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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
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Commission file number 0-15237
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HARLEYSVILLE NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2210237
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
483 Main Street, Harleysville, Pennsylvania 19438
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 256-8851
Securities registered pursuant to Section 12(b) of the Act: N/A
Name of each exchange
Title of each class on which registered
N/A N/A.
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No.
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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. ( )
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
$261,060,387 as of February 27, 1998
Indicate the number of shares outstanding of each class of the registrant's
classes of common stock, as of the latest practicable date.
7,022,550 shares of Common Stock, $1 par value per share, were outstanding
as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 are incorporated by reference into Parts
I, II and IV of this report.
2. Portions of the Registrant's Definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held April 14, 1998 are incorporated by
reference into Part III of this report.
PAGE 2
HARLEYSVILLE NATIONAL CORPORATION
INDEX TO FORM 10-K REPORT
PAGE
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I. PART I.
Item 1. Business 4
Item 2. Properties 10
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders . 12
II. PART II.
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7.A. Quantitative and Qualitative Disclosure about Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13
III. PART III.
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
IV. PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16
Signatures . 18
PAGE 3
PART I
Item 1. Business.
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History and Business
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Harleysville National Corporation, a Pennsylvania corporation (the
Corporation), was incorporated in June 1982. On January 1, 1983, the
Corporation became the parent bank holding company of Harleysville National
Bank and Trust Company (HNB), a wholly-owned subsidiary of the Corporation.
On February 13, 1991, the Corporation acquired all of the outstanding common
stock of The Citizens National Bank of Lansford (CNB). On June 1, 1992, the
Corporation acquired all of the outstanding stock of Summit Hill Trust Company
(Summit Hill). On September 25, 1992, Summit Hill merged into CNB and is now
operating as a branch office of CNB. On July 1, 1994 the Corporation acquired
all of the outstanding stock of Security National Bank (SNB). On March 1,
1996, the Corporation acquired all of the outstanding common stock of Farmers
& Merchants Bank ("F & M"). F & M was merged into CNB and is now operating as
a branch office of CNB. On March 17, 1997, the HNC Financial Company was
incorporated as a Delaware Corporation. HNC Financial Company's principal
business function is to expand the investment opportunities of the
Corporation. The Corporation is primarily a bank holding company which
provides financial services through its three bank subsidiaries. Since
commencing operations, the Corporation's business has consisted primarily of
managing HNB, CNB and SNB (collectively the Banks), and its principal source
of income has been dividends paid by the Banks. The Corporation is registered
as a bank holding company under the Bank Holding Company Act of 1956, as
amended (the Bank Holding Company Act).
HNB, which was established in 1909, CNB, which was established in 1903,
and SNB, which was established in 1988, (collectively the Banks), are national
banking associations under the supervision of the Office of the Comptroller of
the Currency (the OCC). The Corporation's and HNB's legal headquarters are
located at 483 Main Street, Harleysville, Pennsylvania 19438. CNB's legal
headquarters is located at 13-15 West Ridge Street, Lansford, Pennsylvania
18232. SNB's legal headquarters is located at One Security Plaza, Pottstown,
Pennsylvania 19464. HNC Financial Company's legal headquarters are located at
300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801.
In addition to historical information, this Form 10-K contains
forward-looking statements. The forward-looking statements contained herein
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The
Corporation undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described
in other documents the Corporation files from time to time with the Securities
and Exchange Commission, including the Quarterly reports on Form 10-Q to be
filed by the Corporation in 1998, and any Current Reports on Form 8-K filed by
the Corporation.
The following factors are among the factors that could cause actual
results to differ materially from the forward-looking statements: general
economic conditions, including their impact on capital expenditures; business
conditions in the banking industry; the regulatory environment; rapidly
changing technology and evolving banking industry standards; competitive
factors, including increased competition with community, regional and national
financial institutions; new service and product offerings by competitors and
price pressures; and like items.
As of December 31, 1997, the Banks had total assets of $1,116,254,000,
total shareholders' equity of $109,792,000 and total deposits of $919,071,000.
PAGE 4
The Banks engage in the full-service commercial banking and trust
business, including accepting time and demand deposits, making secured and
unsecured commercial and consumer loans, financing commercial transactions,
making construction and mortgage loans and performing corporate pension and
personal trust services. Their deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) to the extent provided by law. The Banks have 29
branch offices located in Montgomery, Bucks, Carbon, Wayne, Chester and
Schuylkill counties.
The Banks enjoy a stable base of core deposits and are leading community
banks in their service areas. The Banks believe they have gained their
position as a result of a customer oriented philosophy and a strong commitment
to service. Senior management has made the development of a sales orientation
throughout the Banks one of their highest priorities and emphasizes this
objective with extensive training and sales incentive programs that the
Company believes are unusual for community banks. The Banks maintain close
contact with the local business community to monitor commercial lending needs
and believe they respond to customer requests quickly and with flexibility.
Management believes these competitive strengths are reflected in the
Corporation's results of operations.
The Banks have twenty-nine (29) offices located in Montgomery, Bucks,
Carbon and Wayne, Chester and Schuylkill counties, Pennsylvania, 18 of which
are owned by the Banks and 11 of which are leased from third parties.
As of December 31, 1997, the Corporation and the Banks employed
approximately 452 full-time equivalent employees. The Corporation provides a
variety of employment benefits and considers its relationships with its
employees to be satisfactory.
Competition
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The Banks compete actively with other eastern Pennsylvania financial
institutions, many larger than the Banks, as well as with financial and
non-financial institutions headquartered elsewhere. The Banks are generally
competitive with all competing institutions in their service areas with
respect to interest rates paid on time and savings deposits, service charges
on deposit accounts, interest rates charged on loans, and fees and charges for
trust services. At December 31, 1997, HNB's legal lending limit to a single
customer was $12,422,000 and CNB's and SNB's legal lending limits to a single
customer were $3,329,000 and $1,053,000, respectively. Many of the
institutions with which the Banks compete are able to lend significantly more
than these amounts to a single customer.
Supervision and Regulation - The Registrant
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The Corporation is a registered bank holding company subject to the
provisions of the Bank Holding Company Act of 1956, as amended (the "Bank
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Holding Company Act"), and to supervision by the Board of Governors of the
Federal Reserve system (the "Federal Reserve). The Bank Holding Company Act
requires the Registrant to secure the prior approval of the Federal Reserve
Board before it owns or controls, directly or indirectly, more than five
percent (5%) of the voting shares or substantially all of the assets of any
institution, including another bank. In addition, the Bank Holding Company
Act has been amended by the Riegle-Neal Interstate Banking and Branching
Efficiency Act which permits bank holding companies to acquire a bank located
in any state subject to certain limitations and restrictions which are more
fully described below.
A bank holding company is prohibited from engaging in or acquiring
direct or indirect control of more than five percent (5%) of the voting shares
of any company engaged in non-banking activities unless the Federal Reserve,
by order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
In making this determination, the Federal Reserve considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.
Federal law also prohibits acquisitions of control of a bank holding
company without prior notice to certain federal bank regulators. Control is
defined for this purpose as the power, directly or indirectly, to direct the
management or policies of the bank or bank holding company or to vote
twenty-five percent (25%) or more of any class of voting securities.
PAGE 5
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, on investments in the
stock or other securities of the bank holding company and on taking of such
stock or securities of the bank holding company and on taking of such stock or
securities as collateral for loans to any borrower.
Permitted Activities
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The Federal Reserve permits bank holding companies to engage in certain
activities so closely related to banking or managing or controlling banks as
to be proper incident thereto. Other than making an equity investment in a
low to moderate income housing limited partnership, the Corporation does not
at this time engage in any other permissible activities, nor does the
Corporation have any current plans to engage in any other permissible
activities in the foreseeable future.
Legislation and Regulatory Changes
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From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other
financial institutions are frequently made in Congress, and before various
bank regulatory agencies. No prediction can be made as to the likelihood of
any major changes or the impact such changes might have on the Corporation and
its subsidiaries. Certain changes of potential significance to the
Corporation which have been enacted recently and others which are currently
under consideration by Congress or various regulatory or professional agencies
are discussed below.
Recently, Pennsylvania enacted a law to permit state chartered banking
institutions to sell insurance. This follows a U.S. Supreme Court decision in
favor of nationwide insurance sales by banks which also bars states from
blocking insurance sales by national banks in towns with population of no more
than 5,000. The Corporation is currently evaluating its options regarding the
sale of insurance.
Congress is currently considering legislative reforms to modernize the
financial services industry, including repealing the Glass-Steagall Act which
prohibits commercial banks from engaging in the securities industry.
Consequently, equity underwriting activities of banks may increase in the near
future. However, the Corporation does not currently anticipate entering into
these activities.
The Corporation has analyzed the recently enacted changes to the federal
tax law. The impact of such changes on liquidity, operating results, and
capital should not be material.
Pending Legislation
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There are numerous proposals before Congress to modify the financial
services industry and the way commercial banks and other financial
institutions operate. Some of these proposals include changes to the
ownership of financial companies and the types of products and services which
may be offered by financial institutions. However, it is difficult to
determine at this time what effect such provisions may have until they are
enacted into law. Except as specifically described on page 37 & 38 of the
1997 Annual Report to Shareholders, management believes that the effect of the
provisions of the aforementioned legislation on the liquidity, capital
resources, and results of operations of the Corporation will be immaterial.
Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation which, if they were
implemented, would have a material adverse effect upon the liquidity, capital
resources, or results of operations, although the general cost of compliance
with numerous and multiple federal and state laws and regulations does have,
and in the future may have, a negative impact on the Corporation's results of
operations.
PAGE 6
Effects of Inflation
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Inflation has some impact on the Corporation's and the Banks' operating
costs. Unlike many industrial companies, however, substantially all of the
Banks' assets and liabilities are monetary in nature. As a result, interest
rates have a more significant impact on the Corporation's and the Banks'
performance than the general level of inflation. Over short periods of time,
interest rates may not necessarily move in the same direction or in the same
magnitude as prices of goods and services.
Effect of Government Monetary Policies
- ------------------------------------------
The earnings of the Corporation are and will be affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies. An important function of the Federal Reserve is
to regulate the money supply and interest rates. Among the instruments used
to implement those objectives are open market operations in United States
government securities and changes in reserve requirements against member bank
deposits. These instruments are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may also affect rates charged on loans or paid for deposits.
The Banks are members of the Federal Reserve and, therefore, the policies
and regulations of the Federal Reserve have a significant effect on its
deposits, loans and investment growth, as well as the rate of interest earned
and paid, and are expected to affect the Banks' operations in the future. The
effect of such policies and regulations upon the future business and earnings
of the Corporation and the Banks cannot be predicted.
Environmental Regulations
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There are several federal and state statutes which regulate the
obligations and liabilities of financial institutions pertaining to
environmental issues. In addition to the potential for attachment of
liability resulting from its own actions, a bank may be held liable under
certain circumstances for the actions of its borrowers, or third parties, when
such actions result in environmental problems on properties that collateralize
loans held by the bank. Further, the liability has the potential to far
exceed the original amount of a loan issued by the bank. Currently, neither
the Corporation nor the Banks are a party to any pending legal proceeding
pursuant to any environmental statute, nor are the Corporation and the Banks
aware of any circumstances which may give rise to liability under any such
statute.
Supervision and Regulation - Banks
- --------------------------------------
The operations of the Banks are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve and to banks whose deposits are insured by the
FDIC. The Banks' operations are also subject to regulations of the OCC, the
Federal Reserve and the FDIC. The primary supervisory authority of the Banks
is the OCC, who regularly examines the Banks. The OCC has authority to
prevent a national bank from engaging in unsafe or unsound practices in
conducting its business.
Federal and state banking laws and regulations govern, among other
things, the scope of a bank's business, the investments a bank may make, the
reserves against deposits a bank must maintain, loans a bank makes and
collateral it takes, the maximum interest rates a bank may pay on deposits,
the activities of a bank with respect to mergers and consolidations and the
establishment of branches.
As a subsidiary bank of a bank holding company, the Banks are subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, or investments in the
stock or other securities as collateral for loans. The Federal Reserve Act
and Federal Reserve regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to principal shareholders of
its parent holding company, among others, and to related interests of such
principal shareholders. In addition, such legislation and regulations may
affect the terms upon which any person becoming a principal shareholder of a
holding company may obtain credit from banks with which the subsidiary bank
maintains a correspondent relationship.
PAGE 7
Under the Federal Deposit Insurance Act, the OCC possesses the power to
prohibit institutions regulated by it (such as the Banks) from engaging in any
activity that would be an unsafe and unsound banking practice or would
otherwise be in violation of the law.
Under the Community Reinvestment Act of 1977, as amended ("CRA"), the OCC
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is required to assess the record of all financial institutions regulated by it
to determine if these institutions are meeting the credit needs of the
community (including low and moderate income neighborhoods) which they serve
and to take this record into account in its evaluation of any application made
by any of such institutions for, among other things, approval of a branch or
other deposit facility, office relocation, a merger or an acquisition of bank
shares. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 amended the CRA to require, among other things, that the OCC make
publicly available the evaluation of a bank's record of meeting the credit
needs of its entire community, including low and moderate income
neighborhoods. This evaluation will include a descriptive rating
("outstanding", "satisfactory", "needs to improve" or "substantial
noncompliance") and a statement describing the basis for the rating. These
ratings are publicly disclosed.
Under the Bank Secrecy Act ("BSA"), banks and other financial
institutions are required to report to the Internal Revenue Service currency
transactions of more than $10,000 or multiple transactions of which the bank
is aware in any one day that aggregate in excess of $10,000. Civil and
criminal penalties are provided under the BSA for failure to file a required
report, for failure to supply information required by the BSA or for filing a
false or fraudulent report.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires that institutions must be classified, based on their
risk-based capital ratios into one of five defined categories, as illustrated
below (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized).
Total Tier 1 Under a
Risk Risk Tier 1 Capital
Based Based Leverage Order or
Ratio Ratio Ratio Directive
----- ------ -------- ---------
CAPITAL CATEGORY
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Well capitalized >10.0 >6.0 >5.0 NO
- - -
Adequately capitalized > 8.0 >4.0 >4.0*
- - -
Undercapitalized < 8.0 <4.0 <4.0*
Significantly undercapitalized < 6.0 <3.0
<3.0
Critically undercapitalized <2.0
-
*3.0 for those banks having the highest available regulatory rating.
In the event an institution's capital deteriorates to the
undercapitalized category or below, FDICIA prescribes an increasing amount of
regulatory intervention, including: (1) the institution of a capital
restoration plan and a guarantee of the plan by a parent institution; and (2)
the placement of a hold on increases in assets, number of branches or lines of
business. If capital has reached the significantly or critically
undercapitalized levels, further material restrictions can be imposed,
including restrictions on interest payable on accounts,
dismissal of management and (in critically undercapitalized
situations) appointment of a receiver. For well
capitalized institutions, FDICIA provides authority for regulatory
intervention where the institution is deemed to be engaging in unsafe or
unsound practices or receives a less than satisfactory examination report
rating for asset quality, management, earnings or liquidity. All but well
capitalized institutions are prohibited from accepting brokered deposits
without prior regulatory approval. Under FDICIA, financial institutions are
subject to increased regulatory scrutiny and must comply with certain
operational, managerial and compensation standards to be developed by Federal
Reserve Board regulations. FDICIA also requires the regulators to issue new
PAGE 8
rules establishing certain minimum standards to which an institution must
adhere including standards requiring a minimum ratio of classified assets to
capital, minimum earnings necessary to absorb losses and minimum ratio of
market value to book value for publicly held institutions. Additional
regulations are required to be developed relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth and
excessive compensation, fees and benefits.
Annual full-scope, on site regulatory examinations are required for all
the FDIC-insured institutions except institutions with assets under $100
million which are well capitalized, well-managed and not subject to a recent
change in control, in which case, the examination period is every eighteen
(18) months. Banks with total assets of $500 million or more, as of the
beginning of fiscal year 1993, are required to submit to their supervising
federal and state banking agencies a publicly available annual audit report.
The independent accountants of such bank are required to attest to the
accuracy of management's report regarding the internal control structure of
the bank. In addition, such banks also are required to have an independent
audit committee composed of outside directors who are independent of
management, to review with management and the independent accountants, the
reports that must be submitted to the bank regulatory agencies. If the
independent accountants resign or are dismissed, written notification must be
given to the bank's supervising government banking agencies. These accounting
and reporting reforms do not apply to an institution such as a bank with total
assets at the beginning of its fiscal year of less than $500 million, such as
CNB or SNB.
FDICIA also requires that banking agencies reintroduce loan-to-value
("LTV") ratio regulations which were previously repealed by the 1982 Act.
LTVs limit the amount of money a financial institution may lend to a borrower,
when the loan is secured by real estate, to no more than a percentage, set by
regulation, of the value of the real estate.
A separate subtitle within FDICIA, called the "Bank Enterprise Act of
1991", requires "truth-in-savings" on consumer deposit accounts so that
consumers can make meaningful comparisons between the competing claims of
banks with regard to deposit accounts and products. Under this provision, the
Bank is required to provide information to depositors concerning the terms of
their deposit accounts, and in particular, to disclose the annual percentage
yield. The operational cost of complying with the Truth-In-Savings law had no
material impact on liquidity, capital resources or reported results of
operations.
While the overall impact of fully implementing all provisions of the
FDICIA cannot be accurately calculated, Management believes that full
implementation of the FDICIA had no material impact on liquidity, capital
resources or reported results of operation in future periods.
From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and restriction
on, the business of the Banks. It cannot be predicted whether any such
legislation will be adopted or, if adopted, how such legislation would affect
the business of the Banks. As a consequence of the extensive regulation of
commercial banking activities in the United States, the Banks' business is
particularly susceptible to being affected by federal legislation and
regulations that may increase the costs of doing business.
Statistical Data
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The information for this Item is incorporated by reference to pages 24
through 38 of the Corporation's Annual Report to Shareholders for the year
ended December 31, 1997 which pages are included at Exhibit (13) to this
Annual Report on Form 10-K.
Year 2000 Issue
- -----------------
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results
by or at the Year 2000. The Year 2000 issue affects virtually all companies
and organizations.
PAGE 9
The corporation has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 issue
and has developed an implementation plan to resolve the issue. Modifications
or replacements of computer systems to attain Year 2000 compliance have begun,
and the Corporation expects to attain Year 2000 compliance and institute
appropriate testing of is modifications and replacements before the Year 2000
date change. The corporation believes that, with modifications to existing
software and conversions to new software, the Year 2000 problem will not pose
a significant operations problem for the Corporation. The Corporation has
taken steps to communicate with the unrelated parties with whom it deals to
coordinate Year 2000 compliance. The cost in addressing the Year 2000 issues
will be expensed as incurred in compliance with Generally Accepted Accounting
Principles (GAAP).
Item 2. Properties.
- ----------------------
The principal executive offices of the Corporation and of HNB are located
in Harleysville, Pennsylvania in a two-story office building owned by HNB,
built in 1929. HNB also owns the buildings in which twelve of its branches
are located and leases space for the other eight branches from unaffiliated
third parties under leases expiring at various times through 2036. The
principal executive offices of CNB are located in Lansford, Pennsylvania in a
two-story office building owned by CNB. Citizens also owns the buildings
where its branches are located. The principal executive offices of SNB are
located in Pottstown, Pennsylvania, in a building leased by SNB. SNB leases
its East End and North End branches, and owns its Pottstown Center branch.
HNC Investment Company leases an office in Wilmington, Delaware.
Office Office Location Owned/Leased
- ------------------- ------------------------------ ------------
Harleysville 483 Main Street Owned
Harleysville Pa
Skippack Route 73 Owned
Skippack Pa
Limerick Ridge Pike Owned
Limerick Pa
North Penn Welsh & North Wales Rd Owned
North Wales Pa
Gilbertsville Gilbertsville Shopping Leased
Gilbertsville Pa
Hatfield Snyder Square Leased
Hatfield PA
North Broad North Broad Street Owned
Lansdale Pa
Marketplace Marketplace Shopping Leased
Lansdale Pa
Normandy Farms Morris Road Leased
Blue Bell Pa
Horsham Babylon Business Center Leased
Horsham Pa
Meadowood Route 73 Leased
Worcester Pa
PAGE 10
Collegeville 364 Main Street Owned
Collegeville Pa
Sellersville 209 North Main St. Owned
Sellersville Pa
Trainers Corner Trainers Corner Center Leased
Quakertown Pa
Quakertown Main 224 West Broad St. Owned
Quakertown PA
Spring House 1017-1021 North Bethlehem Pike Owned
Spring House PA
Red Hill 400 Main Street Owned
Red Hill PA
Audubon 2624 Egypt Road Owned
Audubon PA
Chalfont 251 West Butler Avenue Leased
Chalfont PA
Spring City 44 North Main Street Owned
Spring City PA
Citizens 13-15 West Ridge Street Owned
Lansford PA
Summit Hill 2 East Ludlow Street Owned
Summit Hill PA
Lehighton 904 Blakeslee Blvd. Owned
Lehighton PA
Farmers & Merchants 1001 Main Street Owned
Honesdale PA
McAdoo 25 North Kennedy Drive Owned
McAdoo PA
Pottstown One Security Plaza Leased
Pottstown PA
Pottstown 1450 East High Street Leased
Pottstown PA
Pottstown Charlotte & Mervine Sts. Leased
Pottstown PA
Pottstown Rte. 100 & Shoemaker Road Owned
Pottstown PA
In management's opinion, all of the above properties are in good
condition and are adequate for the Registrant's and the Banks' purposes.
PAGE 11
Item 3. Legal Proceedings.
- ------------------------------
Management, based on consultation with the Corporation's legal counsel,
is not aware of any litigation that would have a material adverse effect on
the consolidated financial position of the Corporation. There are no
proceedings pending other than the ordinary routine litigation incident to the
business of the Corporation and its subsidiaries - Harleysville National Bank
and Trust Company, The Citizens National Bank of Lansford, Security National
Bank and HNC Financial Company. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the Corporation
and the Banks by government authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
- -----------------------------------------------------------------------
No matter was submitted during the fourth quarter of 1997 to a vote of
holders of the Corporation's Common Stock.
PAGE 12
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
- ------------------------------------------------------------------------------
Matters.
- --------
The information required by this Item is incorporated by reference to
pages 7 and 19 of the Corporation's Annual Report to Shareholders for the year
ended December 31, 1997, which pages are included at Exhibit (13) to this
Annual Report on Form 10-K.
Item 6. Selected Financial Data.
- --------------------------------------
The information required by this Item is incorporated by reference to
page 24 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1997, which pages are included at Exhibit (13) to this Annual
Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------------
Results of Operations.
- -----------------------
The information required by this Item is incorporated by reference to
pages 24 through 38 of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997, which pages are included at Exhibit (13) to
this Annual Report on Form 10-K.
Item 7.A. Quantitative and Qualitative Disclosure about Market Risk.
- ------------------------------------------------------------------------------
The information required by this Item is incorporated by reference to
pages 33 and 34 of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997, which pages are included at Exhibit (13) to this
Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------------
The information required by this Item is incorporated by reference to
pages 7 through 23 of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997, which pages are included at Exhibit (13) to this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
PAGE 13
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ---------------------------------------------------------------------
The information required by this Item with respect to the Corporation's
directors is incorporated by reference to pages 3 through 7 of the
Corporation's Proxy Statement relating to the Annual Meeting of Shareholders
to be held April 14, 1998.
Executive Officers of Registrant
- -----------------------------------
Name Age Position
- --------------------- --- --------------------------------------------------------------------
Walter E. Daller, Jr. 58 President and Chief Executive Officer of the Company and of
Harleysville
James W. Hamilton 51 Senior Vice President and Senior Trust Officer of Harleysville
Demetra M. Takes 47 Executive Vice President and Chief Operating Officer of Harleysville
Vernon L. Hunsberger 49 Treasurer of the Company, Senior Vice President/CFO and Cashier of
Harleysville
Frank J. Lochetto 50 Senior Vice President and Senior Lending Officer of Harleysville
Fred C. Reim, Jr. 54 Senior Vice President of Harleysville since August 1993; Senior Vice
President of First Valley Bank from December 1990 to August 1993
Dennis L. Detwiler 50 Senior Vice President of Harleysville
Mikkalya W. Brown 42 Senior Vice President of Loan Administration of Harleysville since
July 1994; Vice President Security National Bank September 1991 to
June 1994; Assistant Vice President Mellon Bank January 1990 to
August 1991
Thomas D. Oleksa 44 President and Chief Executive Officer of Citizens
Raymond H. Melcher 46 President and Chief Executive Officer of Security since November
1994; Executive Vice President, Chief Operating Officer Hi-Tech
Connections 1990 to 1994; Executive Vice President Keystone
Financial 1988 to 1990
PAGE 14
Item 11. Executive Compensation.
- ------------------------------------
The information required by this Item is incorporated by reference to
pages 7 through 12 of the Corporation's Proxy Statement relating to the Annual
Meeting of Shareholders to be held April 14, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -----------------------------------------------------------------------------
The information required by this Item is incorporated by reference to
pages 3 through 4 of the Corporation's Proxy Statement relating to the Annual
Meeting of Shareholders to be held April 14, 1998.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------------
The information required by this Item is incorporated by reference to
page 17 of the Corporation's Proxy Statement relating to the Annual Meeting of
Shareholders to be held April 14, 1998, and to page 17 of the Corporation's
Annual Report to Shareholders for the year ended December 31, 1997, which page
is included at Exhibit (13) to this Annual Report on Form 10-K.
PAGE 15
PART IV
--------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- -------------------------------------------------------------------- --------
(a) Financial Statements, Financial Statement Schedules and Exhibits Filed:
(1) Consolidated Financial Statements
Page
----
Harleysville National Corporation and Subsidiary:
Consolidated Balance Sheets as of
December 31, 1997 and 1996 8*
Consolidated Statements of Income for the
Years Ended December 31, 1997, 1996
and 1995 9*
Consolidated Statements of Shareholders'
Equity for the Years Ended
December 31, 1997, 1996 and 1995 10*
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997,
1996 and 1995 11*
Notes to Consolidated Financial Statements 12-23*
Independent Auditors' Report 7*
(2) Financial Statement Schedules
Financial Statements Schedules are omitted because the required
information is either not applicable, not required, or the information is
included in the consolidated financial statements or notes thereto.
- ----------------------------------------------------------------------------
*Refers to the respective page of the Annual Report to Shareholders. The
Consolidated Financial Statements and Notes to Consolidated Financial
Statements and Auditor's Report thereon on pages 7 to 23 of the Annual Report
to Shareholders, are incorporated herein by reference and attached at Exhibit
13 to this Annual Report on Form 10-K. With the exception of the portions of
such Annual Report specifically incorporated by reference in this Item and in
Items 1, 5, 6, 7 and 8, such Annual Report shall not be deemed filed as part
of this Annual Report on Form 10-K or otherwise subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934.
PAGE 16
(3) Exhibits
Exhibit No. Description of Exhibits
- ----------- -------------------------
(3.1) Harleysville National Corporation Articles of Incorporation,
as amended. (Incorporated by
reference to Exhibit 3(a) to the Corporation's
Registration Statement No. 33-65021 on Form
S-4, as filed on December 14, 1995.)
(3.2) Harleysville National Corporation By-laws. (Incorporated by
reference to Exhibit 3(b) to the
Corporation's Registration Statement No. 33-65021 on Form
S-4, as filed on December 14, 1995.)
(10.1) Harleysville National Corporation 1993 Stock Incentive Plan.
(Incorporated by Reference to
Exhibit 4.3 of Registrant's Registration Statement No.
33-57790 on Form S-8, filed with the
Commission of October 1, 1993.)
(10.2) Harleysville National Corporation Stock Bonus Plan.
(Incorporated by Reference to Exhibit
99A of Registrant's Registration Statement No. 33-17813 on
Form S-8, filed with the
Commission on December 13, 1996.)
(10.3) Supplemental Executive Retirement Plan.
(11) Computation of Earnings per Common Share. The information
for this Exhibit is
incorporated by reference to page 14 of the Corporation's
Annual Report to Shareholders for
the year ended December 31, 1997, which is included as
Exhibit (13) to this Form 10-K
Report.
(12) Statements Re: Computation of Ratios. The information for
this exhibit is incorporated by
reference to page 1 of the Corporation's Annual Report to
Shareholders for the year ended
December 31, 1997, which is included as Exhibit (13) to
this Form 10-K Report.
(13) Excerpts from the Corporation's 1997 Annual Report to
Shareholders. (This excerpt includes
only page 1 and pages 7 through 38 which are incorporated
in this Report by reference.)
(21) Subsidiaries of Registrant
(23) Consent of Grant Thornton LLP Independent Certified Public
Accountants
(27) Financial Data Schedule.
(99) Additional Exhibits
(a) Report of Independent Certified Public Accountants -
Grant Thornton LLP
(b) Reports on Form 8-K
During the quarter ended December 31, 1997, the Registrant
did not file any reports on Form 8-K.
PAGE 17
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.
HARLEYSVILLE NATIONAL CORPORATION
Date: March 16, 1998 By: /s/ Walter E. Daller, Jr.
-------------------------
Walter E. Daller, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
- ------------------------ -------------------------------- --------------
/s/ John W. Clemens Director March 12, 1998
- ------------------------
John W. Clemens
/s/ Walter E. Daller President, Chief Executive March 16, 1998
- ------------------------
Walter E. Daller, Jr. Officer and Director (Principal
Executive Officer)
/s/ Martin E. Fossler Director March 12, 1998
- ------------------------
Martin E. Fossler
/s/ Harold A. Herr Director March 12, 1998
- ------------------------
Harold A. Herr
/s/ Vernon L. Hunsberger Treasurer (Principal Financial March 12, 1998
- ------------------------
Vernon L. Hunsberger and Accounting Officer)
PAGE 18
____________________ Director March 12, 1998
Thomas S. McCready
/s/ Bradford W. Mitchell Director March 12, 1998
- ------------------------
Bradford W. Mitchell
___________________ Director March 12, 1998
Henry M. Pollak
/s/ Palmer E. Retzlaff Director March 12, 1998
- ------------------------
Palmer E. Retzlaff
/s/ Walter F. Vilsmeier Director March 12, 1998
- ------------------------
Walter F. Vilsmeier
/s/ William M. Yocum Director March 12, 1998
- ------------------------
William M. Yocum
PAGE 19
EXHIBIT INDEX
- --------------
Exhibit
-------
(10.3) Supplemental Executive Retirement Plan.
(13) Excerpts from the Corporation's 1997 Annual Report to Shareholders
(This excerpt includes only page 1 and pages 7 through 38 which
are incorporated in this Report by reference.)
(21) Subsidiaries of Registrant
(23) Consent of Grant Thornton LLP Independent Certified
Public Accountants
(99) Additional Exhibits
Report of Independent Certified Public Accountants-
Grant Thornton LLP
PAGE 20
Exhibit 10.3
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT AGREEMENT
Harleysville National Corporation (Harleysville) maintains a
Supplemental Executive Retirement Plan for certain officers and key employees
(Employee) of Harleysville. The Plan provides for payment to the covered
employee of an annual supplemental retirement benefit equal to fifty percent
(50%) of their annual base salary upon retirement, thereafter offset by the
employer's share of social security, defined benefit pension and available
employer's 401(k) matching contribution. There is a lifetime payout in
retirement benefits with a minimum payout of ten years. There is a
pre-retirement death benefit, payable for ten years, of one hundred percent
(100%) of the annual base salary for the first year, and fifty percent (50%)
of the annual base salary for the next nine years.
WHEREAS, certain officers and key employees of Harleysville are making a
significant contribution to Harleysville's effective operations and
profitability, and
WHEREAS, Harleysville desires to retain the Employee's services to
provide a financial incentive for the Employee to continue employment and to
continue making significant contributions to the success of Harleysville;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual promises and agreements contained herein, and intending to be legally
bound hereby, Harleysville and the Employee agree as follows:
1. CONTINUATION OF EMPLOYMENT. The Employee shall continue employment
with Harleysville on the same terms and conditions as before this Agreement.
This is not a contract of employment and shall not be construed to modify
Employee's employment relationship with Harleysville or provide any other
benefits related to employment, except as specifically provided for herein.
2. BENEFITS. The benefits to be paid as deferred compensation pursuant
to this Agreement are as follows:
(a) Retirement From Employment by Harleysville at or After Age 65. If
the Employee retires from employment with Harleysville on or after his or her
sixty-fifth (65) birthday, in addition to any other retirement benefits to
which Employee may be entitled whether from Harleysville or otherwise, each
month Harleysville shall pay to him or her a supplemental retirement income
equal to his or her "Monthly Retirement Benefit" as defined below. Said
supplemental retirement income shall be payable in monthly installments
commencing the first day of the first month after the effective date of the
Employee's said retirement, and continuing the first day of each month
thereafter so long as Employee shall live. Notwithstanding the foregoing to
the contrary, Harleysville is obligated hereunder to make a minimum of One
Hundred Twenty (120) such monthly retirement income payments. If Employee
dies before receiving said minimum number of monthly payments, the remaining
payments shall be made to the Employee's Beneficiary as defined below.
(b) Death Before Retirement and While Employed by Harleysville. If
Employee dies while employed by Harleysville and before Employee retires from
employment with Harleysville at or after age 65, in addition to any other
death benefits to which Employee or his or her beneficiaries may be entitled
whether from Harleysville or otherwise, Harleysville shall pay the Monthly
Death Benefit (as defined below) to the Employee's beneficiary (as defined
below) monthly starting with the first day of the month immediately following
Employee's death, and continuing until the first day of the month in which the
Employee would have reach age 65. Notwithstanding the foregoing to the
contrary, Harleysville is obligated hereunder to make a minimum of One Hundred
Twenty (120) such monthly death benefit payments.
PAGE 21
(c) Definition of Monthly Retirement Benefit. For purposes of this
Agreement, the Employee's "Monthly Retirement Benefit" shall be equal to the
Employee's Accrued Benefit Percent (defined below) times his or her Average
Monthly Compensation (defined below) less the following offsets:
(1) Social Security Offset: One half (1/2) of the employee's
monthly social security retirement income calculated as of the first day
of the first month after his or her retirement from employment with
Harleysville for purposes of item 2(a), above,
(2) Defined Benefit Pension Offset: The employee's monthly
retirement income from Harleysville's defined benefit pension plan; and
(3) 401(k) Offset: The employee's projected monthly retirement
income derived from Harleysville's matching contributions to employee's
individual account in Harleysville's section 401(k) plan for calendar years
1996 and later, calculated using actuarial assumptions that are consistent
with Harleysville's defined benefit pension plan calculations especially with
regard to use of an assumed pre-retirement earnings rate to project an account
balance at retirement and an annuity purchase rate to project the employee's
monthly retirement income from said account balance.
(d) Definition of Monthly Death Benefit. For purposes of this
Agreement, the Employee's "Monthly Death Benefit" shall be equal to:
(1) One Hundred percent (100%) of the Employee's Average Monthly
Compensation (defined below) for each of the first twelve (12) monthly
death benefit payments hereunder.
(2) Fifty Percent (50%) of the Employee's Average Monthly
Compensation (defined below) for all other monthly death benefit payments
hereunder.
(e) Definition of Accrued Benefit Percent: The Employee's "Accrued
Benefit Percent" shall be equal to the maximum of Fifty Percent (50%) less
any reductions in such percent determined by Harleysville prior to Employee's
retirement from employment with Harleysville.
(f) Definition of Average Monthly Compensation: For purposes of
calculating the Employee's benefits under this Agreement, the Employee's
Average Monthly Compensation shall be an amount equal to One Sixtieth (1/60)
of the Employee's total annual compensation (including salary, overtime and
bonus) from Harleysville for each of Employee's last Five (5) consecutive
full calendar years of employment with Harleysville immediately preceding:
(1) his or her retirement at or after age 65 in the case of
calculating retirement benefits under this Agreement; or
(2) his or her death in the case of calculating death benefits under
this Agreement.
(g) Beneficiary: The beneficiary referred to in this Agreement shall be
the Employee's surviving spouse, and if none, the Employee's surviving issue
per stirpes, and if none then the Employee's estate.
3. LIFE INSURANCE. If Harleysville decides to purchase insurance on the
Employee's life as keyperson life insurance, or for any other business
purpose, Employee agrees to cooperate fully in completing the appropriate
forms and providing information, including but not limited to medical testing,
as may be required to obtain such coverage. Employee's cooperation in
securing such coverage shall not be construed as giving Employee, the
beneficiary or any other person rights in or to the policy or policies.
Notwithstanding any other provisions of this Agreement to the contrary, if
Harleysville is a named beneficiary of any such aforesaid insurance on
Employee's life, and if the issuer of such policy denies payment of death
benefits under such policy due to misrepresentation or other act or deed by
the Employee, then Harleysville shall be excused from and shall not have any
liability for, any obligation it otherwise might have under this Agreement to
pay the Monthly Death Benefit.
PAGE 22
4. TERMINATION OF AGREEMENT. This Agreement shall terminate on the first to
occur of the following:
(a) Written notice given by either of the parties hereto to the other, or
(b) Termination of Employee's employment with Harleysville.
If this Agreement is terminated prior to the first to occur of: (1)
Employee's death while employed with Harleysville; or (2) Employee's
retirement from employment with Harleysville at or after age 65, Harleysville
shall be excused from, and shall not have liability for, any obligation it
might otherwise have under this Agreement to pay benefits.
5. FORFEITURE OF BENEFITS. Harleysville shall have no further
obligation or liability hereunder to pay benefits to or for the benefit of the
Employee or the Employee's beneficiary if the Employee fails to abide by any
provision or perform any obligation of this Agreement.
6. NO TRUST. Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust of any kind, or a fiduciary relationship between Harleysville,
its shareholders, officers or directors, and the Employee, his beneficiary or
any other person.
7. NO ASSIGNMENT. Neither Employee nor any beneficiary hereunder has
any right to anticipate, transfer, pledge, convey, encumber or dispose of the
right to receive payments under this Agreement, and those payments and the
right to them are expressly declared to be nonassignable, nontransferable and
not subject to seizure for the payment of any debt or judgment against the
Employee or beneficiary hereunder. None of the benefits under this Agreement
are transferable by operation of law if the Employee becomes insolvent or
bankrupt. In the event of any attempted assignment or transfer of Employee's
(or beneficiary's) rights under this Agreement, Harleysville will have no
further obligation or liability under this Agreement.
8. INCAPACITY OF PAYEE. If the board of directors of Harleysville (the
"Board") shall find that any person to whom any payment is payable under this
Agreement is unable to care for his or her affairs because of illness,
accident or other mental or physical disability, or is a minor, any payment
due (unless a prior claim therefor shall have been made by a duly appointed
guardian, committee or other legal representative) may be paid to the spouse,
a child, parent, brother or sister of said payee, or applied directly for the
payee's benefit, without intervention of a guardian, or to any person deemed
by the Board to have incurred expense for the payee hereunder. Any such
payment shall be a complete discharge of Harleysville's obligations under this
Agreement.
9. BOARD'S POWERS AND LIABILITIES. The Board shall have full power and
authority to interpret and administer this Agreement. The Board's
interpretation of any provision or action taken under this Agreement, or the
amount of recipient of any payment hereunder, shall be binding and conclusive
on all persons for all purposes. No member of the Board shall be liable to
any person for any action taken or omitted in connection with the
interpretation and administration of this Agreement unless attributable to the
member's willful misconduct or bad faith.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of Harleysville, its successors and assigns, and the Employee, his
or her heirs, executors and personal representatives.
11. ENTIRE AGREEMENT. This Agreement is the complete agreement of the
parties hereto and supersedes all agreements previously made between the
parties hereto relating to the subject matter hereof. No modification or
amendment of this Agreement will be valid unless in writing and signed by the
parties hereto.
PAGE 23
12. NOTICE. Any notice required to be given hereunder shall be in
writing and shall be effective when delivered personally, or when sent by
certified mail, postage prepaid, addressed to Harleysville or Employee as its,
his or her last know address.
13. HEADINGS. The headings used in this Agreement are for convenience
of reference and shall not be construed to be a part of this Agreement.
14. GOVERNING LAW. This Agreement was made and entered into in the
Commonwealth of Pennsylvania and it shall be construed in accordance with and
governed by the laws of Pennsylvania.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
PAGE 24