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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, 1998.
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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.
---
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. ( )
PAGE 1
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.
$236,053,383 as of February 26, 1999
Indicate the number of shares outstanding of each class of the registrant's
classes of common stock, as of the latest practicable date.
7,535,899 shares of Common Stock, $1 par value per share, were outstanding as
of February 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 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 13, 1999 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 16
Item 3. Legal Proceeding. 18
Item 4. Submission of Matters to a Vote of Security Holders 18
II. PART II.
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 19
Item 7.A. Quantitative and Qualitative Disclosure about Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19
III. PART III.
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and Management 21
Item 13. Certain Relationships and Related Transactions 21
IV. PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22
Signatures 25
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 that 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.
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 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 is located at
300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801.
In addition to historical information, this Form 10-K contains
forward-looking statements. We have made forward-looking statements in this
document, and in documents that we incorporate by reference, that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of Harleysville
National Corporation and its subsidiaries. When we use words such as
"believes," "expects," "anticipates," or similar expressions, we are making
forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents that we incorporate by
reference, could affect the future financial results of Harleysville National
Corporation and its subsidiaries and could cause those results to differ
materially from those expressed in our forward-looking statements contained or
incorporated by reference in this document. These factors include the
following:
- - operating, legal and regulatory risks;
- - economic, political and competitive forces affecting our banking,
securities, asset management and credit services businesses; and
- - the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
As of December 31, 1998, the Corporation had total assets of
$1,332,389,000, total shareholders' equity of $122,811,000 and total deposits of
$1,033,968,000.
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
PAGE 4
personal trust services. Their deposits are insured by the Federal Deposit
Insurance Corporation to the extent provided by law. The Banks have 30 branch
offices located in Montgomery, Bucks, Carbon, Wayne, Chester and Schuylkill
counties, Pennsylvania, 18 of which are owned by the Banks and 12 of which are
leased from third parties.
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.
As of December 31, 1998, the Corporation and the Banks employed
approximately 483 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, 1998, HNB's legal lending limit to a single customer
was $10,829,000 and CNB's and SNB's legal lending limits to a single customer
were $3,484,000 and $1,152,000, 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
- ------------------------------------------------
The Corporation is a registered bank holding company subject to the
provisions of the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"), and to supervision by the Board of Governors of the
Federal Reserve System. 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 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 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 25% or
more of any class of voting securities.
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 as collateral for loans to any borrower.
PAGE 5
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
- -------------------------------------
There are currently a number of issues before Congress that may affect the
Corporation and its business operations, and the business operations of its
subsidiaries. However, management does not believe these issues will have a
material adverse effect on liquidity, capital resources or the results of
operations.
Congress is currently considering legislative reforms to modernize
the financial services industry. In addition to including repealing the
Glass-Steagall Act, which prohibits commercial banks from engaging in various
securities activities, the reforms would allow, if the legislation passes, banks
to be involved in underwriting and selling insurance. The Corporation does not
currently have plans for entering into these activities, but will continue to
investigate business opportunities as they become available
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.
From time to time, various types of federal and state legislation
have been proposed that could result in additional regulation of, and
restrictions on, the business of the Corporation and the Banks. We cannot
predict whether the legislation will be enacted or, if enacted, how the
legislation would affect the business of the Corporation and the Banks. As a
consequence of the extensive regulation of commercial banking activities in the
United States, the Corporation's and the Banks' business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business. Except as specifically described above,
management believes that the effect of the provisions of the aforementioned
legislation on 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.
Further, the business of the Corporation is also affected by the
state of the financial services industry in general. As a result of legal and
industry changes, management predicts that the industry will continue to
experience an increase in consolidations and mergers as the financial services
industry strives for greater cost efficiencies and market share. Management
also expects increased diversification of financial products and services
offered by the Banks and its competitors. Management believes that such
consolidations and mergers, and diversification of products and services may
enhance the Banks' competitive position.
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 that 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. 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,
PAGE 6
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.
Effects of Inflation
- ----------------------
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
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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
- --------------------------
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 that 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
PAGE 7
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.
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
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, 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 Bank Secrecy Act for failure to file a required report, for failure to
supply information required by the Bank Secrecy Act 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
- ------------------------------
Well capitalized >10.0 >6.0 >5.0 NO
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Adequately capitalized > 8.0 >4.0 >4.0*
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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
PAGE 8
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 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 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
ratio regulations which were previously repealed by the 1982 Act.
Loan-to-values 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.
Year 2000
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The following section contains forward-looking statements, which involve
risks and uncertainties. The actual impact on the Corporation of the Year 2000
issue could materially differ from that which is anticipated in the
forward-looking statements as a result of certain factors identified below.
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 century date change. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000
(Y2K). The Year 2000 issue affects virtually all companies and organizations.
PAGE 9
Corporation's State of Readiness:
The Corporation began addressing the Y2K issue in August 1997. Management
has initiated an enterprise-wide program to prepare the Corporation's computer
systems and applications for the Year 2000. The Corporation developed a Y2K
plan to include assessing the impact of the Y2K issue on the Corporation,
renovating systems to alleviate Y2K problems, validating the new systems and
implementing them. The Corporation focused on information technology and
non-information technology systems. A non-information system could be, for
example, a microcontroller in an elevator, which may be subject to Y2K problems.
The Corporation also reviewed Y2K issues related to material third parties.
The assessment phase of the Y2K plan included assigning accountabilities
throughout the Corporation. An inventory was completed of mainframe and PC
based applications, third-party relationships and non-information technology
systems. The final step in the assessment phase was to identify non-compliant
Y2K systems. The assessment phase was completed in November 1997.
The Corporation began the renovation phase of the Y2K plan in January 1998.
The renovation phase included developing action plans to correct non-compliant
Y2K systems. The action plans included either enhancing the current system to
resolve the Y2K problem or purchasing a new system that is Y2K compliant. The
renovation phase was completed in May 1998. The Corporation developed a
remediation plan for the non-compliant systems. As of December 31, 1998, 88% of
the remediation phase has been completed.
The next phase of the plan was to validate the Y2K compliance of all of the
systems. This phase includes developing written test plans and completing the
testing of the systems. The validation phase is scheduled to be completed by
March 31, 1999. As of December 31, 1998, 74% of the computer applications,
including all mission-critical systems, have been validated to be Y2K compliant.
The Corporation has reviewed the Y2K issues related to material third
parties and completed an analysis on the loan portfolio. The Corporation's
third parties include its vendors and commercial customers. Our material third
party relationships are primarily our commercial borrowers. These borrowers may
pose a credit risk to the Corporation if they are not Y2K compliant. We have
contacted the material commercial customers and their responses were evaluated.
We have also performed an analysis on the impact of Y2K issues on the remaining
loan portfolio. The Corporation has allocated a portion of the allowance for
loans losses as a result of the Y2K issues.
Because most computer systems are, by their very nature, interdependent, it
is possible that noncompliant third-party computers could impact the
Corporation's computer systems. The Corporation could be adversely affected by
the Y2K problem if it or unrelated parties fail to successfully address the
problem. The Corporation has taken steps to communicate with the unrelated
parties with whom it deals to coordinate Year 2000 compliance. Additionally, we
are dependent on external suppliers, such as, wire transfer systems, telephone
systems, electric companies, and other utility companies for continuation of
service.
Cost of Year 2000:
The Committee has prepared a Y2K budget and has tracked expenses related to
the Y2K issue. As of December 31, 1998, the Corporation has expensed $117,000
and capitalized fixed assets of $54,000 related to the Y2K issue. The
Corporation has estimated the future Y2K expenditures to be $60,000 and future
capitalized fixed assets to be under $69,000. The Y2K project is being funded
through operating cash flows.
The cost of the projects and the date on which the Corporation plans to
complete both Year 2000 modifications and systems conversions are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
PAGE 10
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Risk of Year 2000:
At present, management believes its progress in remedying the proprietary
programs and installing the Y2K compliant upgrades to the third-party vendor
mainframe and PC based computer applications is on plan. The Y2K computer
problem creates risk for the Corporation from unforeseen problems in its own
computer systems and from third-party vendors who provide the majority of
mainframe and PC based computer applications. Failure of third-party systems
relative to the Y2K issue could have a material impact on the Corporation's
ability to conduct business and on its financial position and results of
operation.
Contingency Plans:
A contingency plan is being developed to handle the most reasonably likely
Y2K worst-case scenario should it occur. The contingency plan will involve
obtaining back-up service providers, working up contingency plans and assessing
the potential adverse risks to the Corporation. The contingency plan is
scheduled to be completed by March 31, 1999. The Corporation has also utilized
an independent consulting firm to verify and validate the Corporation's Y2K
plans.
Statistical Data
- -----------------
The information for this item is listed below and is incorporated by
reference to pages 24 through 32 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1998 which pages are included at
Exhibit (13) to this Annual Report on Form 10-K.
INVESTMENT PORTFOLIO
The following shows the carrying value of the Corporation's investment
securities held to maturity:
(Dollars in Thousands) 1998 1997 1996
------- ------- -------
Obligations of other U.S. Government agencies
and corporations $ 6,490 $21,707 $33,129
Obligations of states and political subdivisions 17,093 19,589 26,701
Mortgage-backed securities 1,039 2,048 1,499
Other securities 1,366 2,894 3,897
------- ------- -------
Total investment securities held to maturity $25,988 $46,238 $65,226
======= ======= =======
The following shows the carrying value of the Corporation's investment
securities available for sale:
(Dollars in Thousands) 1998 1997 1996
-------- -------- --------
U. S. Treasury notes $ 44,168 $ 46,614 $ 35,127
Obligations of other U.S. Government agencies
and corporations 45,668 42,945 43,885
Obligations of states and political subdivisions 164,045 94,305 62,423
Mortgage-backed securities 87,373 57,299 55,511
Other securities 48,090 15,905 12,849
-------- -------- --------
Total investment securities available for sale $389,344 $257,068 $209,795
======== ======== ========
There are no significant concentrations of securities (greater than 10% of
PAGE 11
shareholders' equity) in any individual security issuer. The maturity analysis
of investment securities held to maturity, including the weighted average yield
for each category as of December 31, 1998, is as follows:
Under 1 - 5 5 - 10 Over
1 year Years years 10 years Total
-------- ------- -------- ---------- --------------
(Dollars in thousands)
Obligations of other U.S. Government
agencies and corporations:
Amortized cost $ - $5,990 $ - $ 500 $ 6,490
Weighted average yield - % 7.54% - % 8.18% 7.59%
Weighted average maturity 5 yrs 11 mos
Obligations of states and
political subdivisions:
Amortized cost 3,665 1,894 784 10,750 17,093
Weighted average yield 8.70% 8.43% 8.72% 8.82% 8.75%
Weighted average maturity 8 yrs 5 mos
Mortgage-backed securities:
Amortized cost - 154 885 - 1,039
Weighted average yield - % 6.70% 6.37% - % 6.42%
Weighted average maturity 6 yrs 6 mos
Other securities:
Amortized cost 111 1,255 - - 1,366
Weighted average yield 7.10% 7.50% - % - % 7.47%
Weighted average maturity 3 yrs 2 mos
Total:
Amortized cost 3,776 9,293 1,669 11,250 25,988
Weighted average yield 8.65% 7.70% 7.48% 8.79% 8.26%
Weighted average maturity 7 yrs 5 mos
The maturity analysis of securities available for sale, including the weighted
average yield for each category, as of December 31, 1998 is as follows:
Under 1 - 5 5 - 10 Over
(Dollars in thousands) 1 year Years years 10 years Total
-------- -------- -------- ---------- ---------------
U.S. Treasury notes:
Amortized cost $11,492 $31,516 $ - $ - $ 43,008
Weighted average yield 6.23% 5.99% - % - % 6.05%
Weighted average maturity 1 yrs 8 mos
Obligations of other U.S.
Government agencies and
Corporations:
Amortized cost - 2,004 40,157 2,490 44,651
Weighted average yield - % 7.31% 6.82% 7.00% 6.85%
Weighted average maturity 8 yrs 7 mos
Obligations of states and
Political subdivisions:
Amortized cost 2,500 5,153 9,698 143,702 161,053
Weighted average yield 5.91% 7.62% 7.88% 7.80% 7.20%
Weighted average maturity 15 yrs 0 mos
Mortgage-backed securities:
Amortized cost - 1,123 9,165 76,646 86,934
Weighted average yield - % 6.41% 6.28% 6.46% 6.44%
Weighted average maturity 18 yrs 11 mos
Other securities:
Amortized cost - 6,665 13,622 25,104 45,391
Weighted average yield - % 6.23% 6.36% 6.81% 6.59%
Weighted average maturity 10 yrs 0 mos
Total:
Amortized Cost 13,992 46,461 72,642 247,942 381,037
Weighted average yield 6.17% 6.27% 8.08% 7.27% 7.02%
Weighted average maturity 13 yrs 0 mos
PAGE 12
Weighted average yield is computed by dividing the annualized interest
income, including the accretion of discounts and the amortization of
premiums, by the carrying value. Tax-exempt securities were adjusted to a
tax-equivalent basis and are based on the federal statutory tax rate of 35%.
LOANS
The following table shows the composition of the Banks' loans:
December 31,
-------------
(Dollars in thousands) 1998 1997 1996 1995 1994
------------- -------- -------- -------- --------
Real estate $ 306,575 $246,259 $237,155 $227,458 $220,091
Commercial and industrial 204,173 192,694 164,327 165,491 156,387
Consumer loans 265,688 249,242 238,098 201,329 187,170
Lease financing 68,753 55,413 49,623 43,942 41,233
------------- -------- -------- -------- --------
Total loans $ 845,189 $743,608 $689,203 $638,220 $604,881
============= ======== ======== ======== ========
The following table details maturities and interest sensitivity of real estate,
commercial and industrial, consumer loans and lease financing at December 31,
1998.
Within 1 - 5 Over
(Dollars in thousands) 1 year Years 5 years Total
-------- -------- -------- --------
Real estate $ 41,227 $152,985 $112,363 $306,575
Commercial and industrial 140,627 29,439 34,107 204,173
Consumer loans 64,343 116,972 84,373 265,688
Lease financing 23,230 45,523 - 68,753
-------- -------- -------- --------
Total $269,427 $344,919 $230,843 $845,189
======== ======== ======== ========
Loans with variable or
Floating interest rates $199,198 $67,759 $- $266,957
Loans with fixed
predetermined
Interest rates 70,229 277,160 230,843 578,232
-------- -------- -------- --------
Total $269,427 $344,919 $230,843 $845,189
======== ======== ======== ========
The following table details those loans that were placed on nonaccrual status,
were accounted for as troubled debt restructuring or were delinquent by 90 days
or more and still accruing interest:
December 31,
-------------
(Dollars in thousands) 1998 1997 1996 1995 1994
------------- ------ ------ ------- ------
Nonaccrual loans $ 2,950 $2,621 $2,983 $ 9,055 $2,521
Trouble debt restructurings 583 1,099 1,717 1,183 1,867
Delinquent loans 824 2,253 1,848 1,553 2,234
------------- ------ ------ ------- ------
Total $ 4,357 $5,973 $6,548 $11,791 $6,622
============= ====== ====== ======= ======
ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
December 31,
--------------
(Dollars in thousands) 1998 1997 1996 1995 1994
-------------- --------- --------- --------- ---------
Average loans $ 781,459 $706,643 $652,157 $607,335 $540,030
============== ========= ========= ========= =========
Allowance, beginning of period $ 11,925 $ 10,710 $ 9,891 $ 8,150 $ 6,087
-------------- --------- --------- --------- ---------
Loans charged off:
Real estate 424 544 412 127 84
Commercial and industrial 217 66 392 240 491
Consumer loans 627 1,038 614 277 387
Lease financing 145 78 33 39 44
-------------- --------- --------- --------- ---------
Total loans charged off 1,413 1,726 1,451 683 1,006
-------------- --------- --------- --------- ---------
Recoveries:
Real estate 88 206 30 1 56
Commercial and industrial 94 113 84 143 170
Consumer loans 98 104 56 72 152
Lease financing 18 18 18 36 26
-------------- --------- --------- --------- ---------
Total recoveries 298 441 188 252 404
-------------- --------- --------- --------- ---------
Net loans charged off 1,115 1,285 1,263 431 602
-------------- --------- --------- --------- ---------
Provision for loan losses 2,140 2,500 2,082 2,172 2,665
-------------- --------- --------- --------- ---------
Allowance, end of period $ 12,950 $ 11,925 $ 10,710 $ 9,891 $ 8,150
============== ========= ========= ========= =========
Ratio of net charge offs to
Average loans outstanding 0.14% 0.18% 0.19% 0.07% 0.11%
============== ========= ========= ========= =========
PAGE 13
The following table sets forth an allocation of the allowance for loan losses
by category. The specific allocations in any particular category may be
reallocated in the future to reflect then current conditions. Accordingly,
management considers the entire allowance to be available to absorb losses in
any category.
December 31,
-------------
1998 1997 1996 1995 1994
------------- ------- ------- ------- -------
(Dollars in thousands) Percent Percent Percent Percent Percent
Amount of Loans Amount of Loans Amount of Loans Amount of Loans Amount of Loans
------------- --------- ------- --------- ------- --------- ------- --------- ------- ---------
Real estate $ 1,153 36% $ 1,469 33% $ 1,434 34% $ 1,292 35% $ 1,010 36%
Commercial
and industrial 2,249 24% 2,719 28% 2,897 24% 3,952 26% 2,967 26%
Consumer loans 1,747 32% 1,566 32% 1,251 35% 885 32% 1,063 31%
Lease financing 220 8% 177 7% 104 7% 127 7% 139 7%
Unallocated 7,581 N/A 5,994 N/A 5,024 N/A 3,635 N/A 2,971 N/A
------------- --------- ------- --------- ------- --------- ------- --------- ------- ---------
Total 12,950 100% 11,925 100% 10,710 100% 9,891 100% 8,150 100%
============= ========= ======= ========= ======= ========= ======= ========= ======= =========
DEPOSIT STRUCTURE
The following table is a distribution of average balances and average rates paid
on the deposit categories for the last three years:
December 31,
------------
1998 1997 1996
------------- -------- --------
(Dollars in thousands) Amount Rate Amount Rate Amount Rate
------------- ----- -------- ----- ------ ----
Demand - noninterest-bearing $ 150,274 --% $135,307 --% $122,459 --%
Demand - interest-bearing 112,733 1.48% 98,397 1.54% 91,856 1.57%
Money market and savings 317,813 3.12% 282,917 3.05% 270,034 3.03%
Time - under $100,000 304,058 5.53% 297,263 5.57% 298,777 5.63%
Time -- $100,000 or greater 85,754 5.48% 64,282 5.49% 38,261 5.29%
------------- -------- --------
Total $ 970,632 $878,166 $821,387
============= ======== ========
The maturity distribution of certificates of deposit of $100,000 and over is as follows:
December 31,
-------------
(Dollars in thousands) 1998 1997 1996
------------- -------- ---------
Three months or less $ 48,789 $ 43,499 $ 29,919
Over three months to six months 20,425 13,505 12,850
Over six months to twelve months 9,800 7,535 4,512
Over twelve months 9,222 4,015 4,079
------------- -------- --------
Total $ 88,236 $ 68,554 $ 51,360
============= ======== ========
PAGE 14
NET INTEREST INCOME
For analytical purposes, the following table reflects tax-equivalent net
interest income in recognition of the income tax savings on tax-exempt items
such as interest on municipal securities and tax-exempt loans. Adjustments are
made using a statutory federal tax rate of 35%.
Year ended December 31,
------------------------
(Dollars in thousands) 1998 1997 1996
-------- ------- -------
Interest income $ 87,597 $80,202 $73,718
Interest expense 37,809 33,851 30,876
-------- ------- -------
Net interest income 49,788 46,351 42,842
Tax equivalent adjustment 4,640 3,331 2,489
-------- ------- -------
Net interest income $ 54,428 $49,682 $45,331
======== ======= =======
The rate volume analysis set forth in the following table, which is computed
on a tax-equivalent basis (tax rate of 35%), analyzes changes in net interest
income for the last three years by their rate and volume components.
1998 over (under) 1997 1997 over (under) 1996
due to changes in due to changes in
-------------------------- ------------------------
Change Rate Volume Change Rate Volume
-------- -------- -------- ------- ------ -------
INTEREST INCOME:
Investment securities (1) $ 4,202 $ (502) $ 4,704 $ 2,472 $ 423 $ 2,049
Loans 4,878 (1,442) 6,320 4,318 (410) 4,728
Other assets (376) (132) (244) 536 60 476
-------- -------- -------- ------- ------ -------
Total 8,704 (2,076) 10,780 7,326 73 7,253
-------- -------- -------- ------- ------ -------
INTEREST EXPENSE:
Savings deposits 1,447 121 1,326 533 16 517
Time deposits 1,436 (124) 1,560 1,222 (139) 1,361
Borrowings and other interest-
bearing liabilities 1,075 (192) 1,267 1,220 (16) 1,236
-------- -------- -------- ------- ------ -------
Total 3,958 (195) 4,153 2,975 (139) 3,114
-------- -------- -------- ------- ------ -------
Changes in net interest income $ 4,746 $(1,881) $ 6,627 $ 4,351 $ 212 $ 4,139
======== ======== ======== ======= ====== =======
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Tax-equivalent net interest income was $54,428,000 for 1998, compared to
$49,682,000 for 1997, an increase of $4,746,000, or 9.6%. This increase in
tax-equivalent net interest income was primarily due to the net $6,627,000
increase related to volume, partially offset by a decrease related to interest
rates of $1,881,000. Total interest income increased $8,704,000, the result of
higher volumes of interest-earning assets, in part offset by the lower rates
experienced during 1998. Interest Income on loans grew 8.0% and investment
interest income increased 20.2%. These increases were the result of the 1998
average loan and investment volumes increasing 10.6% and 23.2% respectively.
The growth in loans is a result of persistent sales efforts and new branch
openings. The increase in investment securities was due to both the institution
of a capital leverage program during 1998 and the planned growth related to the
increase in deposit funding.
PAGE 15
Total interest expense grew $3,958,000 during 1998 or 11.7%, compared to 1997.
This growth was the result of increases in all interest-bearing liability
categories. The volumes of savings deposits, time deposits and borrowings and
other interest-bearing liabilities grew 12.9%, 7.8% and 36.9%, respectively.
Borrowings and other interest-bearing liabilities include federal funds
purchased, FHLB borrowings, securities sold under agreements to repurchase and
U.S. Treasury notes. The increase in borrowings and other interest-bearing
liabilities was primarily due to the growth in FHLB borrowings related to the
institution of a capital leverage program during 1998.
The 1997 tax-equivalent net interest income was $49,682,000, a $4,351,000
increase compared to $45,331,000 for 1996. This increase in tax-equivalent net
interest income was primarily due to both the $7,253,000 increase related to
earning asset volumes, partially offset by the $3,114,000 increase in interest
expense related to interest-bearing liabilities volumes. The growth in earning
asset volumes was primarily in investment securities and loans and the growth in
interest-bearing liabilities was principally the result of higher time deposit
and borrowing volumes.
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 nine 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
PAGE 16
Meadowood Route 73 Leased
Worcester Pa
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
Doylestown 500 East State Road Leased
Doylestown 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
PAGE 17
In management's opinion, all of the above properties are in good condition and
are adequate for the Registrant's and the Banks' purposes.
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 1998 to a vote of holders
of the Corporation's Common Stock.
PAGE 18
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 8,
19 and 20 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1998, 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, 1998, 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 32 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1998, 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 28
and 29 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1998, 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 8
through 23 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1998, 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 19
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 15 through 18 of the
Corporation's Proxy Statement relating to the Annual Meeting of Shareholders to
be held April 13, 1999.
Executive Officers of Registrant
- -----------------------------------
Name Age Position
- --------------------- --- -----------------------------------------------------
Walter E. Daller, Jr. 59 Chairman of the Board, President and Chief Executive
Officer of the Corporation.
Demetra M. Takes 48 President and Chief Operating Officer of
Harleysville since 1998, prior position was Executive
Vice President and Chief Operating Officer of
Harleysville.
Fred C. Reim, Jr. 55 President and Chief Executive Officer of Security
National bank since 1998, prior position was
Senior Vice President of Harleysville.
Thomas D. Oleksa 45 President and Chief Executive Officer of Citizens.
Vernon L. Hunsberger 50 Treasurer of the Company, Senior Vice President/CFO
and Cashier of Harleysville.
Geoffrey D. Brandon 33 Senior Vice President of Branch Administration for
Harleysville since 1998, prior position was Vice
President of Harleysville.
Mikkalya W. Brown 43 Senior Vice President of Loan Administration of
Harleysville.
David Crews 47 Senior Vice President of Harleysville since 1998,
prior position was Vice President of Business Development.
Dennis L. Detwiler 51 Senior Vice President of Harleysville.
Bruce D. Fellman 52 Senior Vice President of Harleysville since 1998,
prior position was Vice President.
James W. Hamilton 52 Senior Vice President of Harleysville.
Clay T. Henry 38 Senior Vice President and Senior Trust Officer of
Harleysville since 1998, prior position was Director
of Investments Services for the Private Bank of PNC
Financial Corporation.
Frank J. Lochetto 51 Senior Vice President of Harleysville.
Linda C. Lockhart 47 Senior Vice President of Customer Support of
Harleysville since 1998, Vice President of Customer
Support since 1997, Vice President of First Sterling
Bank (1991-1996).
Gregg J. Wagner 38 Senior Vice President of Finance of Harleysville
since 1998, prior position was Vice President &
Comptroller of Harleysville.
Harry T. Weierbach 54 Senior Vice President and Chief Investment Officer
of Harleysville since 1998, Vice President (1996
to 1998), Assistant Vice President (1994 to 1998).
PAGE 20
Item 11. Executive Compensation.
- ----------------------------------
The information required by this Item is incorporated by reference to pages 19
through 24 of the Corporation's Proxy Statement relating to the Annual Meeting
of Shareholders to be held April 13, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------------
The information required by this Item is incorporated by reference to pages 15
through 16 of the Corporation's Proxy Statement relating to the Annual Meeting
of Shareholders to be held April 13, 1999.
Item 13. Certain Relationships and Related Transactions.
- -------------------------------------------------------------
The information required by this Item is incorporated by reference to page 28
of the Corporation's Proxy Statement relating to the Annual Meeting of
Shareholders to be held April 13, 1999, and to page 17 of the Corporation's
Annual Report to Shareholders for the year ended December 31, 1998, which page
is included at Exhibit (13) to this Annual Report on Form 10-K.
PAGE 21
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, 1998 and 1997 9*
Consolidated Statements of Income for the
Years Ended December 31, 1998, 1997
and 1996 10*
Consolidated Statements of Shareholders'
Equity for the Years Ended
December 31, 1998, 1997 and 1996 11*
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1998,
1997 and 1996 12*
Notes to Consolidated Financial Statements 13-23*
Independent Auditors' Report 8*
(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 8 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 22
(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 on 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. (Incorporated by Reference to
Exhibit 10.3 of Registrant's Annual Report in Form 10-K for the year ended
December 31, 1997, filed with the Commission on March 27, 1998.)
(10.4) Walter E. Daller, Jr., Chairman, President and Chief Executive Officer's
employment agreement. (Incorporated by Reference to Registrant's
Registration Statement on Form 8-K, filed with the Commission on March 25,
1999.)
(10.5) Demetra M. Takes, President and Chief Operating Officer of Harleysville
employment agreement. (Incorporated by Reference to Registrant's
Registration Statement on Form 8-K, filed with the Commission on March 25,
1999.)
(10.6) Vernon L. Hunsberger. Senior Vice President/CFO and Cashier's employment
agreement. (Incorporated by Reference to Registrant's Registration Statement
on Form 8-K, filed with the Commission on March 25, 1999.)
(11) Computation of Earnings per Common Share. The information for this Exhibit is
incorporated by reference to page 15 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1998, 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, 1998, which is included as
Exhibit (13) to this Form 10-K Report.
(13) Excerpts from the Corporation's 1998 Annual Report to Shareholders. (This
excerpt includes only page 1 and pages 8 through 32 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
None.
PAGE 23
(b) Reports on Form 8-K
During the quarter ended December 31, 1998, the Registrant did not file any
reports on Form 8-K.
PAGE 24
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 11, 1999 By:/s/ Walter 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
- --------- ----- ----
____________________ Director March 11, 1999
LeeAnn Bergy
/s/ Walter E. Daller, Jr. Chairman of the Board, President March 11, 1999
- ----------------------------- and Chief Executive Officer and
Walter E. Daller, Jr. Director (Principal Executive Officer)
/s/ Martin E. Fossler Director March 11, 1999
- ------------------------
Martin E. Fossler
/s/ Harold Herr Director March 11, 1999
- -----------------
Harold A. Herr
/s/ Vernon L. Hunsberger Treasurer (Principal Financial March 11, 1999
- --------------------------- and Accounting Officer)
Vernon L. Hunsberger
____________________ Director March 11, 1999
Thomas S. McCready
___________________ Director March 11, 1999
Henry M. Pollak
/s/ Palmer E. Retzlaff Director March 11, 1999
- -------------------------
Palmer E. Retzlaff
PAGE 25
/s/ Walter F. Vilsmeier Director March 11, 1999
- --------------------------
Walter F. Vilsmeier
/s/ William M. Yocum Director March 11, 1999
- -----------------------
William M. Yocum
PAGE 26
EXHIBIT INDEX
- --------------
Exhibit
-------
(10.3) Supplemental Executive Retirement Plan.
(13) Excerpts from the Corporation's 1998 Annual Report to Shareholders
(This excerpt includes only page 1 and pages 8 through 32, 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
None.
PAGE 27