<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission File Number 0-8415
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DAUPHIN DEPOSIT CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1938831
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
213 Market Street, Harrisburg, Pennsylvania 17105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 255-2121
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NOT APPLICABLE
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 29, 1996
- -------------------- -----------------------------
Common Stock, $5 Par Value 30,569,148 Shares
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DAUPHIN DEPOSIT CORPORATION
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FORM 10-Q
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For the Quarter Ended March 31, 1996
Contents
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and 1995 and
December 31,1995.
Consolidated Statements of Income for the Three Month Period Ended
March 31, 1996 and 1995.
Consolidated Statements of Cash Flows for the Three Month Period Ended
March 31, 1996 and 1995.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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2
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Part I
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For the Quarter Ended March 31, 1996
Item 1. Financial Statements
Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31, March 31,
1996 1995 1995
(Unaudited) (Audited) (Unaudited)
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $212,962 $218,785 $201,838
----------- ---------- ----------
Short-term investments
Interest bearing deposits 2,469 8,523 3,788
Federal funds sold and securities purchased under agreements to resell 2,500 3,050 7,300
----------- ---------- ----------
Total short-term investments 4,969 11,573 11,088
----------- ---------- ----------
Investment securities available-for-sale, at fair value 2,093,234 1,860,869 1,793,026
Assets held for sale, primarily mortgage loans held for sale 121,217 87,782 67,161
Loans (net of unearned income) 2,985,337 2,981,338 2,846,003
Allowance for loan losses (41,980) (41,737) (40,936)
----------- ---------- ----------
Total net loans 2,943,357 2,939,601 2,805,067
----------- ---------- ----------
Premises and equipment 72,513 71,562 66,909
Other assets 121,584 107,177 106,022
----------- ---------- ----------
Total assets $5,569,836 $5,297,349 $5,051,111
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $494,219 $518,004 $443,672
Interest bearing 3,436,364 3,431,532 3,103,312
----------- ---------- ----------
Total deposits 3,930,583 3,949,536 3,546,984
----------- ---------- ----------
Short-term borrowings 979,015 678,161 845,350
Long-term debt 40,160 40,599 91,866
Accrued expenses and taxes 82,980 82,450 67,854
----------- ---------- ----------
Total liabilities 5,032,738 4,750,746 4,552,054
----------- ---------- ----------
Stockholders' equity
Preferred stock, $25 par value; 10,000,000 shares authorized but unissued
Common stock, $5 par value; 200,000,000 shares authorized,
32,641,614 shares issued, of which 2,104,430, 2,013,771
and 1,782,476 shares are held as treasury stock, respectively 163,208 163,208 163,208
Additional paid-in capital 11,056 11,103 11,098
Retained earnings 416,781 408,274 381,426
Unrealized gains (losses) on securities available-for-sale, net of deferred
taxes (1,346) 13,650 (13,413)
----------- ---------- ----------
589,699 596,235 542,319
Less: Treasury stock - at cost (52,601) (49,632) (43,262)
----------- ---------- ----------
Total stockholders' equity 537,098 546,603 499,057
----------- ---------- ----------
Total liabilities and stockholders' equity $5,569,836 $5,297,349 $5,051,111
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Three Months
Ended March 31,
-----------------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
Interest income
Interest and fees on loans $61,240 $59,760
Interest and dividends on investment securities
Taxable 26,133 24,092
Exempt from federal income taxes 4,040 5,111
Interest on deposits 100 108
Interest on assets held for sale 1,651 1,354
Interest on federal funds sold and other
short-term investments 49 187
------------------ -------------------
Total interest income 93,213 90,612
------------------ -------------------
Interest expense
Interest on deposits
Savings deposits 7,292 8,817
Time deposits 23,633 18,076
Time deposits in denominations of
$100,000 or more 7,366 4,991
------------------ -------------------
38,291 31,884
Interest on short-term borrowings 9,580 12,809
Interest on long-term debt 886 1,659
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Total interest expense 48,757 46,352
------------------ -------------------
Net interest income 44,456 44,260
Provision for loan losses 1,800 1,870
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Net interest income after provision for loan losses 42,656 42,390
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Non-interest income
Fiduciary activities 4,441 4,391
Service charges on deposit accounts 2,958 2,666
Other service charges and fees 2,861 2,729
Broker/dealer commissions and fees 2,536 1,676
Mortgage banking 6,820 2,712
Securities gains, net 1,072 6
Other 690 983
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Total non-interest income 21,378 15,163
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Non-interest expense
Salaries and employee benefits 22,776 19,470
Net occupancy expense 2,773 2,498
Furniture and equipment expense 3,160 2,766
Deposit insurance 1 1,958
Other 12,531 10,806
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Total non-interest expense 41,241 37,498
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Income before income taxes 22,793 20,055
Provision for income taxes 6,184 4,836
------------------ -------------------
Net income $16,609 $15,219
================== ===================
Net income per share $0.54 $0.49
Cash dividends declared per share $0.26 1/2 $0.25
Weighted average number of shares outstanding 30,797,523 31,059,625
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Dauphin Deposit Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
-----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Operating activities
Net income $16,609 $15,219
Adjustments:
Provision for loan losses 1,800 1,870
Provision for depreciation, amortization and accretion 1,305 1,916
Amortization of goodwill 465 442
Deferred income taxes (149) 104
Securities gains, net (1,072) (6)
Increase in interest receivable (3,037) (1,300)
Increase (decrease) in accrued expenses and taxes 7,879 (3,078)
Capitalized interest on deposits 21,454 12,497
Amortization of mortgage servicing rights 502 347
Gain on sale of mortgage loans held for sale (3,601) (593)
Sale of mortgages loans held for sale 245,678 82,679
Loans originated for sale (259,840) (91,698)
Purchase of mortgage loans held for sale (7,617) (9,619)
Other, net (14,388) 26,104
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Net cash provided by operating activities 5,988 34,884
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Investing activities
Proceeds from sales of investment securities 78,206 9,663
Proceeds from maturities of investment securities 324,051 71,299
Purchases of investment securities (649,389) (47,199)
Net increase in assets held for sale, other than loans held for sale (8,055) (1,708)
Net increase in loans (2,570) (22,694)
Sale of residential mortgage and other consumer loans 39,507
Net purchases of premises and equipment (3,150) (1,647)
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Net cash provided (used) by investing activities (260,907) 47,221
------------ -----------
Financing activities
Net increase (decrease) in deposit accounts (40,407) 19,603
Net increase (decrease) in short-term borrowings 300,854 (95,427)
Net decrease in long-term debt (249) (88)
Issuance of common stock and treasury stock 1,549 1,865
Acquisition of treasury stock (5,079) (4,585)
Cash dividends paid (8,122) (7,746)
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Net cash provided (used) by financing activities 248,546 (86,378)
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Decrease in cash and cash equivalents (6,373) (4,273)
Cash and cash equivalents at beginning of period 219,335 210,911
------------ -----------
Cash and cash equivalents at end of period $212,962 $206,638
============ ===========
Total interest paid $25,702 $30,389
Total income taxes paid 211 725
Schedule of non-cash investing and financing activities:
Loans charged off 2,237 2,193
Net loan transfers to other real estate owned 1,129 637
Conversion of convertible subordinated debentures 190 55
</TABLE>
See accompanying notes to consolidated financial statements.
5
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Note 1 - Accounting Policies
The consolidated financial statements include the accounts of Dauphin
Deposit Corporation and subsidiaries (Dauphin), including its banking
subsidiary, Dauphin Deposit Bank and Trust Company, which includes the Bank
of Pennsylvania, Farmers Bank and Valleybank Divisions. All material
intercompany balances and transactions have been eliminated in consolidation.
The information contained in the financial statements is unaudited. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of interim periods
have been made. Operating results for the three month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
The accounting policies followed in the presentation of interim
financial results are the same as those followed on an annual basis, with the
exception of the policies discussed in Note 5. These policies are presented
on pages 36 through 40 of the 1995 Securities and Exchange Commission Form
10-K included in the Annual Report to Stockholders.
Note 2 - Investment Securities
A summary of the amortized cost and fair value of investment securities
at March 31, 1996, December 31, 1995 and March 31, 1995 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, 1996 December 31, 1995 March 31, 1995
----------------------- ----------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S. $961,041 $955,151 $804,086 $810,363 $665,655 $656,852
government agencies and corporations
Obligations of states and political subdivisions 326,631 335,211 287,697 302,702 341,219 348,791
Debt securities issued by foreign governments 750 750 800 800 900 895
Corporate securities 35,024 35,241 22,736 23,087 73,475 73,328
Mortgage-backed securities 736,289 731,166 705,279 704,612 717,171 697,941
---------- ---------- ---------- ---------- ---------- ----------
Total debt securities 2,059,735 2,057,519 1,820,598 1,841,564 1,798,420 1,777,807
Equity securities 35,569 35,715 19,272 19,305 15,241 15,219
---------- ---------- ---------- ---------- ---------- ----------
Total investment securities $2,095,304 $2,093,234 $1,839,870 $1,860,869 $1,813,661 $1,793,026
========== ========== ========== ========== ========== ==========
</TABLE>
6
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Note 3 - Income Taxes
Income tax expense includes a provision for deferred taxes which are related
to income and expense items being recognized in one accounting period for
financial reporting purposes and another period for income tax reporting
purposes.
A reconciliation between the effective income tax rate and the statutory rate
follows:
<TABLE>
<CAPTION>
Percentage of
pre-tax income
--------------
Three months
ended March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Statutory federal income tax rate 35.0% 35.0%
Tax exempt income (8.0) (10.9)
Other, net 0.1
-------- --------
Effective income tax rate 27.1% 24.1%
======== ========
</TABLE>
Note 4 - Commitments and Contingent Liabilities
In the normal course of business, there are commitments and contingent
liabilities which are not presented in the accompanying financial statements.
The commitments and contingent liabilities include various guarantees,
commitments to extend credit and letters of credit. Dauphin does not anticipate
any material losses as a result of the commitments. The contingent liability at
March 31, 1996 represented by letters of credit issued to customers amounted to
approximately $139.5 million.
Note 5 - New Accounting Standards
On January 1, 1996, Dauphin adopted the provisions of 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 to both assets to be held
and used and assets to be disposed of.
SFAS 121 requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. In performing the review for recoverability, an entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
indentifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. The adoption did not have a material effect on
Dauphin's financial position or results of operations.
On January 1, 1996, Dauphin adopted the provisions of Statement of Financial
Accounting Standards No. 123 (SFAS123), "Accounting for Stock-Based
Compensation". SFAS 123 establishes a new method of accounting for stock-based
compensation arrangements with employees. The new method is a fair value method
rather than the intrinsic value based method that is currently utilized.
However, SFAS 123 does not require an entity to adopt the
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Note 5 - New Accounting Standards (continued)
new fair value method for the purposes of preparing the basic financial
statements. If an entity chooses not to adopt the fair value based method, SFAS
123 requires an entity to display in the footnotes pro forma net income and
earnings per share information as if the fair value based method had been
adopted.
Dauphin 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.
Note 6 - Litigation
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. Pending the outcome of the litigation, Dauphin has
continued to date to pay a 10% interest rate with regard to the product. Several
days after commencement of trial in April, 1996, Dauphin and representatives of
the class reached an agreement in principle to settle the litigation and the
trial was continued pending negotiation of a settlement agreement. Dauphin and
representatives of the class filed a settlement agreement with the Court on May
13, 1996 which would permit Dauphin to terminate the 18 month variable rate
accounts of all class members on the effective date of the settlement and, in
consideration, the balances of those accounts would be automaticallly deposited
in one of several new certificates of deposit established by Dauphin for
purposes of the settlement. All class members will have the opportunity to file
objections to the proposed settlement or elect to be excluded from the class and
the proposed settlement. The proposed settlement is subject to approval by the
Court and a hearing has been scheduled for that purpose on June 21, 1996. If
approved, it is expected that the settlement would be effective in August, 1996.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section presents management's discussion and analysis of the financial
condition and results of operations of Dauphin Deposit Corporation and
subsidiaries (Dauphin), including Dauphin Deposit Bank and Trust Company (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.
SUMMARY
Dauphin recorded net income for the first quarter of 1996 of $16.6 million,
compared with $15.2 million recorded for the same quarter of 1995. Net income
per share for the first quarter of 1996 was $.54 compared with $.49 for the same
period in 1995, an increase of 10.2%.
Dauphin's return on average total assets was 1.27% for the first quarter of
1996, compared with 1.23% for the first quarter of 1995. Return on average
stockholders' equity, excluding the SFAS 115 adjustment, was 12.60% for the
first quarter of 1996 compared with 12.14% for the same period of 1995. Return
on average stockholders' equity, including the SFAS 115 adjustment, was 12.33%
for the first quarter of 1996 compared with 12.89% for the first quarter of
1995.
NET INTEREST INCOME
Net interest income is the product of the volume of average earning assets
and the average rates earned on them, less the volume of average interest
bearing liabilities and the average rates paid thereon. The amount of net
interest income is affected by changes in interest rates, account balances, or
volume, and the mix of earning assets and interest bearing liabilities.
For analytical purposes, net interest income is adjusted to a taxable
equivalent basis. This adjustment facilitates performance comparisons among
taxable and tax exempt assets by increasing tax exempt income by an amount
equivalent to the federal income taxes which would have been paid if this income
were taxable at the statutory rate of 35%.
Table 1 presents the net interest income on a fully taxable equivalent
basis for the first quarter of 1996 and 1995. Net interest income on a fully
taxable equivalent basis totaled $47.3 million for the first quarter of 1996, a
decrease of $.3 million or .8% from $47.6 million for the same period of 1995.
Table 2 analyzes the changes attributable to the volume and rate components
of net interest income. Table 3 presents average balances, taxable equivalent
interest income and
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expense and average yields earned and rates paid for Dauphin's assets and
liabilities.
During the first quarter of 1996, as compared with the first quarter of
1995, as shown in Table 2, there was an increase in net interest income of $3.7
million due to changes in volume and a decrease of $4.1 due to changes in rates.
The change in the net interest margin attributable to interest rates can be
understood by analyzing the interest rate spread and the net interest margin on
earnings assets. While the interest rate spread considers only the difference
between the average rates earned on earning assets and the average rates paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.
Average earning assets were $5.0 billion for the first quarter of 1996 and
$4.7 billion for the first quarter of 1995. The interest rate spread for the
first quarter of 1996 was 3.08% compared with 3.43% for the first quarter of
1995. The net interest margin amounted to 3.81% for the first quarter of 1996
compared with 4.04% for the same period of 1995.
Interest rates during the first quarter of 1996 were lower than the rates
experienced in the first quarter of 1995. The average prime rate in 1996 was
8.34% compared with 8.83% in 1995. The average federal funds rate decreased to
5.37% for 1996 compared with 5.81% in 1995. During the first quarter of 1996,
compared with the same period of 1995, the average yield on earning assets
decreased 27 basis points while the average cost of interest bearing liabilities
increased 8 basis points resulting in a decrease in the interest rate spread of
35 basis points. The yield on the investment securities portfolio decreased 44
basis points primarily due to the reinvestment of maturities at significantly
lower rates. Average loans, which represent the highest yielding earning
assets, increased $91.4 million or 3.2% for the first quarter of 1996 compared
with the first quarter of 1995 as stronger marketing efforts were used to
increase loans in 1996. The decreasing rates in 1996, with new loans issued at
the then current market levels, was the primary reason for the 12 basis point
decrease in the overall average loan yield. The cost of interest bearing
deposits increased to 4.51% in 1996 compared with 4.20% in 1995. The primary
reason for the increase in the cost of interest bearing deposits was due to the
change in the mix of these deposits as depositors shifted to longer term
certificates of deposit, moving from shorter term instruments throughout 1995 as
rates increased. The decrease in the cost of short-term borrowings (43 basis
points) was caused primarily by the fall in the federal funds rate. The
interest rate spread decreased 35 basis points, which was partially offset by an
increase in the value of non-interest bearing funds resulting in a net 23 basis
point decline in the net interest margin.
INTEREST RATE SENSITIVITY
Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income through
periods of changing interest rates.
Rates on different assets and liabilities within a single maturity category
adjust to changes in interest rates to varying degrees and over varying periods
of time. The relationships between
10
<PAGE>
prime rates and rates paid on purchased funds are not constant over time. The
rate of growth in interest free sources of funds will influence the level of
interest sensitive funding sources. In addition, the absolute level of interest
rates will affect the volume of earning assets and funding sources. As a result
of these limitations, the interest sensitivity gap is only one factor to be
considered in estimating the net interest margin.
Table 4 presents an interest sensitivity analysis of Dauphin's assets and
liabilities at March 31, 1996 for several time intervals. This table reflects
the interest sensitivity gap in two formats. The detailed presentation
represents management's position on certain interest bearing deposits, such as
statement and 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 4 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 4 is a summary of the gap, as
viewed by certain regulatory authorities, which presents these interest bearing
deposits as being subject to immediate repricing.
An interest sensitivity analysis is measured as of a specified date and,
therefore, is subject to almost immediate change as the maturities of assets are
reinvested and liabilities, such as deposits and short-term borrowings, are
received or mature. The mismatch of assets and liabilities in a specific time
frame is referred to as a sensitivity gap. The gap at March 31, 1996 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 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 adjust 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.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $1.8 million for the
first quarter of 1996 as compared to $1.9 million for the first quarter of 1995.
The provision is based on management's estimate of the amount needed to maintain
an adequate allowance for loan losses. This estimate is based on the review of
the loan portfolio, the level of net credit losses, past loan loss experience,
the general economic outlook and other factors that management feels are
appropriate. Table 5 reflects an analysis of the allowance for loan losses for
the first quarter of 1996 and 1995.
11
<PAGE>
NON-PERFORMING ASSETS
Table 6 reflects Dauphin's non-performing assets at March 31, 1996,
December 31, 1995 and March 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.
NON-INTEREST INCOME
Table 7 reflects the non-interest income increase of $6.2 million or 41.0%
for the first quarter of 1996 as compared to the first quarter of 1995.
Exclusive of securities gains, the increase was $5.1 million or 34.0%. In the
banking segment of Dauphin, income increased $1.2 million or 11.6%. Service
charges on deposit accounts increased $.3 million or 11.0%. Management
continuously monitors the fee structure and makes changes where appropriate.
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 increased $1.3 million or 76.1%. This
increase was due to increased volume of business in 1996, due primarily to a
more favorable interest rate environment.
The mortgage banking segment of Dauphin reflects the mortgage banking
subsidiary, Eastern Mortgage. The mortgage banking income increased $3.5
million or 96.0% in 1996 compared with 1995. The mortgage closings in the first
quarter of 1996 were twice the volume of the first quarter of 1995, due to large
refinancing activities.
NON-INTEREST EXPENSE
Table 8 reflects that non-interest expense amounted to $41.2 million for
the first quarter of 1996 and $37.5 for the first quarter of 1995, an increase
of $3.7 million or 10.0%.
Dauphin's banking segment non-interest expense increased $.7 million or
2.2% for the first quarter of 1996 compared with the first quarter of 1995.
Salaries and employee benefits increased 9.0%. Full-time equivalent employees
increased 7.0% to 2,040 at March 31, 1996 compared with 1,906 at March 31, 1995.
Salaries expense increased 8.8%, while benefits expense increased 9.6%. 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. This
reduced Dauphin's deposit insurance expense
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by $2.0 million for the first quarter of 1996 when compared to 1995.
All other non-interest expense items increased $1.3 million or 9.0% in the
first quarter of 1996. The increase was primarily the result of increased
expenses to reflect numerous strategic initiatives implemented. The other non-
interest expense items that increased include depreciation on technological
investments, snow removal, legal, and consulting fees.
The broker/dealer segment had increased non-interest expense of $.8 million
or 40.2% in 1996 when compared with the first quarter of 1995. The increased
volume of business in 1996 generated additional revenues and, therefore, greater
salary expense.
The mortgage banking segment had increased non-interest expense of $2.5
million or 53% for the first quarter of 1996 when compared with the first
quarter of 1995. The mortgage banking segment experienced significant volume
increases in 1996, including large refinancing activities, which resulted in
significantly higher salary expense.
PROVISION FOR INCOME TAXES
Dauphin's effective tax rate for the first quarter of 1996 was 27.1% and
24.1% for the first quarter of 1995. For a reconciliation of reported income
tax expense to the amount computed by applying the federal statutory rate to
income before income taxes, refer to Note 3 of the Notes to Consolidated
Financial Statements.
CAPITAL RESOURCES
During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding stock. In February
1995, an additional 1,500,000 shares were authorized for repurchase. Available
investments are being used to fund the share repurchases. Dauphin will use the
shares for general corporate purposes, including the Employee Stock Purchase
Plan, Stock Option Plan, the Dividend Reinvestment and Stock Purchase Plan and
other appropriate uses. During the first quarter of 1996 and 1995, Dauphin
repurchased 175,000 shares for $5.1 million and 190,000 shares for $4.6 million,
respectively.
Common measures of adequate capitalization for banking institutions are
ratios of capital to assets. These ratios indicate the proportion of
permanently committed funds to the total asset base. Guidelines issued by
federal regulatory authorities require both banks and bank holding companies to
meet minimum risk-based capital ratios in an effort to make regulatory capital
more responsive to the risk exposure related to a bank's on- and off-balance
sheet items. Risk-based capital guidelines redefine the components of capital,
categorize assets into different risk classes and include certain off-balance
sheet items in the calculation of capital requirements. The components of risk-
based capital are segregated as Tier 1 and Tier 2 capital. Tier 1 capital is
composed of total stockholders' equity reduced by goodwill and other intangible
assets. Tier 2 capital includes the allowance for loan losses (with certain
limitations) and qualifying debt obligations. Regulators have also adopted
minimum Tier 1 leverage ratio standards. Tier 1 capital for the leverage ratio
is the same as the Tier 1 capital definition in the risk-based capital
guidelines. At March 31, 1996, Dauphin and its banking subsidiary exceeded all
capital requirements and is considered to be "well-capitalized".
13
<PAGE>
NEW ACCOUNTING STANDARDS
On January 1, 1996, Dauphin adopted the provisions of 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 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, an entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an impairment
loss is not recognized. Measurement of an impairment loss for long-lived assets
and identifiable intangibles that an entity expects to hold and use should be
based on the fair value of the asset. The adoption did not have a material
effect on Dauphin's financial position or results of operations.
On January 1, 1996, Dauphin adopted the provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". SFAS 123 establishes a new method of accounting for stock-based
compensation arrangements with employees. The new method is a fair value based
method rather than the intrinsic value based method that is currently utilized.
However, SFAS 123 does not require an entity to adopt the new fair value based
method for purposes of preparing the basic financial statements. If an entity
chooses not to adopt the fair value based method, SFAS 123 requires an entity to
display in the footnotes pro forma net income and earnings per share information
as if the fair value based method had been adopted.
Dauphin 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.
14
<PAGE>
TABLE 1 - Net Interest Income
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Total interest income $93,213 $90,612
Total interest expense 48,757 46,352
----------- ----------
Net interest income 44,456 44,260
Tax equivalent adjustment 2,803 3,382
----------- ----------
Net interest income (fully taxable equivalent) $47,259 $47,642
=========== ==========
</TABLE>
TABLE 2 - Rate-Volume Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
1996/1995
----------------------------------------------------------------
Change due to
-------------------------------------- Total
Volume Rate Change
-------------- ------------- ---------------
<S> <C> <C> <C>
(Taxable equivalent)
Interest income
Short-term investments ($131) ($14) ($145)
Investment securities 2,627 (2,262) 365
Assets held for sale 523 (224) 299
Loans 2,825 (1,322) 1,503
-------------- ------------- ---------------
Total interest income 5,844 (3,822) 2,022
-------------- ------------- ---------------
Interest expense
Interest bearing deposits 5,818 589 6,407
Short-term borrowings (2,323) (906) (3,229)
Long-term debt (1,333) 560 (773)
-------------- ------------- ---------------
Total interest expense 2,162 243 2,405
-------------- ------------- ---------------
Net interest income $3,682 ($4,065) ($383)
============== ============= ===============
</TABLE>
Note: The changes not due solely to change in volume or solely to change in
rate are allocated proportionally to both change in volume and rate.
15
<PAGE>
TABLE 3 - Average Balances, Rates and Interest Income and Expense Summary
(Taxable Equivalent Basis)
<TABLE>
<CAPTION>
(Dollars in thousands)
First Quarter 1996 First Quarter 1995
---------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments
Interest bearing deposits $6,126 $101 6.63% $5,152 $108 8.50%
Federal funds sold and securities
purchased under agreements to
resell 2,914 49 6.76 11,951 187 6.35
---------- ------ ---------- ------
Total short-term investments 9,040 150 6.67 17,103 295 7.00
---------- ------ ---------- ------
Investment securities
U.S. government obligations 80,910 1,313 6.53 233,537 3,278 5.69
U.S. government agencies 1,454,354 23,383 6.43 1,091,738 18,506 6.78
State and municipals 312,919 6,744 8.62 357,188 8,646 9.68
Other securities 60,122 921 6.13 91,502 1,566 6.85
---------- ------ ---------- ------
Total investment securities 1,908,305 32,361 6.78 1,773,965 31,996 7.22
---------- ------ ---------- ------
Assets held for sale 100,325 1,658 6.61 74,702 1,359 7.31
---------- ------ ---------- ------
Loans (1)
Commercial 984,463 20,714 8.46 926,531 20,248 8.86
Commercial mortgages 592,937 12,757 8.65 522,981 11,878 9.21
Residential mortgages (2) 716,392 14,819 8.30 821,212 16,447 8.06
Consumer (3) 659,044 13,557 8.26 590,725 11,771 8.08
---------- ------ ---------- ------
Total loans 2,952,836 61,847 8.42 2,861,449 60,344 8.54
---------- ------ ---------- ------
Total earning assets 4,970,506 96,016 7.75 4,727,219 93,994 8.02
------ ------
Other assets 303,518 308,606
---------- ----------
Total assets $5,274,024 7.30% $5,035,825 7.53%
========== ===== ========== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits
Demand deposits and savings deposits $1,361,112 7,292 2.15% $1,482,892 8,817 2.41%
Time deposits of $100,000 or more 472,515 7,366 6.27 307,633 4,991 6.58
Other time deposits 1,577,445 23,633 6.03 1,289,998 18,076 5.68
---------- ------- ---------- -------
Total interest bearing deposits 3,411,072 38,291 4.51 3,080,523 31,884 4.20
Short-term borrowings 743,400 9,580 5.18 925,199 12,809 5.61
Long-term debt 40,449 886 8.76 91,902 1,659 7.27
---------- ------- ---------- -------
Total interest bearing liabilities 4,194,921 48,757 4.67 4,097,624 46,352 4.59
------- -------
Non-interest bearing demand deposits 455,542 413,920
Other liabilities 81,791 45,574
Stockholders' equity 541,770 478,707
---------- ----------
Total liabilities and
stockholders' equity $5,274,024 3.72% $5,035,825 3.73%
========== ===== ========== =====
Interest rate spread 3.08% 3.43%
Effect of non-interest bearing funds 0.73 0.61
----- -----
Net interest income/margin $47,259 3.81% $47,642 4.04%
======= ===== ======= =====
</TABLE>
(1) Includes fees on loans. Average loan balances include non-accruing loans.
(2) Includes home equity loans.
(3) Loans outstanding net of unearned income.
16
<PAGE>
TABLE 4 - Interest Sensitivity Analysis
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, 1996
------------------------------------------------------------------------------------
Interest Sensitivity Period
------------------------------------------------------------------------------------
Month Quarter Six Months Annual 5 Years
-------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Short-term investments $4,969 $4,969 $4,969 $4,969 $4,969
Investment securities 473,160 609,905 737,585 956,893 1,678,757
Assets held for sale 121,217 121,217 121,217 121,217 121,217
Loans 1,141,018 1,300,764 1,481,557 1,805,728 2,689,534
-------------- -------------- -------------- -------------- ---------------
Total $1,740,364 $2,036,855 $2,345,328 $2,888,807 $4,494,477
============== ============== ============== ============== ===============
Interest bearing liabilities:
Deposits $984,924 $1,174,877 $1,514,256 $1,807,036 $2,462,888
Short-term borrowings 979,015 979,015 979,015 979,015 979,015
Long-term debt 4 12 24 35,048 40,005
-------------- -------------- -------------- -------------- ---------------
Total $1,963,943 $2,153,904 $2,493,295 $2,821,099 $3,481,908
============== ============== ============== ============== ===============
Interest sensitivity gap ($223,579) ($117,049) ($147,967) $67,708 $1,012,569
Interest sensitive assets to interest
sensitive liabilities ratio 0.89 0.95 0.94 1.02 1.29
Interest sensitivity gap as a
percent of total assets -4.01% -2.10% -2.66% 1.22% 18.18%
Regulatory presentation:
Interest sensitivity gap ($725,410) ($618,880) ($649,798) ($434,123) $510,738
Interest sensitive assets to interest
sensitive liabilities ratio 0.71 0.77 0.78 0.87 1.13
Interest sensitivity gap as a
percent of total assets -13.02% -11.11% -11.67% -7.79% 9.17%
</TABLE>
17
<PAGE>
TABLE 5 - Analysis of Allowance for Loan Losses
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
March 31,
---------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Balance, beginning of period $41,737 $40,216
Provision charged to operating expenses 1,800 1,870
Total loans charged off 2,237 2,193
Total recoveries 680 1,043
------------ ------------
Net charge-offs 1,557 1,150
------------ ------------
Balance, end of period $41,980 $40,936
============ ============
Total loans:
Average $2,952,836 $2,861,449
Period-end 2,985,337 2,846,003
Ratios:
Net charge-offs to average loans (annualized) 0.21% 0.16%
Allowance for loan losses to period-end loans 1.41 1.44
</TABLE>
TABLE 6 - Non-Performing Assets
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31, March 31,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Non-accrual loans $7,748 $7,031 $8,562
Loans past due 90 or more days as to
interest or principal 5,946 5,805 5,183
Restructured loans 4,677 5,072 5,732
------------ ------------ ------------
Total non-performing loans 18,371 17,908 19,477
Other real estate owned 3,585 2,709 3,131
------------ ------------ ------------
Total non-performing assets $21,956 $20,617 $22,608
============ ============ ============
Ratios:
Non-performing loans to total loans 0.62% 0.60% 0.68%
Non-performing assets to total loans and
other real estate owned 0.73 0.69 0.79
Allowance for loan losses to non-performing
loans 228.51 233.06 210.18
</TABLE>
18
<PAGE>
TABLE 7 - Non-Interest Income
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended March 31,
1996/1995
--------------------------------------------------------
Increase
(Decrease)
-------------------------
1996 Amount % 1995
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Banking:
Fiduciary activities $4,441 $50 1.1 % $4,391
Service charges on deposit accounts 2,958 292 11.0 2,666
Other service charges and fees 2,861 132 4.8 2,729
Securities gains, net 1,072 1,066 17,766.7 6
Other 690 (293) (29.8) 983
------------ ---------- ----------
12,022 1,247 11.6 10,775
Broker/dealer 2,985 1,290 76.1 1,695
Mortgage banking 7,164 3,509 96.0 3,655
Intercompany eliminations (793) 169 (962)
------------ ---------- ----------
Total $21,378 $6,215 41.0 % $15,163
============ ========== =========== ==========
</TABLE>
TABLE 8 - Non-Interest Expense
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended March 31,
1996/1995
------------------------------------------------------
Increase
(Decrease)
-----------------------
1996 Amount % 1995
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Banking:
Salaries and employee benefits $16,287 $1,344 9.0 % $14,943
Net occupancy expense 2,351 252 12.0 2,099
Furniture and equipment expense 2,792 336 13.7 2,456
Deposit insurance 1 (1,957) (99.9) 1,958
Other 10,679 721 7.2 9,958
------------ ---------- ------------
32,110 696 2.2 31,414
Broker/dealer 2,676 767 40.2 1,909
Mortgage banking 7,308 2,531 53.0 4,777
Intercompany eliminations (853) (251) (602)
------------ ---------- ------------
Total $41,241 $3,743 10.0 % $37,498
============ ========== ========= ============
</TABLE>
19
<PAGE>
PART II - OTHER INFORMATION
---------------------------
For the Quarter Ended March 31, 1996
Item 1. 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. Pending the outcome of the litigation, Dauphin has
continued to date to pay a 10% interest rate with regard to the product.
Several days after commencement of trial in April, 1996, Dauphin and
representatives of the class reached an agreement in principle to settle the
litigation and the trial was continued pending negotiation of a settlement
agreement. Dauphin and representatives of the class filed a settlement agreement
with the Court on May 13, 1996 which would permit Dauphin to terminate the 18
month variable rate accounts of all class members on the effective date of the
settlement and, in consideration, the balances of those accounts would be
automatically deposited in one of several new certificates of deposit
established by Dauphin for purposes of the settlement. All class members will
have the opportunity to file objections to the proposed settlement or elect to
be excluded from the class and the proposed settlement. The proposed settlement
is subject to approval by the Court and a hearing has been scheduled for that
purpose on June 21, 1996. If approved, it is expected that the settlement would
be effective in August, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding Computation of Per Share Earnings.
15(a) Report of KPMG Peat Marwick LLP regarding unaudited interim
financial information of Dauphin for the quarter ended March 31,
1996.
15(b) Letter of KPMG Peat Marwick LLP regarding unaudited interim
financial information of Dauphin for the quarter ended
March 31, 1996.
27 Financial Data Schedule regarding unaudited interim financial
information of Dauphin for the quarter ended March 31, 1996.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 1996.
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dauphin Deposit Corporation
---------------------------
(Registrant)
Date: May 13, 1996 /s/Christopher R. Jennings
- ---------------------- ---------------------------
Christopher R. Jennings
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1996 /s/Dennis L. Dinger
- ---------------------- ---------------------------
Dennis L. Dinger, Senior Executive
Vice President and Chief Fiscal
and Administrative Officer
21
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Sequential
Number Page Number
- ------- -----------
11 Statement regarding Computation of Per
Share Earnings
15(a) Report of KPMG Peat Marwick LLP regarding
unaudited interim financial information
of Dauphin for the quarter ended
March 31, 1996
15(b) Letter of KPMG Peat Marwick LLP regarding
unaudited interim financial information
of Dauphin for the quarter ended
March 31, 1996
27 Financial Data Schedule regarding unaudited
interim financial information of Dauphin for
the quarter ended March 31, 1996
<PAGE>
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
---------------------------------
Earnings
Net income $16,609,000 $15,219,000
============ ============
Shares
Weighted average common shares outstanding 30,586,038 30,917,906
Stock options and other stock incentive plans
considered to be common stock equivalents 211,485 141,719
------------ ------------
Weighted average common stock and common stock equivalents outstanding 30,797,523 31,059,625
============ ============
Primary earnings per common share $0.54 $0.49
============ ============
FULLY DILUTED EARNINGS PER COMMON SHARE
---------------------------------------
Earnings
Net income $16,609,000 $15,219,000
After tax interest expense applicable to convertible debentures 69,688 75,436
------------- -------------
$16,678,688 $15,294,436
============= =============
Shares
Weighted average common shares outstanding 30,586,038 30,917,906
Assumed conversion of 9.00% convertible debentures issued June 30, 1989 302,516 322,101
Stock options and other stock incentive plans
considered to be common stock equivalents 239,670 142,446
------------- -------------
Weighted average common stock and common stock equivalents outstanding 31,128,224 31,382,453
============= =============
Fully diluted earnings per common share $0.54 $0.49
============= =============
</TABLE>
Exhibit 11
<PAGE>
Peat Marwick LLP
225 Market Street Telephone 717 238 7131 Telefax 717 233 1101
Suite 300
P.O. Box 1190
Harrisburg, PA 17108-1190
Independent Accountants' Report
-------------------------------
The Board of Directors
Dauphin Deposit Corporation:
We have reviewed the consolidated balance sheets of Dauphin Deposit Corporation
and subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of income and cash flows for the three-month periods ended March 31,
1996 and 1995. These financial statements are the responsibility of Dauphin's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Dauphin Deposit Corporation and
subsidiaries as of December 31, 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated January 26, 1996, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1995 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
April 15, 1996, except as to note 6,
which is as of May 13, 1996
Exhibit 15(a)
<PAGE>
Peat Marwick LLP
225 Market Street Telephone 717 238 7131 Telefax 717 233 1101
Suite 300
P.O. Box 1190
Harrisburg, PA 17108-1190
The Board of Directors
Dauphin Deposit Corporation
Re: Registration Statements No. 33-53793
33-17401
33-50172
33-61848
2-73258
33-59941
33-02577
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated April 15, 1996, except as to
note 6 which is as of May 13, 1996 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part or a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
May 13, 1996
Exhibit 15(b)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 212,962
<INT-BEARING-DEPOSITS> 2,469
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,093,234
<INVESTMENTS-CARRYING> 2,095,304
<INVESTMENTS-MARKET> 2,093,234
<LOANS> 2,985,337
<ALLOWANCE> 41,980
<TOTAL-ASSETS> 5,569,836
<DEPOSITS> 3,930,583
<SHORT-TERM> 979,015
<LIABILITIES-OTHER> 82,980
<LONG-TERM> 40,160
0
0
<COMMON> 163,208
<OTHER-SE> 373,890
<TOTAL-LIABILITIES-AND-EQUITY> 5,569,836
<INTEREST-LOAN> 61,240
<INTEREST-INVEST> 30,173
<INTEREST-OTHER> 1,800
<INTEREST-TOTAL> 93,213
<INTEREST-DEPOSIT> 38,291
<INTEREST-EXPENSE> 48,757
<INTEREST-INCOME-NET> 44,456
<LOAN-LOSSES> 1,800
<SECURITIES-GAINS> 1,072
<EXPENSE-OTHER> 41,241
<INCOME-PRETAX> 22,793
<INCOME-PRE-EXTRAORDINARY> 16,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,609
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 7.75
<LOANS-NON> 7,748
<LOANS-PAST> 5,946
<LOANS-TROUBLED> 4,677
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 41,737
<CHARGE-OFFS> 2,237
<RECOVERIES> 680
<ALLOWANCE-CLOSE> 41,980
<ALLOWANCE-DOMESTIC> 41,980
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
