSITS
Average deposits, including non-interest bearing demand deposits, increased
$223.6 million or 6.4% during 1995 compared with a decrease of $62.3 million or
1.7% in 1994. Dauphin, like many other commercial banks, has experienced
deposit growth even 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
was primarily due to the increase in average interest rates during 1995. While
rates paid on interest bearing transaction accounts decreased throughout 1995,
rates paid on time deposits have been increasing due to rising interest rates.
Depositors appear to be shifting from transaction accounts to time deposits.
Included in interest bearing deposits are certain individual retirement
accounts (IRA) totaling $184.8 million which are invested in 18 month variable
interest rate products with a minimum interest rate of 10% for the 18 month
term. 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 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 account. 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 interest of Dauphin. Management intends to vigorously assert
its legal right to discontinue the 18 month variable rate investment product.
Counsel expects the case to go to trial in the second quarter of 1996 and for a
decision to be rendered by the Court promptly thereafter.
During 1995 average time deposits increased $400.7 million compared with a
decrease of $41.5 million during 1994. This funding source was used to replace
volatile liabilities such as 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 1995 and 1994 and 11.0% for 1993. 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 decreased $132.4 million or 17.0% during 1995
compared with an increase of $132.7 million or 20.5% in 1994. 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. The average cost of short-term borrowings increased
from 3.01% in 1993 to 4.12% in 1994 and to 5.55% in 1995.
NON-PERFORMING ASSETS
Table 11 reflects Dauphin's non-performing assets for the five years ended
December 31, 1995. 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.
23
<PAGE>
DAUPHIN DEPOSIT CORPORATION
TABLE 11--NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans................ $ 7,031 $ 9,569 $17,450 $18,945 $18,033
Loans past due 90 or more days as
to principal or interest
payments........................ 5,805 5,149 2,823 5,409 6,065
Restructured loans............... 5,072 5,599 7,352 6,327 194
------- ------- ------- ------- -------
Total non-performing loans... 17,908 20,317 27,625 30,681 24,292
Other real estate owned.......... 2,709 3,056 2,981 3,981 3,434
------- ------- ------- ------- -------
Total non-performing assets.. $20,617 $23,373 $30,606 $34,662 $27,726
======= ======= ======= ======= =======
Ratios:
Non-performing loans to total
loans......................... .60% .71% 1.07% 1.27% 1.01%
Non-performing assets to total
loans and other real estate
owned......................... .69 .82 1.18 1.43 1.15
Allowance for loan losses to
non-performing loans.......... 233.06 197.94 141.84 118.08 131.56
</TABLE>
Loan quality is maintained through diversification of risk, strict
enforcement of credit control practices and continued monitoring of the loan
portfolio.
At December 31, 1995, 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.
The balance of non-accrual and restructured loans is $12.1 million at
December 31, 1995. Interest income on these loans of $.4 million was recorded
on a cash basis. If such loans were on the accrual basis, an additional $.3
million of interest income would have been recognized.
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, impaired or reduced rate in the future are estimated to
total approximately $8.1 million at December 31, 1995.
On January 1, 1995, Dauphin adopted the provisions of Statement of Financial
Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors for
Impairment of a Loan", as amended by Statement of Financial Accounting
Standards No. 118 (SFAS 118), "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures". SFAS 114 addresses the accounting by
creditors for impairment of certain loans. SFAS 114 requires that impaired
loans that are within the scope of the Statement be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, at the loan's market price of the fair value of the
collateral if the loan is collateral dependent.
On December 31, 1995 the balance of impaired loans was $11.7 million.
Impaired loans of $8.2 million have a related allowance for loan losses of $3.8
million and the remaining impaired loans of $3.5 million have no related
allowance for loan losses. The impaired loans consist of loans where it is
probable that Dauphin will be unable to collect all amounts due according to
the contractual term of the loan agreement. Interest income for impaired loans
that are on non-accrual status is recognized using the cash basis, while
interest on impaired loans that are still accruing is recognized using the
accrual method. The average balance of impaired loans for 1995 was $8.4 million
and the interest recognized for the year was $.7 million. The interest income
includes $.2 million that was recorded on the cash basis.
24
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Federal regulatory authorities have defined "highly leveraged transactions"
(HLT's) as a credit of $20 million or more which is extended in connection with
an acquisition by, or a restructuring of, an organization, and the extension of
credit results in "high leverage" or is made to an already highly leveraged
organization. It is the policy of Dauphin to consider financing HLT's for its
customers or for potential customers in its market area which usually involves
the change of ownership from one generation of a family to the next, or from
present owners to the existing management team. The amount of HLT's, as defined
by the Federal regulatory authorities, was $7.3 million at December 31, 1995
and $8.2 at December 31, 1994 and represents Dauphin's portion of a shared
national credit within its market area.
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. In 1995, the unallocated
category increased primarily as a result of Dauphin's continued improvement in
loan quality which is reflected in Table 11.
TABLE 12--ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------- --------------- --------------- --------------- ---------------
% 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....... $24,016 46.8% $27,469 41.3% $28,147 44.0% $18,596 46.2% $17,391 47.7%
Real estate,
construction........... 1,412 3.3 1,973 6.4 1,383 7.1 1,322 5.7 1,278 5.7
Real estate,
residential(1)......... 4,607 27.9 3,711 31.9 1,286 31.1 956 32.5 698 31.5
Consumer................ 4,123 17.0 4,800 16.9 4,314 16.7 2,595 14.9 3,351 14.4
Lease financing......... 859 5.0 581 3.5 457 1.1 154 .7 168 .7
Unallocated............. 6,720 1,682 3,595 12,604 9,073
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. $41,737 100.0% $40,216 100.0% $39,182 100.0% $36,227 100.0% $31,959 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- --------
Gross loans represent loans before unamortized net loan fees.
(1) Includes home equity loans
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.
25
<PAGE>
DAUPHIN DEPOSIT CORPORATION
The provision for loan losses of $5.6 million exceeded the net charge-offs of
$4.1 million, thereby increasing the allowance for loan losses from $40.2
million in 1994 to $41.7 million in 1995. The allowance for loan losses as a
percentage of year-end loans was 1.40% at December 31, 1995 and 1.41% at
December 31, 1994.
TABLE 13--ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $ 40,216 $ 39,182 $ 36,227 $ 31,959 $ 29,190
Provision charged to
operating expenses..... 5,608 7,494 10,141 11,627 10,836
Allowance of subsidiary
sold................... (101)
Loans charged off:
Commercial, financial
and agricultural..... 4,737 5,971 7,406 6,217 6,074
Real estate,
residential(1)....... 422 933 480 464 172
Consumer.............. 2,696 2,428 2,547 3,445 4,242
Lease financing....... 321 68 88 129 190
---------- ---------- ---------- ---------- ----------
Total loans charged
off................ 8,176 9,400 10,521 10,255 10,678
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial
and agricultural..... 2,357 1,368 2,132 1,330 1,369
Real estate,
residential(1)....... 444 533 26 245 103
Consumer.............. 1,228 1,121 1,152 1,303 1,084
Lease financing....... 60 19 25 18 55
---------- ---------- ---------- ---------- ----------
Total recoveries.... 4,089 3,041 3,335 2,896 2,611
---------- ---------- ---------- ---------- ----------
Net charge-offs......... 4,087 6,359 7,186 7,359 8,067
---------- ---------- ---------- ---------- ----------
Balance, end of period.. $ 41,737 $ 40,216 $ 39,182 $ 36,227 $ 31,959
========== ========== ========== ========== ==========
Total loans:
Average............... $2,895,326 $2,650,550 $2,459,537 $2,399,974 $2,332,828
Year-end.............. 2,981,338 2,861,133 2,586,085 2,411,772 2,402,778
Ratios:
Net charge-offs to:
Average loans......... .14% .24% .29% .31% .35%
Loans at year-end..... .14 .22 .28 .31 .34
Allowance for loan
losses............... 9.79 15.81 18.34 20.31 25.24
Provision for loan
losses............... 72.88 84.85 70.86 63.29 74.45
Allowance for loan
losses to:
Average loans......... 1.44 1.52 1.59 1.51 1.37
Loans at year-end..... 1.40 1.41 1.52 1.50 1.33
</TABLE>
(1) Includes home equity loans
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
26
<PAGE>
DAUPHIN DEPOSIT CORPORATION
the funds available to Dauphin by established federal funds lines of credit.
Additionally, the Bank is 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 increased by $434.7 million or 12.4% from
year-end 1994 to year-end 1995. As previously mentioned, this funding source
replaced overnight federal funds borrowings. 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,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Non-interest bearing deposits................. $ 518,004 $ 464,919 $ 423,641
Interest bearing demand deposits.............. 492,079 527,892 562,565
Savings deposits.............................. 412,185 481,982 502,673
Money market deposit accounts................. 475,815 529,852 604,484
Time deposits................................. 1,592,379 1,239,462 1,192,437
Time deposits of $100,000 or more............. 459,074 270,777 300,335
---------- ---------- ----------
Total....................................... $3,949,536 $3,514,884 $3,586,135
========== ========== ==========
</TABLE>
TABLE 15--MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Three months or less................................. $197,691 $162,820 $177,852
Over three months through six months................. 33,117 26,882 32,578
Over six months through twelve months................ 63,866 27,526 24,974
Over twelve months................................... 164,400 53,549 64,931
-------- -------- --------
Total.............................................. $459,074 $270,777 $300,335
======== ======== ========
</TABLE>
TABLE 16--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Overnight federal funds purchased................ $266,370 $438,490 $187,210
Term federal funds purchased..................... 260,000 225,000
Eurodollars purchased............................ 1,672
Federal Home Loan Bank borrowings................ 149,000
Securities sold under agreements to repurchase... 233,830 196,021 215,890
U.S. Treasury tax and loan notes................. 27,289 46,266 52,286
-------- -------- --------
Total short-term borrowings.................... $678,161 $940,777 $680,386
======== ======== ========
Average interest rate at year-end................ 5.33% 5.88% 3.03%
Maximum amount outstanding at any month-end...... $958,804 $940,777 $765,169
Average amount outstanding....................... $646,537 $778,906 $646,187
Weighted average interest rate................... 5.55% 4.12% 3.01%
</TABLE>
27
<PAGE>
DAUPHIN DEPOSIT CORPORATION
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. In
February 1995, an additional 1,500,000 shares were authorized for repurchase.
Available investments are being used to fund the share repurchases. Dauphin
will use the shares for general corporate purposes, including the Employee
Stock Purchase Plan, Stock Option Plan, the Dividend Reinvestment and Stock
Purchase Plan, and other appropriate uses. During 1995 and 1994, Dauphin
repurchased 630,000 shares for $16.1 million and 1,744,500 shares for $42.4
million, respectively.
Total stockholders' equity increased $80.0 million or 17.1% in 1995 compared
with an increase of $39.4 million or 7.8% in 1994. The increase for 1995 was
due to net income of $65.6 million less dividends declared of $31.2 million and
was positively impacted by the change in net unrealized gains on investments
available-for-sale of $54.7 million, somewhat offset by the repurchase of
outstanding common stock throughout the year of $16.1 million. The decrease for
1994 was adversely impacted by the change in net unrealized losses on
investments available-for-sale of $83.1 million. The ratio of average equity to
average assets amounted to 10.23% for 1995, compared with 10.27% for 1994 and
9.99% for 1993. 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 6.7% for 1995
compared with 7.9% for 1994 and 8.6% for 1993.
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, 1995, Dauphin and its banking subsidiary exceeded all capital requirements
and is considered to be "well capitalized".
TABLE 17--CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Risk-based capital
Tier 1 ratio............................................. 13.99% 13.82% 15.52%
Total capital ratio (tier 1 and tier 2).................. 14.87 14.92 17.24
Leverage ratio............................................. 10.00 9.65 10.16
</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 rate of growth in interest free sources of funds will influence
the level of interest sensitive funding sources. In addition, the 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 changes in net interest margin.
28
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Table 18 presents an interest sensitivity analysis of Dauphin's assets and
liabilities at December 31, 1995 for several time intervals. This table
reflects the interest sensitivity gap in two formats. The detailed presentation
represents management's assumption on certain interest bearing deposits, such
as passbook 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.
TABLE 18--INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
------------------------------------------------------------
MONTH QUARTER SIX MONTHS ANNUAL 5 YEARS
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earning assets:
Short-term invest-
ments................ $ 11,573 $ 11,573 $ 11,573 $ 11,573 $ 11,573
Investment securi-
ties................. 530,574 773,262 977,628 1,236,615 1,672,503
Assets held for sale.. 87,782 87,782 87,782 87,782 87,782
Loans................. 1,636,626 1,741,224 1,864,848 2,093,111 2,838,037
---------- ---------- ---------- ---------- ----------
Total............... $2,266,555 $2,613,841 $2,941,831 $3,429,081 $4,609,895
========== ========== ========== ========== ==========
Interest bearing liabil-
ities:
Deposits.............. $1,312,839 $1,591,381 $1,785,708 $2,133,439 $2,772,612
Short-term
borrowings........... 678,161 678,161 678,161 678,161 678,161
Long-term debt........ 5 15 30 35,095 40,418
---------- ---------- ---------- ---------- ----------
Total............... $1,991,005 $2,269,557 $2,463,899 $2,846,695 $3,491,191
========== ========== ========== ========== ==========
Interest sensitivity
gap.................. $ 275,550 $ 344,284 $ 477,932 $ 582,386 $1,118,704
Interest sensitive as-
sets to interest sen-
sitive liabilities
ratio................ 1.14 1.15 1.19 1.20 1.32
Interest sensitivity
gap as a percent of
total assets......... 5.20% 6.50% 9.02% 10.99% 21.12%
Regulatory presentation:
Interest sensitivity
gap.................. $ (140,913) $ (72,179) $ 61,469 $ 165,958 $ 702,440
Interest sensitive as-
sets to interest sen-
sitive liabilities
ratio................ .94 .97 1.02 1.05 1.18
Interest sensitivity
gap as a percent of
total assets......... (2.66)% (1.36)% 1.16% 3.13% 13.26%
</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. The gap at December 31, 1995
reflects Dauphin's sensitivity at a point in time to rate changes over future
periods of time. Generally, an asset sensitive gap will increase an
institution's net interest income during periods of rising interest rates and
the liability sensitive gap will increase an institution's net interest income
during declining rates. The lower the amount of this gap, the less sensitive an
institution's earnings are to interest rate changes. However, Dauphin's assets
and liabilities with similar maturities or repricing will, at times, react
differently in varying interest rate environments. Therefore, the interest
sensitivity
29
<PAGE>
DAUPHIN DEPOSIT CORPORATION
gap does not accurately predict the actual impact of market rate changes. The
volume and mix of future assets and liabilities changes will also impact
Dauphin's net interest income as indicated on Table 3. Dauphin continuously
monitors and adjusts the gap position, taking into consideration current
interest rate projections, and maintaining flexibility if rates move contrary
to expectations. Dauphin uses on-balance sheet financial instruments, such as
investments classified as available-for-sale, to provide flexibility in
managing the interest sensitivity gap.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of". SFAS 121 provides guidance for recognition and measurement of impairment
of long-lived assets, certain identifiable intangibles and goodwill related
both to assets to be held and used and assets to be disposed of. SFAS 121
becomes effective January 1, 1996 and will not have a material effect on
Dauphin's financial position or results of operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation". SFAS 123 becomes
effective January 1, 1996, and will not have a material effect on Dauphin's
financial position or results of operations. Management anticipates that upon
adoption of SFAS 123 it will continue to measure compensation expense for its
stock-based employee compensation plans, using the methods as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and will provide pro
forma disclosures of net income and earnings per share as if the fair value-
based method prescribed by SFAS 123 had been applied in measuring compensation
expense.
REGULATORY DEVELOPMENTS
During 1994, Congress passed legislation to remove geographic restrictions on
bank expansion. The Riegle-Neal Interstate Banking and Branch Efficiency Act of
1994 will allow banks to expand across state lines to merge existing multi-
state branching operations into a single institution or to acquire new branches
in other states. Interstate banking and branching authority will be subject to
certain conditions and restrictions, such as capital adequacy, management,
Community Reinvestment Act compliance and limits on deposit concentrations. The
legislation permits a bank holding company to acquire a bank in another state
as of September 29, 1994, whether or not the state permits the acquisition.
Interstate bank mergers and de novo interstate branching are permitted as of
June 1, 1997, although states may choose to opt in to these provisions prior to
June 1, 1997, or to opt out of these provisions completely by enacting
appropriate legislation. The Pennsylvania legislature amended the Pennsylvania
Banking Code of 1965 in July, 1995, to opt in to the interstate bank merger and
de novo branching provisions of the Riegle-Neal Act. The management of Dauphin
cannot predict with any reasonable degree of certainty the effects, if any,
which the Riegle-Neal Act may have on Dauphin.
Legislation has been introduced in Congress to recapitalize the Savings
Association Insurance Fund (SAIF) via a one-time special assessment on SAIF
deposits and thereafter to merge the SAIF with the Bank Insurance Fund (BIF).
Legislation is also pending in Congress which would repeal certain aspects of
the Glass-Steagall Act, which prohibits commercial banks from engaging in
securities underwriting activities. It is not anticipated that the enactment of
such legislation, in its current form, would have a material effect on the
financial condition or results of operations of Dauphin.
30
<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............................................... 32
Consolidated Statements of Income......................................... 33
Consolidated Statements of Stockholders' Equity........................... 34
Consolidated Statements of Cash Flows..................................... 35
Notes to Consolidated Financial Statements................................ 36
Independent Auditors' Report................................................ 60
</TABLE>
31
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks.............................. $ 218,785 $ 202,911
----------- -----------
Short-term investments
Interest bearing deposits.......................... 8,523 3,738
Federal funds sold and securities purchased under
agreements to resell.............................. 3,050 11,302
----------- -----------
Total short-term investments..................... 11,573 15,040
----------- -----------
Investment securities available-for-sale, at fair
value............................................... 1,860,869 1,783,803
Assets held for sale, primarily mortgage loans....... 87,782 46,222
Loans (net of unearned income)....................... 2,981,338 2,861,133
Allowance for loan losses............................ (41,737) (40,216)
----------- -----------
Total net loans.................................. 2,939,601 2,820,917
----------- -----------
Premises and equipment............................... 71,562 67,088
Other assets......................................... 107,177 134,371
----------- -----------
Total assets..................................... $5,297,349 $5,070,352
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing............................... $ 518,004 $ 464,919
Interest bearing................................... 3,431,532 3,049,965
----------- -----------
Total deposits................................... 3,949,536 3,514,884
Short-term borrowings................................ 678,161 940,777
Long-term debt....................................... 40,599 91,954
Accrued expenses and taxes........................... 82,450 56,088
----------- -----------
Total liabilities................................ 4,750,746 4,603,703
----------- -----------
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 2,013,771
and 1,696,447 shares are held as treasury stock,
respectively...................................... 163,208 163,208
Additional paid-in capital......................... 11,103 11,770
Retained earnings.................................. 408,274 373,921
Unrealized gains (losses) on securities available-
for-sale, net of deferred taxes................... 13,650 (41,036)
----------- -----------
596,235 507,863
Less: Treasury stock--at cost...................... (49,632) (41,214)
----------- -----------
Total stockholders' equity....................... 546,603 466,649
----------- -----------
Total liabilities and stockholders' equity....... $5,297,349 $5,070,352
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans
and leases............... $245,440 $207,648 $192,042
Interest and dividends on
investment securities
Taxable................. 93,498 96,797 107,195
Exempt from federal
income taxes........... 17,997 23,602 23,373
Interest on deposits...... 365 337 218
Interest on assets held
for sale................. 5,589 2,120 1,829
Interest on federal funds
sold and other short-term
investments.............. 755 603 388
--------------- --------------- ---------------
Total interest income... 363,644 331,107 325,045
--------------- --------------- ---------------
Interest expense
Interest on deposits
Savings deposits........ 32,218 36,675 42,836
Time deposits........... 87,949 62,072 65,536
Time deposits in
denominations of
$100,000 or more....... 27,335 15,140 14,226
--------------- --------------- ---------------
147,502 113,887 122,598
Interest on short-term
borrowings............... 35,880 32,056 19,436
Interest on long-term
debt..................... 4,549 6,698 6,738
--------------- --------------- ---------------
Total interest expense.. 187,931 152,641 148,772
--------------- --------------- ---------------
Net interest income..... 175,713 178,466 176,273
Provision for loan losses... 5,608 7,494 10,141
--------------- --------------- ---------------
Net interest income
after provision for
loan losses............ 170,105 170,972 166,132
--------------- --------------- ---------------
Non-interest income
Fiduciary activities...... 16,807 16,363 15,237
Service charges on deposit
accounts................. 11,019 11,598 12,626
Other service charges and
fees..................... 12,554 11,272 9,138
Broker/dealer commissions
and fees................. 6,034 7,783 10,634
Mortgage banking.......... 18,730 7,462 2,331
Securities gains, net..... 2,261 3,304 3,226
Other..................... 4,384 3,165 6,859
--------------- --------------- ---------------
Total non-interest
income................. 71,789 60,947 60,051
--------------- --------------- ---------------
Non-interest expense
Salaries and employee
benefits................. 81,268 72,556 68,569
Net occupancy expense..... 9,396 8,990 8,472
Furniture and equipment
expense.................. 11,075 9,567 9,219
Deposit insurance......... 4,095 7,909 8,103
Other..................... 47,285 40,096 41,918
--------------- --------------- ---------------
Total non-interest
expense................ 153,119 139,118 136,281
--------------- --------------- ---------------
Income before income taxes.. 88,775 92,801 89,902
Provision for income taxes.. 23,210 22,762 21,985
--------------- --------------- ---------------
Net income.................. $ 65,565 $ 70,039 $ 67,917
=============== =============== ===============
Net income per share........ $ 2.12 $ 2.18 $ 2.08
Cash dividends declared per
share...................... $ 1.01 1/2 $ .94 $ .83
Weighted average number of
shares outstanding......... 30,966,258 32,169,734 32,636,150
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NET UNREALIZED
COMMON STOCK ADDITIONAL TREASURY STOCK GAIN (LOSS) ON TOTAL
------------------- PAID-IN RETAINED -------------------- SECURITIES STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT AVAILABLE-FOR-SALE EQUITY
---------- -------- ---------- -------- ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income.............. 65,565 65,565
Cash dividends
declared............... (31,212) (31,212)
Acquisition of treasury
stock.................. (630,000) (16,063) (16,063)
Sale of treasury stock
to Employee Stock
Purchase Plan.......... (239) 68,429 1,664 1,425
Sale of treasury stock
under the Stock Option
Plan of 1986........... (998) 101,742 2,476 1,478
Sale of treasury stock
under the Dividend
Reinvestment and Stock
Purchase Plan.......... 115 126,446 3,110 3,225
Debentures converted to
common stock........... (137) 16,059 395 258
Change in net unrealized
gain (loss) on
investments available-
for-sale, net of
taxes.................. 54,686 54,686
Tax benefit of stock
option transactions.... 386 386
Impact of Performance
Share Agreements....... 206 206
---------- -------- ------- -------- ---------- -------- ------- --------
BALANCE, DECEMBER 31,
1995................... 32,641,614 $163,208 $11,103 $408,274 (2,013,771) $(49,632) $13,650 $546,603
========== ======== ======= ======== ========== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income.................................. $ 65,565 $ 70,039 $ 67,917
Adjustments:
Provision for loan losses................. 5,608 7,494 10,141
Provision for depreciation, amortization
and accretion............................ 6,564 9,441 11,050
Amortization of goodwill.................. 1,705 1,335 938
Deferred income taxes..................... 4,133 3,994 (813)
Securities gains, net..................... (2,261) (3,304) (3,226)
(Increase) decrease in interest
receivable............................... 1,325 (2,222) 4,023
Increase (decrease) in accrued expenses
and taxes................................ 19,013 (3,064) 1,612
Capitalized interest on deposits.......... 65,534 44,108 45,770
Amortization of mortgage servicing
rights................................... 3,047 1,091 629
Gain on sale of mortgages and loans held
for sale................................. (5,961) (1,473) (1,325)
Sale of mortgage loans held for sale...... 741,618 247,445 107,746
Loans originated for sale................. (751,403) (224,445) (114,054)
Purchase of mortgage loans held for sale.. (22,645) (22,995)
Other, net................................ (13,918) (14,339) (21,656)
--------- --------- ---------
Net cash provided by operating
activities............................. 117,924 113,105 108,752
--------- --------- ---------
Investing activities
Proceeds from sales of investment
securities................................. 252,613 201,395 48,978
Proceeds from maturities of investment
securities................................. 356,977 480,030 733,822
Purchases of investment securities.......... (526,811) (481,357) (758,783)
Net (increase) decrease in assets held for
sale, other than loans held for sale....... (3,169) (299) 732
Net increase in loans....................... (231,067) (330,366) (165,771)
Sale of residential mortgage and other
consumer loans............................. 39,507 52,544 4,876
Net purchases of premises and equipment..... (12,139) (8,268) (2,646)
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... (124,089) (106,562) (138,792)
--------- --------- ---------
Financing activities
Net increase (decrease) in deposit
accounts................................... 369,118 (104,518) (149,755)
Net increase (decrease) in short-term
borrowings................................. (262,616) 224,869 72,060
Net decrease in long-term debt.............. (51,097) (122) (74)
Issuance of common stock and treasury
stock...................................... 6,083 3,281 1,968
Acquisition of treasury stock............... (16,063) (42,413)
Cash dividends paid......................... (30,836) (29,024) (25,406)
--------- --------- ---------
Net cash provided (used) by financing
activities............................. 14,589 52,073 (101,207)
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ 8,424 58,616 (131,247)
Cash and cash equivalents at beginning of
period....................................... 210,911 152,295 283,542
--------- --------- ---------
Cash and cash equivalents at end of period.... $ 219,335 $ 210,911 $ 152,295
========= ========= =========
Total interest paid........................... $ 116,944 $ 109,419 $ 107,225
Total income taxes paid....................... 12,715 20,495 24,061
Schedule of non-cash investing and financing
activities:
Loans charged off........................... 8,176 9,400 10,521
Net loan transfers to other real estate
owned...................................... 2,508 4,563 1,574
Conversion of convertible subordinated
debentures................................. 258 432 335
Securitization of mortgage loans............ 77,085
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting policies of
Dauphin Deposit Corporation and subsidiaries.
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 (the Bank),
through which Dauphin provides banking services. The Bank is engaged in the
commercial and retail banking and trust business. The Bank's mortgage banking
subsidiary, Eastern Mortgage Services, Inc. (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's wholly-owned subsidiary
Hopper Soliday & Co., Inc. (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.
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 and
subsidiaries, including its principal subsidiary, the Bank, which includes the
Bank of Pennsylvania, Farmers Bank and Valleybank Divisions. All material
intercompany balances and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES
Dauphin adopted the provisions of Statement of Financial Accounting Standards
No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994. Under SFAS 115 investments are 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.
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. A decline in the fair
36
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
value of any investment below cost that is deemed other than temporary results
in a reduction of the carrying amount to fair value through a charge to income.
Dividend and interest income are recognized when earned.
ASSETS HELD FOR SALE
Assets held for sale consist of the securities inventory of Hopper Soliday
and mortages held for sale, primarily the inventory of 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 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.
Dauphin adopted the provisions of Statement of Financial Accounting Standard
No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118 (SFAS 118), "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosure" on January 1, 1995. Generally, all
non-accrual loans are deemed to be impaired. In addition, management,
considering current information and events regarding the borrowers ability to
repay their obligations, considers a loan to be impaired when it is probable
that Dauphin will be unable to collect all amounts due according to the
contractual terms of the loan agreement. In evaluating whether a loan is
impaired, management considers not only the amount that Dauphin expects to
collect but also the timing of collection. Generally, if a delay in payment is
insignificant (e.g. less than 90 days), a loan is not deemed to be impaired.
37
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
When a loan is considered to be impaired, the amount of impairment is
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 fair value
of the collateral if the loan is collateral dependent. The majority of loans
deemed to be impaired by management are collateral dependent. Loans are
evaluated individually for impairment. Dauphin excludes smaller balance,
homogeneous loans (e.g. primarily consumer and residential mortgages) from the
evaluation for impairment. Impairment losses are included in the allowance loan
losses. Impaired loans are charged-off when management believes that the
ultimate collectibility of a loan is not likely.
Income for impaired loans that are on non-accrual status is recognized using
the cash basis, while interest on impaired loans that are still accruing is
recognized using the accrual method.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, including capitalized interest
during construction, less accumulated depreciation and amortization. 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 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 of goodwill at December 31, 1995 and 1994. 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.
Effective January 1, 1995, Dauphin adopted the provisions of Statement of
Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS 122 amended
Statement 65 to require an institution to recognize as separate assets the
rights to service mortgage loans for others when a mortgage loan is sold or
securitized and servicing rights retained. When capitalizing mortgage servicing
rights, Dauphin allocates the total cost of the mortgage loans (the recorded
investment in the mortgage loans including net deferred fees or costs and any
purchase premium or discount) to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
Such fair value is primarily based on observable market prices. Mortgage
servicing rights (including purchased mortgage servicing) are amortized in
proportion to, and over the period of, estimated net servicing revenue based on
management's best estimate of remaining loan lives.
Dauphin measures the impairment of servicing rights based on the difference
between the carrying amount of the servicing rights and their current fair
value. Impairment of servicing rights is recognized through a
38
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
valuation allowance. The amount of impairment recognized is the amount by which
the capitalized mortgage servicing rights exceed their fair value. For the
purpose of evaluating and measuring impairment of capitalized mortgage
servicing rights, Dauphin stratifies those rights based on the predominant risk
characteristics of the underlying loans. Dauphin primarily stratifies mortgage
servicing rights by loan type (e.g. conventional or government guaranteed and
adjustable-rate or fixed-rate mortgage loans). Valuation techniques for
measuring fair value incorporate assumptions that market participants use in
estimating future servicing income and expense, including assumptions about
prepayment, default and interest rates.
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 provisions 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's cost of retiree health care and other postretirement benefits are
accounted for in accordance with the provisions of Statement of Financial
Acccounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions".
Dauphin provides benefits to former or inactive employees after employment
but before retirement. These costs are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits".
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. 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 and performance shares using the
39
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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 to prior year amounts to conform
with current year classifications.
2--ACQUISITIONS
On July 1, 1994, Dauphin acquired 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 $12.5 million has been
recorded as goodwill and is being amortized on a straight-line basis over 15
years.
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, 1995 and 1994 was approximately $80,353,000 and $78,522,000, respectively.
The Bank is required to maintain an investment in Federal Home Loan Bank of
Pittsburgh stock of $14,987,200 which is included with equity securities.
4--INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1995
-------------------------------------------
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..................... $ 804,086 $ 6,413 $ (136) $ 810,363
Obligations of states and
political subdivisions........... 287,697 15,639 (634) 302,702
Debt securities issued by foreign
governments...................... 800 800
Corporate securities.............. 22,736 351 23,087
Mortgage-backed securities........ 705,279 7,215 (7,882) 704,612
---------- ------- ------- ----------
Total debt securities........... 1,820,598 29,618 (8,652) 1,841,564
Equity securities................. 19,272 33 19,305
---------- ------- ------- ----------
Total investment securities..... $1,839,870 $29,651 $(8,652) $1,860,869
========== ======= ======= ==========
</TABLE>
40
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
<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
========== ======= ======== ==========
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1995, 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, 1995
---------------------
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................. $ 274,681 $ 276,502
Due after one year through five years............... 526,872 535,459
Due after five years through ten years.............. 177,963 183,991
Due after ten years................................. 135,803 141,000
---------- ----------
1,115,319 1,136,952
Mortgage-backed securities.......................... 705,279 704,612
---------- ----------
Total debt securities............................. $1,820,598 $1,841,564
========== ==========
</TABLE>
Gains and losses from sales of investment securities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Debt securities
Gross gains..................................... $ 3,496 $ 3,366 $1,540
Gross losses.................................... (1,235) (1,007) (6)
------- ------- ------
Total debt securities......................... 2,261 2,359 1,534
Equity securities, net............................ 945 1,692
------- ------- ------
Total securities gains........................ $ 2,261 $ 3,304 $3,226
======= ======= ======
</TABLE>
Proceeds from sales of investment securities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Debt securities.................................... $252,613 $199,083 $43,742
Equity securities.................................. 2,312 5,236
-------- -------- -------
Total proceeds................................... $252,613 $201,395 $48,978
======== ======== =======
</TABLE>
41
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Securities with a carrying value of $1,053,541,000 at December 31, 1995 and
$816,290,000 at December 31, 1994 are pledged to secure public deposits and for
other purposes as provided by law.
5--LOANS
The loan portfolio, net of unearned income, at December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural:
Commercial secured by real estate................ $ 640,670 $ 466,657
Agricultural..................................... 36,415 34,960
Other............................................ 719,137 680,113
Real estate, construction.......................... 97,444 183,673
Real estate, residential........................... 446,059 578,122
Consumer:
Home equity...................................... 385,194 335,323
Installment and credit card...................... 507,425 483,889
Lease financing.................................... 150,943 101,919
Unamortized net loan fees.......................... (1,949) (3,523)
---------- ----------
Total loans.................................... $2,981,338 $2,861,133
========== ==========
</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
aggregate loans totaling less than $60,000 to any one related party, is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance--January 1, 1995.................................... $ 56,032
New loans................................................... 138,782
Repayments.................................................. (103,176)
---------
Balance--December 31, 1995.................................. $ 91,638
=========
</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 $12,103,000
and $15,168,000 at December 31, 1995 and 1994, respectively. If interest income
had been recorded on all such loans outstanding during the years 1995, 1994 and
1993, interest income would have been increased as shown in the following
table:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
---- ------ ------
<S> <C> <C> <C>
Interest income which would have been recorded under
original terms...................................... $743 $1,187 $1,560
Interest income recorded during the period........... 395 477 700
---- ------ ------
Net impact on interest income........................ $348 $ 710 $ 860
==== ====== ======
</TABLE>
The Bank does not have any significant commitments to lend additional funds
on non-accrual or restructured loans at December 31, 1995.
42
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
As previously discussed in Note 1, on January 1, 1995, Dauphin adopted the
provisions of Statement of Financial Accounting Standards No. 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan" as amended by Statement of
Financial Accounting Standards No. 118 (SFAS 118), "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures".
On December 31, 1995 the balance of impaired loans was $11.7 million.
Impaired loans of $8.2 million have a related allowance for loan losses of $3.8
million and the remaining impaired loans of $3.5 million have no related
allowance for loan losses. The average balance of impaired loans for 1995 was
$8.4 million and the interest recognized for the year was $.7 million. The
interest income includes $.2 million that was recorded on the cash basis.
6--ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year....................... $40,216 $39,182 $36,227
Allowance of subsidiary sold................... (101)
Provision charged to operations................ 5,608 7,494 10,141
Recoveries on loans charged off................ 4,089 3,041 3,335
------- ------- -------
49,913 49,616 49,703
Loans charged off.............................. 8,176 9,400 10,521
------- ------- -------
Balance, end of year............................. $41,737 $40,216 $39,182
======= ======= =======
</TABLE>
7--PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
ESTIMATED ------------------
USEFUL LIFE 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Land................................... $ 10,352 $ 10,522
Premises............................... 5 to 40 years 75,659 72,862
Leasehold improvements................. 2 to 40 years 2,476 2,649
Equipment.............................. 3 to 10 years 55,753 48,530
-------- --------
144,240 134,563
Accumulated depreciation and
amortization.......................... (72,678) (67,475)
-------- --------
Total.............................. $ 71,562 $ 67,088
======== ========
</TABLE>
Depreciation and amortization amounted to $7,665,000 for 1995, $6,834,000 for
1994 and $6,495,000 for 1993.
8--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 THOUSASNDS)
------------------------------
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Total loans serviced for others at year-
end..................................... $1,283,435 $1,015,745 $219,572
Gains on sale of servicing............... 1,046 1,623 26
</TABLE>
43
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
As previously discussed in Note 1, effective January 1, 1995, Dauphin adopted
the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No.
65". An analysis of the activity of excess, purchased, and originated mortgage
servicing rights for the years ended December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
EXCESS PURCHASED ORIGINATED
------ --------- ----------
<S> <C> <C> <C>
Balance--January 1, 1994...................... $1,607 $ $
Additions..................................... 1,434 8,547
Amortization.................................. (588) (503)
------ ------- ------
Balance--December 31, 1994.................... 2,453 8,044
Additions..................................... 546 7,169
Amortization.................................. (911) (1,641) (495)
------ ------- ------
Balance--December 31, 1995.................... $2,088 $ 6,403 $6,674
====== ======= ======
</TABLE>
The fair value of purchased and originated servicing rights was $13.7 million
at December 31, 1995. As of and for the year ended December 31, 1995, there was
no valuation allowance for purchased and originated servicing rights.
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.
9--TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit of $100,000 or more at December 31, 1995 and
1994 amounted to $459,074,000 and $270,777,000, 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, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Overnight federal funds purchased............ $266,370 $438,490 $187,210
Term federal funds purchased................. 260,000 225,000
Eurodollars purchased........................ 1,672
Federal Home Loan Bank borrowings............ 149,000
Securities sold under agreements to
repurchase.................................. 233,830 196,021 215,890
U.S. Treasury tax and loan notes............. 27,289 46,266 52,286
-------- -------- --------
Total short-term borrowings................ $678,161 $940,777 $680,386
======== ======== ========
Average interest rate at year-end............ 5.33% 5.88% 3.03%
Maximum amount outstanding at any month-end.. $958,804 $940,777 $765,169
Average amount outstanding................... $646,537 $778,906 $646,187
Weighted average interest rate............... 5.55% 4.12% 3.01%
</TABLE>
44
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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 $2,338,000,000 at December 31, 1995.
11--LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
------- -------
<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........ 4,955 5,213
Variable rate mortgage (6 3/8% at December 31, 1995)
(collateralized by premises)............................. 235 270
Dauphin Deposit Bank and Trust Company
Advances from The Federal Home Loan Bank of Pittsburgh.... 51,000
------- -------
40,190 91,483
Obligations under capitalized lease........................ 409 471
------- -------
Total.................................................... $40,599 $91,954
======= =======
</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.
Aggregate long-term debt maturities, for each of the next five years are as
follows:
1996--$35,095,000; 1997--$107,000; 1998--$86,000; 1999--$5,038,000; 2000--
$92,000
At December 31, 1995, 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 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. Under these
policies and subject to the restrictions applicable to the Bank, the Bank could
declare, without prior regulatory approval, aggregate dividends of $26.0
million, plus net profits for 1996.
45
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
13--INCOME TAXES
The provision for income taxes, consisting primarily of Federal income taxes,
for the years 1995, 1994 and 1993, consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current taxes...................................... $19,077 $18,768 $22,798
Deferred taxes (credits)........................... 4,133 3,994 (813)
------- ------- -------
Total............................................ $23,210 $22,762 $21,985
======= ======= =======
</TABLE>
A reconciliation between the effective income tax rate and the statutory rate
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate........................ 35.0% 35.0% 35.0%
Tax exempt income........................................ (8.9) (10.5) (10.8)
Other, net............................................... .3
---- ----- -----
Effective income tax rate................................ 26.1% 24.5% 24.5%
==== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Deferred tax assets:
Gross unrealized losses on investment
securities................................. $ 3,029 $ 26,005 $
Allowance for loan losses................... 15,322 13,904 13,298
Deferred loan fees and costs................ 123 468 1,409
Purchase accounting adjustments to loans.... 492 975
Employee benefit programs................... 2,443 1,861 1,180
Other....................................... 908 1,473 1,691
-------- -------- -------
Total gross deferred tax assets........... 21,825 44,203 18,553
-------- -------- -------
Deferred tax liabilities:
Gross unrealized gains on investment
securities................................. (10,378) (3,909)
Depreciation................................ (3,070) (3,007) (3,194)
Investment securities discount.............. (636) (376) (283)
Lease financing transactions................ (14,610) (6,338) (3,074)
Prepaid pension............................. (1,126) (978) (914)
Mortgage servicing rights................... (2,959) (3,608) (428)
Prepaid expenses............................ (894) (2,118) (823)
Other....................................... (828) (681) (575)
-------- -------- -------
Total gross deferred tax liabilities...... (34,501) (21,015) (9,291)
-------- -------- -------
Net deferred tax asset (liability)........ $(12,676) $ 23,188 $ 9,262
======== ======== =======
</TABLE>
46
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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 gains 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 $21,825,000 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.
The following table sets forth the pension plan's funded status and amounts
recognized in Dauphin's consolidated financial statements at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................. $43,235 $35,057
Non-vested............................................. 1,811 1,312
------- -------
Accumulated benefit obligation....................... 45,046 36,369
Effects of future compensation levels.................... 9,164 7,031
------- -------
Projected benefit obligation............................. 54,210 43,400
Plan assets at fair value................................ 63,532 55,249
------- -------
Excess of plan assets over the projected benefit
obligation.............................................. 9,322 11,849
Unrecognized net asset being amortized over 15 years..... (3,664) (4,412)
Unrecognized prior service cost.......................... 275 372
Unrecognized gain........................................ (1,620) (3,784)
------- -------
Prepaid pension cost included in the consolidated
financial statements.................................... $ 4,313 $ 4,025
======= =======
</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>
1995 1994
---- ----
<S> <C> <C>
Expected rate of return on plan assets........................... 8.50% 8.00%
Discount rate.................................................... 7.00 8.00
Rate of increase in future compensation levels................... 4.50 5.00
</TABLE>
47
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Net pension expense (credit) for 1995, 1994 and 1993 was comprised of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Service cost.................................... $ 1,568 $ 1,812 $ 1,791
Interest cost on projected benefit obligation... 3,648 3,312 2,980
Return on plan assets........................... (10,989) (402) (4,198)
Net amortization and deferral................... 5,791 (4,623) (646)
-------- ------- -------
Net pension expense (credit)................... $ 18 $ 99 $ (73)
======== ======= =======
</TABLE>
Plan assets are primarily invested in listed stocks (including 107,000 and
100,000 shares of Dauphin at December 31, 1995 and 1994) and U.S. Treasury and
federal agency securities.
Dauphin's postretirement benefits other than pensions are currently not
funded. The status of the plan at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees.............................................. $ 9,975 $11,651
Fully eligible active plan participants............... 633 635
Other active plan participants........................ 3,991 5,266
------- -------
14,599 17,552
Unrecognized transition liability being amortized over
20 years............................................... (9,042) (9,607)
Unrecognized prior service cost......................... (757) (739)
Unrecognized net loss................................... 1,093 (2,514)
------- -------
Accrued postretirement obligation....................... $ 5,893 $ 4,692
======= =======
</TABLE>
The assumptions used in determining the actuarial present value of the
accumulated postretirement benefit obligation are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate.................................................... 7.00% 8.00%
Rate of increase in future compensation levels................... 4.50 5.00
</TABLE>
The cost for postretirement benefits other than pensions for 1995, 1994 and
1993 consisted of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost......................................... $ 348 $ 506 $ 359
Interest cost on accumulated postretirement benefit
obligation.......................................... 989 1,313 1,064
Amortization of transition obligation................ 565 565 565
Amortization of past service cost.................... 65 65
Net amortization and deferral........................ (89) 174 45
------ ------ ------
Net postretirement benefit cost..................... $1,878 $2,623 $2,033
====== ====== ======
</TABLE>
48
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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 per year to an ultimate rate of 5 1/2% in 2005 (10% at
December 31, 1995) 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 $1,760,000 at December 31, 1995 and increase the aggregate of the
service and interest cost components by $190,000 for the year ended December
31, 1995.
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 $581,000, $563,000 and $468,000
during 1995, 1994 and 1993, respectively.
In 1993, Dauphin adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits". The adoption resulted in
an incremental cost of $26,500, $30,000 and $500,000 to salaries and benefits
expense in 1995, 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, 1995 is $556,500.
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 726,974 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, 1995.
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.
49
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Stock option transactions during 1995, 1994 and 1993 are summarized below:
<TABLE>
<CAPTION>
PRICE
SHARES RANGE PER SHARE
-------- ---------------
<S> <C> <C>
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
Granted.......................................... 179,000 $24.00
Exercised........................................ (109,584) $11.36--$23.72
Terminated....................................... (5,000) $25.63
--------
Balance, December 31, 1995......................... 893,855 $ 9.48--$25.63
========
Exercisable, December 31, 1995..................... 512,694
========
</TABLE>
During 1995, the shareholders approved the adoption of the 1995 Stock
Incentive Plan (1995 Plan). Under the 1995 Plan, Dauphin may grant incentive
stock options, non-qualified stock options, restricted stock awards,
performance share awards and other awards that provide a participant with the
right to purchase or otherwise acquire Dauphin common stock or that are valued
by reference to the market value of Dauphin common stock. In 1995, Dauphin
entered into Performance Share Agreements with certain key employees as
permitted under the 1995 Plan. The Performance Share Agreements entitle these
employees to a grant of Dauphin common stock after a three year period if
specific corporate goals are realized. During 1995, Dauphin recognized $.4
million of expense related to Performance Share Agreements.
In connection with the adoption of a shareholder rights plan on January 22,
1990, Dauphin declared a dividend distribution of one Common Stock Purchase
Right (a Right) for each outstanding share of common stock of Dauphin. The
Rights are exercisable only if a person or group of affiliated persons acquires
or announces an intention to acquire 18% of the common stock of Dauphin and
Dauphin's Board of Directors does not redeem the Rights during the specified
redemption period. Initially, each Right, upon becoming exercisable, would
entitle the holder to purchase from Dauphin one share of common stock at the
specified exercise price which is subject to adjustment (currently $50 per
share). Once the Rights become exercisable, if any person or group acquires 18%
of the common stock of Dauphin, the holder of a Right, other than the acquiring
person or group, will be entitled, among other things, to purchase shares of
common stock having a value equal to two times the exercise price of the Right.
The Board of Directors is entitled to redeem the Rights for $.001 per Right at
any time before expiration of the redemption period. The Board of Directors
may, at any time after the Rights become exercisable and prior to the time any
person becomes a 50% beneficial owner of Dauphin's shares of common stock,
exchange each of the outstanding Rights (except Rights of the acquiring person
or group which are voided) for one share of common stock, subject to
adjustment. The Rights will expire on January 22, 2000, unless earlier redeemed
by Dauphin.
During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding stock. In February
1995, an additional 1,500,000 shares were authorized for
50
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
repurchase. Available investments are being used to fund the share repurchases.
Dauphin will use the shares for general corporate purposes, including the
Employee Stock Purchase Plan, Stock Option Plans, the Dividend Reinvestment and
Stock Purchase Plan, and other appropriate uses. During 1995 and 1994, Dauphin
repurchased 630,000 shares for $16.1 million and 1,744,500 shares for $42.4
million, respectively.
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)
1995 1994
---------- ----------
<S> <C> <C>
Amounts representing credit risk:
Commitments to extend credit....................... $1,343,251 $1,264,539
Financial and performance standby letters of
credit............................................ 134,242 122,568
Commercial and similar letters of credit........... 900 842
Commitments to purchase securities................. 12,365 4,650
Notional or contract amounts of off-balance-sheet
financial instruments not constituting credit risk:
Forward commitments to sell in the secondary
market............................................ 62,455 33,137
Forward commitments to sell to permanent
investors......................................... 31,939 16,197
Purchased 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 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
51
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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 Pennsylvania. 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.
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
52
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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, 1995,
the maximum exposure position authorized by management is $20 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 originated mortgage servicing rights is based on
observable market prices and the fair value of 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.
53
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Deposits
The fair value of deposits with no stated maturity, such as demand deposits,
savings accounts, interest bearing demand and money market deposits, is the
amount payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit, including certain 18 month variable rate
certificates of deposit carrying a minimum interest rate of 10% for the 18
month term which are held in certain individual retirement accounts (as
discussed herein under Note 19--Litigation), 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.
54
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
At December 31, 1995 and 1994, Dauphin's estimated fair values of financial
instruments based on disclosed assumptions are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.......... $ 218,785 $ 218,785 $ 202,911 $ 202,911
Short-term investments........... 11,573 11,573 15,040 15,040
Investment securities............ 1,860,869 1,860,869 1,783,803 1,783,803
Assets held for sale............. 87,782 87,782 46,222 46,222
Loans
Commercial..................... 1,619,257 1,618,610 1,489,879 1,461,530
Residential mortgages.......... 499,724 500,837 622,003 611,984
Consumer....................... 855,325 858,648 739,682 728,104
Non-accrual.................... 7,031 9,569
Allowance for loan losses...... (41,737) (40,216)
---------- ---------- ---------- ----------
Net loans.................... 2,939,600 2,978,095 2,820,917 2,801,618
Other financial assets........... 42,973 43,048 37,990 40,935
Financial liabilities:
Deposits
Non-interest bearing demand.... 518,004 518,004 464,919 464,919
Interest bearing demand and
savings....................... 1,400,012 1,400,012 1,539,726 1,539,726
Time deposits.................. 2,031,520 2,074,831 1,510,239 1,527,245
---------- ---------- ---------- ----------
Total deposits............... 3,949,536 3,992,847 3,514,884 3,531,890
Short-term borrowings............ 678,161 678,161 940,777 940,897
Long-term debt................... 40,599 44,459 91,954 94,183
Accrued interest payable......... 25,250 25,250 20,668 20,668
</TABLE>
<TABLE>
<CAPTION>
1995 1994
----------------------------- ----------------------------
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............... $1,343,251 $643 $ 758 $1,264,539 $791 $ 854
Financial and
performance standby
letters of credit.... 134,242 1,342 122,568 1,226
Commercial and similar
letters of credit.... 900 9 842 8
Commitments to
purchase securities.. 12,365 12,365 4,650 4,650
Forward commitments to
sell in the secondary
market............... 62,455 (663) (663) 33,137 68 68
Forward commitments to
sell to permanent
investors............ 31,939 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.
55
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
17--CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY
Dauphin Deposit Corporation (Parent Company Only) Condensed Balance Sheets
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Assets:
Due from Bank (subsidiary)............................... $ 22 $ 36
Investment securities.................................... 63,815 37,243
Investment in subsidiaries
Banking subsidiary..................................... 502,964 448,582
Non-banking subsidiaries............................... 22,159 29,185
-------- --------
Total investment in subsidiaries..................... 525,123 477,767
Other assets............................................. 7,379 1,255
-------- --------
Total assets......................................... $596,339 $516,301
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Accrued expenses and taxes............................. $ 9,546 $ 9,439
Long-term debt......................................... 40,190 40,213
-------- --------
Total liabilities.................................... 49,736 49,652
-------- --------
Stockholders' Equity:
Common stock........................................... 163,208 163,208
Additional paid-in capital............................. 11,103 11,770
Retained earnings...................................... 421,875 333,040
Unrealized gain (loss) on securities available-for-
sale.................................................. 49 (155)
-------- --------
596,235 507,863
Less: Treasury stock--at cost.......................... (49,632) (41,214)
-------- --------
Total stockholders' equity........................... 546,603 466,649
-------- --------
Total liabilities and stockholders' equity........... $596,339 $516,301
======== ========
</TABLE>
56
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of
Income
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue
Dividend income:
Banking subsidiary............................ $ 66,890 $ 44,130 $ 28,347
Non-banking subsidiaries...................... 3,450
Interest on investment securities............... 1,409 2,155 2,841
Interest on time deposits with Bank............. 691 191 89
Gains on sales of investment securities......... 5 345 2
-------- -------- --------
Total revenue............................... 72,445 46,821 31,279
-------- -------- --------
Expenses
Interest on long-term debt...................... 3,501 3,516 3,555
Other expenses.................................. 1,169 783 1,242
-------- -------- --------
Total expenses.............................. 4,670 4,299 4,797
-------- -------- --------
Income before income taxes and equity in
undistributed net income of subsidiaries......... 67,775 42,522 26,482
Income tax benefit................................ 873 602 618
-------- -------- --------
Income before equity in undistributed net income
(loss) of subsidiaries........................... 68,648 43,124 27,100
Equity in undistributed net income (loss):
Banking subsidiary.............................. 276 25,389 39,351
Non-banking subsidiaries........................ (3,359) 1,526 1,466
-------- -------- --------
Net income.................................. $ 65,565 $ 70,039 $ 67,917
======== ======== ========
</TABLE>
57
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of Cash
Flows
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income..................................... $ 65,565 $ 70,039 $ 67,917
Adjustments
Equity in undistributed net (income) loss of
subsidiaries................................ 3,083 (26,915) (40,817)
Other, net................................... (2,112) 4,736 (1,602)
-------- -------- --------
Net cash provided by operating activities...... 66,536 47,860 25,498
-------- -------- --------
Investing activities
Proceeds from investment securities............ 37,477 43,484 11,955
Purchase of investment securities.............. (63,469) (24,488) (14,627)
Sale of subsidiary............................. 797
-------- -------- --------
Net cash provided (used) by investing
activities................................ (25,992) 19,793 (2,672)
-------- -------- --------
Financing activities
Issuance of treasury stock..................... 6,341 3,713 1,968
Repurchase of treasury stock................... (16,063) (42,413)
Cash dividends paid............................ (30,836) (29,024) (25,406)
-------- -------- --------
Net cash used by financing activities...... (40,558) (67,724) (23,438)
-------- -------- --------
Decrease in cash and cash equivalents...... (14) (71) (612)
Cash and cash equivalents at beginning of year... 36 107 719
-------- -------- --------
Cash and cash equivalents at end of year......... $ 22 $ 36 $ 107
======== ======== ========
Schedule of non-cash investing and financing
activities:
Conversion of convertible subordinated
debentures.................................... $ 258 $ 432 $ 335
Net assets of subsidiaries merged.............. 2,799
</TABLE>
Dauphin Deposit Corporation merged three subsidiaries (FARMCO Realty, Inc.,
Financial Realty, Inc. and Farmers Mortgage Corporation) with and into itself
in 1995. The 1995 balance sheet reflects the assets held by the subsidiaries,
primarily premises that are leased to the Bank. Previous periods presented have
not been restated.
58
<PAGE>
DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1995, 1994 AND 1993
18--CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994
------------------------------- -------------------------------
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......... $92,098 $90,272 $90,662 $90,612 $87,789 $83,608 $81,215 $78,495
Interest expense........ 47,302 46,558 47,719 46,352 42,573 39,077 36,436 34,555
------- ------- ------- ------- ------- ------- ------- -------
Net interest income..... 44,796 43,714 42,943 44,260 45,216 44,531 44,779 43,940
Provision for loan
losses................. 1,246 1,246 1,246 1,870 1,870 1,870 1,870 1,884
Non-interest income..... 19,966 18,234 18,426 15,163 16,998 16,569 13,706 13,674
Non-interest expense.... 39,628 37,566 38,427 37,498 37,969 36,336 32,807 32,006
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 23,888 23,136 21,696 20,055 22,375 22,894 23,808 23,724
Provision for income
taxes.................. 6,494 6,261 5,619 4,836 5,542 5,556 5,841 5,823
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $17,394 $16,875 $16,077 $15,219 $16,833 $17,338 $17,967 $17,901
======= ======= ======= ======= ======= ======= ======= =======
Net income per share.... $ .56 $ .55 $ .52 $ .49 $ .53 $ .54 $ .56 $ .55
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
19--LITIGATION
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 to Dauphin's financial condition or results of operation.
Included among outstanding litigation is a class action law suit instituted by
Dauphin seeking a declaratory judgement from the Court specifically permitting
Dauphin to discontinue offering an 18 month variable rate investment product
carrying a minimum interest rate of 10% for the 18 month term held in certain
individual retirement accounts (IRA) and/or to charge an annual maintenance fee
and fee on rollovers or transfers into the investment product. Dauphin's rights
to terminate the variable rate interest product and to charge a service fee are
in dispute and are being challenged by the holders of the IRA accounts in
question. Management intends to vigorously assert its right to terminate the 18
month variable rate investment product in accordance with its terms. Pending
the outcome of the litigation, Dauphin has continued to date to pay a 10%
interest rate with regard to the product. Counsel expects the case to go to
trial in the second quarter of 1996 and for a decision to be rendered by the
Court promptly thereafter.
59
<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, 1995 and 1994, 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, 1995. These
consolidated financial statements are the responsibility of the Company'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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for mortgage servicing rights to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights an amendment of FASB Statement No. 65" on January 1, 1995.
(ART)
January 26, 1996
60
<PAGE>
DAUPHIN DEPOSIT CORPORATION
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
61
<PAGE>
DAUPHIN DEPOSIT CORPORATION
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relative to directors of Dauphin is incorporated herein by
reference to Election of Directors in Dauphin's 1996 Proxy Statement.
Information relative to executive officers of Dauphin 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 1996
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 1996 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is incorporated by reference to Transactions with Management in the
1996 Proxy Statement.
62
<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) 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) By-Laws, as amended, of Dauphin.
(10)(a) Dauphin 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 Annual Management Performance Incentive Plan, as amended.
(10)(c) Dauphin 1995 Stock Incentive Plan is incorporated herein by
reference to Exhibit 4.1 to Dauphin's Registration Statement on
Form S-8, as filed with the Commission on June 5, 1995 (Commission
File Number 33-59941).
(10)(d) Form of Performance Share Agreement entered into in 1995 between
Dauphin and the following officers of Dauphin, Dauphin Bank and
other wholly-owned subsidiaries of Dauphin or Dauphin Bank: David
L. Brewin, Richard B. Brokenshire, Dennis L. Dinger, Robert L.
Fryer, Jr., Richard A. Gold, Christopher R. Jennings, Michael B.
Johnson, George W. King, Lawrence J. LaMaina, Jr., Stewart P.
McEntee, Richard W. Payne, III, Donald H. Ross, Robert A. Rupel,
Kenneth H. Sallade, Paul B. Shannon and Michael D. Zarcone (also
see the Long Term Incentive Plan Awards Table in Dauphin's 1996
Proxy Statement which is incorporated by reference under Item 11,
Part III of this Report).
(10)(e) Dauphin 1996 Non-Employee Directors' Stock Plan.
(10)(f) 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)(g) 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).
</TABLE>
63
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<S> <C>
(10)(h) 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)(i) 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)(j) Form of Change in Control Agreement entered into in 1995 between
Dauphin and the following officers of Dauphin, Dauphin Bank and
other wholly-owned subsidiaries of Dauphin or Dauphin Bank: David
L. Brewin, Richard B. Brokenshire, Dennis L. Dinger, Richard A.
Gold, Michael B. Johnson, George W. King, Stewart P. McEntee,
Richard W. Payne, III, Donald H. Ross, Jacqueline E. Rothschild,
Robert A. Rupel, Kenneth H. Sallade, Paul B. Shannon, James J.
Trupp, Jr. and Michael D. Zarcone.
(10)(k) 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)(l) 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.
(10)(m) Form of Director and Executive Officer Indemnification Agreements.
(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
There were no reports on Form 8-K filed for the three months ended
December 31, 1995.
</TABLE>
64
<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 20, 1996 /s/ Christopher R. Jennings
By: _________________________________
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.
DATE
/s/ Christopher R. Jennings Chairman of the February 20,
- ------------------------------------- Board, Chief 1996
CHRISTOPHER R. JENNINGS Executive Officer
and Director
/s/ Robert L. Fryer, Jr. President, Chief February 20,
- ------------------------------------- Operating Officer 1996
ROBERT L. FRYER, JR. and Director
/s/ Paul B. Shannon Vice Chairman and February 20,
- ------------------------------------- Chief Credit Policy 1996
PAUL B. SHANNON Officer
/s/ Lawrence J. LaMaina, Jr. Vice Chairman and February 20,
- ------------------------------------- Director 1996
LAWRENCE J. LAMAINA, JR.
/s/ Dennis L. Dinger Senior Executive February 20,
- ------------------------------------- Vice President, 1996
DENNIS L. DINGER Chief Fiscal and
Administrative
Officer (Principal
Financial Officer)
/s/ Joseph T. Lysczek, Jr. Senior Vice February 20,
- ------------------------------------- President and 1996
JOSEPH T. LYSCZEK, JR. Treasurer
65
<PAGE>
DAUPHIN DEPOSIT CORPORATION
DATE
/s/ James O. Green Director February 20, 1996
- -------------------------------------
JAMES O. GREEN
/s/ Derek C. Hathaway Director February 20, 1996
- -------------------------------------
DEREK C. HATHAWAY
Director
- -------------------------------------
ALFRED G. HEMMERICH
/s/ Lee H. Javitch Director February 20, 1996
- -------------------------------------
LEE H. JAVITCH
Director
- -------------------------------------
WILLIAM J. KING
/s/ William T. Kirchhoff Director February 20, 1996
- -------------------------------------
WILLIAM T. KIRCHHOFF
/s/ Andrew Maier,II Director February 20, 1996
- -------------------------------------
ANDREW MAIER, II
Director
- -------------------------------------
JAMES E. MARLEY
/s/ Robert F. Nation Director February 20, 1996
- -------------------------------------
ROBERT F. NATION
66
<PAGE>
DAUPHIN DEPOSIT CORPORATION
DATE
/s/ Elmer E. Naugle Director February 20,
- ------------------------------------- 1996
ELMER E. NAUGLE
Director
- -------------------------------------
WALTER F. RAAB
Director
- -------------------------------------
PAUL C. RAUB
/s/ Henry W. Rhoads Director February 20,
- ------------------------------------- 1996
HENRY W. RHOADS
/s/ Jean D. Seibert Director February 20,
- ------------------------------------- 1996
JEAN D. SEIBERT
/s/ R. Champlin Sheridan, Jr. Director February 20,
- ------------------------------------- 1996
R. CHAMPLIN SHERIDAN, JR.
67
<PAGE>
DAUPHIN DEPOSIT CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
------- -----------
<C> <S> <C>
(3)(a) 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) By-Laws, as amended, of Dauphin.
(10)(a) Dauphin 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 Annual Management Performance Incentive Plan, as
amended.
(10)(c) Dauphin 1995 Stock Incentive Plan is incorporated herein
by reference to Exhibit 4.1 to Dauphin's Registration
Statement on Form S-8, as filed with the Commission on
June 5, 1995 (Commission File Number 33-59941).
(10)(d) Form of Performance Share Agreement entered into in 1995
between Dauphin and the following officers of Dauphin,
Dauphin Bank and other wholly-owned subsidiaries of
Dauphin or Dauphin Bank: David L. Brewin, Richard B.
Brokenshire, Dennis L. Dinger, Robert L. Fryer, Jr.,
Richard A. Gold, Christopher R. Jennings, Michael B.
Johnson, George W. King, Lawrence J. LaMaina, Jr.,
Stewart P. McEntee, Richard W. Payne, III, Donald H.
Ross, Robert A. Rupel, Kenneth H. Sallade, Paul B.
Shannon and Michael D. Zarcone (also see the Long Term
Incentive Plan Award Table in Dauphin's 1996 Proxy
Statement which is incorporated by reference under Item
11, Part III of this Report).
(10)(e) Dauphin 1996 Non-Employee Directors' Stock Plan.
(10)(f) 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)(g) 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)(h) 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)(i) 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)(j) Form of Change in Control Agreement entered into in 1995
between Dauphin and the following officers of Dauphin,
Dauphin Bank and other wholly-owned subsidiaries of
Dauphin or Dauphin Bank: David L. Brewin, Richard B.
Brokenshire, Dennis L. Dinger, Richard A. Gold, Michael
B. Johnson, George W. King, Stewart P. McEntee, Richard
W. Payne, III, Donald H. Ross, Jacqueline E. Rothschild,
Robert A. Rupel, Kenneth H. Sallade, Paul B. Shannon,
James J. Trupp, Jr. and Michael D. Zarcone.
</TABLE>
68
<PAGE>
DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
------- -----------
<C> <S> <C>
(10)(k) 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)(l) 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.
(10)(m) Form of Director and Executive Officer Indemnification
Agreements.
(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.
</TABLE>
69
<PAGE>
Exhibit 3(b)
March 1, 1996
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 of the Corporation shall
be held on such date and at such place and time as may be fixed by resolution of
the Board of Directors. 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. Only such business shall be conducted at a
1
<PAGE>
special meeting of shareholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Any previously scheduled
meeting of the shareholders may be postponed, and any special meeting of the
shareholders may be canceled, by resolution of the Board upon public notice
given prior to the time previously scheduled for such meeting of shareholders.
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.
The vote on all questions shall be taken in such a manner as the Chairman
prescribes.
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
2
<PAGE>
of election shall not be present at a meeting, the vacancy shall be filled by
the chairman of the meeting.
Section 7. All actions taken by shareholders must be so taken at a duly
called annual or special meeting of shareholders and may not be effected by a
consent in writing.
Section 8. Notice of Shareholder Business and Nominations.
-----------------------------------------------
(A) Annual Meetings of Shareholders.
--------------------------------
(1) Notice. Nominations of persons for election to the Board
-------
and the proposal of business to be considered by the shareholders may be made at
an annual meeting of shareholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board, or (c) by any shareholder of
the Corporation who was a shareholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law.
(2) (a) Notice by Shareholder - Timeliness. For nominations or
----------------------------------
other business to be properly brought before an annual meeting by a shareholder
pursuant to clause (c) of paragraph (A) (1) of this By-Law, the shareholder must
have given timely notice thereof in writing to the Secretary of the Corporation
and such other business must otherwise be a proper matter for shareholder
action. To be timely, a shareholder's notice shall be delivered to the Secretary
at the principal executive offices of the Corporation not less than 120 calendar
days in advance of the date of the Corporation's proxy statement released to
security holders in connection with the previous year's annual meeting of
shareholders; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary
date, notice by the shareholder to be timely must be so delivered not
3
<PAGE>
earlier than the close of business on the 90th day prior to such annual meeting
and not later than the close of business on the later of the 60th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Corporation. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above.
(b) Notice by Shareholder - Contents. Such shareholder's
---------------------------------
notice shall set forth
(i) as to each person whom the shareholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected);
(ii) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and
(iii) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (x)
the name and address of such shareholder, as they appear on the Corporation's
books, and of such beneficial owner and (y) the class and number of shares of
the
4
<PAGE>
Corporation which are owned beneficially and of record by such shareholder and
such beneficial owner.
(3) Notice of Shareholder - Increased Number of Directors.
------------------------------------------------------
Notwithstanding anything in the second sentence of paragraph (A) (2) of this By-
Law to the contrary, in the event that the numbr of directors to be elected to
the Board of the Corporation is increased and there is no public announcement by
the Corporation naming all of the nominees for director or specifying the size
of the increased Board at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this By-Law
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Shareholders. Only such business shall be
---------------------------------
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board may be made at a special meeting of
shareholders at which directors are to be elected pursuant to the Corproation's
notice of meeting (a) by or at the direction of the Board or (b) provided that
the Board has determined that directors shall be elected at such meeting, by any
shareholder of the Corporation who is a shareholder of record at the time of
giving of notice provided for in this By-Law, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this By-
Law.
In the event the Corporation calls a special meeting of shareholders for
the purpose of electing one or more directors to the Board, any such shareholder
5
<PAGE>
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
shareholder's notice required by paragraph (A)(2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board to be elected at such meeting. In no event shall
the public announcement of an adjournment of a special meeting commence a new
time period of the giving of a shareholder's notice as described above.
(C) General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors.
Only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this By-Law and, if any
proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
6
<PAGE>
Section 13, 14 or 15 (d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights of shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
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
7
<PAGE>
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 compulsary retirement age for Directors shall be 70; provided that
the compulsary retirement age for Directors serving as of February 20, 1996
shall be 72. Effective with the election of Directors at the 1997 Annual
Meeting of Shareholders, a Director shall retire at the annual shareholders'
meeting immediately prior to the Director attaining the age of 70 or 72, as the
case may be. 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
8
<PAGE>
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.
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
9
<PAGE>
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
10
<PAGE>
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 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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
By-Laws and by action of the Board of Directors.
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
14
<PAGE>
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,
15
<PAGE>
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;
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,
16
<PAGE>
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
17
<PAGE>
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.
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.
18
<PAGE>
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. 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
19
<PAGE>
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.
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
20
<PAGE>
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
21
<PAGE>
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
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 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
22
<PAGE>
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.
23
<PAGE>
EXHIBIT 10(b)
DAUPHIN DEPOSIT CORPORATION
Annual Management Performance Incentive Plan
(as amended April 1995)
I. Plan Purpose
------------
The purpose of the Annual Management Performance Incentive Plan (hereafter
called the "Plan") is to improve the growth and operating performance of
Dauphin Deposit Corporation (hereafter called the "Corporation") by
providing an opportunity for key executives of the Corporation to earn
additional renumeration if planned corporate and individual performance
targets are achieved.
II. Plan Objectives
---------------
The objectives of the plan shall be to:
. Fully reward outstanding performance.
. Link the business planning process, including attainment of key
Corporation objectives, with the compensation system.
. Assist in recruiting and retaining key employees possessing
outstanding abilities and skills.
. Provide an incentive and total compensation opportunity which is
competitive with other organizations in the marketplace.
III. Plan Eligibility
----------------
Only key management and professional individuals who are recommended by
the Corporation's Senior Management and approved each year by the Chief
Executive Officer of the Corporation and the Management Development and
Compensation Committee of the Board (hereafter called the "Compensation
Committee") will be participants in the plan. Evidence of participation
will be provided to participants each year by written notice from the
Corporation.
To participate in the plan for a plan year, an individual must be approved
to participate prior to July 31st and be an active employee of the
Corporation as of the end of that plan year. However, a participant who is
disabled or elects to retire during a plan year will be eligible to
receive an award provided the Corporation's performance so warrants
<PAGE>
Annual Management Performance Incentive Plan Page 2
as determined by the Compensation Committee. If a participant dies during
the plan year, an award will be paid to the participant's beneficiary
provided the Corporation's performance targets are met.
IV. Plan Definitions
----------------
The following definitions are applicable to this Plan:
* Plan Year - January 1 through December 31.
---------
* Qualified Base Salary - A participant's base annual salary paid
---------------------
during the plan year. This does not include annual or long-term
incentive plan payments for a prior or current plan year, other non-
base salary payments which may be included in taxable earnings, or
any other form of compensation. However, it does include the amount
which a participant may elect to set aside in the 401(K) deferred
plan.
If an individual is approved for participation after the start of the
plan year, qualified base annual salary will be calculated beginning
as of the effective date of participation in the plan.
* Group Level - There are three group levels in the plan. Within each
-----------
group level, percentage factors are applied to Corporate Performance
---------------------
results and Individual Performance results. The group levels are
----------------------
based on the level of the participant within the Corporation,
indicating the individual's ability to positively impact Corporation
results. The greater a participant's level within the Corporation,
the higher the Corporate Award Weight. The combination of the
Corporate Award Weight and the Individual Award Weight will equal
100%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corporate Individual
Group Award Weight Award Weight
------- ------------- -------------
<S> <C> <C>
I 75% 25%
II 50% 50%
III 25% 75%
</TABLE>
- --------------------------------------------------------------------------------
* Target Award Percentage - An annually approved percentage for each
-----------------------
participant used to determine the competitive payout amount if all
plan objectives are met at 100%. The Target Award Percentage of each
participant will be approved by the Compensation Committee at the
beginning of each plan year and will be within the range of the
participant's assigned Group Level.
<PAGE>
Annual Management Performance Incentive Plan Page 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Range of Target Award
As A Percentage of
Group Qualified Base Salary
----- ---------------------
<S> <C>
I 40% to 60%
II 25% to 35%
III 10% to 20%
</TABLE>
- --------------------------------------------------------------------------------
* Corporate Performance Factor - A percentage determined by the degree
----------------------------
to which actual annual Corporate performance compares with annual
Corporate objectives as approved by the Board of Directors. The
Corporation's objectives for purposes of this plan will be a Return
on Equity (ROE) measure, a Return on Assets (ROA) measure and a
positive change in Earnings per Share (EPS). The range of the
corporate performance evaluation factor will be between a minimum and
a maximum depending on the Group Level.
Corporate Performance as a Percentage of Results Achieved:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Group Min. Target Max.
----- ---- ------ ----
<S> <C> <C> <C>
I 0% 100% 200%
II 50% 100% 150%
III 75% 100% 125%
</TABLE>
- --------------------------------------------------------------------------------
* Individual Performance Factor - A percentage determined by the
-----------------------------
evaluation of a participant's actual performance as measured by the
degree to which the participant meets or exceeds the objectives set
for the respective participant at the beginning of the plan year. The
range for the individual performance factor will be between a minimum
of 70% and a maximum of 130%. An evaluation less than 70% will be
considered as unsatisfactory performance.
<PAGE>
Annual Management Performance Incentive Plan Page 4
V. Incentive Award Calculation
---------------------------
- --------------------------------------------------------------------------------
A) Qualified Target Incentive
Base X Award % = Award
Salary Potential
B) Incentive Corporate Corporate Corporate
Award X Award X Performance = Performance
Potential Weight Factor Award
PLUS
----
Incentive Individual Individual Individual
Award X Award X Performance = Performance
Potential Weight Factor Award
EQUALS
------
C) The total amount of annual incentive award payable to the
participant.
- --------------------------------------------------------------------------------
VI. Incentive Award Payments
------------------------
The payment of awards to participants will be made within the first
calendar quarter following the end of the plan year, following review and
approval of the payments by the Board of Directors.
Award payments will be made in cash with deductions for all applicable
taxes. However, participants with officer titles of Senior Vice President
and above may request and, if approved by the Board of Directors, can
receive the equivalent of one-half of their cash award in Corporation
stock. The price of the stock will be based on the average market value as
of the date the award payment is made.
No award payments under this plan will be made unless the minimum
Corporate results, as determined by the Compensation Committee, are
achieved. No corporate or individual award will be made to an individual
participant if the participant is rated as unsatisfactory in results
achieved (individual performance factor is less than 70%) for the plan
year
In the event that a "Change in Control" of the Corporation occurs within a
plan year, all awards will be paid as if all plan objectives were met at
100% or above, as determined by the Compensation Committee.
<PAGE>
Annual Manager Performance Incentive Plan Page 5
VII. Plan Responsibility and Authority
---------------------------------
The Corporation's Board of Directors shall be responsible for the plan
and any amendments to the plan.
The Compensation Committee of the Corporation's Board of Directors shall
have complete authority and discretion to:
A) Approve participants and individual target award percentages each
year.
B) Approve the Corporation's annual plan objectives at the beginning of
the plan year and the corporate performance factor at the end of the
plan year.
C) Review and approve the award calculations and recommendations.
D) Construe and interpret all plan provisions. The Compensation
Committee's decision shall be final, conclusive and binding on all
plan participants.
VIII. Plan Administration Provisions
------------------------------
A participant's rights and interests under the plan may not be assigned
or transferred.
No participant, employee or other person shall have any claim or right to
be granted award under this plan except as approved by the Board of
Directors of the Corporation.
Neither this plan nor any other action taken hereunder shall be construed
nor interpreted as giving a participant or employee any right to be
retained in the employ of the Corporation.
IX. Plan Amendments
---------------
The Board of Directors of the Corporation may, at any time, modify,
suspend or terminate plan.
Plan Changes Approved:
April 3, 1995
by the Management Development
and Compensation Committee
of the Corporation's
Board of Directors
<PAGE>
Exhibit 10(d)
Performance Share
1995
DAUPHIN DEPOSIT CORPORATION
1995 STOCK INCENTIVE PLAN
PERFORMANCE SHARE AGREEMENT
DATE OF GRANT: MAY 1, 1995
-----------
1. Grant. Pursuant to the provisions of the 1995 Stock Incentive Plan
-----
(the "Plan"), Dauphin Deposit Corporation (the "Company") on the above date has
granted to
____________________________(the "Grantee")
subject to the terms and conditions which follow and the terms and conditions of
the Plan, a target of
_______Performance Shares (the "Performance Shares").
A copy of the Plan is attached and made a part of this Agreement with the same
effect as if set forth in the Agreement itself. The initial value of each
Performance Share shall be the Fair Market Value of a share of Company Common
Stock on December 30, 1994 which was $23.8125. Capitalized terms not otherwise
defined herein shall have the meaning set forth in the Plan, unless the context
requires a different meaning.
2. Performance Period. The Performance Shares shall be payable, in the
------------------
form provided in Paragraph 4 below, and to the extent provided in Paragraph 3
below, as soon as practicable after the end of the Performance Period, which
shall commence as of January 1, 1995 and end on December 31, 1997.
3. Performance Goals. Up to 100% of the Performance Shares will be
-----------------
earned, depending upon if, and the extent to which, the Company achieves the
following Performance Goals:
(a) Share Price Appreciation. Sixty percent (60%) of the Performance
------------------------
Shares awarded in Paragraph 1 shall be deemed to be earned if the
average Fair Market Value of Company Common Stock for the forty-
five (45) consecutive trading days
<PAGE>
ending on and including December 31, 1997 equals or exceeds $34
per share. If the average Fair Market Value determined as above
set forth is less than $30 per share, no shares will be earned
and all rights to earn up to 60% of the shares based on Company
Common Stock price appreciation will be forfeited. If the average
Fair Market Value determined as above set forth is at least $30
per share, 30% of the shares specified in Paragraph 1 will be
deemed to be earned. If the average Fair Market Value determined
as above set forth exceeds $30 per share but is less than $34 per
share, a pro-rata portion between 30% and 60% of such shares
shall be deemed to be earned in accordance with Schedule 1
attached hereto.
(b) Corporate Performance Measures. Forty percent (40%) of the
------------------------------
Performance Shares awarded in Paragraph 1 shall be deemed to be
earned if the Company attains certain corporate performance
goals, as set forth on Schedule 2 attached hereto.
4. Form of Payment. Any Performance Shares payable pursuant to Paragraph
---------------
3 above shall be paid in shares of Company Common Stock, except that the
Management Development and Compensation Committee (the "Committee") of the
Company's Board of Directors may, in its discretion, permit the payment of cash
in lieu of up to 50% of the Fair Market Value of such shares of Common Stock,
upon a request in writing from the Grantee.
5. Change in Control. Upon the occurrence of a Change in Control, the
-----------------
Performance Shares specified in Paragraph 1 will be deemed to be fully earned
and payable at that time.
6. Forfeiture. Upon Grantee's termination of employment for any reason or
----------
under any circumstances prior to completion of the first 12 months of the
Performance Period, all Performance Shares granted hereunder will be forfeited.
In the event of Grantee's (a) death or permanent disability, (b) normal
retirement under the Company's Pension Plan, or (c) earlier termination of
employment with the consent of the Committee following completion of the first
12 months of the Performance Period, Grantee, or in the case of death, Grantee's
beneficiary, will be deemed to earn a pro-rata number of shares at the
completion of the Performance Period in accordance with Paragraph 3 above based
on the number of full months of the Performance Period which have elapsed prior
to the date of termination of employment. For example, if 100% of the
Performance Goals have been attained at the completion of the Performance
Period, Grantee or, in the case of death, Grantee's beneficiary, shall be deemed
to have earned the number of shares set
2
<PAGE>
forth in Paragraph 1 multiplied by a fraction the numerator of which shall be
the number of full months of the Performance Period prior to the date of
termination employment and the denominator of which is 36.
In the event Grantee's employment is terminated for any other reason, all
Performance Shares granted hereunder will be forfeited.
7. No Right to Employment. Neither the execution and delivery of this
----------------------
Agreement nor the granting of the Performance Shares evidenced hereby shall
constitute or be evidence of any agreement of understanding, express or implied,
on the part of the Company or its subsidiaries to employ the Grantee for any
specific period or in any specific capacity or shall prevent the Company or its
subsidiaries from terminating the Grantee's employment at any time with or
without cause.
8. Rights. Nothing herein shall be deemed to entitle the Grantee to any
------
rights as a holder of Common Stock unless and until certificates for shares of
Common Stock are actually issued in the name of the Grantee as provided herein.
9. Income Taxes. The Grantee is liable for any federal, state and local
------------
income taxes applicable upon payment of the Performance Shares. Upon demand by
the Company, Grantee shall promptly pay to the Company in cash, and/or the
Company may withhold from Grantee's compensation or from the shares of Common
Stock to be issued pursuant hereto or any cash payable in lieu of some or all of
such shares of Common Stock, an amount necessary to pay any income withholding
taxes required by the Company to be collected upon such payment.
10. Grantee. In consideration of the grant, the Grantee specifically
-------
agrees that the Committee shall have the exclusive power to interpret the Plan
and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and Agreement as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretation and determinations made by the Committee shall be final,
conclusive and binding upon the Grantee, the company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Agreement. The Committee may delegate its interpretive authority to an
officer or officers of the Company.
11. Miscellaneous. This Agreement (a) shall be binding upon and inure
-------------
to the benefit of any successor of the Company, (b) shall be governed by the
laws of the Commonwealth of Pennsylvania, and (c) may not be amended except in
writing.
12. Acknowledgment. This grant will not be effective until the Grantee
--------------
dates and signs the form of Acknowledgment below and returns to the Company a
signed
3
<PAGE>
copy of this Agreement. By signing the Acknowledgment, the Grantee agrees to
the terms and conditions referred to in Paragraph 1 above and acknowledges
receipt of a copy of the Prospectus related to the Plan.
DAUPHIN DEPOSIT CORPORATION
BY:
-------------------------
Authorized Signatory
ACKNOWLEDGMENT:
- -----------------------------
Grantee's Signature
- -----------------------------
Date
- -----------------------------
Social Security Number
<PAGE>
Exhibit 10(e)
DAUPHIN DEPOSIT CORPORATION
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1996 Non-Employee Directors' Stock Plan
(the "Plan") of Dauphin Deposit Corporation (the "Company") is to advance the
interests of the Company and its stockholders by providing a means to attract
and retain highly qualified persons to serve as non-employee directors of the
Company and its wholly-owned subsidiary, Dauphin Deposit Bank and Trust Company
(the "Bank), and to promote ownership by non-employee directors of a greater
proprietary interest in the Company, thereby aligning such directors' interests
more closely with the interests of stockholders of the Company.
2. Definitions. In addition to terms defined elsewhere in the Plan, the
following terms shall be defined as set forth below:
(a) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code include regulations
thereunder and successor provisions and regulations thereto.
(b) "Deferred Stock" means the credits to a Participant's deferral
account under Section 7, each of which represents the right to receive one
share of Stock upon settlement of the deferral account. Deferral accounts,
and Deferred Stock credited thereto, are maintained solely as bookkeeping
entries by the Company evidencing unfunded obligations of the Company.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act include rules
thereunder and successor provisions and rules thereto.
(d) "Fair Market Value" of Stock means, as of any given date, the
average of the high and the low sale prices of a share of common stock
reported in the table entitled "NASDAQ NATIONAL MARKET ISSUES" contained in
The Wall Street Journal (or an equivalent successor table) for such date
or, if no such prices are reported for such date, on the most recent
trading day prior to the date of grant with respect to which such prices
were reported.
(e) "Option" means the right, granted to a Participant under Section
6, to purchase Stock at the specified exercise price for a specified period
of time under the Plan.
(f) "Participant" means a director of the Company or the Bank who is
granted Options or who defers fees in the form of Deferred Stock under the
Plan and an advisory board director of the Bank who defers fees in the form
of Deferred Stock under the Plan.
(g) "Stock" means the Common Stock, $5.00 par value, of the Company
and such other securities as may be substituted for Stock or such other
securities pursuant to Section 8.
<PAGE>
3. Shares Available Upon the Plan. Subject to adjustment as provided in
Section 8, the total number of shares of Stock reserved and available for
delivery under the Plan is 150,000. Such shares may be authorized but unissued
shares, treasury shares, or shares acquired in the market for the account of the
Participant. If any Option expires or terminates for any reason without having
been exercised in full, the shares subject to the unexercised portion of such
Option will again be available for delivery under the Plan.
4. Administration of the Plan. The Plan will be administered by the
Board of Directors of the Company and the Executive Committee thereof, provided
that any action by the Board or Committee relating to the Plan will be taken
only if, in addition to any other required vote, approved by the affirmative
vote of a majority of the directors who are not then eligible to participant
under the Plan.
5. Eligibility.
(a) Each director of the Company or the Bank who, on any date on
which an Option is to be granted under Section 6 or on which fees are to be
paid, is not an employee of the Company or any subsidiary of the Company
will be eligible, at such date, to receive a grant of Options under Section
6 or defer fees in the form of Deferred Stock under Section 7.
(b) Each advisory board director of the Bank who, on any date on
which fees are to be paid, is not an employee of the Company or any
subsidiary of the Company will be eligible, at such date, to defer fees in
the form of Deferred Stock under Section 7.
No person other than those specified in this Section 5 will participate in the
Plan.
6. Stock Options. An Option to purchase 1,000 shares of Stock will be
granted on the first business day of May in each year to each director of the
Company who is then eligible to receive an Option grant and to each director of
the Bank, who is not also a director of the Company, who is then eligible to
receive an Option grant. Options granted under the Plan will be non-qualified
stock options which will be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock purchasable
under an Option will be equal to 100% of the Fair Market Value of Stock on
the date of grant of the Option.
(b) Option Term. Each Option will expire at the earlier of (i) ten
years after the date of grant or (ii) five years after the Participant
ceases to serve as a director of the Company or the Bank, as the case may
be, for any reason, provided that, if the Participant dies during such
five-year post-termination exercise period, such period shall be extended
until not later than the date five years after the Participant's death (but
in no event more than ten years after the date of grant).
(c) Exercisability. Each Option will become fully exercisable one
year after the date of grant of the Option; provided, however, that an
Option previously granted to a Participant will be fully exercisable after
the Participant ceases to serve as a director of the Company or the Bank
for any reason.
(d) Method of Exercise. Each Option may be exercised, in whole or in
part, at such time as it is exercisable and prior to its expiration by
giving written notice of
-2-
<PAGE>
exercise to the Company specifying the Option to be exercised and the
number of shares to be purchased, and accompanied by payment in full of the
exercise price in cash (including by check) or by surrender of shares of
Stock of the Company already owned by the Participant (except for shares
acquired from the Company by exercise of an option less than six months
before the date of surrender) having a Fair Market Value at the time of
exercise equal to the exercise price, or a combination of a cash payment
and such surrender of Stock.
7. Deferred Stock in Lieu of Fees. Each director of the Company or Bank
and advisory board directors of the Bank may, in lieu of receipt of fees in his
or her capacity as a director or an advisory board director (including annual
retainer fees for service on the Board, fees for attendance at Board meetings,
fees for service on a Board committee, and fees for service as chairman of a
Board committee) in cash, defer receipt of such fees in the form of Deferred
Stock in accordance with this Section 7, provided that such director or advisory
board director is eligible under Section 5 to defer fees in the form of Deferred
Stock at the date any such fee is otherwise payable.
(a) Elections. Each director or advisory board director who elects to
defer fees in the form of Deferred Stock for any calendar year must file an
irrevocable written election with the Secretary of the Company no later
than the June 30 of the preceding year; provided, however, that, with
respect to 1996, directors and advisory board directors may file such
election at any time prior to the effective date of the Plan, and that any
newly elected or appointed director or advisory board director may file an
election for any year not later than 30 days after the date such person
first became a director or advisory board director. An election by a
director or advisory board director shall be deemed to be continuing and
therefore applicable to subsequent Plan years unless the director or
advisory board director revokes or changes such election by filing a new
election form by the due date for such form specified in this Section 7(a).
The election must specify the following:
(i) A percentage, not to exceed an aggregate of 100% of the
Participant's fees, to be deferred in the form of Deferred Stock under
the Plan;
(ii) Whether dividend equivalents on Deferred Stock credited to
the Participant's deferral account will be paid directly to the
Participant in cash or credited to his or her deferral account and
deemed to be reinvested in additional Deferred Stock; and
(iii) The period during which settlement of the Deferred Stock
will be deferred.
In the event directors' fees or advisory board directors' fees are
increased during any year, a Participant's elections in effect for such
year will apply to the amount of such increase.
(b) Deferral of Fees in the Form of Deferred Stock. The Company will
establish a deferral account for each Participant who elects to defer fees
in the form of Deferred Stock under this Section 7. At any date on which
fees are payable to a Participant who has elected to defer fees in the form
of Deferred Stock, the Company will credit such Participant's deferral
account with a number of shares of Deferred Stock equal
-3-
<PAGE>
to the number of shares of Stock having an aggregate Fair Market Value at
that date equal to the fees that otherwise would have been payable at such
date but for the Participant's election to defer receipt of such fees in
the form of Deferred Stock. The amount of Deferred Stock so credited shall
include fractional shares calculated to at least three decimal places.
(c) Payment or Crediting of Dividend Equivalents. Whenever dividends
are paid or distributions made with respect to Stock, a Participant to whom
Deferred Stock is then credited in a deferred account shall be entitled to
be paid an amount equal in value to the amount of the dividend paid or
property distributed on a single share of Stock multiplied by the number of
shares of Deferred Stock (including any fractional share) credited to his
or her deferral account as of the record date for such dividend or
distribution. Such dividend equivalents shall be credited to the
Participant's deferral account as a number of shares of Deferred Stock
equal to the number of shares of Stock having an aggregate Fair Market
Value at the payment date of the dividend or distribution equal to the
value of such dividend equivalents.
(d) Settlement of Deferral Account. The Company will settle the
Participant's deferral account in the manner and at the time elected by the
Participant on forms provided by the Company by delivering to the
Participant (or his or her beneficiary) the number of shares of Stock equal
to the number of whole shares of Deferred Stock then credited to the
deferral account (or a specified portion in the event of any partial
settlement), together with cash in lieu of a fractional share remaining at
a time that less than one whole share of Deferred Stock is credited to such
deferral account.
(e) Designation of Beneficiary. Each Participant may designate one or
more beneficiaries to receive the amounts distributable from the
Participant's deferral account under the Plan in the event of such
Participant's death, on forms provided by the Company. The Company may rely
upon the beneficiary designation last filed in accordance with the terms of
the Plan.
(f) Delayed Effectiveness of Elections in Order to Comply with Rule
16b-3. Other provisions of this Section 7 notwithstanding, if any deferral
of fees in the form of Deferred Stock would occur less than six months
after the Participant filed the irrevocable election which would result in
such payment or deferral and at a time that the Company's employee benefit
plans are being operated in conformity with Rule 16b-3 as adopted and in
effect on and after May 1, 1991, such payment shall be made in cash and on
a non-deferral basis.
(g) Vesting. The interest of each Participant in any fees paid in the
form of Deferred Stock (and any deferral account relating thereto) shall be
at all times fully vested and non-forfeitable.
8. Adjustment Provisions. In the event any recapitalization,
reorganization, merger, consolidation, spin-off, combination, repurchase,
exchange of shares or other securities of the Company, stock split or reverse
split, extraordinary dividend having a value in excess of 150% of the quarterly
dividends paid during the preceding 12-month period, liquidation, dissolution,
or other similar corporate transaction or event affects Stock such that an
adjustment is determined by the Board of Directors or Executive Committee to be
appropriate in order to prevent dilution or enlargement of Participants' rights
under the Plan, then the Board or Committee will, in a manner that is
proportionate to the change to the
-4-
<PAGE>
Stock and is otherwise equitable, adjust (i) any or all of the number or kind of
shares of Stock reserved for issuance under the Plan, (ii) the number or kind of
shares of Stock to be subject to each automatic grant of Options under Section
6, (iii) the number and kind of shares of Stock issuable upon exercise of
outstanding Options, and/or the exercise price per share thereof (provided that
no fractional shares will be issued upon exercise of any Option), and (iv) the
number or kind of shares of Stock to be delivered upon settlement of Deferred
Stock under Section 7. The foregoing notwithstanding, no adjustment may be made
hereunder except as shall be necessary to maintain the proportionate interest of
a Participant under the Plan and to preserve, without exceeding, the value of
outstanding Options and potential grants of Options. If at any date an
insufficient number of shares are available for the automatic grant of Options
or the deferral of fees in the form of Deferred Stock at that date, Options will
first be automatically granted under Section 6 proportionately to Participants,
to the extent shares are available, and then, if any shares remain available,
fees shall be deferred in the form of Deferred Stock proportionately among
Participants under Section 7, to the extent shares are available.
9. Changes to the Plan. The Board of Directors may amend, alter,
suspend, discontinue, or terminate the Plan or authority to grant Options or pay
fees in the form of Deferred Stock under the Plan without the consent of
stockholders or Participants, except that any such action will be subject to the
approval of the Company's stockholders at the next annual meeting of
stockholders having a record date after the date such action was taken if such
stockholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, or if the Board of Directors determines in its
discretion to seek such stockholder approval; provided, however, that, without
the consent of an affected Participant, no such action may impair the rights of
such Participant with respect to any previously granted Option or any previous
deferral of fees in the form of Deferred Stock; and provided further, that any
Plan provision that specifies the directors who may receive grants of Options,
the amount and price of securities to be granted to such directors, and the
timing of grants to such directors, or is otherwise a "plan provision" referred
to in Rule 16b-3(c)(2)(ii)(B) under the Exchange Act, shall not be amended more
than once every six months, other than to comport with changes in the Code or
the rules thereunder.
10. General Provisions.
(a) Consideration; Agreements. Options will be granted under the Plan
in order to obtain for the Company the benefit of the services of
Participants and, except for the payment of the exercise price of an
Option, no other consideration shall be required in connection with
Options. The consideration for Stock issued or delivered in settlement of
Deferred Stock will be the director's or advisory board director's services
during the period to which the fees paid in the form of Deferred Stock
related. Grants of Options will be evidenced by agreements executed by the
Company and the Participant containing the terms and conditions set forth
in the Plan together with such other terms and conditions not inconsistent
with the Plan as the Board of Directors or Executive Committee may from
time to time approve.
(b) Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver Stock in connection with any Option, or in
settlement of Deferred Stock in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other
federal or state securities law, any requirement under any listing
agreement between the Company and any national securities exchange or
automated quotation system, or any other law, regulation, or contractual
obligation of the Company, until the Company is satisfied that such laws,
regulations, and other obligations of the Company have been complied with
in full. Certificates representing
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<PAGE>
shares of Stock delivered under the Plan will be subject to such stop-
transfer orders and other restrictions as may be applicable under such
laws, regulations, and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
(c) Limitations on Transferability. Options, Deferred Stock, and any
other right under the Plan that may constitute a "derivative security" as
generally defined in Rule 16a-1(c) under the Exchange Act will not be
transferred by a Participant except by will or the laws of descent and
distribution (or to a designated beneficiary in the event of a
Participant's death), and will be exercisable during the lifetime of a
Participant only by such Participant or his or her guardian or legal
representative; provided, however, that Options, Deferred Stock, and such
other rights may be transferred to one or more trusts or other
beneficiaries during the lifetime of the Participant in connection with the
Participant's estate planning, and may be exercised by such transferees in
accordance with the terms of such Option or Deferred Stock, but only if and
to the extent then permitted under Rule 16b-3 and consistent with the
registration of the offer and sale of Stock on Form S-8 or a successor
registration form of the Securities and Exchange Commission. Options,
Deferred Stock, and other rights under the Plan may not be pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be subject
to the claims of creditors.
(d) Compliance with Rule 16b-3. It is the intent of the Company that
this Plan comply in all respects with applicable provisions of Rule 16b-3
under the Exchange Act in connection with any grant of Options or deferral
of fees in the form of Deferred Stock. Accordingly, if any provision of
this Plan or any agreement hereunder does not comply with the requirements
of Rule 16b-3 as then applicable to any such transaction by a Participant,
or would cause any Participant to no longer be deemed a "disinterested
person" within the meaning of Rule 16b-3, such provision will be construed
or deemed amended to the extent necessary to conform to such requirements
with respect to such Participant. In addition, the Board of Directors and
Executive Committee shall have no authority to make any amendment,
alteration, suspension, discontinuation, or termination of the Plan or any
agreement hereunder, to make any adjustment under Section 8, or take other
action if and to the extent such authority would cause such transactions by
a Participant not to be exempt, or would cause a Participant no longer to
be deemed a "disinterested person" under Rule 16b-3 under the Exchange Act.
(e) Continued Service as an Employee. If a Participant ceases serving
as a director or an advisory board director and, immediately thereafter, is
employed by the Company or any subsidiary, then, solely for purposes of
Sections 6(b) and (c) of the Plan, such Participant will not be deemed to
have ceased service as a director or an advisory board director at that
time, and his or her continued employment by the Company or any subsidiary
will be deemed to be continued service as a director or an advisory board
director; provided, however, that such former director or an advisory board
director will not be eligible for additional grants of Options or deferral
of fees in the form of Deferred Stock under the Plan.
(f) No Right to Continue as a Director. Nothing contained in the Plan
or any agreement hereunder will confer upon any Participant any right to
continue to serve as a director of the Company or the Bank or as an
advisory board director of the Bank.
-6-
<PAGE>
(g) No Stockholder Rights Conferred. Nothing contained in the Plan or
any agreement hereunder will confer upon any Participant any rights of a
stockholder of the Company unless and until shares of Stock are in fact
issued or transferred to such Participant upon the valid exercise of an
Option or in accordance with Section 7.
(h) Governing Law. The validity, construction, and effect of the Plan
and any agreement hereunder will be determined in accordance with the laws
of the Commonwealth of Pennsylvania, without giving effect to principles of
conflicts of laws, and applicable federal law.
11. Stockholder Approval, Effective Date, and Plan Termination. The Plan
will be effective if, and at such time as, the stockholders of the Company have
approved it by the affirmative votes of the holders of a majority of the voting
securities of the Company present, or represented, and entitled to vote on the
subject matter at a duly held meeting of stockholders, provided that such
approval is obtained not later than the final adjournment of the first annual
meeting of stockholders of the Company held after the date the Board of
Directors adopted the Plan. Unless earlier terminated by action of the Board of
Directors or Executive Committee, the Plan will remain in effect until such time
as no Stock remains available for delivery under the Plan and the Company has no
further rights or obligations under the Plan with respect to outstanding Options
or Deferred Stock under the Plan.
As recommended by the Corporate Governance Committee and adopted by the
Board of Directors on October 16, 1995.
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<PAGE>
Exhibit 10(j)
CHANGE IN CONTROL AGREEMENT
---------------------------
AGREEMENT made the ___ day of _________, 1995, by and among DAUPHIN DEPOSIT
CORPORATION, a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania and having its principal place of business in
Harrisburg, Pennsylvania (hereinafter referred to as the "Corporation"), DAUPHIN
DEPOSIT BANK AND TRUST COMPANY, a wholly-owned Bank subsidiary of the
Corporation organized and existing under the laws of the Commonwealth of
Pennsylvania and having its principal place of business in Harrisburg,
Pennsylvania (hereinafter referred to as the "Bank") and
________________________ (hereinafter referred to as "Executive").
WHEREAS, Executive is a key management employee of the Bank and currently
serves the Corporation as ____________________________________.
WHEREAS, the Corporation, Bank and Executive desire to enter into an
Agreement whereby the Corporation and the Bank will agree to make certain
payments to Executive upon termination under specific conditions in order to
induce Executive to continue in employment.
NOW, THEREFORE, in consideration of the employment of Executive and
intending to be legally bound hereby, Executive, the Corporation and the Bank
agree as follows:
<PAGE>
ARTICLE I
TERMINATION PURSUANT TO A CHANGE IN CONTROL
-------------------------------------------
1.1 Definition: Termination Pursuant to a Change in Control. Any of the
--------------------------------------------------------
following events occurring during the period commencing with the date of any
"Change in Control" (as defined in ARTICLE II hereof) and ending on the second
anniversary of the date of the consummation of the Change in Control
transaction, shall constitute a "Termination Pursuant to a Change in Control":
(A) Executive's employment is terminated by the Corporation, the Bank
or an acquiror or successor of either without "Good Cause" (as defined
below); or
(B) One of the following events occurs and Executive thereafter
terminates Executive's employment:
(i) the nature and scope of Executive's duties or
responsibilities with the Corporation, the Bank or acquiror or
successor are materially reduced from that which Executive enjoyed
immediately prior to the Change in Control; or
(ii) Executive's base salary immediately prior to the Change in
Control is reduced; or
(iii) Executive is assigned, without Executive's consent, to a
principal place of employment which is more than fifty-five (55) miles
from Executive's principal place of employment immediately prior to
the Change in Control.
For purposes of this Section 1.1, "Good Cause" shall mean (i) the
commission of malfeasance in office constituting dishonesty or the commission of
a crime or (ii) the willful and continued failure of Executive for a significant
period of time to perform substantially Executive's duties, other than as a
result of sickness or disability, after a written
-2-
<PAGE>
demand for substantial performance is delivered to Executive by the
Corporation's or the Bank's Board of Directors which specifically identifies the
manner in which the Board of Directors believes that Executive has not
substantially performed Executive's duties. No act, or failure to act, on
Executive's part shall be considered "willful" unless done, or omitted to be
done, by Executive, not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Corporation or
the Bank. The burden of establishing the validity of any termination for Good
Cause shall rest upon the Corporation or the Bank.
1.2 Compensation Upon Termination Pursuant to a Change in Control.
-------------------------------------------------------------
If Executive's employment is terminated and such termination is a Termination
Pursuant to a Change in Control, the Corporation or the Bank (or any acquiror or
successor thereto) shall provide the following to Executive:
(A) Executive's compensation shall be continued for a period of two
(2) years, commencing as of the Termination Pursuant to the Change in
Control, but not beyond the date on which Executive attains age 65 or dies.
For purposes of this Section 1.2, compensation shall mean the greater of
(a) Executive's base salary in effect immediately prior to the Termination
Pursuant to a Change in Control, plus any cash bonuses or annual incentive
cash compensation earned by Executive with respect to the calendar year
immediately preceding the date of the Termination Pursuant to a Change in
Control or (b) Executive's base salary in effect immediately prior to the
Change in Control, plus any cash bonuses or annual incentive cash
compensation earned by Executive with respect to the calendar year
immediately preceding the Change in Control. Each payment during the two
(2) year payment period set forth in this Paragraph (A) shall be reduced by
Executive's earned income from all sources during the two (2) year payment
period; provided, however, that Executive shall have no duty to mitigate
-------- -------
damages by earning income during the period; and
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<PAGE>
(B) Executive shall be provided, for a period of two (2) years,
commencing as of the Termination Pursuant to the Change in Control, but not
beyond the date on which Executive attains age 65 or dies, with life,
disability and accident and health insurance coverages comparable to
employer sponsored plan coverages in effect for Executive immediately
preceding the Termination Pursuant to a Change in Control. Comparable
life, disability and accident and health insurance coverages may be
provided to Executive under: (1) existing plans or programs in which the
Executive participates, or (2) through conversion of group coverage
pursuant to any group policy in effect, or (3) through other available
commercial insurance arrangements, if obtainable, for Executive; provided,
--------
however, that to the extent a specific coverage cannot be continued or
-------
obtained under either (1), (2) or (3) above, Executive shall not be
entitled to continuation of that specific coverage. Executive shall
continue to be responsible for the cost of comparable insurance coverages
following his Termination Pursuant to a Change in Control to the same
extent as other similarly situated active employees of the Corporation or
the Bank as of the Termination Pursuant to a Change in Control or, if there
are no similarly situated employees, then to the same extent, on a
percentage of total cost basis, that Executive was responsible for the cost
of available insurance coverages prior to the Termination Pursuant to a
Change in Control. With respect to health insurance coverage, Executive's
spouse and/or eligible dependents, if covered under any employer sponsored
accident and health insurance plan in effect for Executive as of
Executive's Termination Pursuant to a Change in Control, shall also be
provided with health insurance coverage for the two (2) year term set forth
above (regardless of Executive's death or attainment of age 65 prior to the
end of the two (2) year term), and under the same cost sharing method as
described above.
(C) Should the total of all payments made hereunder to Executive upon
a Termination Pursuant to a Change in Control, together with any other
payments which Executive has a right to receive from the Corporation, the
Bank, any of the other subsidiaries of the Corporation, or any successors
of any of the foregoing, result in the imposition of an excise tax under
Internal Revenue Code Section 4999 (or any successor thereto), Executive
shall be entitled to an additional "excise tax" adjustment payment in an
amount such that, after the payment of all federal and state income and
excise taxes, Executive will be in the same after-tax position as if no
excise tax had been imposed. Any payment or benefit which is required to
be included under Internal Revenue Code Sections 280G or 4999 (or any
successor provisions thereto) for purposes of determining whether an excise
tax is payable shall be deemed a payment "made to Executive" or a payment
"which Executive has
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<PAGE>
a right to receive" for purposes of this provision. The Corporation (or
its successor) shall be responsible for the costs of calculation of the
excise tax by the Corporation's independent certified accountant and tax
counsel and shall notify Executive of the amount of excise tax due prior to
the time such excise tax is due. If at any time it is determined that the
additional "excise tax" adjustment payment previously made to Executive was
insufficient to cover the effect of the excise tax, the gross-up payment
pursuant to this provision shall be increased to make Executive whole,
including an amount to cover the payment of any penalties resulting from
any incorrect or late payment of the excise tax resulting from the prior
calculation.
1.3 Payments Not Exclusive. The payments provided by this ARTICLE I
----------------------
shall not affect Executive's rights to receive any payments or benefits to which
Executive may be or become entitled under any other existing or future agreement
or arrangement of the Corporation, the Bank or any successor with the Executive,
or under any existing or future benefit plan or arrangement of the Corporation,
the Bank or any successor in which Executive is or becomes a participant, or
under which Executive has or obtains rights, including without limitation, any
qualified or nonqualified deferred compensation or retirement plans or programs.
Any such rights of Executive shall be determined in accordance with the terms
and conditions of the applicable agreement, arrangement or plan.
1.4 Withholding for Taxes. All payments required to be made under
---------------------
this Agreement will be made in accordance with the Corporation's or the Bank's
normal payroll schedule and will be subject to withholding of such amounts
relating to tax and/or other payroll deductions as may be required by law.
-5-
<PAGE>
ARTICLE II
----------
DEFINITION OF CHANGE IN CONTROL
-------------------------------
2.1 For purposes of this Agreement, the term "Change in Control"
shall mean any of the following:
(A) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act")), other than the
Corporation, a subsidiary of the Corporation, an employee benefit plan (or
related trust) of the Corporation or a direct or indirect subsidiary of the
Corporation, or affiliates of the Corporation (as defined in Rule 12b-2
under the Exchange Act), becomes the beneficial owner (as determined
pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 10% of the combined
voting power of the Corporation's then outstanding securities or announces
a tender offer or exchange offer for securities of the Corporation
representing more than 10% of the combined voting power of the
Corporation's then outstanding securities; or
(B) the liquidation or dissolution of the Corporation or the Bank or
the occurrence of, or execution of an agreement providing for, a sale of
all or substantially all of the assets of the Corporation or the Bank to an
entity which is not a direct or indirect subsidiary of the Corporation; or
(C) the occurrence of, or execution of an agreement providing for, a
reorganization, merger, consolidation or other similar transaction or
connected series of transactions of the Corporation as a result of which
either (a) the Corporation does not survive or (b) pursuant to which shares
of the Corporation common stock ("Common Stock") would be converted into
cash, securities or other property, unless, in case of either (a) or (b),
------
the holders of Corporation Common Stock immediately prior to such
transaction will, following the consummation of the transaction,
beneficially own, directly or indirectly, more than 50% of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the corporation surviving,
continuing or resulting from such transaction; or
(D) the occurrence of, or execution of an agreement providing for, a
reorganization, merger, consolidation, or similar transaction of the
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<PAGE>
Corporation, or before any connected series of such transactions, if, upon
consummation of such transaction or transactions, the persons who are
members of the Board of Directors of the Corporation immediately before
such transaction or transactions cease or, in the case of the execution of
an agreement for such transaction or transactions, it is contemplated in
such agreement that upon consummation such persons would cease, to
constitute a majority of the Board of Directors of the Corporation or, in a
case where the Corporation does not survive in such transaction, of the
corporation surviving, continuing or resulting from such transaction or
transactions; or
(E) any other event which is at any time designated as a "Change in
Control" for purposes of this Agreement by a resolution adopted by the
Board of Directors of the Corporation with the affirmative vote of a
majority of the non-employee directors in office at the time the resolution
is adopted; in the event any such resolution is adopted, the Change in
Control event specified thereby shall be deemed incorporated herein by
reference and thereafter may not be amended, modified or revoked without
the written agreement of Executive.
2.2 Notwithstanding anything else to the contrary set forth in this
Agreement, if (i) an agreement is executed by the Corporation or the Bank
providing for any of the transactions or events constituting a Change in Control
pursuant to this ARTICLE II, and the agreement subsequently expires or is
terminated without the transaction or event being consummated, and (ii) a
"Termination Pursuant to a Change in Control" (as defined in ARTICLE I hereof)
has not occurred prior to such expiration or termination, for purposes of this
Agreement (including, without limitation, ARTICLE I hereof) it shall be as
though such agreement was never executed and no Change in Control event shall be
deemed to have occurred as a result of the execution of such agreement.
-7-
<PAGE>
ARTICLE III
EXPENSES
--------
3.1 Legal Action. If Executive determines in good faith that the
------------
Corporation, the Bank, or any successor to either of them, has failed to comply
with its obligations under this Agreement, or if the Corporation, the Bank, or
any successor to either of them, or any other person takes any action to declare
this Agreement void or unenforceable, or institutes any legal action or
arbitration proceeding with respect to this Agreement, each of the Corporation
and the Bank hereby irrevocably authorizes Executive from time to time to retain
counsel of Executive's choice, at the expense of the Corporation and the Bank,
to represent Executive in connection with any and all actions and proceedings,
whether by or against the Corporation, the Bank, any acquiror or successor, or
any director, officer, stockholder or other person affiliated with any of the
foregoing, which may adversely affect Executive's rights hereunder.
3.2 Excise Tax Matters. It is the intention of the Corporation and
------------------
the Bank that Executive not be required to incur any expenses associated with
determination of the amount of any "excess parachute payment" under Internal
Revenue Code Section 280G or the amount of any excise tax imposed on Executive
pursuant to Internal Revenue Code Section 4999 (or any successor provisions
thereto). Therefore, the Corporation and the Bank agree to pay all expenses,
including the expenses of the Corporation's independent certified accountant and
tax counsel, related to the determination of any excess parachute payment and
excise tax, and to pay the legal costs and expenses of any tax audit of
Executive
-8-
<PAGE>
to the extent such expenses relate to the amount of the excise tax determined by
the Corporation or the Bank.
ARTICLE IV
MISCELLANEOUS
-------------
4.1 Termination of Employment. This Agreement shall not in any way
-------------------------
obligate either the Corporation or the Bank to continue the employment of
Executive nor shall this Agreement limit the right of the Corporation or the
Bank to terminate Executive's employment for any reason. Prior to the
occurrence of a Change in Control as defined herein, Executive's employment may
be terminated at any time by the Corporation or the Bank, in which case
Executive shall have no further rights under this Agreement.
4.2 Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, successors and, to the extent permitted hereunder,
assigns. All of the obligations of the Corporation and the Bank hereunder shall
be legally binding on any successor to the Corporation or the Bank, including
without limitation, any successor as a result of the consummation of a Change in
Control. The right of Executive to receive payments hereunder may not be
assigned, alienated, pledged or otherwise encumbered by Executive and any
attempt to do so shall be void and of no force or effect.
4.3 Entire Agreement; Amendment. This Agreement represents the
---------------------------
entire understanding between the parties hereto with respect to the subject
matter hereof and may
-9-
<PAGE>
be amended only by an instrument in writing signed by the parties hereto. This
Agreement supersedes and replaces the Change in Control Agreement dated October
27, 1986, as amended on August 7, 1989, between the parties hereto and said
agreement is hereby terminated in all respects.
4.4 Jurisdiction. The parties hereto consent to the exclusive
------------
jurisdiction of the courts of the Commonwealth of Pennsylvania in any and all
actions arising hereunder.
4.5 Governing Laws. This Agreement shall be governed and construed
--------------
under the laws of the Commonwealth of Pennsylvania, without regard to the
conflict of laws principles thereof.
4.6 Unfunded Obligations. The obligations to make payments hereunder
--------------------
shall be unfunded and Executive's rights to receive any payments hereunder shall
be the same as those of any other unsecured general creditor.
4.7 Individual Agreement. This Agreement constitutes an agreement
--------------------
solely between the Corporation, the Bank and Executive named herein. This
Agreement is intended to constitute a non-qualified arrangement for the benefit
of a key management employee and shall be construed and interpreted in a manner
consistent with such intention.
4.8 Headings. All headings preceding the text of the several
--------
paragraphs hereof are inserted solely for reference and shall not constitute a
part of this Agreement, nor affect its meaning, construction or effect.
-10-
<PAGE>
IN WITNESS WHEREOF, the Corporation and the Bank have caused this
Agreement to be executed and attested to on their respective behalf by their
duly authorized officers, and Executive hereunto has set his hand and seal as of
the day and year first above written.
ATTEST: DAUPHIN DEPOSIT CORPORATION
_______________________ By:__________________________________
(Assistant) Secretary
(SEAL)
ATTEST: DAUPHIN DEPOSIT BANK AND TRUST
COMPANY
_______________________ By:__________________________________
(Assistant) Secretary
(SEAL)
WITNESS: EXECUTIVE
_______________________ ________________________________(SEAL)
-11-
<PAGE>
Exhibit 10(m)
INDEMNIFICATION AGREEMENT
This Agreement is made as of ________________, 1995, by and between
DAUPHIN DEPOSIT CORPORATION, a Pennsylvania corporation (the "Corporation"), and
the individual whose name appears on the signature page hereof (that individual
is referred to herein as the "Indemnified Representative" and collectively with
other individuals who may execute substantially similar agreements as the
"Indemnified Representatives"), with reference to the following background:
WHEREAS, the Indemnified Representative currently is serving in one or
more capacities as a director or officer of the Corporation or, at the request
of the Corporation, as a director, officer, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity or enterprise and as such is performing a valuable service to or on
behalf of the Corporation; and
WHEREAS, as additional consideration for the services of the
Indemnified Representative, the Corporation has determined that it is
reasonable, prudent and necessary and in its best interests and those of its
shareholders to obligate itself contractually to indemnify its directors and
officers so that they will continue to serve the Corporation free from
uncertainties concerning the scope and adequacy of the protections afforded them
against the risks
<PAGE>
associated with their service to or for the benefit of the Corporation; and
WHEREAS, the Indemnified Representative is willing to serve, to
continue to serve and to undertake additional services for or on behalf of the
Corporation on the condition that he be so indemnified; and
WHEREAS, to induce the Indemnified Representative to continue to serve
the Corporation and in consideration for such continued service, and to assist
in the recruitment of qualified management in the future, the Corporation agrees
to indemnify the Indemnified Representative upon the terms set forth herein.
NOW, THEREFORE, in consideration of the matters recited above, and
intending to be legally bound hereby, the Corporation and the Indemnified
Representative agree as follows:
1. Agreement to Serve. The Indemnified Representative agrees to
------------------
serve or continue to serve in each Indemnified Capacity held now or in the
future for so long as the Indemnified Representative is duly elected or
appointed or until such time as the Indemnified Representative tenders a
resignation in writing. This Agreement shall not be deemed an employment
contract between the Corporation or any of its affiliates and any Indemnified
-2-
<PAGE>
Representative who is an employee of the Corporation or any of its affiliates,
and the Indemnified Representative specifically acknowledges that the
Indemnified Representative's employment with the Corporation or any of its
affiliates is at will, and that the Indemnified Representative may be discharged
at any time for any reason, with or without cause, and with or without severance
compensation, except as may be otherwise provided in a written employment
contract between the Indemnified Representative and the Corporation or any of
its affiliates or other applicable formal severance policies duly adopted by the
board of directors of the Indemnified Representative's employer.
2. Indemnification.
---------------
(a) Except as provided in Sections 3 and 5, the Corporation shall
indemnify the Indemnified Representative against any Liability incurred by the
Indemnified Representative in connection with any Proceeding in which the
Indemnified Representative may be involved as a party or otherwise, by reason of
the fact that the Indemnified Representative is or was serving in an Indemnified
Capacity, including, without limitation, any Liability resulting from actual or
alleged breach or neglect of duty, error, misstatement or misleading statement,
gross negligence, negligence or act giving rise to strict or products liability,
whether occurring prior to or after the date of this Agreement. If the
Indemnified Representative is entitled to
-3-
<PAGE>
indemnification in respect of a portion, but not all, of any Liability, the
Corporation shall indemnify the Indemnified Representative to the maximum extent
for such portion of any Liability.
(b) Notwithstanding the provisions of subsection (a), the Corporation
shall not indemnify the Indemnified Representative under this Agreement for any
Liability incurred in a Proceeding initiated by the Indemnified Representative,
whether as a party, intervenor, amicus curiae or otherwise (which shall be
deemed to include counterclaims or affirmative defenses), unless the Proceeding
is authorized, either before or after commencement of the Proceeding, by the
majority vote of a quorum of the board of directors of the Corporation.
(c) As used in this Agreement:
(i) "Disinterested Director" shall mean a director of the
Corporation who is not or was not a party to, or otherwise involved
in, the Proceeding in respect of which indemnification is sought by
the Indemnified Representative.
(ii) "Indemnified Capacity" means any and all past, present or
future service by an Indemnified Representative in one or more
capacities as a director, officer, employee or agent of the
Corporation, or, at the request of the Corporation, as a director,
officer, fiduciary or trustee of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or
enterprise.
(iii) "Independent Counsel" shall mean a law firm, or member of a
law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (A)
-4-
<PAGE>
the Corporation or the Indemnified Representative in any matter
material to either such party, or (B) any other party to the
Proceeding giving rise to a claim for indemnification hereunder.
(iv) "Liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or expense of any nature
(including attorneys' fees); and
(v) "Proceeding" means any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil,
criminal or informal, and whether brought by or in the right of the
Corporation, a class of its security holders or otherwise.
3. Exclusions.
----------
(a) The Corporation shall not be liable under this Agreement to
make any payment in connection with any Liability incurred by the Indemnified
Representative:
(i) to the extent the Indemnified Representative
did not act in good faith and in a manner the Indemnified
Representative reasonably believed to be in, or not opposed
to, the best interests of the Corporation and, with respect
to any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful;
(ii) to the extent payment for the Liability is made to the
Indemnified Representative under an insurance policy provided by the
Corporation or any of its affiliates;
(iii) to the extent the Indemnified Representative is indemnified
for such Liability by the Corporation or any of its affiliates under
the articles of incorporation or bylaws of the Corporation or any of
its
-5-
<PAGE>
affiliates or under the Pennsylvania Business Corporation Law or
otherwise than pursuant to this Agreement;
(iv) to the extent the Liability is determined in a final
adjudication by a court having jurisdiction in the matter to be based
upon or attributable to the Indemnified Representative gaining any
personal pecuniary profit to which the Indemnified Representative was
not legally entitled;
(v) for which the conduct of the Indemnified Representative has
been determined in a final adjudication by a court having jurisdiction
in the matter to constitute active and deliberate dishonesty and which
conduct was material to the cause of action or claim adjudicated;
(vi) to the extent the indemnification has been determined in a
final adjudication by a court having jurisdiction in the matter to be
unlawful; or
(vii) for any claim for an accounting of profits made either from
the purchase or sale by the Indemnified Representative of securities
of the Corporation pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any
corresponding superseding provision, or from any use of material, non-
public information, if such use is illegal under applicable provisions
of the Exchange Act or the regulations thereunder.
(b) Any fact, act or omission pertaining to the Indemnified
Representative shall not be imputed to any of the other Indemnified
Representatives for the purposes of determining the applicability of any
exclusion set forth herein.
(c) The termination of a Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent shall
---- ---------
not, of itself, create a presumption that the
-6-
<PAGE>
Indemnified Representative is not entitled to indemnification under this
Agreement.
4. Advancement of Expenses. Subject to the exclusions set forth in
-----------------------
Section 3(a) hereof, the Corporation shall pay any Liability incurred by the
Indemnified Representative in advance of the final disposition of a Proceeding
upon receipt of an undertaking by or on behalf of the Indemnified Representative
to repay such amount if it shall ultimately be determined in a final
adjudication by a court having jurisdiction in the matter that the Indemnified
Representative is not entitled to be indemnified by the Corporation pursuant to
this Agreement. The financial ability of the Indemnified Representative to
repay an advance shall not be a prerequisite to the making of the advance.
5. Indemnification Procedure.
-------------------------
(a) The Indemnified Representative shall use the Indemnified
Representative's best efforts to notify promptly the Secretary of the
Corporation of the commencement of any Proceeding or the occurrence of any event
that might give rise to a Liability under this Agreement, and shall provide to
the Corporation such documentation or information as is reasonably available to
the Indemnified Representative concerning the Proceeding or claim for
indemnification, but the failure to so notify the Corporation shall
-7-
<PAGE>
not relieve the Corporation of any liability that it may have to the Indemnified
Representative under this Agreement or otherwise.
(b) The Corporation shall be entitled, upon notice to the Indemnified
Representative, to assume the defense of any Proceeding with counsel reasonably
satisfactory to the Indemnified Representative involved in the Proceeding, or a
majority of the Indemnified Representatives involved in the Proceeding if there
be more than one. If the Corporation notifies the Indemnified Representative of
its election to defend the Proceeding, the Corporation shall have no liability
for the expenses (including attorneys' fees) of the Indemnified Representative
incurred in connection with the defense of the Proceeding subsequent to the
notice, unless (i) the expenses (including attorneys' fees) have been authorized
by the Corporation, (ii) the Corporation shall not in fact have employed counsel
reasonably satisfactory to the Indemnified Representative or Indemnified
Representatives to assume the defense of the Proceeding, or (iii) it shall have
been determined pursuant to subsection (d) that the Indemnified Representative
was entitled to indemnification for the expenses under this Agreement or
otherwise. Notwithstanding the foregoing, the Indemnified Representative may
elect to retain counsel at the Indemnified Representative's own cost and expense
to participate in the defense of the Proceeding.
(c) The Corporation shall not be required to obtain the consent of the
Indemnified Representative to the settlement of
-8-
<PAGE>
any Proceeding that the Corporation has undertaken to defend if the Corporation
assumes full and sole responsibility for the settlement and the settlement
grants the Indemnified Representative an unqualified release in respect of all
Liabilities. The Corporation shall not be liable for any amount paid by an
Indemnified Representative in settlement of any Proceeding that is not defended
by the Corporation, unless the Corporation has consented to the settlement.
(d) The Indemnified Representative's entitlement to
indemnification under this Agreement shall be determined in one of the following
ways:
(i) by a majority vote of the Dis-interested Directors if they
constitute a quorum of the Board of Directors;
(ii) by a written opinion of Independent Counsel if a quorum of
the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, a majority of such Disinterested
Directors so directs; or
(iii) by the shareholders of the Corporation (but only if a
majority of the Disinterested Directors, if they constitute a quorum
of the Board of Directors, presents the issue of entitlement to
indemnification to the shareholders for their determination).
(e) Upon a payment to the Indemnified Representative under this
Agreement, the Corporation shall be subrogated to the extent of the payment to
all of the rights of the Indemnified Representative to recover against any
person for the Liability, and the Indemnified Representative shall execute all
documents and instruments required and shall take such other
-9-
<PAGE>
actions as may be necessary to secure those rights, including the execution of
such documents as may be necessary for the Corporation to bring suit to enforce
those rights.
6. Nonexclusivity.
--------------
(a) The indemnification rights granted to the Indemnified
Representative pursuant to this Agreement:
(i) shall not be deemed exclusive of any other rights to which
the Indemnified Representative may be entitled under any statute,
bylaw, certificate or articles of incorporation, agreement, vote of
shareholders or Disinterested Directors or otherwise, both as to
action in an official capacity and in any other capacity; and
(ii) shall continue as to a person who has ceased to be an
Indemnified Representative in respect to Proceedings arising from acts
or omissions occurring prior to such time.
(b) Without limiting the generality of subsection (a), the
Corporation and the Indemnified Representative acknowledge the provisions of
Articles 12 and 13 of the Corporation's By-Laws and confirm that the Indemnified
Representative is acting in reliance thereon.
7. Reliance on Provisions. The Indemnified Representative shall be
----------------------
deemed to be acting in such person's respective Indemnified Capacity in reliance
upon the rights of indemnification provided by this Agreement.
-10-
<PAGE>
8. Severability and Reformation. Any provision of this Agreement
----------------------------
that is adjudicated to be invalid or unenforceable in any jurisdiction or under
any circumstances shall be ineffective to the extent of that invalidity or
unenforceability only and shall be deemed reformed so as to continue to apply to
the maximum extent and to provide the maximum indemnification permissible under
the applicable law of such jurisdiction. Any such adjudication shall not
invalidate or render unenforceable the remaining provisions hereof and shall not
invalidate or render unenforceable such provision in any other jurisdiction or
under any other circumstances.
9. Arbitration. Either the Indemnified Representative or the
-----------
Corporation may demand arbitration to resolve any dispute or controversy arising
under or relating to this Agreement or any breach thereof. If arbitration is
demanded, the dispute or controversy shall be submitted by the parties to
binding arbitration in the metropolitan area where the Corporation's executive
offices are located, before a panel of three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
Indemnified Representative and the Corporation each shall choose an arbitrator,
and those two arbitrators in turn shall select the third member of the panel;
provided that upon mutual consent of the Indemnified Representative and the
Corporation the matter shall be decided by a single
-11-
<PAGE>
arbitrator. Judgment upon the award rendered by the arbitrators may be entered
in any court of competent jurisdiction. Each party shall pay its own costs and
expenses incurred in connection with such arbitration; provided that if the
arbitrators determine that the moving party acted in bad faith in demanding and
bringing such arbitration, such moving party shall be required to reimburse the
other party for its or his costs and expenses (including reasonable attorneys'
fees) incurred in connection with the arbitration.
10. Notices. Any notice, claim, request or demand required or
-------
permitted hereunder shall be in writing and shall be deemed given if delivered
personally or sent by telegram or by registered or certified mail, postage
prepaid: (i) if to the Corporation, to 213 Market Street, Harrisburg, PA 17105,
Attention: Secretary, or (ii) if to the Indemnified Representative, to the
address of the Indemnified Representative listed on the signature page hereof;
or to such other address as either party hereto shall have specified in a notice
duly given in accordance with this section.
11. Amendments; Binding Effect. No amendment, modification,
--------------------------
termination or cancellation of this Agreement shall be effective as to the
Indemnified Representative unless signed in writing by the Corporation and the
Indemnified Representative. This Agreement shall be binding upon the
Corporation and its
-12-
<PAGE>
successors and assigns (including any direct or indirect successor by merger,
consolidation or operation of law or by sale of all or substantially all of its
assets) and shall inure to the benefit of the heirs, executors, administrators
and personal representatives of the Indemnified Representative.
12. Governing Law. This Agreement shall be governed by and
-------------
interpreted and enforced in accordance with the substantive laws of the
Commonwealth of Pennsylvania, without reference to the principles governing the
conflict of laws applicable in that or any other jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first set forth above.
DAUPHIN DEPOSIT CORPORATION
By:
---------------------------
Title:
INDEMNIFIED REPRESENTATIVE
------------------------------
Signature
Print Name and Address Below:
------------------------------
------------------------------
------------------------------
-13-
<PAGE>
DAUPHIN DEPOSIT CORPORATION
EXHIBIT (11)
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Earnings
Net income............................ $65,565,000 $70,039,000 $67,917,000
=========== =========== ===========
Shares
Weighted average common shares
outstanding.......................... 30,787,415 31,998,308 32,450,480
Stock options and other stock
incentive plans considered to be
common stock equivalents............. 178,843 171,426 185,670
----------- ----------- -----------
Weighted average common stock and
common stock equivalents
outstanding.......................... 30,966,258 32,169,734 32,636,150
=========== =========== ===========
Primary earnings per common share....... $2.12 $2.18 $2.08
===== ===== =====
FULLY DILUTED EARNINGS PER COMMON SHARE
Earnings
Net income............................ $65,565,000 $70,039,000 $67,917,000
After tax interest expense applicable
to convertible debenture............. 295,311 305,897 331,695
----------- ----------- -----------
$65,860,311 $70,344,897 $68,248,695
=========== =========== ===========
Shares
Weighted average common shares
outstanding.......................... 30,787,415 31,998,308 32,450,480
Assuming conversion of 9.00%
convertible debentures issued June
30, 1989............................. 315,962 327,988 353,440
Stock options and other stock
incentive plans considered to be
common stock equivalents............. 224,412 169,297 193,490
----------- ----------- -----------
Weighted average common stock and
common stock equivalents
outstanding.......................... 31,327,789 32,495,593 32,997,410
=========== =========== ===========
Fully diluted earnings per common
share.................................. $2.10 $2.16 $2.07
===== ===== =====
</TABLE>
<PAGE>
DAUPHIN DEPOSIT CORPORATION
Exhibit (21)
Subsidiaries
The Registrant has four direct wholly-owned subsidiaries: Dauphin Deposit
Bank and Trust Company: Dauphin Life Insurance Company; Dauphin Investment
Company; and Hopper Soliday & Co., Inc.
Dauphin 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.
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.
In addition to the above, Dauphin Bank has two subsidiaries, Financial Land
Corporation, which was 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
<PAGE>
Exhibit (23)
KPMG Peat Marwick LLP
Certified Public Accountants
225 Market Street Telephone 717 238 7131 Telefax 717 233 1101
Suite 300
P.O. Box 1190
Harrisburg, PA 17108-1190
Independent Auditors' Consent
-----------------------------
The Board of Directors
Dauphin Deposit Corporation
We consent to incorporation by reference in the registration statements (Nos.
33-59941, 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 26, 1996, relating to the consolidated balance sheets of
Dauphin Deposit Corporation and subsidiaries as of December 31, 1995 and 1994,
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,
1995, which report appears in the December 31, 1995 annual report on Form 10-K
of Dauphin Deposit Corporation.
Our report refers to a change in the Company's method of accounting for
impairment of loans and a change in the Company's method of accounting for
mortgage servicing rights.
/s/ KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
March 8, 1996
[ART]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 218,785
<INT-BEARING-DEPOSITS> 8,523
<FED-FUNDS-SOLD> 3,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,860,869
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,981,338
<ALLOWANCE> 41,737
<TOTAL-ASSETS> 5,297,349
<DEPOSITS> 3,949,536
<SHORT-TERM> 678,161
<LIABILITIES-OTHER> 82,450
<LONG-TERM> 40,599
0
0
<COMMON> 163,208
<OTHER-SE> 383,395
<TOTAL-LIABILITIES-AND-EQUITY> 5,297,349
<INTEREST-LOAN> 245,440
<INTEREST-INVEST> 111,495
<INTEREST-OTHER> 6,709
<INTEREST-TOTAL> 363,644
<INTEREST-DEPOSIT> 147,502
<INTEREST-EXPENSE> 187,931
<INTEREST-INCOME-NET> 175,713
<LOAN-LOSSES> 5,608
<SECURITIES-GAINS> 2,261
<EXPENSE-OTHER> 153,119
<INCOME-PRETAX> 88,775
<INCOME-PRE-EXTRAORDINARY> 65,565
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,565
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 7.99
<LOANS-NON> 7,031
<LOANS-PAST> 5,805
<LOANS-TROUBLED> 5,072
<LOANS-PROBLEM> 8,056
<ALLOWANCE-OPEN> 40,216
<CHARGE-OFFS> 8,176
<RECOVERIES> 4,089
<ALLOWANCE-CLOSE> 41,737
<ALLOWANCE-DOMESTIC> 41,737
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,720
</TABLE>
