<PAGE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                                   FORM 10-K
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
(Mark One)
 
                                                   Commission file number 0-8415
[X]For the fiscal year ended December 31, 1995
 
                    OR
 
[_]For the transition period from        to
 
                          DAUPHIN DEPOSIT CORPORATION
--------------------------------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                                       23-1938831
                                          -------------------------------------
                                          (I.R.S. Employer Identification No.)
 
   213 Market Street, Harrisburg,                         17101
            Pennsylvania                  -------------------------------------
-------------------------------------                  (Zip Code)
   (Address of principal executive
              offices)
 
Registrant's telephone number, including area code: (717) 255-2121
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
 
<TABLE>
<CAPTION>
                                                      NAME OF EACH EXCHANGE ON
     TITLE OF EACH CLASS                                  WHICH REGISTERED
            NONE                                                NONE
     -------------------                              ------------------------
     <S>                                              <C>
 
</TABLE>
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                         Common Stock, $5.00 par value
--------------------------------------------------------------------------------
                                (Title of class)
 
                         Common Stock Repurchase Rights
--------------------------------------------------------------------------------
                                (Title of class)
 
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X  No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
 
The aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing sale price on February 1, 1996 was
approximately $ 781,040,971.
 
The number of shares of Common Stock outstanding as of February 1, 1996 was
30,586,223.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
Definitive Proxy Statement dated March 8, 1996 for the Annual Meeting of
Shareholders to be held on April 15, 1996, portions of which are incorporated
by reference in Part III of this Report.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
 <C>         <S>                                                           <C>
 PART I
    Item 1.  Business...................................................     3
    Item 2.  Properties.................................................     9
    Item 3.  Legal Proceedings..........................................     9
    Item 4.  Submission of Matters to a Vote of Security Holders........    10
    Item 4A. Executive Officers of the Registrant.......................    10
 PART II
    Item 5.  Market for Registrant's Common Equity and Related
              Stockholder Matters.......................................    11
    Item 6.  Selected Financial Data....................................    12
    Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................    13
    Item 8.  Financial Statements and Supplementary Data................    31
    Item 9.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..................................    61
 PART III
    Item 10. Directors and Executive Officers of the Registrant.........    62
    Item 11. Executive Compensation.....................................    62
    Item 12. Security Ownership of Certain Beneficial Owners and
              Management................................................    62
    Item 13. Certain Relationships and Related Transactions.............    62
 PART IV
    Item 14. Exhibits, Financial Statement Schedules and Reports on Form
              8-K.......................................................    63
 SIGNATURES
</TABLE>
 
                                       2
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                     PART I
 
 
ITEM 1. BUSINESS
 
  Dauphin Deposit Corporation (Dauphin or Registrant) is a bank holding
company, incorporated under the laws of the Commonwealth of Pennsylvania in
1974. Dauphin's wholly-owned bank subsidiary is Dauphin Deposit Bank and Trust
Company (Dauphin Bank), which includes the Bank of Pennsylvania, Valleybank and
Farmers Bank Divisions, through which Dauphin provides banking services.
Dauphin Bank is engaged in the commercial and retail banking and trust business
including the taking of time and regular savings and demand deposits, the
making of commercial and consumer loans and mortgage loans, the providing of
credit cards, safe deposit services and the performance of personal, corporate
and pension trust services. Auxiliary services such as cash management are
provided to commercial customers. Dauphin Bank is a Pennsylvania chartered bank
and trust company and a member of the Federal Reserve System. Dauphin Bank's
deposits are insured by the Federal Deposit Insurance Corporation (FDIC) to the
extent provided by law.
 
  Commercial lending services provided by Dauphin Bank include short and medium
term loans, revolving credit loans, lines of credit, asset-based lending, real
estate construction loans, agricultural loans, and equipment leasing financial
arrangements. Consumer lending services include various types of secured and
unsecured loans, including installment loans, home equity loans and automobile
leasing. Dauphin Bank had no foreign loans in its portfolio at December 31,
1995. Residential mortgage loans are offered by Eastern Mortgage Services, Inc.
(Eastern Mortgage), a Pennsylvania mortgage banking company acquired as a
wholly-owned subsidiary of Dauphin Bank in July, 1994. Eastern Mortgage offers
the following types of residential mortgage loans: Conventional first and
second mortgage loans; FHA/VA loans; State housing bond loans; residential
construction/permanent financing; and special programs for low and moderate
income borrowers. All conforming conventional residential mortgage loans
originated for sale in the secondary mortgage market under a FNMA or FHLMC
product are generally underwritten to the standards as specified in the Fannie
Mae Selling Guide. All non-conforming loans are underwritten to private
investor standards. FHA and VA loans are processed and underwritten in
accordance with the relevant handbooks and supplementary circular letters
issued respectively by the Department of Housing and Urban Development and by
the Veterans Administration.
 
  Dauphin is registered with and is subject to regulatory supervision by the
Board of Governors of the Federal Reserve System (Federal Reserve Board) under
the Bank Holding Company Act of 1956, as amended. Dauphin is restricted to
activities which are found by the Federal Reserve Board to be bank-related and
which are expected to produce benefits for the public that will outweigh any
potentially adverse effects. The operation of Dauphin Bank, as well as those of
other banks, are significantly affected by the monetary and credit policies and
regulations of the federal regulatory agencies.
 
DAUPHIN DEPOSIT BANK AND TRUST COMPANY
 
 
  Dauphin Bank maintains 101 offices with 87 automated teller machines located
in Adams, Berks, Chester, Cumberland, Dauphin, Franklin, Lancaster, Lebanon,
Lehigh, Montgomery, Northampton and York Counties, Pennsylvania. In addition to
its main office in Harrisburg, Dauphin County, Dauphin Bank owns an office
building in Harrisburg which is used as an administrative center. Dauphin Bank
maintains multiple offices in nine south central Pennsylvania counties. Single
offices are located in each of Chester, Montgomery and Northampton Counties, in
near proximity to the boundary lines with Berks and Lehigh Counties. The
amounts of deposits attributable to zip code areas within Chester, Montgomery
and Northampton Counties are insignificant in terms of the amounts of deposits
attributable to zip code areas in the other nine counties. Accordingly, the
Adams, Berks, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Lehigh and
York nine county region constitutes the principal geographic area for Dauphin
Bank.
 
  At December 31, 1995, Dauphin Bank had total deposits of $3,949,801,000,
total loans of $2,981,338,000 and total assets of $5,186,082,000.
 
                                       3
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
NON-BANKING SUBSIDIARIES
 
 
  Eastern Mortgage Services, Inc. (Eastern Mortgage) is a Pennsylvania mortgage
banking corporation which was acquired by Dauphin Bank on July 1, 1994. Eastern
Mortgage is a full service mortgage banking company which originates, services
and sells first and second residential mortgage loans of varying types
primarily to the eastern Pennsylvania and New Jersey mortgage markets.
 
  Dauphin Life Insurance Company (Dauphin Life) is an Arizona corporation which
was formed in 1979 as a wholly-owned subsidiary of Dauphin. Dauphin Life
reinsures credit life, health and accident insurance directly related to
extensions of credit by Dauphin Bank and is presently limited to those
activities by regulations of the Federal Reserve Board. Directors of Dauphin
Life are officers or directors of Dauphin.
 
  Dauphin Investment Company (Dauphin Investment) is a Delaware corporation
which was formed in 1982 as a wholly-owned subsidiary of Dauphin. Dauphin
Investment manages equity investments for Dauphin. Directors of Dauphin
Investment are officers or directors of Dauphin.
 
  Hopper Soliday & Co., Inc. (Hopper Soliday) is a wholly-owned subsidiary of
Dauphin acquired effective July 1, 1991. Hopper Soliday is a Delaware
corporation which engages in municipal finance, institutional sales, financial
advisory and other general securities businesses permitted for bank holding
companies and their non-bank subsidiaries.
 
COMPETITION
 
 
  The banking industry in Dauphin Bank's service area continues to be extremely
competitive, both among commercial banks and with other financial service
providers such as consumer finance companies, thrifts, investment firms, mutual
funds and credit unions. The increased competition has resulted from a changing
legal and regulatory climate, as well as from the economic climate. Mortgage
banking firms, real estate investment trusts, insurance companies, leasing
companies, financial affiliates of industrial companies, brokerage and
factoring companies and government agencies also provide additional competition
for loans and for many other financial services. Some of the financial services
providers operating in Dauphin's market area operate on a regional and, in some
cases, national scale, and possess resources greater than those of Dauphin.
 
SUPERVISION AND REGULATION
 
 
 General.
 
 
  Dauphin is subject to regulation by the Pennsylvania Department of Banking,
the Federal Reserve Board and the Securities and Exchange Commission. The
deposits of Dauphin Bank are insured by the FDIC and Dauphin Bank is a member
of the Bank Insurance Fund which is administered by the FDIC. In addition,
Dauphin Bank is a Pennsylvania bank and trust company and member of the Federal
Reserve System subject to regulation and supervision by the Pennsylvania
Department of Banking and the Federal Reserve Board. The operations of Dauphin
Bank are subject to requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be made and limits upon the types of
services which may be offered. Various consumer laws and regulations also
affect the operations of Dauphin Bank and Eastern Mortgage, its wholly-owned
mortgage banking company subsidiary. Regulatory approvals also are required for
branching and for bank mergers.
 
  Dauphin is required to file with the Federal Reserve Board an annual report
and such additional information as the Federal Reserve Board may require
pursuant to the Bank Holding Company Act of 1956, as amended
 
                                       4
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
(BHC Act). The Federal Reserve Board may also make examinations of Dauphin and
each of its non-bank subsidiaries. The BHC Act requires each bank holding
company to obtain the approval of the Federal Reserve Board before it may
acquire substantially all the assets of any bank, or before it may acquire
ownership or control of any voting shares of any bank if, after such
acquisition, it would own or control, directly or indirectly, more than five
percent of the voting shares of such bank.
 
  Pursuant to provisions of the BHC Act and regulations promulgated by the
Federal Reserve Board thereunder, Dauphin may only engage in or own companies
that engage in activities deemed by the Federal Reserve Board to be so closely
related to the business of banking or managing or controlling banks as to be a
proper incident thereto, and Dauphin must gain permission from the Federal
Reserve Board prior to engaging in most new business activities.
 
  Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the BHC Act on any extensions of credit to the bank
holding company or any of its subsidiaries, investments in the stock or
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. Such transfers by Dauphin Bank to Dauphin or any
nonbanking subsidiary are limited in amount to 10% of Dauphin Bank's capital
and surplus and, with respect to Dauphin and all nonbanking subsidiaries, to an
aggregate of 20% of Dauphin Bank's capital and surplus. Such loans and
extensions of credit also are required to be secured in specified amounts, and
all such transactions are required to be on an arm's length basis. A bank
holding company and its subsidiaries are also prevented from engaging in
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services.
 
 Source of Strength Doctrine.
 
 
  Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary
banks will generally be considered by the Federal Reserve Board to be an unsafe
and unsound banking practice or a violation of the Federal Reserve Board
regulations or both. This doctrine is commonly known as the "source of
strength" doctrine.
 
 Dividends.
 
 
  Dividend payments by Dauphin Bank to Dauphin are subject to the Pennsylvania
Banking Code of 1965 (Banking Code) and the Federal Deposit Insurance Act
(FDIA). Under the Banking Code, no dividends may be paid except from
"accumulated net earnings" (generally, undivided profits). Under the FDIA, no
dividends may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. State and federal
regulatory authorities have adopted standards for the maintenance of adequate
levels of capital by banks. Adherence to such standards further limits the
ability of banks to pay dividends.
 
  Under these policies and subject to the restrictions applicable to Dauphin
Bank, Dauphin Bank could declare without prior regulatory approval, aggregate
dividends of $26.0 million, plus net profits for the remainder of 1996.
 
  The payment of dividends by Dauphin Bank may also be affected by other
regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority a bank under
its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound
practice (which,
 
                                       5
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
depending on the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The Federal Reserve Board and the
FDIC have formal and informal policies which provide that insured banks and
bank holding companies should generally pay dividends only out of current
operating earnings, with some exceptions.
 
 Capital Adequacy.
 
 
  The Federal Reserve Board adopted risk-based capital guidelines for bank
holding companies, such as Dauphin. The guidelines were phased in over a two
year period ended December 31, 1992. Currently, the required minimum ratio of
total capital to risk-weighted assets (including off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the total capital is
required to be Tier 1 capital, consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term
preferred stock, certain hybrid capital instruments and other debt securities,
perpetual preferred stock and a limited amount of the general loan loss
allowance. During the two-year phase-in period, a limited portion of Tier 2
capital was permitted to be included as Tier 1 capital.
 
  In addition to the risk-based capital guidelines, the Federal Reserve Board
established minimum leverage ratio (Tier 1 capital to total assets) guidelines
for bank holding companies. These guidelines provide for a minimum leverage
ratio of 3% for those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing significant
growth or expansion. All other bank holding companies are required to maintain
a leverage ratio of at least 1% to 2% above the 3% stated minimum. Dauphin Bank
is subject to the same capital requirements since its primary federal regulator
is the Federal Reserve Board. Dauphin and Dauphin Bank exceed all applicable
capital requirements.
 
 FDICIA.
 
 
  The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required the federal banking agencies to promulgate regulations specifying the
levels at which an insured institution would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under these regulations, a bank is
considered "well capitalized" if it has (i) a total risk-based capital ratio of
10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii)
a leverage ratio of 5% or greater and (iv) is not subject to any order or
written directive to meet and maintain a specific capital level. An "adequately
capitalized" bank is defined under the regulations as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with the highest composite regulatory examination
rating of 1) and (iv) does not meet the definition of a well capitalized bank.
A bank will be considered (A) "undercapitalized" if it has (i) a total risk-
based capital ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of a
bank with the highest regulatory examination rating of 1); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, (ii) a Tier 1 risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3%; and (C) "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets of equal to or less than
2%. Notwithstanding the foregoing, the applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require an "adequately
capitalized" or "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a reclassification could
be made if the regulatory agency determines that the institution is in an
unsafe or unsound condition (which could include unsatisfactory examination
ratings).
 
  Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration plans
to the appropriate federal banking regulator and are subject to restrictions on
 
                                       6
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
operations, including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as dividends, and
growing without regulatory approval. On December 31, 1995, Dauphin and Dauphin
Bank exceeded the minimum capital levels of the "well capitalized" category.
 
 Other Provisions of FDICIA.
 
 
  Each depository institution must submit audited financial statements to its
primary regulator and the FDIC, which reports are made publicly available. In
addition, the audit committee of each depository institution must consist of
outside directors and the audit committee at "large institutions" (as defined
by FDIC regulation) must include members with banking or financial management
expertise. The audit committee at "large institutions" must also have access to
independent outside counsel. In addition, an institution must notify the FDIC
and the institution's primary regulator of any change in the institution's
independent auditor, and annual management letters must be provided to the FDIC
and the depository institution's primary regulator. The regulations define a
"large institution" as one with over $500 million in assets, which would
include Dauphin Bank. Also, under the rule, an institution's independent
auditor must examine the institution's internal controls over financial
reporting and perform agreed-upon procedures to test compliance with laws and
regulations concerning safety and soundness.
 
  Under FDICIA, each federal banking agency must prescribe certain safety and
soundness standards for depository institutions and their holding companies.
Three types of standards must be prescribed: Asset quality and earnings,
operational and managerial, and compensation. Such standards would include a
ratio of classified assets to capital, minimum earnings, and, to the extent
feasible, a minimum ratio of market value to book value for publicly traded
securities of such institutions and holding companies. Operational and
managerial standards must relate to: (i) internal controls, information systems
and internal audit systems, (ii) loan documentation, (iii) credit underwriting,
(iv) interest rate exposure, (v) asset growth, and (vi) compensation, fees and
benefits. In November, 1993, the federal banking agencies released proposed
rules setting forth some of the required safety and soundness standards. Under
such proposed rules, if the primary federal regulator determines that any
standard has not been met, the regulator can require the institution to submit
a compliance plan that describes the steps the institution will take to
eradicate the deficiency. Failure to adopt or implement a compliance plan could
lead to further sanctions by the responsible regulator. Pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994, federal banking
agencies have been given the discretion to adopt safety and soundness
guidelines rather than regulations.
 
  Provisions of FDICIA relax certain requirements for mergers and acquisitions
among financial institutions, including authorization of mergers of insured
institutions that are not members of the same insurance fund, and provide
specific authorization for a federally chartered savings association or
national bank to be acquired by an insured depository institution.
 
  FDICIA also includes a provision that generally restricts federally insured
state banks, such as Dauphin Bank, to activities permitted to national banks.
Under final FDIC rules implementing Section 303, state chartered banks must
obtain the FDIC's prior consent before engaging as a principal in any activity
not permissible for a national bank, unless one of the exceptions contained in
the rule applies. Among the exceptions are activities that the Federal Reserve
Board, by regulation (Regulation Y) or order, has found to be closely related
to banking for purposes of the BHC Act. Compliance with the rule is not
expected to have a material adverse effect on Dauphin Bank's operations.
 
  Under FDICIA, all depository institutions must provide 90 days notice to
their primary federal regulator of branch closings, and penalties are imposed
for false reports by financial institutions. Depository institutions with
assets in excess of $250 million must be examined on-site annually by their
primary federal, state regulator or the FDIC.
 
                                       7
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
  FDICIA also sets forth Truth in Savings disclosure and advertising
requirements applicable to all depository institutions.
 
 FDIC Insurance Assessments.
 
 
  The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) created two deposit insurance funds to be administered by the FDIC:
the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund
(BIF). Dauphin Bank's deposits are insured under BIF. The FDIC has implemented
a risk-related premium schedule for all insured depository institutions that
results in the assessment of premiums based on capital and supervisory
measures.
 
  Under the risk-related premium schedule, the FDIC assigns, on a semiannual
basis, each institution to one of three capital groups (well capitalized,
adequately capitalized or undercapitalized) and further assigns such
institution to one of three subgroups within a capital group. The institution's
subgroup assignment is based upon the FDIC's judgment of the institution's
strength in light of supervisory evaluations, including examination reports,
statistical analyses and other information relevant to gauging the risk posed
by the institution. Only institutions with a total capital to risk-adjusted
assets ratio of 10% or greater, a Tier 1 capital to risk-adjusted assets ratio
of 6% or greater and a Tier 1 leverage ratio of 5% or greater, are assigned to
the well capitalized group. As of December 31, 1994, Dauphin Bank was subject
to FDIC deposit insurance assessments at the rate of $.23 for every $100 of
deposits.
 
  In the second quarter of 1995, the BIF reached its statutory reserve ratio
requirement. Consequently, the FDIC has significantly reduced the assessment
rates applicable to BIF members and refunded to BIF members that portion of the
assessment for the second and third quarters of 1995 which represented an
overpayment once the BIF had achieved full funding in accordance with the
statutory reserve ratio requirement. Dauphin Bank received a refund from the
FDIC in September 1995 in the amount of $2,215,000, which amount also includes
interest on the refund from June 1 to September 14, 1995. According to the new
rate schedule, BIF institutions deemed to have the highest risk will pay up to
$.31 for every $100 of deposits annually while those deemed to have the least
risk will pay $.04 for every $100 of deposits annually. In the case of Dauphin
Bank, for the second half of 1995, it was assessed at the rate of $.04 for
every $100 of deposits. At the same time, the FDIC has indicated that it
anticipates that the SAIF assessment rate in even the lowest risk-based
category will not fall below the current rate of $.23 for every $100 of
deposits before 2002.
 
 Interstate Banking.
 
 
  Prior to the passage of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Riegle-Neal Act) in September 1994, interstate banking
was restricted under the terms of the Douglas Amendment to the BHC Act which
prohibited the Federal Reserve Board from approving an application by a bank
holding company located in one state to acquire a bank or all of its assets
located in another state unless the acquisition was specifically authorized by
a reciprocal interstate banking statute, such as the statute adopted in
Pennsylvania in 1990, specifically permitting interstate acquisitions.
Similarly, interstate branching was prohibited for national banks and state-
chartered member banks by the McFadden Act, although some states, not including
Pennsylvania, had passed laws permitting limited interstate branching by non-
Federal Reserve member state banks. The Riegle-Neal Act permits an adequately
capitalized, adequately managed bank holding company to acquire a bank in
another state as of September 29, 1994, whether or not the state permits the
acquisition, subject to certain deposit concentration caps and the Federal
Reserve Board's approval. A state may not impose discriminatory requirements on
acquisitions by out-of-state holding companies. In addition, beginning on June
1, 1997, under the Riegle-Neal Act, a bank can expand interstate by merging
with a bank in another state and also may consolidate the acquired bank into
new branch offices of the acquiring bank, unless the other state affirmatively
opts out of the legislation before that date. A state may also opt into the
legislation
 
                                       8
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
earlier than June 1, 1997 if it wishes to do so. The Riegle-Neal Act also
permits de novo interstate branching as of June 1, 1997 but only if a state
affirmatively opts in by appropriate legislation. Once a state opts in to
interstate branching, it may not opt out at a later date. The Riegle-Neal Act
also allows foreign banks to branch by merger or de novo branch to the same
extent as banks from the foreign bank's home state. The Riegle-Neal Act also
subjects foreign banks to some additional requirements, including extending
obligations under the Community Reinvestment Act to certain foreign bank
acquisitions and regulating the types of activities off-shore branches of
foreign banks may conduct. The Pennsylvania Legislature amended the
Pennsylvania Banking Code of 1965 in July, 1995, to opt in to all of the
provisions of the Riegle-Neal Act, including interstate bank mergers and de
novo interstate branching. The management of Dauphin cannot predict with any
reasonable degree of certainty the effects, if any, which the Riegle-Neal Act
may have on Dauphin.
 
 Proposed Legislation.
 
 
  Legislation has been introduced in Congress to recapitalize the SAIF via a
one-time special assessment on SAIF deposits and thereafter to merge the SAIF
with the BIF. Legislation also is pending in Congress which would repeal
certain aspects of the Glass-Steagall Act, which prohibits commercial banks
from engaging in securities underwriting activities. It is not anticipated that
the enactment of such legislation, in its current form, would have a material
effect on the financial condition or results of operations of Dauphin.
 
 Employees
 
 
  At December 31, 1995, Dauphin and its subsidiaries employed approximately
2,681 persons.
 
ITEM 2. PROPERTIES
 
  Dauphin's principal office is located in Dauphin Bank's main banking offices
at 213 Market Street, Harrisburg, Pennsylvania. Dauphin owns 18 of the branch
banking offices which are leased to Dauphin Bank.
 
  Dauphin Bank owns 67 of its branch banking offices and leases 26 other
facilities including two leases which are treated as capitalized leases for
financial reporting purposes. Hopper Soliday & Co., Inc. leases four of its
sales offices. Eastern Mortgage leases 12 of its sales offices. Leases expire
intermittently through 2010 and most contain options to renew.
 
  Aggregate annual rentals for real estate and equipment paid during Dauphin's
last fiscal year did not exceed five percent of its operating expenses.
 
ITEM 3. LEGAL PROCEEDINGS
 
  Various legal actions and proceedings are pending involving Dauphin or its
subsidiaries. Management believes that the aggregate liability or loss, if any,
will not be material to Dauphin's financial condition or results of operations.
Included among outstanding litigation is a class action law suit instituted by
Dauphin seeking a declaratory judgment from the Court specifically permitting
Dauphin to discontinue offering an 18 month variable rate investment product
carrying a minimum interest rate of 10% for the 18 month term held in certain
individual retirement accounts (IRA) and/or to charge an annual maintenance fee
and fee on rollovers or transfers into the investment product. Dauphin's right
to terminate the variable rate investment product and to charge a service fee
is in dispute and is being challenged by the holders of the IRA accounts in
question. Management intends to vigorously assert its right to terminate the 18
month variable rate investment product in accordance with its terms. Pending
the outcome of the litigation, Dauphin has continued to date to pay a 10%
interest rate with regard to the product. Counsel expects the case to go to
trial in the second quarter of 1996 and for a decision to be rendered by the
Court promptly thereafter.
 
                                       9
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  Not applicable.
 
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The names, ages and positions of all of the executive officers of Dauphin as
of February 1, 1996 are listed below along with their business experience
during the past five years. Executive officers are appointed by the Board of
Directors. There are no family relationships among these executive officers,
nor any arrangement or understanding between any executive officer and any
other person pursuant to which the executive officer was selected.
 
<TABLE>
<CAPTION>
                                                    POSITION AND
                                                BUSINESS EXPERIENCE
             NAME            AGE                DURING PAST 5 YEARS
             ----            ---                -------------------
   <S>                       <C> <C>
   Christopher R.             52 Chairman of the Board, Chief Executive Officer and
    Jennings...............      Chairman of the Executive Committee (January 1995
                                 to date) of Dauphin and Dauphin Bank, President
                                 (1987 to 1995), Chief Operating Officer (1992 to
                                 1995) of Dauphin.
   Robert L. Fryer, Jr.....   47 President and Chief Operating Officer (February
                                 1995 to date) of Dauphin, Chairman of the Board,
                                 President and Chief Executive Officer (1991 to
                                 date) of Hopper Soliday & Co., Inc., formerly,
                                 President, W.H. Newbold's Son and Co./Hopper
                                 Soliday & Co., Inc.
   Lawrence J. LaMaina,       61 Vice Chairman (1992 to date) of Dauphin, President
    Jr.....................      (1994 to date) of the Southern Division of Dauphin
                                 Bank, formerly Chairman, President and Chief
                                 Executive Officer of Farmers Bank and Trust
                                 Company.
   Paul B. Shannon.........   48 Vice Chairman (1994 to date), Senior Executive
                                 Vice President (1990 to 1994), Chief Credit
                                 Officer (1990 to date) of Dauphin, President (1992
                                 to date) and Chief Credit Policy Officer (1990 to
                                 date) of Dauphin Bank.
   Dennis L. Dinger........   45 Senior Executive Vice President, Chief Fiscal and
                                 Administrative Officer (1994 to date), Executive
                                 Vice President and Chief Financial Officer (1989
                                 to 1994) of Dauphin and Dauphin Bank.
   Richard B. Brokenshire..   54 Executive Vice President and Chief Operations
                                 Officer of Dauphin and Dauphin Bank.
   Kenneth H. Sallade......   44 Executive Vice President and Chief Investment
                                 Officer (1994 to date) of Dauphin and Dauphin
                                 Bank, Senior Vice President (1988 to 1994) of
                                 Dauphin Bank.
   George W. King..........   54 Executive Vice President, General Counsel and
                                 Secretary (1995 to date) of Dauphin and Dauphin
                                 Bank, Senior Vice President and Counsel (1993 to
                                 1995) to CoreStates Hamilton Bank, Division of
                                 CoreStates Bank, N.A., Senior Vice President,
                                 Corporate Counsel and Secretary (1991 to 1993) of
                                 CoreStates Hamilton Bank.
</TABLE>
 
                                       10
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
                                                   POSITION AND
                                               BUSINESS EXPERIENCE
             NAME           AGE                DURING PAST 5 YEARS
             ----           ---                -------------------
   <S>                      <C> <C>
   Joseph T. Lysczek,        47 Senior Vice President and Treasurer (1992 to date)
    Jr. ...................     of Dauphin, Senior Vice President and Treasurer
                                (1994 to date), Vice President (1991 to 1994) of
                                Dauphin Bank, Vice President and Investment
                                Officer (1988 to 1991) of the Bank of Pennsylvania
                                Division of Dauphin Bank.
   James J. Trupp, Jr. ....  49 Senior Vice President and General Auditor (1992 to
                                date) of Dauphin and Dauphin Bank, Vice
                                President--Audit Manager (1991 to 1992) of
                                Dauphin, Vice President and Treasurer (1988 to
                                1991) of the Bank of Pennsylvania Division of
                                Dauphin Bank.
</TABLE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
PRICE RANGE OF DAUPHIN DEPOSIT CORPORATION STOCK AND DIVIDENDS PAID
 
  The price information provided below reflects actual sales prices of high,
low and closing trades as quoted on The Nasdaq Stock Market.
 
<TABLE>
<CAPTION>
                                                                         CASH
                                                               LAST    DIVIDENDS
                                                             TRADE DAY DECLARED
                                              HIGH     LOW    CLOSING  PER SHARE
                                             ------- ------- --------- ---------
<S>                                          <C>     <C>     <C>       <C>
1994
First Quarter............................... $26     $23 3/4 $23 3/4   $.23
Second Quarter..............................  27 1/2  22 3/4  26 1/4    .23
Third Quarter...............................  27 1/4  24 3/4  25        .23
Fourth Quarter..............................  25 1/2  22 1/2  23 5/8    .25
1995
First Quarter............................... $25 1/2 $23     $23 1/4   $.25
Second Quarter..............................  25 1/2  23      24 1/4    .25
Third Quarter...............................  28 1/2  24 1/4  26 11/16  .25
Fourth Quarter..............................  31 3/4  26 1/4  28 3/4    .26 1/2
</TABLE>
 
  The approximate number of holders of common stock is 11,585 as of December
31, 1995.
 
                                       11
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                             1995          1994        1993        1992        1991
                          ----------    ----------  ----------  ----------  ----------
<S>                       <C>           <C>         <C>         <C>         <C>
FOR THE YEAR
Net interest income.....  $  175,713    $  178,466  $  176,273  $  166,759  $  151,832
Provision for loan loss-
 es.....................       5,608         7,494      10,141      11,627      10,836
Non-interest income.....      71,789        60,947      60,051      55,683      45,599
Non-interest expense....     153,119       139,118     136,281     131,308     116,263
Net income..............      65,565        70,039      67,917      61,031      56,179
Per share:
  Net income............        2.12          2.18        2.08        1.89        1.79
  Cash dividends de-
   clared...............       1.01 1/2        .94         .83         .77        .74 1/2
Weighted average number
 of shares outstanding..  30,966,258    32,169,734  32,636,150  32,240,583  31,430,992
AT YEAR-END
Total assets............  $5,297,349    $5,070,352  $4,916,855  $4,905,702  $4,578,941
Earning assets..........   4,941,562     4,706,198   4,653,015   4,568,334   4,264,580
Short-term investments..      11,573        15,040      16,523      91,950      34,787
Investment securities...   1,860,869     1,783,803   2,041,204   2,056,109   1,821,148
Loans...................   2,981,338     2,861,133   2,586,085   2,411,772   2,402,778
Deposits................   3,949,536     3,514,884   3,586,135   3,692,209   3,614,070
Long-term debt..........      40,599        91,954      92,454      92,863      44,183
Stockholders' equity....     546,603       466,649     506,075     462,111     409,694
Book value per share
  Including unrealized
   impact of securities
   available-for-sale...       17.85         15.08       15.57       14.28       13.03
  Excluding unrealized
   impact of securities
   available-for-sale...       17.40         16.41       15.57       14.28       13.03
Number of shares out-
 standing...............  30,627,843    30,945,167  32,507,414  32,356,559  31,430,305
RATIOS
Return on average as-
 sets...................        1.31%         1.42%       1.40%       1.31%       1.27%
Return on average stock-
 holders' equity
  Including unrealized
   impact of securities
   available-for-sale...       12.81         13.81       14.06       13.93       14.46
  Excluding unrealized
   impact of securities
   available-for-sale...       12.64         13.72       14.06       13.93       14.46
Dividend payout.........       47.88         43.12       39.90       40.74       41.62
Average equity to aver-
 age assets.............       10.23         10.27        9.99        9.37        8.79
</TABLE>
 
                                       12
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
  This section presents management's discussion and analysis of the financial
condition and results of operations of Dauphin Deposit Corporation and
subsidiaries (Dauphin), including Dauphin Deposit Bank and Trust Company
(Bank), which includes the Bank of Pennsylvania, Farmers Bank and Valleybank
Divisions. The other primary subsidiaries include Hopper Soliday & Co., Inc.
(Hopper Soliday), a broker/dealer, and Eastern Mortgage Services, Inc. (Eastern
Mortgage), a mortgage banking company. This discussion and analysis should be
read in conjunction with the financial statements which appear elsewhere in
this report.
 
  On July 1, 1994, Dauphin acquired Eastern Mortgage Services, Inc., a mortgage
banking company headquartered in Trevose, Pennsylvania, for approximately $21.0
million in cash pursuant to a definitive agreement signed in May 1994. The
acquisition was accounted for using the purchase method of accounting.
Therefore, the results of operations of Eastern Mortgage from the date of
acquisition are included with the results of Dauphin.
 
                             RESULTS OF OPERATIONS
 
SUMMARY
 
  Dauphin Deposit Corporation recorded net income of $65.6 million for 1995,
compared with $70.0 million recorded in 1994. On a per common share basis, net
income was $2.12 in 1995 compared with $2.18 in 1994 and $2.08 in 1993.
 
  Return on average total assets was 1.31% for 1995, compared with 1.42% for
1994 and 1.40% for 1993. Return on average equity, excluding the SFAS 115 (as
defined in "Investment Securities and Other Short-Term Investments")
adjustment, was 12.64% for 1995 compared with 13.72% for 1994 and 14.06% for
1993. Return on average stockholders' equity, including the SFAS 115
adjustment, was 12.81% for 1995 compared with 13.81% for 1994.
 
  During 1995 average earning assets increased 1.4% to $4.7 billion and the
interest rate spread decreased to 3.29% from 3.61%. The decrease in the
interest rate spread was primarily the result of a shifting of deposits from
transaction oriented deposits to time deposits. The result was a decrease of
$5.6 million or 2.9% in fully taxable equivalent net interest income.
 
  Dauphin continues to maintain a high quality loan portfolio. The percentage
of non-performing assets, comprised of non-accrual loans, loans past due 90 or
more days as to principal or interest payments, restructured loans and other
real estate owned, represented .69% of year- end loans and other real estate
owned, down from .82% at December 31, 1994. The allowance for loan losses was
1.40% of year-end loans at December 31, 1995 compared with 1.41% at December
31, 1994. Non-performing loans were covered 2.3 times by the allowance for loan
losses. The allowance includes $ 6.7 million which is not allocated to any
specific loan category. Because of this strong asset quality, the provision for
loan losses was decreased by $1.9 million in 1995.
 
  Non-interest income, other than securities gains, increased $11.9 million, or
20.6%. Increased non-interest income was the result of growth in fiduciary
activities, increase in volume of merchant credit card processing and mortgage
banking activities. Offsetting these increases was a decline in commission and
fee income generated by Hopper Soliday.
 
  Non-interest expense items increased $14.0 million, or 10.1%. Contributing to
this increase were strategic initiatives implemented, normal salary adjustments
and additions to staffing levels and the inclusion of a full year of results
for Eastern Mortgage. Additionally, other non-interest expenses decreased due
to the industry-wide reduction in FDIC insurance premiums.
 
NET INTEREST INCOME
 
  Net interest income is the product of the volume of average earning assets
and the average rates earned on them, less the volume of average interest
bearing liabilities and the average rates paid thereon. The amount of net
interest income is affected by changes in interest rates, account balances, or
volume, and the mix of earning assets and interest bearing liabilities.
 
                                       13
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
TABLE 1--AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(TAXABLE EQUIVALENT BASIS)
 
<TABLE>
<CAPTION>
                                                        (DOLLARS IN THOUSANDS)
                                     1995                        1994                        1993
                          --------------------------- --------------------------- ---------------------------
                           AVERAGE            AVERAGE  AVERAGE            AVERAGE  AVERAGE            AVERAGE
                           BALANCE   INTEREST  RATE    BALANCE   INTEREST  RATE    BALANCE   INTEREST  RATE
                          ---------- -------- ------- ---------- -------- ------- ---------- -------- -------
<S>                       <C>        <C>      <C>     <C>        <C>      <C>     <C>        <C>      <C>
ASSETS
Short-term investments
 Interest bearing
  deposits..............  $    6,367 $    365  5.73%  $    5,481 $    338  6.17%  $    5,764 $    219   3.80%
 Federal funds sold and
  securities purchased
  under agreements to
  resell................       9,362      714  7.63       11,325      603  5.32       11,333      388   3.42
 Other short-term
  investments...........         615       41  6.67
                          ---------- --------         ---------- --------         ---------- --------
 Total short-term
  investments...........      16,344    1,120  6.85       16,806      941  5.60       17,097      607   3.55
                          ---------- --------         ---------- --------         ---------- --------
Investment securities
 U.S. government
  obligations...........     183,866   10,618  5.77      251,030   14,267  5.68      274,007   17,733   6.47
 U.S. government
  agencies..............   1,127,537   75,203  6.67    1,185,694   73,553  6.20    1,245,450   77,007   6.18
 State and municipals...     327,617   30,468  9.30      407,287   38,826  9.53      372,129   37,902  10.19
 Other securities.......      73,527    5,011  6.82       98,965    6,537  6.61      147,600   10,455   7.08
                          ---------- --------         ---------- --------         ---------- --------
 Total investment
  securities............   1,712,547  121,300  7.08    1,942,976  133,183  6.85    2,039,186  143,097   7.02
                          ---------- --------         ---------- --------         ---------- --------
Assets held for sale,
 primarily mortgage
 loans..................      79,306    5,626  7.09       29,586    2,136  7.22       36,071    1,845   5.11
                          ---------- --------         ---------- --------         ---------- --------
Loans (1)
 Commercial.............     964,883   84,644  8.77      899,376   68,705  7.64      922,920   64,882   7.03
 Commercial mortgages...     542,059   49,547  9.14      545,508   45,479  8.34      481,661   38,849   8.07
 Residential mortgages
  (2)...................     777,247   64,123  8.25      700,886   55,343  7.90      645,292   53,401   8.28
 Consumer (3)...........     611,137   49,572  8.11      504,780   40,463  8.02      409,664   37,511   9.16
                          ---------- --------         ---------- --------         ---------- --------
 Total loans............   2,895,326  247,886  8.56    2,650,550  209,990  7.92    2,459,537  194,643   7.91
                          ---------- --------         ---------- --------         ---------- --------
 Total earning assets...   4,703,523  375,932  7.99    4,639,918  346,250  7.46    4,551,891  340,192   7.47
                                     --------                    --------                    --------
Other assets............     301,502                     301,091                     283,655
                          ----------                  ----------                  ----------
 Total assets...........  $5,005,025           7.51%  $4,941,009           7.01%  $4,835,546            7.04%
                          ==========           ====   ==========           ====   ==========           =====
LIABILITIES AND
 STOCKHOLDERS' EQUITY
Interest bearing
 deposits
 Demand deposits........  $  507,101    7,493  1.48%  $  564,592    9,579  1.70%  $  530,503   13,010   2.45%
 Savings deposits.......     906,945   24,725  2.73    1,050,580   27,096  2.58    1,120,871   29,826   2.66
 Time deposits of
  $100,000 or more......     402,085   27,335  6.80      286,612   15,140  5.28      302,795   14,226   4.70
 Other time deposits....   1,482,112   87,949  5.93    1,196,905   62,072  5.19    1,222,214   65,536   5.36
                          ---------- --------         ---------- --------         ---------- --------
 Total interest bearing
  deposits..............   3,298,243  147,502  4.47    3,098,689  113,887  3.68    3,176,383  122,598   3.86
Short-term borrowings...     646,537   35,880  5.55      778,906   32,056  4.12      646,187   19,436   3.01
Long-term debt..........      56,742    4,549  8.02       92,048    6,698  7.28       92,521    6,738   7.28
                          ---------- --------         ---------- --------         ---------- --------
 Total interest bearing
  liabilities...........   4,001,522  187,931  4.70    3,969,643  152,641  3.85    3,915,091  148,772   3.80
                                     --------                    --------
Non-interest bearing
 demand deposits........     431,567                     407,556                     392,129
Other liabilities.......      60,036                      56,598                      45,237
Stockholders' equity....     511,900                     507,212                     483,089
                          ----------                  ----------                  ----------
 Total liabilities and
 stockholders' equity...  $5,005,025           3.75%  $4,941,009           3.09%  $4,835,546            3.08%
                          ==========           ====   ==========           ====   ==========           =====
Interest rate spread....                       3.29%                       3.61%                        3.67%
Effect of non-interest
 bearing funds..........                        .71                         .56                          .54
                                               ----                        ----                        -----
Net interest
 income/margin..........             $188,001  4.00%             $193,609  4.17%             $191,420   4.21%
                                     ========  ====              ========  ====              ========  =====
</TABLE>
--------
(1) Includes fees on loans. Average loan balances include non-accruing loans.
(2) Includes home equity loans.
(3) Loans outstanding net of unearned income.
 
                                       14
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
  For analytical purposes, net interest income is adjusted to a taxable
equivalent basis. This adjustment facilitates performance comparisons among
taxable and tax exempt assets by increasing tax exempt income by an amount
equivalent to the federal income taxes which would have been paid if this
income were taxable at the federal statutory rate of 35%.
 
  Table 2 presents the net interest income on a fully taxable equivalent basis
for each of the years in the three year period ended December 31, 1995.
 
  Net interest income on a fully taxable equivalent basis totaled $188.0
million in 1995, a decrease of $5.6 million or 2.9% from $193.6 million in
1994. Net interest income in 1994 was up 1.1% from $191.4 million in 1993.
 
  Table 1 presents average balances, taxable equivalent interest income and
expense and average rates earned and paid for Dauphin's assets and liabilities.
Table 3 analyzes the changes attributable to the volume and rate components of
net interest income.
 
TABLE 2--NET INTEREST INCOME
 
<TABLE>
<CAPTION>
                                                           (IN THOUSANDS)
                                                       1995     1994     1993
                                                     -------- -------- --------
<S>                                                  <C>      <C>      <C>
Total interest income............................... $363,644 $331,107 $325,045
Total interest expense..............................  187,931  152,641  148,772
                                                     -------- -------- --------
Net interest income.................................  175,713  178,466  176,273
Tax equivalent adjustment...........................   12,288   15,143   15,147
                                                     -------- -------- --------
Net interest income (fully taxable equivalent)...... $188,001 $193,609 $191,420
                                                     ======== ======== ========
</TABLE>
 
TABLE 3--RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
 
<TABLE>
<CAPTION>
                                          (IN THOUSANDS)
                                 1995/1994                   1994/1993
                         ---------------------------  -------------------------
                          CHANGE DUE TO                CHANGE DUE TO
                         -----------------   TOTAL    ----------------   TOTAL
                          VOLUME    RATE     CHANGE   VOLUME    RATE    CHANGE
                         --------  -------  --------  -------  -------  -------
<S>                      <C>       <C>      <C>       <C>      <C>      <C>
(Taxable equivalent)
Interest income
  Short-term
   investments.......... $    (51) $   230  $    179  $   (11) $   345  $   334
  Investment
   securities...........  (16,807)   4,924   (11,883)  (4,938)  (4,976)  (9,914)
  Assets held for sale..    3,528      (38)    3,490     (377)     668      291
  Loans.................   19,843   18,053    37,896   16,015     (668)  15,347
                         --------  -------  --------  -------  -------  -------
    Total interest
     income.............    6,513   23,169    29,682   10,689   (4,631)   6,058
                         --------  -------  --------  -------  -------  -------
Interest expense
  Interest bearing
   deposits.............   18,496   15,119    33,615   (3,181)  (5,530)  (8,711)
  Short-term
   borrowings...........   (6,064)   9,888     3,824    4,518    8,102   12,620
  Long-term debt........   (2,774)     625    (2,149)     (34)      (6)     (40)
                         --------  -------  --------  -------  -------  -------
    Total interest
     expense............    9,658   25,632    35,290    1,303    2,566    3,869
                         --------  -------  --------  -------  -------  -------
Net interest income..... $ (3,145) $(2,463) $ (5,608) $ 9,386  $(7,197) $ 2,189
                         ========  =======  ========  =======  =======  =======
</TABLE>
 
Note: The changes not due solely to change in volume or solely to change in
      rate are allocated proportionally to both change in volume and rate.
 
                                       15
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
  During 1995 there was a decrease in net interest income of $3.1 million due
to changes in volume and a decrease of $2.5 million due to changes in rate. In
1994 there was an increase of $9.4 million due to changes in volume and a
decrease of $7.2 million due to changes in rate.
 
  The change in the net interest margin attributable to interest rates can be
understood by analyzing the interest rate spread and the net interest margin on
earning assets. While the interest rate spread considers only the difference
between the average rate earned on earning assets and the average rate paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.
 
  As reflected in Table 4, average earning assets were $4.7 billion in 1995 and
$4.6 billion in 1994 and 1993. The interest rate spread for 1995 was 3.29%
compared with 3.61% for 1994 and 3.67% for 1993. The net interest margin for
1995 was 4.00% compared with 4.17% for 1994 and 4.21% for 1993.
 
TABLE 4--INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
 
<TABLE>
<CAPTION>
                                             (DOLLARS IN MILLIONS)
                                         1995          1994          1993
                                     ------------  ------------  ------------
                                     AVERAGE       AVERAGE       AVERAGE
                                     BALANCE RATE  BALANCE RATE  BALANCE RATE
                                     ------- ----  ------- ----  ------- ----
<S>                                  <C>     <C>   <C>     <C>   <C>     <C>
(Taxable equivalent)
Earning assets...................... $4,704  7.99% $4,640  7.46% $4,552  7.47%
                                     ======        ======        ======
Interest bearing liabilities........ $4,002  4.70  $3,970  3.85  $3,915  3.80
                                             ----          ----          ----
Interest rate spread................         3.29          3.61          3.67
Interest free sources used to fund
 earning assets.....................    702           670           637
                                     ------  ----  ------  ----  ------  ----
Total sources of funds.............. $4,704  3.99  $4,640  3.29  $4,552  3.26
                                     ======  ----  ======  ----  ======  ----
Net interest margin.................         4.00%         4.17%         4.21%
                                             ====          ====          ====
</TABLE>
 
  Short-term interest rates (prime, federal funds, etc.) continued to rise
during the first half of 1995 followed by a decline in the second half of 1995.
Long-term interest rates, in general, declined steadily for the entire year.
The net result of these interest rate movements was a flattening of the overall
yield curve. The average prime rate in 1995 was 8.83% compared with 7.17% in
1994. The average federal funds rate increased to 5.84% for 1995 compared with
4.23% for 1994. During 1995, compared with 1994, the average yield on earning
assets increased 53 basis points while the average cost of funds increased 85
basis points resulting in a decrease in the interest rate spread of 32 basis
points. The yield on the investment portfolio increased 23 basis points due to
the reinvestment of maturities at higher rates, when compared with the yield of
the security maturing. Average loans, which represent the highest yielding
earning assets, increased $244.8 million or 9.2% and produced a yield of 8.56%
in 1995 compared with 7.92% in 1994. Average loans represented 61.6% of the
average earning assets for 1995. The cost of interest bearing deposits
increased to 4.47% in 1995 compared with 3.68% in 1994. Rates paid on interest
bearing transaction accounts decreased throughout 1995. Interest rates offered
on time deposits have been rising. Consequently, depositors have been shifting
from transaction accounts to higher yielding time deposits. The increase in the
cost of short- term borrowings (143 basis points) was caused primarily by the
rise in the federal funds rate. The interest rate spread decreased 32 basis
points which was partially offset by an increase in the value of non-interest
bearing funds resulting in a net 17 basis point decline in the net interest
margin.
 
  Average interest rates rose during 1994 compared to 1993. The average prime
rate in 1994 was 7.17% compared with 6.00% in 1993. The average federal funds
rate increased to 4.23% for 1994 compared with 3.02% for 1993. During 1994,
compared with 1993, the average yield on earning assets decreased 1 basis point
while the average cost of funds increased 5 basis points resulting in a
decrease in the interest rate spread of 6 basis points. The yield on the
investment portfolio decreased 17 basis points due to the reinvestment of
maturities at
 
                                       16
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
significantly lower rates when compared with the yield of the security
maturing. Average loans, which represent the highest yielding earning assets,
increased $191.0 million or 7.8% and produced a yield of 7.92% in 1994 compared
with 7.91% in 1993. This slight increase was the result of a higher interest
rate environment during 1994, somewhat offset by fee income which is included
in interest income. The reduction of fees, due to lower refinancings in
residential mortgages, reduced the yield by 2 basis points. Average loans
represented 57.1% of the average earning assets for 1994. The cost of interest
bearing deposits decreased to 3.68% in 1994 compared with 3.86% in 1993. Rates
paid on interest bearing transaction accounts decreased in early 1994 and
remained relatively flat throughout the year. Interest rates on time deposits
have recently been rising. Consequently, depositors are shifting from
transaction accounts to higher yielding time deposits, reversing the trend of
the prior three years. The increase in the cost of short-term borrowings (111
basis points) was caused primarily by the rise in the federal funds rate. The
interest rate spread decreased 6 basis points which was partially offset by an
increase in the value of non-interest bearing funds resulting in a 4 basis
point decline in the net interest margin.
 
  Dauphin's cost of interest bearing funds is generally higher, and its net
interest margin is generally lower, when compared with banking companies of
Dauphin's asset size. An important factor in these comparative differences is
certain individual retirement accounts which are invested in 18 month variable
interest rate products with a minimum interest rate of 10% for the 18 month
term as discussed herein under "Deposits". If these interest rate products had
paid interest at Dauphin's weighted average cost of funds for all other retail
certificates of deposit, Dauphin's cost of interest bearing liabilities would
have been decreased by 21 basis points, 24 basis points and 21 basis points for
1995, 1994 and 1993, respectively.
 
PROVISION FOR LOAN LOSSES
 
  The provision for loan losses charged against earnings was $5.6 million in
1995 compared with $7.5 million in 1994, a decrease of 25.2%. This decrease was
mainly due to the improved asset quality of the loan portfolio. The provision
is based on management's estimate of the amount needed to maintain an adequate
allowance for loan losses. This estimate is based on the review of the loan
portfolio, the level of net credit losses, past loan loss experience, the
general economic outlook and other factors that management feels are
appropriate.
 
  Management takes an aggressive approach to charging off loans. This does not
necessarily indicate a decline in the asset quality of the loan portfolio.
 
  Several improvements were seen in certain measures of loan portfolio
performance. The ratio of net charge-offs to average loans decreased to .14% in
1995 from .24% in 1994 and the level of non-accruing loans and restructured
loans decreased to $17.9 million (.60% of year-end loans) at December 31, 1995
from $20.3 million (.71% of year-end loans) at December 31, 1994.
 
NON-INTEREST INCOME
 
  Table 5 reflects Dauphin's total non-interest income which increased $10.8
million or 17.8% in 1995 compared with an increase of $.9 million or 1.5% in
1994. Excluding gains on investment securities, the 1995 increase was $11.9
million or 20.6% compared with an increase of $.8 million or 1.4% for 1994.
 
                                       17
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
TABLE 5--NON-INTEREST INCOME
 
<TABLE>
<CAPTION>
                                       (DOLLARS IN THOUSANDS)
                                   1995/1994                     1994/1993
                         --------------------------------  -----------------------
                                    INCREASE                 INCREASE
                                   (DECREASE)               (DECREASE)
                                  --------------           --------------
                          1995    AMOUNT     %     1994    AMOUNT     %     1993
                         -------  -------  -----  -------  -------  -----  -------
<S>                      <C>      <C>      <C>    <C>      <C>      <C>    <C>      
Banking:
  Fiduciary activities.. $16,807  $   444    2.7% $16,363  $ 1,126    7.4% $15,237
  Service charges on
   deposit accounts.....  11,019     (579)  (5.0)  11,598   (1,028)  (8.1)  12,626
  Other service charges
   and fees.............  12,554    1,282   11.4   11,272    2,134   23.4    9,138
  Securities gains,
   net..................   2,261   (1,043) (31.6)   3,304       78    2.4    3,226
  Other.................   4,384    1,219   38.5    3,165   (3,694) (53.9)   6,859
                         -------  -------         -------  -------         -------
                          47,025    1,323    2.9   45,702   (1,384)  (2.9)  47,086
Broker/dealer...........   6,380   (1,391) (17.9)   7,771   (3,215) (29.3)  10,986
Mortgage banking........  21,577   11,476  113.6   10,101    7,770  333.3    2,331
Intercompany
 eliminations...........  (3,193)    (566)         (2,627)  (2,275)           (352)
                         -------  -------         -------  -------         -------
    Total............... $71,789  $10,842   17.8% $60,947  $   896    1.5% $60,051
                         =======  =======  =====  =======  =======  =====  =======
</TABLE>
 
  In the banking segment of Dauphin, income from fiduciary activities increased
$.4 million or 2.7% in 1995. Revenue in 1995 increased in the areas of employee
benefits and personal trust. The increase of $1.1 million or 7.4% in 1994 was
due to similar increases in the employee benefits and personal trust
departments.
 
  Service charges on deposit accounts decreased $.6 million or 5.0% during
1995. In 1994, a decrease of $1.0 million or 8.1% was realized. Management
continuously monitors the fee structure and makes changes where appropriate.
The 1995 and 1994 decrease was primarily due to a lower number of fees assessed
for services.
 
  Other service charges and fees increased $1.3 million or 11.4% in 1995
compared with an increase of $2.1 million or 23.4% in 1994. The increase for
1995 and 1994 was due to the volume of merchant credit card processing and
other fees relating to increased volume in consumer lending.
 
  Securities gains totaled $2.3 million in 1995 as compared with $3.3 million
in 1994 and $3.2 million in 1993. All gains in 1995 were from the sale of debt
securities. During 1994 the sale of debt securities generated $2.4 million in
net gains compared with $.9 million in net gains from equity securities
transactions.
 
  Other non-interest income increased $1.2 million for 1995 compared with 1994.
In 1994, compared with 1993, other non-interest income decreased $3.7 million.
The increase for 1995 was primarily the result of gains realized on the
disposition of certain branches (including deposits) and the realignment of the
proceeds to new branch locations. In December 1993, a settlement with the
Commonwealth of Pennsylvania was entered into which resulted in a refund of
$3.6 million in previously paid Bank Shares Tax plus interest. This non-
recurring refund was the result of litigation contesting the Commonwealth's
ability to tax United States Obligations.
 
  The broker/dealer segment of Dauphin represents broker/dealer commissions and
fees generated by Hopper Soliday. This income is generated from underwriting
securities which are predominantly general obligations of Central Pennsylvania
municipalities, providing financial advisory services, selling securities to
individual and institutional investors and other related activities. The
broker/dealer income decreased $1.4 million or 17.9% in 1995 and decreased $3.2
million or 29.3% in 1994. These decreases are due to reduced volume of business
in 1995 and 1994, due primarily to a less favorable interest rate environment.
 
  The mortgage banking segment of Dauphin reflects the mortgage banking
subsidiary, Eastern Mortgage. The mortgage banking income increased $11.5
million or 113.6% in 1995 compared with 1994. Because Eastern
 
                                       18
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
Mortgage was acquired July 1, 1994, the income in 1994 represents a full
service mortgage banking operation for only six months.
 
  In addition, effective January 1, 1995, Dauphin adopted Statement of
Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS 122 amended
Statement 65 to require an institution to recognize as separate assets the
rights to service mortgage loans for others when a mortgage loan is sold or
securitized and servicing rights retained. Mortgage servicing rights are
amortized in proportion to, and over the period of, estimated net servicing
income. For the year ended December 31, 1995 the impact of applying the
provisions of SFAS 122 resulted in a net increase in mortgage banking income of
$5.8 million when compared with 1994.
 
NON-INTEREST EXPENSE
 
  Table 6 reflects Dauphin's non-interest expense which increased $14.0 million
or 10.1% in 1995 compared with an increase of $2.8 million or 2.1% in 1994.
 
TABLE 6--NON-INTEREST EXPENSE
 
<TABLE>
<CAPTION>
                                               (DOLLARS IN THOUSANDS)
                                  1995/1994                                 1994/1993
                         ------------------------------            -------------------------------
                                   INCREASE (DECREASE)             INCREASE (DECREASE)
                                   --------------------            --------------------
                           1995      AMOUNT       %        1994      AMOUNT       %         1993
                         --------  --------------------  --------  --------------------   --------
<S>                      <C>       <C>         <C>       <C>       <C>         <C>        <C>
Banking:
  Salaries and employee
   benefits............. $ 61,375  $      276        .5% $ 61,099       $(558)      (.9)% $ 61,657
  Net occupancy
   expense..............    7,719        (368)     (4.6)    8,087         (78)     (1.0)     8,165
  Furniture and
   equipment expense....    9,867         947      10.6     8,920        (149)     (1.6)     9,069
  Deposit insurance.....    4,095      (3,814)    (48.2)    7,909        (194)     (2.4)     8,103
  Other.................   43,086       7,113      19.8    35,973      (3,669)     (9.3)    39,642
                         --------  ----------            --------  ----------             --------
                          126,142       4,154       3.4   121,988      (4,648)     (3.7)   126,636
Broker/dealer...........    7,806         228       3.0     7,578      (2,103)    (21.7)     9,681
Mortgage banking........   21,950      11,962     119.8     9,988       9,988
Intercompany
 eliminations...........   (2,779)     (2,343)               (436)       (400)                 (36)
                         --------  ----------            --------  ----------             --------
    Total............... $153,119  $   14,001      10.1% $139,118  $    2,837       2.1%  $136,281
                         ========  ==========  ========  ========  ==========  ========   ========
</TABLE>
 
  Dauphin's banking segment non-interest expense increased $4.2 million or 3.4%
in 1995 compared with a decrease of $4.6 million or 3.7% for 1994.
 
  In Dauphin's banking segment, salaries and employee benefits increased .5% in
1995 and decreased .9% in 1994. Full-time equivalent employees increased 5.2%
to 2,024 at December 31, 1995 compared with 1,924 at year-end 1994. Salaries
expense increased 4.1% in 1995, while benefits expense decreased 15.1%,
primarily due to a decrease in health insurance costs. Dauphin goes through a
continual review to control benefit costs.
 
  In the second quarter of 1995, the Bank Insurance Fund (BIF) reached its
statutory reserve ratio requirement of 1.25%. Consequently, the FDIC
significantly reduced the assessment rates applicable to BIF members and
refunded to BIF members that portion of the assessment for the second and third
quarters of 1995 which represented an overpayment once BIF had achieved full
funding in accordance with the statutory reserve ratio requirement. Dauphin
received a refund from the FDIC in September 1995 in the amount of $2.2 million
which included interest from June 1, the date the BIF was fully funded. In
addition, Dauphin's assessment rate was dropped from 23 basis points to 4 basis
points effective from the date of BIF reaching its statutory reserve ratio
requirement. This reduced Dauphin's deposit insurance expense by $3.8 million
when compared to 1994. In 1996, Dauphin will record $1,000 for deposit
insurance for the period from January through June. Deposit insurance
assessments for the second half of 1996 have not yet been determined.
 
                                       19
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
  All other non-interest expense items increased $7.7 million or 14.5% in 1995
compared with 1994. The increase for 1995 was primarily the result of increased
expenses to reflect numerous strategic initiatives implemented in 1995. The
other non-interest expense items that increased include depreciation on
technological investments, upgrades to branch facilities, legal, and consulting
fees.
 
  The broker/dealer segment had increased non-interest expense of $.2 million
or 3.0% in 1995 and a decrease of $2.1 million or 21.7% in 1994.
 
  The mortgage banking segment had increased non-interest expense of $12.0
million or 119.8% in 1995 compared with 1994. This significant increase
reflects twelve months of results in 1995 and six months of results in 1994. In
addition, the mortgage banking segment experienced significant volume increases
in 1996, including large refinancing activities in the last quarter of 1995,
which resulted in significantly higher salary expense.
 
PROVISION FOR INCOME TAXES
 
  Income tax expense amounted to $23.2 million in 1995 as compared with $22.8
million in 1994 and $22.0 million in 1993. Dauphin's effective tax rate for
1995 was 26.1% compared with 24.5% in 1994 and in 1993. The primary increase in
the effective tax rate was due to the decreased level of tax exempt income in
1995 compared with 1994 and 1993. For a more comprehensive analysis of income
tax expense, refer to Note 13 of the Notes to Consolidated Financial
Statements.
 
                              FINANCIAL CONDITION
 
SOURCES AND USES OF FUNDS
 
  Dauphin's financial condition can be evaluated in terms of trends in its
sources and uses of funds. The comparison of average balances in Table 7
indicates how Dauphin has managed these elements. Average funding uses
increased $63.6 million or 1.4% in 1995 as compared with an increase of $88.0
million or 1.9% in 1994.
 
TABLE 7--SOURCES AND USES OF FUNDS
 
<TABLE>
<CAPTION>
                                                  (DOLLARS IN THOUSANDS)
                                      1995                              1994                   1993
                         -------------------------------   -------------------------------  ----------
                                    INCREASE (DECREASE)               INCREASE (DECREASE)
                          AVERAGE   --------------------    AVERAGE   --------------------   AVERAGE
                          BALANCE     AMOUNT        %       BALANCE     AMOUNT        %      BALANCE
                         ---------- ------------ -------   ---------- ------------ -------  ----------
<S>                      <C>        <C>          <C>       <C>        <C>          <C>      <C>
Funding uses:
  Short-term
   investments.......... $   16,344 $      (462)    (2.7)% $   16,806 $      (291)   (1.7)% $   17,097
  Taxable investment
   securities...........  1,384,930    (150,759)    (9.8)   1,535,689    (131,368)    (7.9)  1,667,057
  Tax exempt investment
   securities...........    327,617     (79,670)   (19.6)     407,287      35,158      9.4     372,129
  Assets held for sale..     79,306      49,720    168.1       29,586      (6,485)   (18.0)     36,071
  Loans.................  2,895,326     244,776      9.2    2,650,550     191,013      7.8   2,459,537
                         ---------- -----------            ---------- -----------           ----------
    Total uses.......... $4,703,523 $    63,605      1.4%  $4,639,918 $    88,027      1.9% $4,551,891
                         ========== ===========  =======   ========== ===========  =======  ==========
Funding sources:
  Interest bearing
   demand deposits...... $  507,101 $   (57,491)   (10.2)% $  564,592 $    34,089      6.4% $  530,503
  Savings deposits......    906,945    (143,635)   (13.7)   1,050,580     (70,291)    (6.3)  1,120,871
  Time deposits.........  1,884,197     400,680     27.0    1,483,517     (41,492)    (2.7)  1,525,009
  Short-term
   borrowings...........    646,537    (132,369)   (17.0)     778,906     132,719     20.5     646,187
  Long-term debt........     56,742     (35,306)   (38.4)      92,048        (473)     (.5)     92,521
  Non-interest bearing
   funds (net)(1).......    702,001      31,726      4.7      670,275      33,475      5.3     636,800
                         ---------- -----------            ---------- -----------           ----------
    Total sources....... $4,703,523 $    63,605      1.4%  $4,639,918 $    88,027      1.9% $4,551,891
                         ========== ===========  =======   ========== ===========  =======  ==========
</TABLE>
--------
(1) Non-interest bearing liabilities and stockholders' equity less non-interest
    bearing assets.
 
                                       20
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS
 
  Average short-term investments and investment securities, in the aggregate,
decreased $230.9 million or 11.8% during 1995 compared with a decrease of $96.5
million or 4.7% during 1994. During 1995 and 1994 investment securities
maturing were used to fund loan growth since loan growth exceeded the growth of
traditional funding sources of deposits and short-term borrowings.
 
  The balances maintained for short-term investments and investment securities
are, for the most part, supported by short-term deposits such as money market
and interest bearing demand accounts, short-term borrowings and time deposits.
As reflected in Table 8, the average maturity of the investment portfolio was
6.0 years at year-end 1995. Included in the portfolio are state and municipal
securities and mortgage-backed securities that have a longer-term maturity but
are sometimes either called before maturity or have repricing characteristics
that occur before final maturity. The average life to call or repricing of the
portfolio was 2.0 years at December 31, 1995.
 
TABLE 8--ANALYSIS OF INVESTMENT SECURITIES
 
<TABLE>
<CAPTION>
                                                (DOLLARS IN THOUSANDS)
                                                                                        TAXABLE
                            U.S.     FEDERAL     STATE &    OTHER                      EQUIVALENT
                          TREASURY   AGENCIES   MUNICIPAL   BONDS   STOCKS    TOTAL      YIELD
                          --------  ----------  ---------  -------  ------- ---------- ----------
<S>                       <C>       <C>         <C>        <C>      <C>     <C>        <C>
DECEMBER 31, 1995
MATURITY--AMORTIZED COST
 BASIS
  Within one year.......  $ 90,800  $  123,361  $ 49,139   $11,381  $       $  274,681    7.01%
  One to five years.....     8,692     444,554    61,841    11,785             526,872    6.89%
  Five to ten years.....               136,680    40,913       370             177,963    7.35%
  Over ten years........               705,278   135,804                       841,082    6.97%
  No set maturity.......                                             19,272     19,272
                          --------  ----------  --------   -------  ------- ----------
Amortized cost..........  $ 99,492  $1,409,873  $287,697   $23,536  $19,272 $1,839,870
                          ========  ==========  ========   =======  ======= ==========
Fair value..............  $100,742  $1,414,233  $302,702   $23,887  $19,305 $1,860,869
                          ========  ==========  ========   =======  ======= ==========
Taxable equivalent
 yield..................      6.27%       6.54%     9.44%     7.21%
Average maturity........                                                      6.0 year
DECEMBER 31, 1994
Amortized cost..........  $251,793  $1,133,247  $369,061   $79,932  $12,903 $1,846,936
DECEMBER 31, 1993
Amortized cost..........  $264,318  $1,263,299  $406,241   $93,592  $13,754 $2,041,204
</TABLE>
 
  Dauphin had no investments in any foreign country that aggregated more than
1% of assets at December 31, 1995, 1994 or 1993.
 
  At December 31, 1995, net unrealized gains in the portfolio were $21.0
million consisting of gross unrealized gains of $29.7 million and gross
unrealized losses of $8.7 million. Dauphin accounts for investment securities
in accordance with the provisions of Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities". SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. These investments are to be classified
in one of three categories and accounted for as follows: 1) debt securities
that a company has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost; 2)
debt and equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in earnings;
and 3) debt and equity securities not classified as either held-to-maturity or
trading securities are classified as available-for-sale securities and reported
at fair
 
                                       21
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
value, with unrealized gains and losses excluded from earnings and reported as
a separate component of stockholders' equity. Management has determined that
the entire investment securities portfolio should be classified as available-
for-sale.
 
LOANS
 
  Average loans increased $244.8 million or 9.2% during 1995 compared with an
increase of $191.0 million or 7.8% in 1994. Loan growth continued to increase
in 1995, primarily in the area of consumer loans, as more emphasis was placed
on this line of business.
 
  The economy in our market area is diversified and has been relatively stable.
This affords Dauphin the opportunity to select quality commercial credits and
stabilizes our consumer business.
 
  Loan balances during 1995 were influenced by the improving economy and, as a
result, balances in both the commercial and consumer areas increased. Dauphin
continues to sell residential mortgages in the secondary market in order to
avoid taking interest rate risk.
 
  Dauphin's policy is to make the vast majority of its loans and commitments in
the market area it serves. This tends to reduce risk and gives Dauphin the
opportunity to deliver its many products to the same customer base. Dauphin had
no foreign loans in its portfolio at December 31, 1995.
 
TABLE 9--LOANS OUTSTANDING, NET OF UNEARNED INCOME
 
<TABLE>
<CAPTION>
                                             (IN THOUSANDS)
                                              DECEMBER 31,
                         ----------------------------------------------------------
                            1995        1994        1993        1992        1991
                         ----------  ----------  ----------  ----------  ----------
<S>                      <C>         <C>         <C>         <C>         <C>
Commercial, financial
 and agricultural:
  Commercial secured by
   real estate.......... $  640,670  $  466,657  $  433,055  $  435,899  $  466,241
  Agricultural..........     36,415      34,960      40,748      38,306      31,709
  Other.................    719,137     680,113     665,514     641,161     650,969
Real estate,
 construction...........     97,444     183,673     184,523     138,023     136,037
Real estate,
 residential............    446,059     578,122     461,030     477,833     454,435
Consumer:
  Home equity...........    385,194     335,323     343,175     308,563     302,849
  Installment and credit
   card.................    507,425     483,889     431,420     360,893     347,619
Lease financing.........    150,943     101,919      30,488      15,409      16,760
Unamortized net loan
 fees...................     (1,949)     (3,523)     (3,868)     (4,315)     (3,841)
                         ----------  ----------  ----------  ----------  ----------
    Total............... $2,981,338  $2,861,133  $2,586,085  $2,411,772  $2,402,778
                         ==========  ==========  ==========  ==========  ==========
</TABLE>
 
TABLE 10--LOAN MATURITIES AND INTEREST SENSITIVITY (1)
 
<TABLE>
<CAPTION>
                                                   (IN THOUSANDS)
                                                 DECEMBER 31, 1995
                                     ------------------------------------------
                                     ONE YEAR ONE THROUGH    OVER
                                     OR LESS  FIVE YEARS  FIVE YEARS   TOTAL
                                     -------- ----------- ---------- ----------
<S>                                  <C>      <C>         <C>        <C>
Commercial, financial and
 agricultural......................  $451,991  $311,106    $633,125  $1,396,222
Real estate, construction..........    39,470     9,348      48,626      97,444
                                     --------  --------    --------  ----------
  Total............................  $491,461  $320,454    $681,751  $1,493,666
                                     ========  ========    ========  ==========
Loans with predetermined interest
 rate..............................  $ 93,645  $140,416    $ 36,925  $  270,986
Loans with variable interest rate..   397,816   180,038     644,826   1,222,680
                                     --------  --------    --------  ----------
  Total............................  $491,461  $320,454    $681,751  $1,493,666
                                     ========  ========    ========  ==========
</TABLE>
--------
(1) Excludes residential mortgages, home equity, consumer loans and lease
    financing
 
                                       22
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
DEPOSITS
 
  Average deposits, including non-interest bearing demand deposits, increased
$223.6 million or 6.4% during 1995 compared with a decrease of $62.3 million or
1.7% in 1994. Dauphin, like many other commercial banks, has experienced
deposit growth even as the competition for depositors' funds has become more
intense. Competition for deposits has come from other commercial banks, thrift
institutions, credit unions, brokerage houses and mutual funds. Deposit growth
was primarily due to the increase in average interest rates during 1995. While
rates paid on interest bearing transaction accounts decreased throughout 1995,
rates paid on time deposits have been increasing due to rising interest rates.
Depositors appear to be shifting from transaction accounts to time deposits.
Included in interest bearing deposits are certain individual retirement
accounts (IRA) totaling $184.8 million which are invested in 18 month variable
interest rate products with a minimum interest rate of 10% for the 18 month
term. During 1993, Dauphin charged a service fee on these products, and
initiated the process to discontinue the products in accordance with the terms
of the IRA contract. In furtherance of its right to terminate this investment
product, Dauphin commenced a legal action for a declaratory judgment in 1994
seeking a judicial determination from the Court permitting Dauphin to
discontinue the 18 month variable rate investment product at issue and/or to
charge an annual maintenance fee and an additional fee on rollovers or
transfers into the IRA account. Dauphin's right to terminate the variable rate
investment product and to charge a service fee is in dispute and is being
challenged by the holders of the IRA accounts in question. It is management's
opinion that continuation of the 18 month variable rate investment product is
not in the best interest of Dauphin. Management intends to vigorously assert
its legal right to discontinue the 18 month variable rate investment product.
Counsel expects the case to go to trial in the second quarter of 1996 and for a
decision to be rendered by the Court promptly thereafter.
 
  During 1995 average time deposits increased $400.7 million compared with a
decrease of $41.5 million during 1994. This funding source was used to replace
volatile liabilities such as overnight federal funds. Additionally, the growth
of non-interest bearing deposits has been relatively slow in recent years. The
percentage of average non-interest bearing demand deposits to average total
deposits amounted to 11.6% in 1995 and 1994 and 11.0% for 1993. Dauphin's
banking subsidiary has remained interest rate competitive and has introduced
new deposit products to maintain and attract deposits.
 
SHORT-TERM BORROWINGS
 
  Average short-term borrowings decreased $132.4 million or 17.0% during 1995
compared with an increase of $132.7 million or 20.5% in 1994. Short-term
borrowings are primarily represented by federal funds purchased and securities
sold under agreements to repurchase. The level of short-term borrowings is
dependent upon many items such as loan growth, deposit growth and the interest
rates paid for these funds. The average cost of short-term borrowings increased
from 3.01% in 1993 to 4.12% in 1994 and to 5.55% in 1995.
 
NON-PERFORMING ASSETS
 
  Table 11 reflects Dauphin's non-performing assets for the five years ended
December 31, 1995. Dauphin's policy is to discontinue the accrual of interest
on commercial loans on which principal or interest is past due 90 days or more
and on commercial mortgages on which principal or interest is past due 120 days
or more. Consumer loans, excluding residential mortgages, which are 150 days
past due are charged off. Residential mortgages are placed on non-accrual
status after becoming 180 days past due. When a loan is placed on non-accrual
status, any unpaid interest is generally charged against income. Management
believes that strict adherence to this policy with regard to non-accruals and
charge-offs will insure that the historically high quality of the loan
portfolio will be maintained. Other real estate owned represents property
acquired through foreclosure.
 
                                       23
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
TABLE 11--NON-PERFORMING ASSETS
 
<TABLE>
<CAPTION>
                                           (DOLLARS IN THOUSANDS)
                                                DECEMBER 31,
                                   -------------------------------------------
                                    1995     1994     1993     1992     1991
                                   -------  -------  -------  -------  -------
<S>                                <C>      <C>      <C>      <C>      <C>
Non-accrual loans................  $ 7,031  $ 9,569  $17,450  $18,945  $18,033
Loans past due 90 or more days as
 to principal or interest
 payments........................    5,805    5,149    2,823    5,409    6,065
Restructured loans...............    5,072    5,599    7,352    6,327      194
                                   -------  -------  -------  -------  -------
    Total non-performing loans...   17,908   20,317   27,625   30,681   24,292
Other real estate owned..........    2,709    3,056    2,981    3,981    3,434
                                   -------  -------  -------  -------  -------
    Total non-performing assets..  $20,617  $23,373  $30,606  $34,662  $27,726
                                   =======  =======  =======  =======  =======
Ratios:
  Non-performing loans to total
   loans.........................      .60%     .71%    1.07%    1.27%    1.01%
  Non-performing assets to total
   loans and other real estate
   owned.........................      .69      .82     1.18     1.43     1.15
  Allowance for loan losses to
   non-performing loans..........   233.06   197.94   141.84   118.08   131.56
</TABLE>
 
  Loan quality is maintained through diversification of risk, strict
enforcement of credit control practices and continued monitoring of the loan
portfolio.
 
  At December 31, 1995, Dauphin had no loan concentrations exceeding 10% of
total loans. Loan concentrations are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities which
would cause them to be similarly affected by economic or other industry
specific conditions.
 
  The balance of non-accrual and restructured loans is $12.1 million at
December 31, 1995. Interest income on these loans of $.4 million was recorded
on a cash basis. If such loans were on the accrual basis, an additional $.3
million of interest income would have been recognized.
 
  Loans which are not included in non-performing and are current as to payments
of principal and interest but have a somewhat higher than normal risk of
becoming non-accrual, impaired or reduced rate in the future are estimated to
total approximately $8.1 million at December 31, 1995.
 
  On January 1, 1995, Dauphin adopted the provisions of Statement of Financial
Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors for
Impairment of a Loan", as amended by Statement of Financial Accounting
Standards No. 118 (SFAS 118), "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures". SFAS 114 addresses the accounting by
creditors for impairment of certain loans. SFAS 114 requires that impaired
loans that are within the scope of the Statement be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, at the loan's market price of the fair value of the
collateral if the loan is collateral dependent.
 
  On December 31, 1995 the balance of impaired loans was $11.7 million.
Impaired loans of $8.2 million have a related allowance for loan losses of $3.8
million and the remaining impaired loans of $3.5 million have no related
allowance for loan losses. The impaired loans consist of loans where it is
probable that Dauphin will be unable to collect all amounts due according to
the contractual term of the loan agreement. Interest income for impaired loans
that are on non-accrual status is recognized using the cash basis, while
interest on impaired loans that are still accruing is recognized using the
accrual method. The average balance of impaired loans for 1995 was $8.4 million
and the interest recognized for the year was $.7 million. The interest income
includes $.2 million that was recorded on the cash basis.
 
 
                                       24
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
  Federal regulatory authorities have defined "highly leveraged transactions"
(HLT's) as a credit of $20 million or more which is extended in connection with
an acquisition by, or a restructuring of, an organization, and the extension of
credit results in "high leverage" or is made to an already highly leveraged
organization. It is the policy of Dauphin to consider financing HLT's for its
customers or for potential customers in its market area which usually involves
the change of ownership from one generation of a family to the next, or from
present owners to the existing management team. The amount of HLT's, as defined
by the Federal regulatory authorities, was $7.3 million at December 31, 1995
and $8.2 at December 31, 1994 and represents Dauphin's portion of a shared
national credit within its market area.
 
ALLOWANCE FOR LOAN LOSSES
 
  The allowance for loan losses is based on management's continuing evaluation
of the loan portfolio, assessment of economic conditions, the diversification
and size of the portfolio, adequacy of collateral, past and anticipated loss
experience and the amount and quality of non-performing loans. Table 12
presents the allocation of the allowance for loan losses by major loan category
for the past five years. The specific allocations in any particular category
may prove excessive or inadequate and consequently may be re-allocated in the
future to reflect then current conditions. Accordingly, the entire allowance is
considered available to absorb losses in any category. In 1995, the unallocated
category increased primarily as a result of Dauphin's continued improvement in
loan quality which is reflected in Table 11.
 
TABLE 12--ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
 
<TABLE>
<CAPTION>
                                                     (DOLLARS IN THOUSANDS)
                                                          DECEMBER 31,
                         -------------------------------------------------------------------------------
                              1995            1994            1993            1992            1991
                         --------------- --------------- --------------- --------------- ---------------
                                 % GROSS         % GROSS         % GROSS         % GROSS         % GROSS
                         AMOUNT   LOANS  AMOUNT   LOANS  AMOUNT   LOANS  AMOUNT   LOANS  AMOUNT   LOANS
                         ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S>                      <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Commercial, financial
 and agricultural....... $24,016   46.8% $27,469   41.3% $28,147   44.0% $18,596   46.2% $17,391   47.7%
Real estate,
 construction...........   1,412    3.3    1,973    6.4    1,383    7.1    1,322    5.7    1,278    5.7
Real estate,
 residential(1).........   4,607   27.9    3,711   31.9    1,286   31.1      956   32.5      698   31.5
Consumer................   4,123   17.0    4,800   16.9    4,314   16.7    2,595   14.9    3,351   14.4
Lease financing.........     859    5.0      581    3.5      457    1.1      154     .7      168     .7
Unallocated.............   6,720           1,682           3,595          12,604           9,073
                         -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
  Total................. $41,737  100.0% $40,216  100.0% $39,182  100.0% $36,227  100.0% $31,959  100.0%
                         =======  =====  =======  =====  =======  =====  =======  =====  =======  =====
</TABLE>
--------
Gross loans represent loans before unamortized net loan fees.
(1) Includes home equity loans
 
  Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.
 
  Table 13 reflects an analysis of the allowance for loan losses for the past
five years.
 
                                       25
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
  The provision for loan losses of $5.6 million exceeded the net charge-offs of
$4.1 million, thereby increasing the allowance for loan losses from $40.2
million in 1994 to $41.7 million in 1995. The allowance for loan losses as a
percentage of year-end loans was 1.40% at December 31, 1995 and 1.41% at
December 31, 1994.
 
TABLE 13--ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
 
<TABLE>
<CAPTION>
                                          (DOLLARS IN THOUSANDS)
                                         YEARS ENDED DECEMBER 31,
                          ----------------------------------------------------------
                             1995        1994        1993        1992        1991
                          ----------  ----------  ----------  ----------  ----------
<S>                       <C>         <C>         <C>         <C>         <C>
Balance, beginning of
 period.................  $   40,216  $   39,182  $   36,227  $   31,959  $   29,190
Provision charged to
 operating expenses.....       5,608       7,494      10,141      11,627      10,836
Allowance of subsidiary
 sold...................                    (101)
Loans charged off:
  Commercial, financial
   and agricultural.....       4,737       5,971       7,406       6,217       6,074
  Real estate,
   residential(1).......         422         933         480         464         172
  Consumer..............       2,696       2,428       2,547       3,445       4,242
  Lease financing.......         321          68          88         129         190
                          ----------  ----------  ----------  ----------  ----------
    Total loans charged
     off................       8,176       9,400      10,521      10,255      10,678
                          ----------  ----------  ----------  ----------  ----------
Recoveries:
  Commercial, financial
   and agricultural.....       2,357       1,368       2,132       1,330       1,369
  Real estate,
   residential(1).......         444         533          26         245         103
  Consumer..............       1,228       1,121       1,152       1,303       1,084
  Lease financing.......          60          19          25          18          55
                          ----------  ----------  ----------  ----------  ----------
    Total recoveries....       4,089       3,041       3,335       2,896       2,611
                          ----------  ----------  ----------  ----------  ----------
Net charge-offs.........       4,087       6,359       7,186       7,359       8,067
                          ----------  ----------  ----------  ----------  ----------
Balance, end of period..  $   41,737  $   40,216  $   39,182  $   36,227  $   31,959
                          ==========  ==========  ==========  ==========  ==========
Total loans:
  Average...............  $2,895,326  $2,650,550  $2,459,537  $2,399,974  $2,332,828
  Year-end..............   2,981,338   2,861,133   2,586,085   2,411,772   2,402,778
Ratios:
 Net charge-offs to:
  Average loans.........         .14%        .24%        .29%        .31%        .35%
  Loans at year-end.....         .14         .22         .28         .31         .34
  Allowance for loan
   losses...............        9.79       15.81       18.34       20.31       25.24
  Provision for loan
   losses...............       72.88       84.85       70.86       63.29       74.45
 Allowance for loan
  losses to:
  Average loans.........        1.44        1.52        1.59        1.51        1.37
  Loans at year-end.....        1.40        1.41        1.52        1.50        1.33
</TABLE>
(1) Includes home equity loans
 
LIQUIDITY
 
  Liquidity management involves meeting the funds flow requirements of
customers who may be either depositors wanting to withdraw funds, or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
 
  Liquidity from asset categories is provided primarily through investment
securities with maturities of less than one year and short-term investments,
such as deposits with other banks, federal funds sold and other short-term
investments. Dauphin's asset liquidity position is strong because of the
investment portfolio's maturity structure (Table 8), the amount of short-term
investments, the funds provided by loan maturities (Table 10) and
 
                                       26
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
the funds available to Dauphin by established federal funds lines of credit.
Additionally, the Bank is a member of the Federal Home Loan Bank of Pittsburgh.
This established credit arrangement provides the Bank with increased liquidity.
 
  The generation of deposit balances is the primary source of liquidity from
liability categories. Total deposits increased by $434.7 million or 12.4% from
year-end 1994 to year-end 1995. As previously mentioned, this funding source
replaced overnight federal funds borrowings. Table 14 reflects the change in
the major classifications of deposits by comparing the year-end balances for
the past three years and Table 15 reflects the maturity of large dollar
deposits for the same periods. As shown in Table 16, federal funds purchased
and other forms of short-term borrowings are also significant sources of
liquidity. Dauphin continues to maintain diverse liability funding sources.
 
TABLE 14--DEPOSITS BY MAJOR CLASSIFICATION
 
<TABLE>
<CAPTION>
                                                        (IN THOUSANDS)
                                                         DECEMBER 31,
                                               --------------------------------
                                                  1995       1994       1993
                                               ---------- ---------- ----------
<S>                                            <C>        <C>        <C>
Non-interest bearing deposits................. $  518,004 $  464,919 $  423,641
Interest bearing demand deposits..............    492,079    527,892    562,565
Savings deposits..............................    412,185    481,982    502,673
Money market deposit accounts.................    475,815    529,852    604,484
Time deposits.................................  1,592,379  1,239,462  1,192,437
Time deposits of $100,000 or more.............    459,074    270,777    300,335
                                               ---------- ---------- ----------
  Total....................................... $3,949,536 $3,514,884 $3,586,135
                                               ========== ========== ==========
</TABLE>
 
TABLE 15--MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                                             DECEMBER 31,
                                                      --------------------------
                                                        1995     1994     1993
                                                      -------- -------- --------
<S>                                                   <C>      <C>      <C>
Three months or less................................. $197,691 $162,820 $177,852
Over three months through six months.................   33,117   26,882   32,578
Over six months through twelve months................   63,866   27,526   24,974
Over twelve months...................................  164,400   53,549   64,931
                                                      -------- -------- --------
  Total.............................................. $459,074 $270,777 $300,335
                                                      ======== ======== ========
</TABLE>
 
TABLE 16--SHORT-TERM BORROWINGS
 
<TABLE>
<CAPTION>
                                                    (DOLLARS IN THOUSANDS)
                                                    1995      1994      1993
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Overnight federal funds purchased................ $266,370  $438,490  $187,210
Term federal funds purchased.....................            260,000   225,000
Eurodollars purchased............................    1,672
Federal Home Loan Bank borrowings................  149,000
Securities sold under agreements to repurchase...  233,830   196,021   215,890
U.S. Treasury tax and loan notes.................   27,289    46,266    52,286
                                                  --------  --------  --------
  Total short-term borrowings.................... $678,161  $940,777  $680,386
                                                  ========  ========  ========
Average interest rate at year-end................     5.33%     5.88%     3.03%
Maximum amount outstanding at any month-end...... $958,804  $940,777  $765,169
Average amount outstanding....................... $646,537  $778,906  $646,187
Weighted average interest rate...................     5.55%     4.12%     3.01%
</TABLE>
 
                                       27
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
CAPITAL RESOURCES
 
  During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding common stock. In
February 1995, an additional 1,500,000 shares were authorized for repurchase.
Available investments are being used to fund the share repurchases. Dauphin
will use the shares for general corporate purposes, including the Employee
Stock Purchase Plan, Stock Option Plan, the Dividend Reinvestment and Stock
Purchase Plan, and other appropriate uses. During 1995 and 1994, Dauphin
repurchased 630,000 shares for $16.1 million and 1,744,500 shares for $42.4
million, respectively.
 
  Total stockholders' equity increased $80.0 million or 17.1% in 1995 compared
with an increase of $39.4 million or 7.8% in 1994. The increase for 1995 was
due to net income of $65.6 million less dividends declared of $31.2 million and
was positively impacted by the change in net unrealized gains on investments
available-for-sale of $54.7 million, somewhat offset by the repurchase of
outstanding common stock throughout the year of $16.1 million. The decrease for
1994 was adversely impacted by the change in net unrealized losses on
investments available-for-sale of $83.1 million. The ratio of average equity to
average assets amounted to 10.23% for 1995, compared with 10.27% for 1994 and
9.99% for 1993. Internal capital generation is measured as the percent of
return on average equity multiplied by the percent of earnings retained. The
resulting internal capital generation percentage amounted to 6.7% for 1995
compared with 7.9% for 1994 and 8.6% for 1993.
 
  Common measures of adequate capitalization for banking institutions are
ratios of capital to assets. These ratios indicate the proportion of
permanently committed funds to the total asset base. Guidelines issued by
federal regulatory authorities require both banks and bank holding companies to
meet minimum risk-based capital ratios in an effort to make regulatory capital
more responsive to the risk exposure related to a bank's on- and off-balance
sheet items. Risk-based capital guidelines redefine the components of capital,
categorize assets into different risk classes and include certain off-balance
sheet items in the calculation of capital requirements. The components of risk-
based capital are segregated as Tier 1 and Tier 2 capital. Tier 1 capital is
composed of total stockholders' equity reduced by goodwill and other intangible
assets. Tier 2 capital is the allowance for loan losses (with certain
limitations) and qualifying debt obligations. Regulators have also adopted
minimum Tier 1 leverage ratio standards. Tier 1 capital for the leverage ratio
is the same as the Tier 1 capital definition in the risk-based capital
guidelines. Table 17 presents the capital ratios for Dauphin for the past three
years calculated at year-end in accordance with these guidelines. At December
31, 1995, Dauphin and its banking subsidiary exceeded all capital requirements
and is considered to be "well capitalized".
 
TABLE 17--CAPITAL RATIOS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -------------------
                                                            1995   1994   1993
                                                            -----  -----  -----
<S>                                                         <C>    <C>    <C>
Risk-based capital
  Tier 1 ratio............................................. 13.99% 13.82% 15.52%
  Total capital ratio (tier 1 and tier 2).................. 14.87  14.92  17.24
Leverage ratio............................................. 10.00   9.65  10.16
</TABLE>
 
INTEREST RATE SENSITIVITY
 
  Interest rate sensitivity management seeks to avoid fluctuating net interest
margins and to enhance consistent growth of net interest income through periods
of changing interest rates.
 
  Rates on different assets and liabilities within a single maturity category
adjust to changes in interest rates to varying degrees and over varying periods
of time. The rate of growth in interest free sources of funds will influence
the level of interest sensitive funding sources. In addition, the interest
rates will affect the volume of earning assets and funding sources. As a result
of these limitations, the interest sensitivity gap is only one factor to be
considered in estimating the changes in net interest margin.
 
                                       28
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
  Table 18 presents an interest sensitivity analysis of Dauphin's assets and
liabilities at December 31, 1995 for several time intervals. This table
reflects the interest sensitivity gap in two formats. The detailed presentation
represents management's assumption on certain interest bearing deposits, such
as passbook savings accounts, as not being subject to immediate repricing.
Management is of the opinion that historical interest rate movements indicate
that these products do not reprice in direct relation to the change in the
interest rate environment. Additionally, these products have provided Dauphin
with a stable core deposit base. Therefore, the detailed presentation within
Table 18 attempts to reflect these products in the appropriate interest
sensitivity time interval based on their interest sensitivity to the movement
of other interest rates. Also included in Table 18 is a summary of the gap, as
viewed by certain regulatory authorities, which presents these interest bearing
deposits as being subject to immediate repricing.
 
TABLE 18--INTEREST SENSITIVITY ANALYSIS
 
<TABLE>
<CAPTION>
                                          (DOLLARS IN THOUSANDS)
                                            DECEMBER 31, 1995
                          ------------------------------------------------------------
                                       INTEREST SENSITIVITY PERIOD
                          ------------------------------------------------------------
                            MONTH       QUARTER     SIX MONTHS    ANNUAL     5 YEARS
                          ----------   ----------   ----------  ----------  ----------
<S>                       <C>          <C>          <C>         <C>         <C>
Earning assets:
  Short-term invest-
   ments................  $   11,573   $   11,573   $   11,573  $   11,573  $   11,573
  Investment securi-
   ties.................     530,574      773,262      977,628   1,236,615   1,672,503
  Assets held for sale..      87,782       87,782       87,782      87,782      87,782
  Loans.................   1,636,626    1,741,224    1,864,848   2,093,111   2,838,037
                          ----------   ----------   ----------  ----------  ----------
    Total...............  $2,266,555   $2,613,841   $2,941,831  $3,429,081  $4,609,895
                          ==========   ==========   ==========  ==========  ==========
Interest bearing liabil-
 ities:
  Deposits..............  $1,312,839   $1,591,381   $1,785,708  $2,133,439  $2,772,612
  Short-term
   borrowings...........     678,161      678,161      678,161     678,161     678,161
  Long-term debt........           5           15           30      35,095      40,418
                          ----------   ----------   ----------  ----------  ----------
    Total...............  $1,991,005   $2,269,557   $2,463,899  $2,846,695  $3,491,191
                          ==========   ==========   ==========  ==========  ==========
  Interest sensitivity
   gap..................  $  275,550   $  344,284   $  477,932  $  582,386  $1,118,704
  Interest sensitive as-
   sets to interest sen-
   sitive liabilities
   ratio................        1.14         1.15         1.19        1.20        1.32
  Interest sensitivity
   gap as a percent of
   total assets.........        5.20%        6.50%        9.02%      10.99%      21.12%
Regulatory presentation:
  Interest sensitivity
   gap..................  $ (140,913)  $  (72,179)  $   61,469  $  165,958  $  702,440
  Interest sensitive as-
   sets to interest sen-
   sitive liabilities
   ratio................         .94          .97         1.02        1.05        1.18
  Interest sensitivity
   gap as a percent of
   total assets.........       (2.66)%      (1.36)%       1.16%       3.13%      13.26%
</TABLE>
 
  An interest sensitivity analysis is measured as of a specified date and,
therefore, is subject to almost immediate change as the maturities of assets
are reinvested and liabilities, such as deposits and short-term borrowings, are
received or mature. The mismatch of assets and liabilities in a specific time
frame is referred to as a sensitivity gap. The gap at December 31, 1995
reflects Dauphin's sensitivity at a point in time to rate changes over future
periods of time. Generally, an asset sensitive gap will increase an
institution's net interest income during periods of rising interest rates and
the liability sensitive gap will increase an institution's net interest income
during declining rates. The lower the amount of this gap, the less sensitive an
institution's earnings are to interest rate changes. However, Dauphin's assets
and liabilities with similar maturities or repricing will, at times, react
differently in varying interest rate environments. Therefore, the interest
sensitivity
 
                                       29
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
gap does not accurately predict the actual impact of market rate changes. The
volume and mix of future assets and liabilities changes will also impact
Dauphin's net interest income as indicated on Table 3. Dauphin continuously
monitors and adjusts the gap position, taking into consideration current
interest rate projections, and maintaining flexibility if rates move contrary
to expectations. Dauphin uses on-balance sheet financial instruments, such as
investments classified as available-for-sale, to provide flexibility in
managing the interest sensitivity gap.
 
EFFECTS OF INFLATION
 
  The impact of inflation upon banks differs from the impact upon non-financial
institutions. Banks, as financial intermediaries, have assets which are
primarily monetary in nature and change corresponding to movements in the
inflation rate. The precise impact of inflation upon Dauphin is difficult to
measure. Inflation may cause non-interest expense items to increase at a more
rapid rate than earning sources. Inflation may also affect the borrowing needs
of consumers, thereby affecting the growth rate of Dauphin's assets. Inflation
may also affect the general level of interest rates, which can have an effect
on the profitability of Dauphin.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
  In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of". SFAS 121 provides guidance for recognition and measurement of impairment
of long-lived assets, certain identifiable intangibles and goodwill related
both to assets to be held and used and assets to be disposed of. SFAS 121
becomes effective January 1, 1996 and will not have a material effect on
Dauphin's financial position or results of operations.
 
  In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation". SFAS 123 becomes
effective January 1, 1996, and will not have a material effect on Dauphin's
financial position or results of operations. Management anticipates that upon
adoption of SFAS 123 it will continue to measure compensation expense for its
stock-based employee compensation plans, using the methods as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and will provide pro
forma disclosures of net income and earnings per share as if the fair value-
based method prescribed by SFAS 123 had been applied in measuring compensation
expense.
 
REGULATORY DEVELOPMENTS
 
  During 1994, Congress passed legislation to remove geographic restrictions on
bank expansion. The Riegle-Neal Interstate Banking and Branch Efficiency Act of
1994 will allow banks to expand across state lines to merge existing multi-
state branching operations into a single institution or to acquire new branches
in other states. Interstate banking and branching authority will be subject to
certain conditions and restrictions, such as capital adequacy, management,
Community Reinvestment Act compliance and limits on deposit concentrations. The
legislation permits a bank holding company to acquire a bank in another state
as of September 29, 1994, whether or not the state permits the acquisition.
Interstate bank mergers and de novo interstate branching are permitted as of
June 1, 1997, although states may choose to opt in to these provisions prior to
June 1, 1997, or to opt out of these provisions completely by enacting
appropriate legislation. The Pennsylvania legislature amended the Pennsylvania
Banking Code of 1965 in July, 1995, to opt in to the interstate bank merger and
de novo branching provisions of the Riegle-Neal Act. The management of Dauphin
cannot predict with any reasonable degree of certainty the effects, if any,
which the Riegle-Neal Act may have on Dauphin.
 
  Legislation has been introduced in Congress to recapitalize the Savings
Association Insurance Fund (SAIF) via a one-time special assessment on SAIF
deposits and thereafter to merge the SAIF with the Bank Insurance Fund (BIF).
Legislation is also pending in Congress which would repeal certain aspects of
the Glass-Steagall Act, which prohibits commercial banks from engaging in
securities underwriting activities. It is not anticipated that the enactment of
such legislation, in its current form, would have a material effect on the
financial condition or results of operations of Dauphin.
 
                                       30
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  The following audited consolidated financial statements and documents are
set forth in this Annual Report on Form 10-K on the following pages:
 
<TABLE>
<S>                                                                          <C>
Dauphin Deposit Corporation and Subsidiaries
  Consolidated Balance Sheets...............................................  32
  Consolidated Statements of Income.........................................  33
  Consolidated Statements of Stockholders' Equity...........................  34
  Consolidated Statements of Cash Flows.....................................  35
  Notes to Consolidated Financial Statements................................  36
Independent Auditors' Report................................................  60
</TABLE>
 
                                      31
<PAGE>
 
                  Dauphin Deposit Corporation and Subsidiaries
                          CONSOLIDATED BALANCE SHEETS
                           December 31, 1995 and 1994
 
<TABLE>
<CAPTION>
                                                      (DOLLARS IN THOUSANDS)
                                                         1995         1994
                                                      -----------  -----------
<S>                                                   <C>          <C>
ASSETS
Cash and due from banks.............................. $   218,785  $   202,911
                                                      -----------  -----------
Short-term investments
  Interest bearing deposits..........................       8,523        3,738
  Federal funds sold and securities purchased under
   agreements to resell..............................       3,050       11,302
                                                      -----------  -----------
    Total short-term investments.....................      11,573       15,040
                                                      -----------  -----------
Investment securities available-for-sale, at fair
 value...............................................   1,860,869    1,783,803
Assets held for sale, primarily mortgage loans.......      87,782       46,222
Loans (net of unearned income).......................   2,981,338    2,861,133
Allowance for loan losses............................     (41,737)     (40,216)
                                                      -----------  -----------
    Total net loans..................................   2,939,601    2,820,917
                                                      -----------  -----------
Premises and equipment...............................      71,562       67,088
Other assets.........................................     107,177      134,371
                                                      -----------  -----------
    Total assets.....................................  $5,297,349   $5,070,352
                                                      ===========  ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
  Non-interest bearing............................... $   518,004  $   464,919
  Interest bearing...................................   3,431,532    3,049,965
                                                      -----------  -----------
    Total deposits...................................   3,949,536    3,514,884
Short-term borrowings................................     678,161      940,777
Long-term debt.......................................      40,599       91,954
Accrued expenses and taxes...........................      82,450       56,088
                                                      -----------  -----------
    Total liabilities................................   4,750,746    4,603,703
                                                      -----------  -----------
Stockholders' equity
  Preferred stock, $25 par value; 10,000,000 shares
   authorized but unissued
   Common stock, $5 par value; 200,000,000 shares
   authorized, 32,641,614 issued of which 2,013,771
   and 1,696,447 shares are held as treasury stock,
   respectively......................................     163,208      163,208
  Additional paid-in capital.........................      11,103       11,770
  Retained earnings..................................     408,274      373,921
  Unrealized gains (losses) on securities available-
   for-sale, net of deferred taxes...................      13,650      (41,036)
                                                      -----------  -----------
                                                          596,235      507,863
  Less: Treasury stock--at cost......................     (49,632)     (41,214)
                                                      -----------  -----------
    Total stockholders' equity.......................     546,603      466,649
                                                      -----------  -----------
    Total liabilities and stockholders' equity.......  $5,297,349   $5,070,352
                                                      ===========  ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       32
<PAGE>
 
                  Dauphin Deposit Corporation and Subsidiaries
                       CONSOLIDATED STATEMENTS OF INCOME
                  Years Ended December 31, 1995, 1994 and 1993
 
<TABLE>
<CAPTION>
                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   1995               1994            1993
                              ---------------    --------------- ---------------
<S>                           <C>                <C>             <C>
Interest income
  Interest and fees on loans
   and leases...............         $245,440           $207,648        $192,042
  Interest and dividends on
   investment securities
    Taxable.................           93,498             96,797         107,195
    Exempt from federal
     income taxes...........           17,997             23,602          23,373
  Interest on deposits......              365                337             218
  Interest on assets held
   for sale.................            5,589              2,120           1,829
  Interest on federal funds
   sold and other short-term
   investments..............              755                603             388
                              ---------------    --------------- ---------------
    Total interest income...          363,644            331,107         325,045
                              ---------------    --------------- ---------------
Interest expense
  Interest on deposits
    Savings deposits........           32,218             36,675          42,836
    Time deposits...........           87,949             62,072          65,536
    Time deposits in
     denominations of
     $100,000 or more.......           27,335             15,140          14,226
                              ---------------    --------------- ---------------
                                      147,502            113,887         122,598
  Interest on short-term
   borrowings...............           35,880             32,056          19,436
  Interest on long-term
   debt.....................            4,549              6,698           6,738
                              ---------------    --------------- ---------------
    Total interest expense..          187,931            152,641         148,772
                              ---------------    --------------- ---------------
    Net interest income.....          175,713            178,466         176,273
Provision for loan losses...            5,608              7,494          10,141
                              ---------------    --------------- ---------------
    Net interest income
     after provision for
     loan losses............          170,105            170,972         166,132
                              ---------------    --------------- ---------------
Non-interest income
  Fiduciary activities......           16,807             16,363          15,237
  Service charges on deposit
   accounts.................           11,019             11,598          12,626
  Other service charges and
   fees.....................           12,554             11,272           9,138
  Broker/dealer commissions
   and fees.................            6,034              7,783          10,634
  Mortgage banking..........           18,730              7,462           2,331
  Securities gains, net.....            2,261              3,304           3,226
  Other.....................            4,384              3,165           6,859
                              ---------------    --------------- ---------------
    Total non-interest
     income.................           71,789             60,947          60,051
                              ---------------    --------------- ---------------
Non-interest expense
  Salaries and employee
   benefits.................           81,268             72,556          68,569
  Net occupancy expense.....            9,396              8,990           8,472
  Furniture and equipment
   expense..................           11,075              9,567           9,219
  Deposit insurance.........            4,095              7,909           8,103
  Other.....................           47,285             40,096          41,918
                              ---------------    --------------- ---------------
    Total non-interest
     expense................          153,119            139,118         136,281
                              ---------------    --------------- ---------------
Income before income taxes..           88,775             92,801          89,902
Provision for income taxes..           23,210             22,762          21,985
                              ---------------    --------------- ---------------
Net income..................         $ 65,565           $ 70,039        $ 67,917
                              ===============    =============== ===============
Net income per share........         $   2.12           $   2.18        $   2.08
Cash dividends declared per
 share......................        $   1.01 1/2        $    .94        $    .83
Weighted average number of
 shares outstanding.........       30,966,258         32,169,734      32,636,150
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       33
<PAGE>
 
                  Dauphin Deposit Corporation and Subsidiaries
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1995, 1994 and 1993
 
<TABLE>
<CAPTION>
                                                             (DOLLARS IN THOUSANDS)
                                                                                           NET UNREALIZED
                             COMMON STOCK     ADDITIONAL             TREASURY STOCK        GAIN (LOSS) ON       TOTAL
                          -------------------  PAID-IN   RETAINED  --------------------      SECURITIES     STOCKHOLDERS'
                            SHARES    AMOUNT   CAPITAL   EARNINGS    SHARES     AMOUNT   AVAILABLE-FOR-SALE    EQUITY
                          ---------- -------- ---------- --------  ----------  --------  ------------------ -------------
<S>                       <C>        <C>      <C>        <C>       <C>         <C>       <C>                <C>
BALANCE, DECEMBER 31,
 1992...................  32,623,869 $163,119  $10,620   $292,193    (267,310) $ (3,821)      $               $462,111
Net income..............                                   67,917                                               67,917
Cash dividends declared
 By Dauphin.............                                  (24,802)                                             (24,802)
 By pooled bank prior to
  acquisition...........                                   (1,534)                                              (1,534)
Sale of treasury stock
 to Employee Stock
 Purchase Plan..........                           314                 76,579     1,122                          1,436
Sale of treasury stock
 under the Stock Option
 Plan of 1986...........                            (4)                53,418       536                            532
Debentures converted to
 common stock...........      17,745       89      203                  3,113        43                            335
Tax benefit of stock
 option transactions....                            80                                                              80
                          ---------- --------  -------   --------  ----------  --------       -------         --------
BALANCE, DECEMBER 31,
 1993...................  32,641,614  163,208   11,213    333,774    (134,200)   (2,120)                       506,075
Cumulative effect of
 adoption of SFAS 115,
 net of taxes...........                                                                       42,080           42,080
Net income..............                                   70,039                                               70,039
Cash dividends
 declared...............                                  (29,892)                                             (29,892)
Acquisition of treasury
 stock..................                                           (1,744,500)  (42,413)                       (42,413)
Sale of treasury stock
 to Employee Stock
 Purchase Plan..........                           419                 70,340     1,068                          1,487
Sale of treasury stock
 under the Stock Option
 Plan of 1986...........                           (21)                24,409       317                            296
Sale of treasury stock
 under the Dividend
 Reinvestment and Stock
 Purchase Plan..........                           (26)                60,606     1,539                          1,513
Debentures converted to
 common stock...........                            37                 26,898       395                            432
Change in net unrealized
 gain (loss) on
 investments available-
 for-sale, net of
 taxes..................                                                                      (83,116)         (83,116)
Tax benefit of stock
 option transactions....                           148                                                             148
                          ---------- --------  -------   --------  ----------  --------       -------         --------
BALANCE, DECEMBER 31,
 1994...................  32,641,614  163,208   11,770    373,921  (1,696,447)  (41,214)      (41,036)         466,649
Net income..............                                   65,565                                               65,565
Cash dividends
 declared...............                                  (31,212)                                             (31,212)
Acquisition of treasury
 stock..................                                             (630,000)  (16,063)                       (16,063)
Sale of treasury stock
 to Employee Stock
 Purchase Plan..........                          (239)                68,429     1,664                          1,425
Sale of treasury stock
 under the Stock Option
 Plan of 1986...........                          (998)               101,742     2,476                          1,478
Sale of treasury stock
 under the Dividend
 Reinvestment and Stock
 Purchase Plan..........                           115                126,446     3,110                          3,225
Debentures converted to
 common stock...........                          (137)                16,059       395                            258
Change in net unrealized
 gain (loss) on
 investments available-
 for-sale, net of
 taxes..................                                                                       54,686           54,686
Tax benefit of stock
 option transactions....                           386                                                             386
Impact of Performance
 Share Agreements.......                           206                                                             206
                          ---------- --------  -------   --------  ----------  --------       -------         --------
BALANCE, DECEMBER 31,
 1995...................  32,641,614 $163,208  $11,103   $408,274  (2,013,771) $(49,632)      $13,650         $546,603
                          ========== ========  =======   ========  ==========  ========       =======         ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       34
<PAGE>
 
                  Dauphin Deposit Corporation and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1995, 1994 and 1993
 
<TABLE>
<CAPTION>
                                                      (IN THOUSANDS)
                                                 1995       1994       1993
                                               ---------  ---------  ---------
<S>                                            <C>        <C>        <C>
Operating activities
  Net income.................................. $  65,565  $  70,039  $  67,917
  Adjustments:
    Provision for loan losses.................     5,608      7,494     10,141
    Provision for depreciation, amortization
     and accretion............................     6,564      9,441     11,050
    Amortization of goodwill..................     1,705      1,335        938
    Deferred income taxes.....................     4,133      3,994       (813)
    Securities gains, net.....................    (2,261)    (3,304)    (3,226)
    (Increase) decrease in interest
     receivable...............................     1,325     (2,222)     4,023
    Increase (decrease) in accrued expenses
     and taxes................................    19,013     (3,064)     1,612
    Capitalized interest on deposits..........    65,534     44,108     45,770
    Amortization of mortgage servicing
     rights...................................     3,047      1,091        629
    Gain on sale of mortgages and loans held
     for sale.................................    (5,961)    (1,473)    (1,325)
    Sale of mortgage loans held for sale......   741,618    247,445    107,746
    Loans originated for sale.................  (751,403)  (224,445)  (114,054)
    Purchase of mortgage loans held for sale..   (22,645)   (22,995)
    Other, net................................   (13,918)   (14,339)   (21,656)
                                               ---------  ---------  ---------
      Net cash provided by operating
       activities.............................   117,924    113,105    108,752
                                               ---------  ---------  ---------
Investing activities
  Proceeds from sales of investment
   securities.................................   252,613    201,395     48,978
  Proceeds from maturities of investment
   securities.................................   356,977    480,030    733,822
  Purchases of investment securities..........  (526,811)  (481,357)  (758,783)
  Net (increase) decrease in assets held for
   sale, other than loans held for sale.......    (3,169)      (299)       732
  Net increase in loans.......................  (231,067)  (330,366)  (165,771)
  Sale of residential mortgage and other
   consumer loans.............................    39,507     52,544      4,876
  Net purchases of premises and equipment.....   (12,139)    (8,268)    (2,646)
  Net proceeds from sale of subsidiary,
   Farmers Savings Bank, FSB..................                  797
  Purchase of Eastern Mortgage Services,
   Inc........................................              (21,038)
                                               ---------  ---------  ---------
      Net cash used by investing activities...  (124,089)  (106,562)  (138,792)
                                               ---------  ---------  ---------
Financing activities
  Net increase (decrease) in deposit
   accounts...................................   369,118   (104,518)  (149,755)
  Net increase (decrease) in short-term
   borrowings.................................  (262,616)   224,869     72,060
  Net decrease in long-term debt..............   (51,097)      (122)       (74)
  Issuance of common stock and treasury
   stock......................................     6,083      3,281      1,968
  Acquisition of treasury stock...............   (16,063)   (42,413)
  Cash dividends paid.........................   (30,836)   (29,024)   (25,406)
                                               ---------  ---------  ---------
      Net cash provided (used) by financing
       activities.............................    14,589     52,073   (101,207)
                                               ---------  ---------  ---------
      Increase (decrease) in cash and cash
       equivalents............................     8,424     58,616   (131,247)
Cash and cash equivalents at beginning of
 period.......................................   210,911    152,295    283,542
                                               ---------  ---------  ---------
Cash and cash equivalents at end of period.... $ 219,335  $ 210,911  $ 152,295
                                               =========  =========  =========
Total interest paid........................... $ 116,944  $ 109,419  $ 107,225
Total income taxes paid.......................    12,715     20,495     24,061
Schedule of non-cash investing and financing
 activities:
  Loans charged off...........................     8,176      9,400     10,521
  Net loan transfers to other real estate
   owned......................................     2,508      4,563      1,574
  Conversion of convertible subordinated
   debentures.................................       258        432        335
  Securitization of mortgage loans............    77,085
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       35
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  The following is a description of the more significant accounting policies of
Dauphin Deposit Corporation and subsidiaries.
 
BUSINESS
 
  Dauphin Deposit Corporation (Dauphin) is a bank holding company, incorporated
under the laws of the Commonwealth of Pennsylvania in 1974. Dauphin's wholly-
owned bank subsidiary is Dauphin Deposit Bank and Trust Company (the Bank),
through which Dauphin provides banking services. The Bank is engaged in the
commercial and retail banking and trust business. The Bank's mortgage banking
subsidiary, Eastern Mortgage Services, Inc. (Eastern Mortgage) is a full
service mortgage banking company which originates, services and sells first and
second residential mortgage loans of varying types primarily to the eastern
Pennsylvania and New Jersey mortgage markets. Dauphin's wholly-owned subsidiary
Hopper Soliday & Co., Inc. (Hopper Soliday) is a Delaware corporation which
engages in municipal finance, institutional sales, financial advisory and other
general securities businesses permitted for bank holding companies and their
non-bank subsidiaries.
 
BASIS OF FINANCIAL STATEMENT PRESENTATION
 
  The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. The material estimate that is particularly
susceptible to significant change in the near term relates to the determination
of the allowance for loan losses.
 
PRINCIPLES OF CONSOLIDATION
 
  The consolidated financial statements include the accounts of Dauphin and
subsidiaries, including its principal subsidiary, the Bank, which includes the
Bank of Pennsylvania, Farmers Bank and Valleybank Divisions. All material
intercompany balances and transactions have been eliminated in consolidation.
 
INVESTMENT SECURITIES
 
  Dauphin adopted the provisions of Statement of Financial Accounting Standards
No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994. Under SFAS 115 investments are classified in
one of three categories and accounted for as follows: 1) debt securities that a
company has the positive intent and ability to hold to maturity are classified
as held-to-maturity securities and reported at amortized cost; 2) debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings; and 3)
debt and equity securities not classified as either held-to-maturity or trading
securities are classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported as
a separate component of stockholders' equity. Management has determined that
the entire investment securities portfolio will be classified as available-for-
sale.
 
  Premiums and discounts are amortized and accreted over the term of the
related securities using a method that approximates the interest method.
Realized gains or losses on the sale of investment securities (determined by
the specific identification method) are shown separately in the statements of
income. A decline in the fair
 
                                       36
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
value of any investment below cost that is deemed other than temporary results
in a reduction of the carrying amount to fair value through a charge to income.
Dividend and interest income are recognized when earned.
 
ASSETS HELD FOR SALE
 
  Assets held for sale consist of the securities inventory of Hopper Soliday
and mortages held for sale, primarily the inventory of Eastern Mortgage. The
securities inventory is recorded at current quoted market value. The mortgages
held for sale are carried at the lower of aggregate cost or estimated market
value with unrealized losses recognized through a provision included in other
income. Gains and losses on the sale of mortgages held for sale are determined
using the specific identification method.
 
LOANS
 
  Loans are carried at the principal amount outstanding, net of unearned
income. Interest income is accounted for on an accrual basis. Interest income
is not accrued when, in the opinion of management, its collectibility is
doubtful. When a loan is designated as non-accrual, any accrued interest
receivable is generally charged against current earnings. Non-accruing loans
are returned to accruing status after at least six consecutive months of
current performance. Lease income is recorded using the finance method which
provides for a level rate of return on the investment outstanding.
 
  Loan fees and costs of loan origination are deferred and recognized over the
life of the loan as a component of interest income. The amortization of
deferred fees and costs is discontinued on non-accrual loans.
 
ALLOWANCE FOR LOAN LOSSES
 
  The allowance for loan losses is a valuation reserve to absorb losses on
loans which may become uncollectible. The provision for loan losses is
management's estimate of the amount required to establish a reserve adequate to
reflect risks in the loan portfolio of the Bank. Loan losses are charged
directly against the allowance for loan losses, and recoveries on previously
charged off loans are added to the allowance.
 
  Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.
 
  Dauphin adopted the provisions of Statement of Financial Accounting Standard
No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118 (SFAS 118), "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosure" on January 1, 1995. Generally, all
non-accrual loans are deemed to be impaired. In addition, management,
considering current information and events regarding the borrowers ability to
repay their obligations, considers a loan to be impaired when it is probable
that Dauphin will be unable to collect all amounts due according to the
contractual terms of the loan agreement. In evaluating whether a loan is
impaired, management considers not only the amount that Dauphin expects to
collect but also the timing of collection. Generally, if a delay in payment is
insignificant (e.g. less than 90 days), a loan is not deemed to be impaired.
 
 
                                       37
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

  When a loan is considered to be impaired, the amount of impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, at the loan's market price or fair value
of the collateral if the loan is collateral dependent. The majority of loans
deemed to be impaired by management are collateral dependent. Loans are
evaluated individually for impairment. Dauphin excludes smaller balance,
homogeneous loans (e.g. primarily consumer and residential mortgages) from the
evaluation for impairment. Impairment losses are included in the allowance loan
losses. Impaired loans are charged-off when management believes that the
ultimate collectibility of a loan is not likely.
 
  Income for impaired loans that are on non-accrual status is recognized using
the cash basis, while interest on impaired loans that are still accruing is
recognized using the accrual method.
 
PREMISES AND EQUIPMENT
 
  Premises and equipment are stated at cost, including capitalized interest
during construction, less accumulated depreciation and amortization. Premises
and equipment under capitalized leases are recorded at the lower of the present
value of minimum lease payments or the fair value of the leased assets
determined at the inception of the lease term. Depreciation charged to
operating expense, including amounts applicable to capitalized leases, is
computed on the straight-line method for financial reporting and the straight-
line and accelerated methods for income tax purposes. Leasehold improvements
are capitalized and amortized over the lives of the respective leases or the
estimated useful life of the leasehold improvement, whichever is shorter. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income for the period. Maintenance, repairs and minor improvements
are charged to expense as incurred; significant renewals and betterments are
capitalized.
 
OTHER ASSETS
 
  Goodwill is the excess of the purchase price over the fair value of net
assets of entities acquired through business combinations that are recorded
using the purchase method of accounting. Included in other assets is $15.5
million of goodwill at December 31, 1995 and 1994. Goodwill is being amortized
using the straight-line method over periods not exceeding 15 years.
 
  Excess servicing fees are computed as the present value of the difference
between the estimated future net revenues and normal servicing revenues as
established by the federally sponsored secondary market makers. Upon the sale
of mortgage loans, excess servicing fees are deferred and amortized over the
estimated life of the related mortgages.
 
  Effective January 1, 1995, Dauphin adopted the provisions of Statement of
Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS 122 amended
Statement 65 to require an institution to recognize as separate assets the
rights to service mortgage loans for others when a mortgage loan is sold or
securitized and servicing rights retained. When capitalizing mortgage servicing
rights, Dauphin allocates the total cost of the mortgage loans (the recorded
investment in the mortgage loans including net deferred fees or costs and any
purchase premium or discount) to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
Such fair value is primarily based on observable market prices. Mortgage
servicing rights (including purchased mortgage servicing) are amortized in
proportion to, and over the period of, estimated net servicing revenue based on
management's best estimate of remaining loan lives.
 
  Dauphin measures the impairment of servicing rights based on the difference
between the carrying amount of the servicing rights and their current fair
value. Impairment of servicing rights is recognized through a
 
                                       38
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

valuation allowance. The amount of impairment recognized is the amount by which
the capitalized mortgage servicing rights exceed their fair value. For the
purpose of evaluating and measuring impairment of capitalized mortgage
servicing rights, Dauphin stratifies those rights based on the predominant risk
characteristics of the underlying loans. Dauphin primarily stratifies mortgage
servicing rights by loan type (e.g. conventional or government guaranteed and
adjustable-rate or fixed-rate mortgage loans). Valuation techniques for
measuring fair value incorporate assumptions that market participants use in
estimating future servicing income and expense, including assumptions about
prepayment, default and interest rates.
 
DERIVATIVES
 
  Dauphin's mortgage subsidiary, Eastern Mortgage, has limited involvement with
derivative financial instruments and does not use them for trading purposes.
Derivatives are primarily used to manage well-defined interest rate risks, as
described in Note 16.
 
TRUST ASSETS
 
  Assets held by the Bank in a fiduciary or agency capacity are not included in
the consolidated financial statements since such assets are not assets of the
Bank. Income from fiduciary activities is recorded on an accrual basis.
 
BENEFIT PLANS
 
  Pension plan costs for Dauphin's defined benefit plans are accounted for in
accordance with the provisions of Statement of Financial Accounting Standards
No. 87 "Employers' Accounting for Pensions". The projected unit credit method
is utilized for measuring net periodic pension cost over the employees' service
lives.
 
  Dauphin's cost of retiree health care and other postretirement benefits are
accounted for in accordance with the provisions of Statement of Financial
Acccounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions".
 
  Dauphin provides benefits to former or inactive employees after employment
but before retirement. These costs are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits".
 
INCOME TAXES
 
  Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
 
NET INCOME PER SHARE
 
  Net income per share is computed based upon the weighted average number of
common shares outstanding and dilutive common equivalent shares from stock
options and performance shares using the
 
                                       39
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

treasury stock method. The difference between primary and fully diluted
earnings per share is not significant in any year.
 
STATEMENT OF CASH FLOWS
 
  For purposes of the statement of cash flows, Dauphin considers cash and due
from banks and overnight federal funds sold to be cash and cash equivalents.
 
RECLASSIFICATIONS
 
  Certain reclassifications have been made to prior year amounts to conform
with current year classifications.
 
2--ACQUISITIONS
 
  On July 1, 1994, Dauphin acquired Eastern Mortgage, a mortgage banking
company headquartered in Trevose, Pennsylvania, for approximately $21.0 million
in cash pursuant to a definitive agreement signed in May 1994. The acquisition
was accounted for using the purchase method of accounting. Therefore, the
results of operations of Eastern Mortgage from the date of acquisition are
included with the results of Dauphin. The excess of the purchase price over the
fair value of the net identifiable assets acquired of $12.5 million has been
recorded as goodwill and is being amortized on a straight-line basis over 15
years.
 
3--RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS AND INVESTMENT SECURITIES
 
  The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of these required reserve balances at December
31, 1995 and 1994 was approximately $80,353,000 and $78,522,000, respectively.
 
  The Bank is required to maintain an investment in Federal Home Loan Bank of
Pittsburgh stock of $14,987,200 which is included with equity securities.
 
4--INVESTMENT SECURITIES
 
  The amortized cost and fair value of investment securities are as follows:
 
<TABLE>
<CAPTION>
                                                  (IN THOUSANDS)
                                                 DECEMBER 31, 1995
                                    -------------------------------------------
                                                 GROSS      GROSS
                                    AMORTIZED  UNREALIZED UNREALIZED    FAIR
                                       COST      GAINS      LOSSES     VALUE
                                    ---------- ---------- ---------- ----------
<S>                                 <C>        <C>        <C>        <C>
U.S. Treasury securities and other
 U.S. government agencies and
 corporations.....................  $  804,086  $ 6,413    $  (136)  $  810,363
Obligations of states and
 political subdivisions...........     287,697   15,639       (634)     302,702
Debt securities issued by foreign
 governments......................         800                              800
Corporate securities..............      22,736      351                  23,087
Mortgage-backed securities........     705,279    7,215     (7,882)     704,612
                                    ----------  -------    -------   ----------
  Total debt securities...........   1,820,598   29,618     (8,652)   1,841,564
Equity securities.................      19,272       33                  19,305
                                    ----------  -------    -------   ----------
  Total investment securities.....  $1,839,870  $29,651    $(8,652)  $1,860,869
                                    ==========  =======    =======   ==========
</TABLE>
 
                                       40
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
<TABLE>
<CAPTION>
                                                  (IN THOUSANDS)
                                                 DECEMBER 31, 1994
                                    -------------------------------------------
                                                 GROSS      GROSS
                                    AMORTIZED  UNREALIZED UNREALIZED    FAIR
                                       COST      GAINS      LOSSES     VALUE
                                    ---------- ---------- ---------- ----------
<S>                                 <C>        <C>        <C>        <C>
U.S. Treasury securities and other
 U.S. government agencies and
 corporations.....................  $  687,005  $   642    $(22,127) $  665,520
Obligations of states and
 political subdivisions...........     369,061    9,351     (11,700)    366,712
Debt securities issued by foreign
 governments......................         900                   (4)        896
Corporate securities..............      79,032       79        (828)     78,283
Mortgage-backed securities........     698,035    1,098     (39,640)    659,493
                                    ----------  -------    --------  ----------
  Total debt securities...........   1,834,033   11,170     (74,299)  1,770,904
Equity securities.................      12,903                   (4)     12,899
                                    ----------  -------    --------  ----------
  Total investment securities.....  $1,846,936  $11,170    $(74,303) $1,783,803
                                    ==========  =======    ========  ==========
</TABLE>
 
  The amortized cost and fair value of debt securities at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
 
<TABLE>
<CAPTION>
                                                             (IN THOUSANDS)
                                                            DECEMBER 31, 1995
                                                          ---------------------
                                                          AMORTIZED     FAIR
                                                             COST      VALUE
                                                          ---------- ----------
     <S>                                                  <C>        <C>
     Due in one year or less............................. $  274,681 $  276,502
     Due after one year through five years...............    526,872    535,459
     Due after five years through ten years..............    177,963    183,991
     Due after ten years.................................    135,803    141,000
                                                          ---------- ----------
                                                           1,115,319  1,136,952
     Mortgage-backed securities..........................    705,279    704,612
                                                          ---------- ----------
       Total debt securities............................. $1,820,598 $1,841,564
                                                          ========== ==========
</TABLE>
 
  Gains and losses from sales of investment securities are as follows:
 
<TABLE>
<CAPTION>
                                                          (IN THOUSANDS)
                                                       1995     1994     1993
                                                      -------  -------  ------
   <S>                                                <C>      <C>      <C>
   Debt securities
     Gross gains..................................... $ 3,496  $ 3,366  $1,540
     Gross losses....................................  (1,235)  (1,007)     (6)
                                                      -------  -------  ------
       Total debt securities.........................   2,261    2,359   1,534
   Equity securities, net............................              945   1,692
                                                      -------  -------  ------
       Total securities gains........................ $ 2,261  $ 3,304  $3,226
                                                      =======  =======  ======
</TABLE>
 
  Proceeds from sales of investment securities are as follows:
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                                         1995     1994    1993
                                                       -------- -------- -------
   <S>                                                 <C>      <C>      <C>
   Debt securities.................................... $252,613 $199,083 $43,742
   Equity securities..................................             2,312   5,236
                                                       -------- -------- -------
     Total proceeds................................... $252,613 $201,395 $48,978
                                                       ======== ======== =======
</TABLE>
 
 
                                       41
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

  Securities with a carrying value of $1,053,541,000 at December 31, 1995 and
$816,290,000 at December 31, 1994 are pledged to secure public deposits and for
other purposes as provided by law.
 
5--LOANS
 
  The loan portfolio, net of unearned income, at December 31, 1995 and 1994 is
as follows:
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                                            1995        1994
                                                         ----------  ----------
     <S>                                                 <C>         <C>
     Commercial, financial and agricultural:
       Commercial secured by real estate................ $  640,670  $  466,657
       Agricultural.....................................     36,415      34,960
       Other............................................    719,137     680,113
     Real estate, construction..........................     97,444     183,673
     Real estate, residential...........................    446,059     578,122
     Consumer:
       Home equity......................................    385,194     335,323
       Installment and credit card......................    507,425     483,889
     Lease financing....................................    150,943     101,919
     Unamortized net loan fees..........................     (1,949)     (3,523)
                                                         ----------  ----------
         Total loans.................................... $2,981,338  $2,861,133
                                                         ==========  ==========
</TABLE>
 
  The Bank has granted loans to officers, directors and their associates.
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans, which excludes
aggregate loans totaling less than $60,000 to any one related party, is as
follows:
 
<TABLE>
<CAPTION>
                                                                  (IN THOUSANDS)
     <S>                                                          <C>
     Balance--January 1, 1995....................................   $  56,032
     New loans...................................................     138,782
     Repayments..................................................    (103,176)
                                                                    ---------
     Balance--December 31, 1995..................................   $  91,638
                                                                    =========
</TABLE>
 
  Included within the loan portfolio are loans on which the Bank has ceased the
accrual of interest and restructured loans. Such loans amounted to $12,103,000
and $15,168,000 at December 31, 1995 and 1994, respectively. If interest income
had been recorded on all such loans outstanding during the years 1995, 1994 and
1993, interest income would have been increased as shown in the following
table:
 
<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
                                                            1995  1994   1993
                                                            ---- ------ ------
     <S>                                                    <C>  <C>    <C>
      Interest income which would have been recorded under
       original terms...................................... $743 $1,187 $1,560
      Interest income recorded during the period...........  395    477    700
                                                            ---- ------ ------
      Net impact on interest income........................ $348 $  710 $  860
                                                            ==== ====== ======
</TABLE>
 
  The Bank does not have any significant commitments to lend additional funds
on non-accrual or restructured loans at December 31, 1995.
 
                                       42
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  As previously discussed in Note 1, on January 1, 1995, Dauphin adopted the
provisions of Statement of Financial Accounting Standards No. 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan" as amended by Statement of
Financial Accounting Standards No. 118 (SFAS 118), "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures".
 
  On December 31, 1995 the balance of impaired loans was $11.7 million.
Impaired loans of $8.2 million have a related allowance for loan losses of $3.8
million and the remaining impaired loans of $3.5 million have no related
allowance for loan losses. The average balance of impaired loans for 1995 was
$8.4 million and the interest recognized for the year was $.7 million. The
interest income includes $.2 million that was recorded on the cash basis.
 
6--ALLOWANCE FOR LOAN LOSSES
 
  An analysis of the changes in the allowance for loan losses is as follows:
 
<TABLE>
<CAPTION>
                                                           (IN THOUSANDS)
                                                        1995    1994     1993
                                                       ------- -------  -------
     <S>                                               <C>     <C>      <C>
     Balance, beginning of year....................... $40,216 $39,182  $36,227
       Allowance of subsidiary sold...................            (101)
       Provision charged to operations................   5,608   7,494   10,141
       Recoveries on loans charged off................   4,089   3,041    3,335
                                                       ------- -------  -------
                                                        49,913  49,616   49,703
       Loans charged off..............................   8,176   9,400   10,521
                                                       ------- -------  -------
     Balance, end of year............................. $41,737 $40,216  $39,182
                                                       ======= =======  =======
</TABLE>
 
7--PREMISES AND EQUIPMENT
 
  A summary of premises and equipment at December 31, 1995 and 1994 is as
follows:
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                               ESTIMATED   ------------------
                                              USEFUL LIFE    1995      1994
                                             ------------- --------  --------
     <S>                                     <C>           <C>       <C>
     Land...................................               $ 10,352  $ 10,522
     Premises............................... 5 to 40 years   75,659    72,862
     Leasehold improvements................. 2 to 40 years    2,476     2,649
     Equipment.............................. 3 to 10 years   55,753    48,530
                                                           --------  --------
                                                            144,240   134,563
     Accumulated depreciation and
      amortization..........................                (72,678)  (67,475)
                                                           --------  --------
         Total..............................               $ 71,562  $ 67,088
                                                           ========  ========
</TABLE>
 
  Depreciation and amortization amounted to $7,665,000 for 1995, $6,834,000 for
1994 and $6,495,000 for 1993.
 
8--MORTGAGE SERVICING RIGHTS
 
  Mortgage loans serviced for others are not included in the consolidated
balance sheet. The outstanding balance of these loans at year-end and gains on
the sale of servicing during the year are presented below:
 
<TABLE>
<CAPTION>
                                                      (IN THOUSASNDS)
                                               ------------------------------
                                                  1995       1994      1993
                                               ---------- ---------- --------
     <S>                                       <C>        <C>        <C>
     Total loans serviced for others at year-
      end..................................... $1,283,435 $1,015,745 $219,572
     Gains on sale of servicing...............      1,046      1,623       26
</TABLE>
 
                                       43
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  As previously discussed in Note 1, effective January 1, 1995, Dauphin adopted
the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No.
65". An analysis of the activity of excess, purchased, and originated mortgage
servicing rights for the years ended December 31, 1995 and 1994 is as follows:
 
<TABLE>
<CAPTION>
                                                          (IN THOUSANDS)
                                                    EXCESS  PURCHASED ORIGINATED
                                                    ------  --------- ----------
     <S>                                            <C>     <C>       <C>
     Balance--January 1, 1994...................... $1,607   $          $
     Additions.....................................  1,434     8,547
     Amortization..................................   (588)     (503)
                                                    ------   -------    ------
     Balance--December 31, 1994....................  2,453     8,044
     Additions.....................................    546               7,169
     Amortization..................................   (911)   (1,641)     (495)
                                                    ------   -------    ------
     Balance--December 31, 1995.................... $2,088   $ 6,403    $6,674
                                                    ======   =======    ======
</TABLE>
 
  The fair value of purchased and originated servicing rights was $13.7 million
at December 31, 1995. As of and for the year ended December 31, 1995, there was
no valuation allowance for purchased and originated servicing rights.
 
  The balances and activities of excess and purchased mortgage servicing rights
were not significant to the consolidated balance sheets or results of
operations of Dauphin during 1993.
 
9--TIME CERTIFICATES OF DEPOSIT
 
  Time certificates of deposit of $100,000 or more at December 31, 1995 and
1994 amounted to $459,074,000 and $270,777,000, respectively.
 
10--SHORT-TERM BORROWINGS
 
  Federal funds purchased, securities sold under agreements to repurchase and
other short-term borrowings generally mature within one to ninety days from the
transaction date.
 
  A summary of aggregate short-term borrowings is as follows for the years
ended December 31, 1995, 1994 and 1993:
 
<TABLE>
<CAPTION>
                                                    (DOLLARS IN THOUSANDS)
                                                    1995      1994      1993
                                                  --------  --------  --------
   <S>                                            <C>       <C>       <C>
   Overnight federal funds purchased............  $266,370  $438,490  $187,210
   Term federal funds purchased.................             260,000   225,000
   Eurodollars purchased........................     1,672
   Federal Home Loan Bank borrowings............   149,000
   Securities sold under agreements to
    repurchase..................................   233,830   196,021   215,890
   U.S. Treasury tax and loan notes.............    27,289    46,266    52,286
                                                  --------  --------  --------
     Total short-term borrowings................  $678,161  $940,777  $680,386
                                                  ========  ========  ========
   Average interest rate at year-end............      5.33%     5.88%     3.03%
   Maximum amount outstanding at any month-end..  $958,804  $940,777  $765,169
   Average amount outstanding...................  $646,537  $778,906  $646,187
   Weighted average interest rate...............      5.55%     4.12%     3.01%
</TABLE>
 
                                       44
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  The securities that serve as collateral for the securities sold under
agreements to repurchase are under Dauphin's control.
 
  The Bank has approved federal funds lines of credit that amounted to
approximately $2,338,000,000 at December 31, 1995.
 
11--LONG-TERM DEBT
 
  The following is a summary of long-term debt at December 31, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                                               (IN THOUSANDS)
                                                                1995    1994
                                                               ------- -------
   <S>                                                         <C>     <C>
   Dauphin Deposit Corporation
    8.70% Senior Notes due 1996............................... $35,000 $35,000
    9% Convertible Subordinated Debentures due June 1999,
     convertible into common stock at $16.06 per share........   4,955   5,213
    Variable rate mortgage (6 3/8% at December 31, 1995)
     (collateralized by premises).............................     235     270
   Dauphin Deposit Bank and Trust Company
    Advances from The Federal Home Loan Bank of Pittsburgh....          51,000
                                                               ------- -------
                                                                40,190  91,483
   Obligations under capitalized lease........................     409     471
                                                               ------- -------
     Total.................................................... $40,599 $91,954
                                                               ======= =======
</TABLE>
 
  In November 1986, Dauphin issued $35,000,000, 8.70% Senior Notes due 1996 at
par. These Senior Notes are not subordinated in right of payment to any other
unsecured indebtedness of Dauphin.
 
  Aggregate long-term debt maturities, for each of the next five years are as
follows:
 
  1996--$35,095,000; 1997--$107,000; 1998--$86,000; 1999--$5,038,000; 2000--
$92,000
 
  At December 31, 1995, Dauphin and its subsidiaries had unused lines of credit
totaling approximately $3,000,000 with a non-affiliated bank.
 
12--RESTRICTION ON PAYMENT OF DIVIDENDS
 
  Certain restrictions exist regarding the ability of the subsidiaries to
transfer funds to Dauphin in the form of cash dividends. Dauphin and the Bank
are required to maintain minimum amounts of capital to total risk weighted
assets as defined by the banking regulators. The requirement is to have a
minimum Tier 1 and total capital ratios of 4.00% and 8.00%, respectively. The
Bank may not pay dividends to Dauphin, which would allow these risk-based
capital ratios to fall below the minimum capital requirements. Under these
policies and subject to the restrictions applicable to the Bank, the Bank could
declare, without prior regulatory approval, aggregate dividends of $26.0
million, plus net profits for 1996.
 
                                       45
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
13--INCOME TAXES
 
  The provision for income taxes, consisting primarily of Federal income taxes,
for the years 1995, 1994 and 1993, consists of the following:
 
<TABLE>
<CAPTION>
                                                           (IN THOUSANDS)
                                                        1995    1994    1993
                                                       ------- ------- -------
   <S>                                                 <C>     <C>     <C>
   Current taxes...................................... $19,077 $18,768 $22,798
   Deferred taxes (credits)...........................   4,133   3,994    (813)
                                                       ------- ------- -------
     Total............................................ $23,210 $22,762 $21,985
                                                       ======= ======= =======
</TABLE>
 
  A reconciliation between the effective income tax rate and the statutory rate
follows:
 
<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
                                                             1995  1994   1993
                                                             ----  -----  -----
   <S>                                                       <C>   <C>    <C>
   Statutory Federal income tax rate........................ 35.0%  35.0%  35.0%
   Tax exempt income........................................ (8.9) (10.5) (10.8)
   Other, net...............................................                 .3
                                                             ----  -----  -----
   Effective income tax rate................................ 26.1%  24.5%  24.5%
                                                             ====  =====  =====
</TABLE>
 
  The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995, 1994 and 1993 are as follows:
 
<TABLE>
<CAPTION>
                                                       (IN THOUSANDS)
                                                    1995      1994     1993
                                                  --------  --------  -------
   <S>                                            <C>       <C>       <C>
   Deferred tax assets:
     Gross unrealized losses on investment
      securities................................. $  3,029  $ 26,005  $
     Allowance for loan losses...................   15,322    13,904   13,298
     Deferred loan fees and costs................      123       468    1,409
     Purchase accounting adjustments to loans....                492      975
     Employee benefit programs...................    2,443     1,861    1,180
     Other.......................................      908     1,473    1,691
                                                  --------  --------  -------
       Total gross deferred tax assets...........   21,825    44,203   18,553
                                                  --------  --------  -------
   Deferred tax liabilities:
     Gross unrealized gains on investment
      securities.................................  (10,378)   (3,909)
     Depreciation................................   (3,070)   (3,007)  (3,194)
     Investment securities discount..............     (636)     (376)    (283)
     Lease financing transactions................  (14,610)   (6,338)  (3,074)
     Prepaid pension.............................   (1,126)     (978)    (914)
     Mortgage servicing rights...................   (2,959)   (3,608)    (428)
     Prepaid expenses............................     (894)   (2,118)    (823)
     Other.......................................     (828)     (681)    (575)
                                                  --------  --------  -------
       Total gross deferred tax liabilities......  (34,501)  (21,015)  (9,291)
                                                  --------  --------  -------
       Net deferred tax asset (liability)........ $(12,676) $ 23,188  $ 9,262
                                                  ========  ========  =======
</TABLE>
 
                                       46
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  Included in the table above is the recognition of certain temporary
differences for which no deferred tax expense or benefit was recognized in the
consolidated statements of income. Such items include unrealized gains and
losses on certain investments in debt and equity securities accounted for under
SFAS 115 and book and tax basis differences relating to business combinations
accounted for under the purchase method of accounting.
 
  Management is of the opinion that it is more likely than not that the
deferred tax asset of $21,825,000 will be realized since Dauphin has had a long
history of earnings and has carryback potential greater than the deferred tax
asset. Management is not aware of any evidence that would preclude Dauphin from
ultimately realizing this asset.
 
14--BENEFIT PLANS
 
  The Bank has a noncontributory defined benefit pension plan covering
substantially all employees. The Plan's benefit formulas generally base
payments to retired employees upon their length of service and a percentage of
qualifying compensation during the final years of employment. Dauphin's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.
 
  The following table sets forth the pension plan's funded status and amounts
recognized in Dauphin's consolidated financial statements at December 31, 1995
and 1994:
 
<TABLE>
<CAPTION>
                                                             (IN THOUSANDS)
                                                              1995     1994
                                                             -------  -------
   <S>                                                       <C>      <C>
   Actuarial present value of benefit obligations:
     Vested................................................. $43,235  $35,057
     Non-vested.............................................   1,811    1,312
                                                             -------  -------
       Accumulated benefit obligation.......................  45,046   36,369
   Effects of future compensation levels....................   9,164    7,031
                                                             -------  -------
   Projected benefit obligation.............................  54,210   43,400
   Plan assets at fair value................................  63,532   55,249
                                                             -------  -------
   Excess of plan assets over the projected benefit
    obligation..............................................   9,322   11,849
   Unrecognized net asset being amortized over 15 years.....  (3,664)  (4,412)
   Unrecognized prior service cost..........................     275      372
   Unrecognized gain........................................  (1,620)  (3,784)
                                                             -------  -------
   Prepaid pension cost included in the consolidated
    financial statements.................................... $ 4,313  $ 4,025
                                                             =======  =======
</TABLE>
 
  The assumptions used in determining the actuarial present value of the
projected benefit obligation and the expected rate of return on plan assets are
as follows:
 
<TABLE>
<CAPTION>
                                                                     1995  1994
                                                                     ----  ----
   <S>                                                               <C>   <C>
   Expected rate of return on plan assets........................... 8.50% 8.00%
   Discount rate.................................................... 7.00  8.00
   Rate of increase in future compensation levels................... 4.50  5.00
</TABLE>
 
                                       47
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  Net pension expense (credit) for 1995, 1994 and 1993 was comprised of the
following:
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                      1995     1994     1993
                                                    --------  -------  -------
   <S>                                              <C>       <C>      <C>
   Service cost.................................... $  1,568  $ 1,812  $ 1,791
   Interest cost on projected benefit obligation...    3,648    3,312    2,980
   Return on plan assets...........................  (10,989)    (402)  (4,198)
   Net amortization and deferral...................    5,791   (4,623)    (646)
                                                    --------  -------  -------
    Net pension expense (credit)................... $     18  $    99  $   (73)
                                                    ========  =======  =======
</TABLE>
 
  Plan assets are primarily invested in listed stocks (including 107,000 and
100,000 shares of Dauphin at December 31, 1995 and 1994) and U.S. Treasury and
federal agency securities.
 
  Dauphin's postretirement benefits other than pensions are currently not
funded. The status of the plan at December 31, 1995 and 1994 is as follows:
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                                             1995     1994
                                                            -------  -------
   <S>                                                      <C>      <C>
   Actuarial present value of accumulated postretirement
    benefit obligation:
     Retirees.............................................. $ 9,975  $11,651
     Fully eligible active plan participants...............     633      635
     Other active plan participants........................   3,991    5,266
                                                            -------  -------
                                                             14,599   17,552
   Unrecognized transition liability being amortized over
    20 years...............................................  (9,042)  (9,607)
   Unrecognized prior service cost.........................    (757)    (739)
   Unrecognized net loss...................................   1,093   (2,514)
                                                            -------  -------
   Accrued postretirement obligation....................... $ 5,893  $ 4,692
                                                            =======  =======
</TABLE>
 
  The assumptions used in determining the actuarial present value of the
accumulated postretirement benefit obligation are as follows:
 
<TABLE>
<CAPTION>
                                                                     1995  1994
                                                                     ----  ----
   <S>                                                               <C>   <C>
   Discount rate.................................................... 7.00% 8.00%
   Rate of increase in future compensation levels................... 4.50  5.00
</TABLE>
 
  The cost for postretirement benefits other than pensions for 1995, 1994 and
1993 consisted of the following components:
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                                          1995    1994   1993
                                                         ------  ------ ------
   <S>                                                   <C>     <C>    <C>
   Service cost......................................... $  348  $  506 $  359
   Interest cost on accumulated postretirement benefit
    obligation..........................................    989   1,313  1,064
   Amortization of transition obligation................    565     565    565
   Amortization of past service cost....................     65      65
   Net amortization and deferral........................    (89)    174     45
                                                         ------  ------ ------
    Net postretirement benefit cost..................... $1,878  $2,623 $2,033
                                                         ======  ====== ======
</TABLE>
 
                                       48
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  The assumed postretirement health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 16 1/2% in 1992, the year of
adoption, decreasing per year to an ultimate rate of 5 1/2% in 2005 (10% at
December 31, 1995) and thereafter over the projected payout period of benefits.
 
  The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, a one-percentage-point increase in the assumed
health care cost trend would increase the accumulated postretirement benefit
obligation by $1,760,000 at December 31, 1995 and increase the aggregate of the
service and interest cost components by $190,000 for the year ended December
31, 1995.
 
  Dauphin offers a savings plan for all eligible employees. Under the plan,
Dauphin contributes 25% of the participants' contribution which cannot exceed
10% of their salaries. Participants' contributions are at all times fully
vested, and Dauphin's contributions become fully vested with two years of
service. Contributions to the plan amounted to $581,000, $563,000 and $468,000
during 1995, 1994 and 1993, respectively.
 
  In 1993, Dauphin adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits". The adoption resulted in
an incremental cost of $26,500, $30,000 and $500,000 to salaries and benefits
expense in 1995, 1994 and 1993, respectively. This accrual was established to
record the liability for benefits to former or inactive employees after
employment but before retirement. The balance at December 31, 1995 is $556,500.
 
15--EMPLOYEE STOCK PURCHASE PLAN, STOCK OPTION PLAN AND STOCKHOLDERS' EQUITY
 
  Under the employee stock purchase plan, all eligible employees may purchase
shares of Dauphin's common stock through payroll deductions (limited to an
amount aggregating 10% of annual base pay). The purchase price, established 30
days prior to the offering date, is not less than 85% or more than 100% of the
average market price on the offering date or exercise date, whichever is lower.
840,000 shares of common stock have been authorized to be offered under the
plan, of which 726,974 shares have been issued. Because of a difference between
the plan offering date, and Dauphin's year-end, no shares were under option at
December 31, 1995.
 
  During 1987, the shareholders approved the adoption of the Stock Option Plan
of 1986 (the Plan). Under the Plan, Dauphin may grant either qualified or non-
qualified stock options to key employees for the purchase of up to 1,193,000
shares of common stock. The exercise price of options granted may not be less
than 85% of the fair market value of Dauphin's common stock at the date of
grant. Options become exercisable over periods of one to five years and expire
ten years from the date of grant.
 
                                       49
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  Stock option transactions during 1995, 1994 and 1993 are summarized below:
 
<TABLE>
<CAPTION>
                                                                      PRICE
                                                        SHARES   RANGE PER SHARE
                                                       --------  ---------------
   <S>                                                 <C>       <C>
   Balance, December 31, 1992.........................  630,501  $ 9.48--$23.72
     Granted..........................................  152,500  $24.88
     Exercised........................................  (77,605) $ 9.48--$16.57
     Terminated.......................................   (3,000) $24.88
                                                       --------
   Balance, December 31, 1993.........................  702,396  $ 9.48--$24.88
     Granted..........................................  160,500  $25.63
     Exercised........................................  (31,057) $11.36--$24.88
     Terminated.......................................   (2,400) $14.28--$24.88
                                                       --------
   Balance, December 31, 1994.........................  829,439  $ 9.48--$25.63
     Granted..........................................  179,000  $24.00
     Exercised........................................ (109,584) $11.36--$23.72
     Terminated.......................................   (5,000) $25.63
                                                       --------
   Balance, December 31, 1995.........................  893,855  $ 9.48--$25.63
                                                       ========
   Exercisable, December 31, 1995.....................  512,694
                                                       ========
</TABLE>
 
  During 1995, the shareholders approved the adoption of the 1995 Stock
Incentive Plan (1995 Plan). Under the 1995 Plan, Dauphin may grant incentive
stock options, non-qualified stock options, restricted stock awards,
performance share awards and other awards that provide a participant with the
right to purchase or otherwise acquire Dauphin common stock or that are valued
by reference to the market value of Dauphin common stock. In 1995, Dauphin
entered into Performance Share Agreements with certain key employees as
permitted under the 1995 Plan. The Performance Share Agreements entitle these
employees to a grant of Dauphin common stock after a three year period if
specific corporate goals are realized. During 1995, Dauphin recognized $.4
million of expense related to Performance Share Agreements.
 
  In connection with the adoption of a shareholder rights plan on January 22,
1990, Dauphin declared a dividend distribution of one Common Stock Purchase
Right (a Right) for each outstanding share of common stock of Dauphin. The
Rights are exercisable only if a person or group of affiliated persons acquires
or announces an intention to acquire 18% of the common stock of Dauphin and
Dauphin's Board of Directors does not redeem the Rights during the specified
redemption period. Initially, each Right, upon becoming exercisable, would
entitle the holder to purchase from Dauphin one share of common stock at the
specified exercise price which is subject to adjustment (currently $50 per
share). Once the Rights become exercisable, if any person or group acquires 18%
of the common stock of Dauphin, the holder of a Right, other than the acquiring
person or group, will be entitled, among other things, to purchase shares of
common stock having a value equal to two times the exercise price of the Right.
The Board of Directors is entitled to redeem the Rights for $.001 per Right at
any time before expiration of the redemption period. The Board of Directors
may, at any time after the Rights become exercisable and prior to the time any
person becomes a 50% beneficial owner of Dauphin's shares of common stock,
exchange each of the outstanding Rights (except Rights of the acquiring person
or group which are voided) for one share of common stock, subject to
adjustment. The Rights will expire on January 22, 2000, unless earlier redeemed
by Dauphin.
 
  During 1994, Dauphin announced that the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the outstanding stock. In February
1995, an additional 1,500,000 shares were authorized for
 
                                       50
<PAGE>

                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

repurchase. Available investments are being used to fund the share repurchases.
Dauphin will use the shares for general corporate purposes, including the
Employee Stock Purchase Plan, Stock Option Plans, the Dividend Reinvestment and
Stock Purchase Plan, and other appropriate uses. During 1995 and 1994, Dauphin
repurchased 630,000 shares for $16.1 million and 1,744,500 shares for $42.4
million, respectively.
 
16--FINANCIAL INSTRUMENTS
 
Off-Balance-Sheet Risk and Concentrations of Credit Risk
 
  In the normal course of business, Dauphin is a party to financial instruments
with off-balance-sheet risk which/or meet the financing needs of its customers
and which reduces Dauphin's exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit, financial
guarantees and standby letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet.
 
  For commitments to extend credit and standby letters of credit, Dauphin's
exposure to credit loss in the event of non-performance by the other party is
represented by the contractual amount of those instruments. Dauphin uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
 
  Dauphin had the following off-balance-sheet financial instruments at December
31:
 
<TABLE>
<CAPTION>
                                                            (IN THOUSANDS)
                                                            1995       1994
                                                         ---------- ----------
   <S>                                                   <C>        <C>
   Amounts representing credit risk:
     Commitments to extend credit....................... $1,343,251 $1,264,539
     Financial and performance standby letters of
      credit............................................    134,242    122,568
     Commercial and similar letters of credit...........        900        842
     Commitments to purchase securities.................     12,365      4,650
   Notional or contract amounts of off-balance-sheet
    financial instruments not constituting credit risk:
     Forward commitments to sell in the secondary
      market............................................     62,455     33,137
     Forward commitments to sell to permanent
      investors.........................................     31,939     16,197
     Purchased call and put options.....................                 2,500
</TABLE>
 
  Commitments to extend credit, which includes loans and lines of credit, are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Dauphin evaluates each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary by Dauphin
upon extension of credit, is based on management's credit evaluation of the
customer. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
 
  Standby letters of credit are conditional commitments issued by Dauphin to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The terms
of the letters of
 
                                       51
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

credit vary from one month to 24 months and may have renewal features. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Dauphin holds collateral
supporting those commitments, as deemed necessary.
 
  Most of the Bank's business activity is with customers located within the
Bank's defined market area, principally Central Pennsylvania. The Eastern
Pennsylvania and New Jersey mortgage markets are served by Eastern Mortgage,
the Bank's mortgage subsidiary. However, the Bank will grant commercial,
residential and consumer loans throughout Pennsylvania. The loan portfolio is
well diversified and the Bank does not have any significant concentrations of
credit risk. However, since a significant share of the Bank's loans are within
the geographic area previously defined, a substantial portion of the Bank's
debtors' ability to honor their contracts may be significantly affected by the
level of economic activity in this area.
 
Derivative Financial Instruments
 
  Dauphin's mortgage subsidiary, Eastern Mortgage, has limited involvement with
derivative financial instruments and does not use them for trading purposes.
Derivatives are primarily used to manage well-defined interest rate risks.
 
  Eastern Mortgage is exposed to interest rate risk when it extends a
commitment to a borrower for future settlement. As interest rates increase, the
valuation of the commitment to Eastern Mortgage declines. As interest rates
decrease, a borrower is more likely to abandon the commitment, which could
cause a financial loss to Eastern Mortgage if they have committed to sell that
loan for future delivery in the secondary market.
 
  The secondary marketing department at Eastern Mortgage is primarily
responsible for mitigating the exposure to interest rate risk through the use
of certain hedging techniques. This is accomplished by using a combination of
charging non-refundable commitment fees when the borrower elects to lock in
their interest rate; selling loans in the secondary market for future delivery
on a mandatory basis (via forward and future delivery commitments with third-
party investors); and purchasing options.
 
  Forward commitments are contracts wherein Eastern Mortgage agrees to make
delivery of a specified type of loan at a specified future date and price. As
loans close and are pooled for delivery, forward commitments are filled and
executed, and the primary objective of hedging is achieved. However, in the
normal course of business, to the extent that management believes that market
conditions may change favorably, or fewer loans are closed than previously
anticipated, certain forward commitments may be paired-off. In instances where
management paired-off forward commitments on the basis of certain expectations
of market conditions, any gains or losses arising from paired-off transactions
are deferred on the date of the pair-off, and are recognized as an adjustment
to gains (losses) on sale of mortgage loans when the underlying pool of
mortgage loans is sold. When forward commitments are paired-off due to a lack
of loans to fulfill the commitment, the gain or loss is recognized on the date
of the pair-off as an adjustment to gains (losses) on sale of mortgage loans.
 
  Certain future delivery contracts to third parties stipulate the duration of
the commitment and the amount of loans deliverable under the commitment and may
require the payment of a fee. Commitment fees are capitalized when paid and
expensed as a component of gains (losses) on sale of mortgage loans when the
commitment expires or is delivered into.
 
  Purchased call or put options are contracts that allow the holder of the
option to purchase or sell a financial instrument at a specified price and
within a specified period of time from the seller, or "writer," of the option.
Eastern Mortgage purchases call options on treasury securities and put options
on mortgage backed securities as part of its interest rate risk management
strategy. The risk of loss is limited to the price paid for the
 
                                       52
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

option. The cost of all such options is expensed as an adjustment to gains
(losses) on sale of mortgage loans when the options expire. Any gain realized
at the time an option is exercised is deferred, and subsequently recognized
when the underlying pool of loans is sold.
 
  In the ordinary course of business, Eastern Mortgage deliberately exposes a
portion of its mortgage loan portfolio (warehouse and pipeline, net of
estimated fall-out) to interest rate risk, as volume and market conditions
warrant. This exposure represents those loans which have closed or are expected
to close which are not hedged at a given point in time. At December 31, 1995,
the maximum exposure position authorized by management is $20 million. The
secondary marketing department produces a daily exposure report summarizing the
exposure position. This report is reviewed and adjustments to the exposure
position, to the extent considered necessary by management, are made daily.
 
Fair Value of Financial Instruments
 
  Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" (SFAS 107) requires disclosure of the fair
value of financial instruments. The majority of Dauphin's assets and
liabilities are considered financial instruments. Significant assumptions and
estimates were used in calculation of fair market values.
 
  The following methods and assumptions were used to estimate the fair value of
each class of Dauphin's financial instruments for which it is practicable to
estimate that value:
 
Cash and short-term investments
 
  The fair value for cash and short-term instruments is estimated to be book
value, due to the short maturity of, and negligible credit concerns within,
those instruments.
 
Investment securities
 
  The fair value for debt and marketable equity securities is based on quoted
market prices, if available. If quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
 
Assets held for sale
 
  The fair value for mortgage loans held for sale is estimated using the
current secondary market rates. For the securities inventory held for sale, the
securities are recorded at the current quoted market value.
 
Loans
 
  The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings. The residential mortgages and certain consumer loans
include prepayment assumptions.
 
Other financial assets
 
  The fair value for accrued interest receivable is estimated to be the current
book value. The fair value for originated mortgage servicing rights is based on
observable market prices and the fair value of excess servicing fees is the
estimated present value of the difference between the anticipated future
servicing fees and normal servicing fees using discount rates that approximate
market rates and management's estimate of future prepayment rates.
 
                                       53
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
Deposits
 
  The fair value of deposits with no stated maturity, such as demand deposits,
savings accounts, interest bearing demand and money market deposits, is the
amount payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit, including certain 18 month variable rate
certificates of deposit carrying a minimum interest rate of 10% for the 18
month term which are held in certain individual retirement accounts (as
discussed herein under Note 19--Litigation), is based on the discounted value
of contractual cash flows, using the rates currently offered for deposits of
similar remaining maturities.
 
Short-term borrowings
 
  The fair value of short-term borrowings is estimated using the current rates
for similar terms and maturities.
 
Long-term debt
 
  The fair value of long-term debt is estimated using current rates for debt
with similar terms and remaining maturities.
 
Accrued interest payable
 
  The fair value of accrued interest payable is estimated to be the current
book value.
 
Off-balance-sheet financial instruments
 
  The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms and
present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements.
The fair value of options is estimated based on quoted market prices.
 
Limitations
 
  The fair values estimated are dependent upon subjective assumptions and
involve significant uncertainties resulting in estimates that vary with changes
in assumptions. Any sales of financial instruments may incur potential tax and
other expenses that would not be reflected in the fair values. Any changes in
assumptions or estimation methodologies may have a material effect on the
estimated fair values disclosed. The reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques. Also, the estimates do not reflect any additional premium or
discount that could result from the sale of Dauphin's entire holdings of a
particular instrument.
 
                                       54
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
  At December 31, 1995 and 1994, Dauphin's estimated fair values of financial
instruments based on disclosed assumptions are as follows:
 
<TABLE>
<CAPTION>
                                                (IN THOUSANDS)
                                          1995                   1994
                                  ---------------------- ----------------------
                                   CARRYING      FAIR     CARRYING      FAIR
                                    AMOUNT      VALUE      AMOUNT      VALUE
                                  ----------  ---------- ----------  ----------
<S>                               <C>         <C>        <C>         <C>
Financial assets:
Cash and due from banks.......... $  218,785  $  218,785 $  202,911  $  202,911
Short-term investments...........     11,573      11,573     15,040      15,040
Investment securities............  1,860,869   1,860,869  1,783,803   1,783,803
Assets held for sale.............     87,782      87,782     46,222      46,222
Loans
  Commercial.....................  1,619,257   1,618,610  1,489,879   1,461,530
  Residential mortgages..........    499,724     500,837    622,003     611,984
  Consumer.......................    855,325     858,648    739,682     728,104
  Non-accrual....................      7,031                  9,569
  Allowance for loan losses......    (41,737)               (40,216)
                                  ----------  ---------- ----------  ----------
    Net loans....................  2,939,600   2,978,095  2,820,917   2,801,618
Other financial assets...........     42,973      43,048     37,990      40,935
Financial liabilities:
Deposits
  Non-interest bearing demand....    518,004     518,004    464,919     464,919
  Interest bearing demand and
   savings.......................  1,400,012   1,400,012  1,539,726   1,539,726
  Time deposits..................  2,031,520   2,074,831  1,510,239   1,527,245
                                  ----------  ---------- ----------  ----------
    Total deposits...............  3,949,536   3,992,847  3,514,884   3,531,890
Short-term borrowings............    678,161     678,161    940,777     940,897
Long-term debt...................     40,599      44,459     91,954      94,183
Accrued interest payable.........     25,250      25,250     20,668      20,668
</TABLE>
 
<TABLE>
<CAPTION>
                                     1995                           1994
                         -----------------------------  ----------------------------
                          CONTRACT   CARRYING   FAIR     CONTRACT   CARRYING   FAIR
                           AMOUNT   AMOUNT (1)  VALUE     AMOUNT   AMOUNT (1) VALUE
                         ---------- ---------- -------  ---------- ---------- ------
<S>                      <C>        <C>        <C>      <C>        <C>        <C>
Off-balance-sheet
 financial instruments:
  Commitments to extend
   credit............... $1,343,251    $643    $   758  $1,264,539    $791    $  854
  Financial and
   performance standby
   letters of credit....    134,242              1,342     122,568             1,226
  Commercial and similar
   letters of credit....        900                  9         842                 8
  Commitments to
   purchase securities..     12,365             12,365       4,650             4,650
  Forward commitments to
   sell in the secondary
   market...............     62,455    (663)      (663)     33,137      68        68
  Forward commitments to
   sell to permanent
   investors............     31,939                         16,197
  Purchased call and put
   options..............                                     2,500      11        11
</TABLE>
--------
(1) The amounts shown under "carrying amount" represent accruals or deferred
    income arising from those unrecognized financial instruments.
 
                                       55
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993
 
17--CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY
 
  Dauphin Deposit Corporation (Parent Company Only) Condensed Balance Sheets
 
<TABLE>
<CAPTION>
                                                             (IN THOUSANDS)
                                                              DECEMBER 31,
                                                            ------------------
                                                              1995      1994
                                                            --------  --------
<S>                                                         <C>       <C>
Assets:
  Due from Bank (subsidiary)............................... $     22  $     36
  Investment securities....................................   63,815    37,243
  Investment in subsidiaries
    Banking subsidiary.....................................  502,964   448,582
    Non-banking subsidiaries...............................   22,159    29,185
                                                            --------  --------
      Total investment in subsidiaries.....................  525,123   477,767
  Other assets.............................................    7,379     1,255
                                                            --------  --------
      Total assets......................................... $596,339  $516,301
                                                            ========  ========
Liabilities and Stockholders' Equity:
  Liabilities:
    Accrued expenses and taxes............................. $  9,546  $  9,439
    Long-term debt.........................................   40,190    40,213
                                                            --------  --------
      Total liabilities....................................   49,736    49,652
                                                            --------  --------
  Stockholders' Equity:
    Common stock...........................................  163,208   163,208
    Additional paid-in capital.............................   11,103    11,770
    Retained earnings......................................  421,875   333,040
    Unrealized gain (loss) on securities available-for-
     sale..................................................       49      (155)
                                                            --------  --------
                                                             596,235   507,863
    Less: Treasury stock--at cost..........................  (49,632)  (41,214)
                                                            --------  --------
      Total stockholders' equity...........................  546,603   466,649
                                                            --------  --------
      Total liabilities and stockholders' equity........... $596,339  $516,301
                                                            ========  ========
</TABLE>
 
                                       56
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of
Income
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                    YEARS ENDED DECEMBER 31,
                                                   ---------------------------
                                                     1995      1994     1993
                                                   --------  -------- --------
<S>                                                <C>       <C>      <C>
Revenue
  Dividend income:
    Banking subsidiary............................ $ 66,890  $ 44,130 $ 28,347
    Non-banking subsidiaries......................    3,450
  Interest on investment securities...............    1,409     2,155    2,841
  Interest on time deposits with Bank.............      691       191       89
  Gains on sales of investment securities.........        5       345        2
                                                   --------  -------- --------
      Total revenue...............................   72,445    46,821   31,279
                                                   --------  -------- --------
Expenses
  Interest on long-term debt......................    3,501     3,516    3,555
  Other expenses..................................    1,169       783    1,242
                                                   --------  -------- --------
      Total expenses..............................    4,670     4,299    4,797
                                                   --------  -------- --------
Income before income taxes and equity in
 undistributed net income of subsidiaries.........   67,775    42,522   26,482
Income tax benefit................................      873       602      618
                                                   --------  -------- --------
Income before equity in undistributed net income
 (loss) of subsidiaries...........................   68,648    43,124   27,100
Equity in undistributed net income (loss):
  Banking subsidiary..............................      276    25,389   39,351
  Non-banking subsidiaries........................   (3,359)    1,526    1,466
                                                   --------  -------- --------
      Net income.................................. $ 65,565  $ 70,039 $ 67,917
                                                   ========  ======== ========
</TABLE>
 
                                       57
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

Dauphin Deposit Corporation (Parent Company Only) Condensed Statements of Cash
Flows
 
<TABLE>
<CAPTION>
                                                        (IN THOUSANDS)
                                                   YEARS ENDED DECEMBER 31,
                                                  ----------------------------
                                                    1995      1994      1993
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Operating activities
  Net income..................................... $ 65,565  $ 70,039  $ 67,917
  Adjustments
    Equity in undistributed net (income) loss of
     subsidiaries................................    3,083   (26,915)  (40,817)
    Other, net...................................   (2,112)    4,736    (1,602)
                                                  --------  --------  --------
  Net cash provided by operating activities......   66,536    47,860    25,498
                                                  --------  --------  --------
Investing activities
  Proceeds from investment securities............   37,477    43,484    11,955
  Purchase of investment securities..............  (63,469)  (24,488)  (14,627)
  Sale of subsidiary.............................                797
                                                  --------  --------  --------
      Net cash provided (used) by investing
       activities................................  (25,992)   19,793    (2,672)
                                                  --------  --------  --------
Financing activities
  Issuance of treasury stock.....................    6,341     3,713     1,968
  Repurchase of treasury stock...................  (16,063)  (42,413)
  Cash dividends paid............................  (30,836)  (29,024)  (25,406)
                                                  --------  --------  --------
      Net cash used by financing activities......  (40,558)  (67,724)  (23,438)
                                                  --------  --------  --------
      Decrease in cash and cash equivalents......      (14)      (71)     (612)
Cash and cash equivalents at beginning of year...       36       107       719
                                                  --------  --------  --------
Cash and cash equivalents at end of year......... $     22  $     36  $    107
                                                  ========  ========  ========
Schedule of non-cash investing and financing
 activities:
  Conversion of convertible subordinated
   debentures.................................... $    258  $    432  $    335
  Net assets of subsidiaries merged..............    2,799
</TABLE>
 
  Dauphin Deposit Corporation merged three subsidiaries (FARMCO Realty, Inc.,
Financial Realty, Inc. and Farmers Mortgage Corporation) with and into itself
in 1995. The 1995 balance sheet reflects the assets held by the subsidiaries,
primarily premises that are leased to the Bank. Previous periods presented have
not been restated.
 
                                       58
<PAGE>
 
                  DAUPHIN DEPOSIT CORPORATION AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
 
                        DECEMBER 31, 1995, 1994 AND 1993

18--CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                      1995                            1994
                         ------------------------------- -------------------------------
                         FOURTH   THIRD  SECOND   FIRST  FOURTH   THIRD  SECOND   FIRST
                         QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
                         ------- ------- ------- ------- ------- ------- ------- -------
<S>                      <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Interest income......... $92,098 $90,272 $90,662 $90,612 $87,789 $83,608 $81,215 $78,495
Interest expense........  47,302  46,558  47,719  46,352  42,573  39,077  36,436  34,555
                         ------- ------- ------- ------- ------- ------- ------- -------
Net interest income.....  44,796  43,714  42,943  44,260  45,216  44,531  44,779  43,940
Provision for loan
 losses.................   1,246   1,246   1,246   1,870   1,870   1,870   1,870   1,884
Non-interest income.....  19,966  18,234  18,426  15,163  16,998  16,569  13,706  13,674
Non-interest expense....  39,628  37,566  38,427  37,498  37,969  36,336  32,807  32,006
                         ------- ------- ------- ------- ------- ------- ------- -------
Income before income
 taxes..................  23,888  23,136  21,696  20,055  22,375  22,894  23,808  23,724
Provision for income
 taxes..................   6,494   6,261   5,619   4,836   5,542   5,556   5,841   5,823
                         ------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $17,394 $16,875 $16,077 $15,219 $16,833 $17,338 $17,967 $17,901
                         ======= ======= ======= ======= ======= ======= ======= =======
Net income per share.... $   .56 $   .55 $   .52 $   .49 $   .53 $   .54 $   .56 $   .55
                         ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
 
19--LITIGATION
 
  Various legal actions or proceedings are pending involving Dauphin or its
subsidiaries. Management believes that the aggregate liability or loss, if any,
will not be material to Dauphin's financial condition or results of operation.
Included among outstanding litigation is a class action law suit instituted by
Dauphin seeking a declaratory judgement from the Court specifically permitting
Dauphin to discontinue offering an 18 month variable rate investment product
carrying a minimum interest rate of 10% for the 18 month term held in certain
individual retirement accounts (IRA) and/or to charge an annual maintenance fee
and fee on rollovers or transfers into the investment product. Dauphin's rights
to terminate the variable rate interest product and to charge a service fee are
in dispute and are being challenged by the holders of the IRA accounts in
question. Management intends to vigorously assert its right to terminate the 18
month variable rate investment product in accordance with its terms. Pending
the outcome of the litigation, Dauphin has continued to date to pay a 10%
interest rate with regard to the product. Counsel expects the case to go to
trial in the second quarter of 1996 and for a decision to be rendered by the
Court promptly thereafter.
 
                                       59
<PAGE>
 
 
                                  [LETTERHEAD]
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Stockholders
Dauphin Deposit Corporation
 
  We have audited the accompanying consolidated balance sheets of Dauphin
Deposit Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dauphin
Deposit Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
 
  As discussed in notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for mortgage servicing rights to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights an amendment of FASB Statement No. 65" on January 1, 1995.
 
                                          (ART)
 
January 26, 1996
 
                                       60
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
  Not applicable.
 
                                       61
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                    PART III
 
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  Information relative to directors of Dauphin is incorporated herein by
reference to Election of Directors in Dauphin's 1996 Proxy Statement.
Information relative to executive officers of Dauphin is set forth herein in
Part I under the caption "EXECUTIVE OFFICERS OF THE REGISTRANT."
 
ITEM 11. EXECUTIVE COMPENSATION
 
  This item is incorporated by reference to Executive Compensation in the 1996
Proxy Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  This item is incorporated by reference to Outstanding Stock and Principal
Holders Thereof and Security Ownership of Management in the 1996 Proxy
Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  This item is incorporated by reference to Transactions with Management in the
1996 Proxy Statement.
 
                                       62
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                    PART IV
 
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
<TABLE>
   <S>     <C>
   (a) 1.  Financial Statements
           The consolidated financial statements listed on the index to Item 8 of
           this Annual Report on Form 10-K are filed as a part of this Annual Report.
   (a) 2.  Financial Statement Schedules
           All schedules applicable to the Registrant are shown in the respective
           financial statements or in the notes thereto included in this Annual
           Report.
   (a) 3.  Exhibits
           (3)(a) Articles of Incorporation, as amended, of Dauphin, are incorporated
                  herein by reference to Exhibit 3(b) to Dauphin's Quarterly Report
                  on Form 10-Q for the quarter ended September 30, 1992 (Commission
                  File Number 0-8415).
           (3)(b) By-Laws, as amended, of Dauphin.
           (10)(a) Dauphin Stock Option Plan of 1986, as amended, is incorporated
                   herein by reference to Exhibit 4.1 to Amendment No. 1 to Dauphin's
                   Registration Statement on Form S-8, as filed with the Commission
                   on April 28, 1993 (Commission File Number 33-17401).
           (10)(b) Dauphin Annual Management Performance Incentive Plan, as amended.
           (10)(c) Dauphin 1995 Stock Incentive Plan is incorporated herein by
                   reference to Exhibit 4.1 to Dauphin's Registration Statement on
                   Form S-8, as filed with the Commission on June 5, 1995 (Commission
                   File Number 33-59941).
           (10)(d) Form of Performance Share Agreement entered into in 1995 between
                   Dauphin and the following officers of Dauphin, Dauphin Bank and
                   other wholly-owned subsidiaries of Dauphin or Dauphin Bank: David
                   L. Brewin, Richard B. Brokenshire, Dennis L. Dinger, Robert L.
                   Fryer, Jr., Richard A. Gold, Christopher R. Jennings, Michael B.
                   Johnson, George W. King, Lawrence J. LaMaina, Jr., Stewart P.
                   McEntee, Richard W. Payne, III, Donald H. Ross, Robert A. Rupel,
                   Kenneth H. Sallade, Paul B. Shannon and Michael D. Zarcone (also
                   see the Long Term Incentive Plan Awards Table in Dauphin's 1996
                   Proxy Statement which is incorporated by reference under Item 11,
                   Part III of this Report).
           (10)(e) Dauphin 1996 Non-Employee Directors' Stock Plan.
           (10)(f) Supplemental Executive Benefit and Change in Control Agreement,
                   dated as of January 23, 1984, between Dauphin Bank and William J.
                   King (the King Agreement) is incorporated herein by reference to
                   Exhibit 10(c) to Dauphin's Annual Report on Form 10-K for the year
                   ended December 31, 1992 (Commission File Number 0-8415).
           (10)(g) Corrective Amendment, dated as of July 18, 1989, to the King
                   Agreement is incorporated herein by reference to Exhibit 10(d) to
                   Dauphin's Annual Report on Form 10-K for the year ended December
                   31, 1992 (Commission File Number 0- 8415).
</TABLE>
 
 
                                       63
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
<TABLE>
   <S>   <C>
         (10)(h) Amendment, dated as of November 8, 1991, to the King Agreement is
                 incorporated herein by reference to Exhibit 10(e) to Dauphin's
                 Annual Report on Form 10-K for the year ended December 31, 1992
                 (Commission File Number 0- 8415).
         (10)(i) Supplemental Executive Benefit and Change in Control Agreement, as
                 Amended and Restated, dated as of October 15, 1992, between
                 Dauphin and Christopher R. Jennings is incorporated herein by
                 reference to Exhibit 10(f) to Dauphin's Annual Report on Form 10-K
                 for the year ended December 31, 1992 (Commission File Number 0-
                 8415).
         (10)(j) Form of Change in Control Agreement entered into in 1995 between
                 Dauphin and the following officers of Dauphin, Dauphin Bank and
                 other wholly-owned subsidiaries of Dauphin or Dauphin Bank: David
                 L. Brewin, Richard B. Brokenshire, Dennis L. Dinger, Richard A.
                 Gold, Michael B. Johnson, George W. King, Stewart P. McEntee,
                 Richard W. Payne, III, Donald H. Ross, Jacqueline E. Rothschild,
                 Robert A. Rupel, Kenneth H. Sallade, Paul B. Shannon, James J.
                 Trupp, Jr. and Michael D. Zarcone.
         (10)(k) Employment and Consulting Agreement, dated as of January 27, 1992,
                 between FB&T Corporation, Dauphin and Lawrence J. LaMaina, Jr.
                 (the LaMaina Agreement) is incorporated herein by reference to
                 Exhibit 10(k) to Dauphin's Annual Report on Form 10-K for the year
                 ended December 31, 1992 (Commission File Number 0-8415).
         (10)(l) First Amendment, dated as of April 2, 1993, to the LaMaina
                 Agreement is incorporated herein by reference to Exhibit 10(l) to
                 Dauphin's Annual Report on Form 10-K for the year ended December
                 31, 1993.
         (10)(m) Form of Director and Executive Officer Indemnification Agreements.
         (11)   Statement regarding computation of per share earnings.
         (21)   Subsidiaries of the Registrant.
         (23)   Consent of Independent Auditors.
         (27)   Financial Data Schedule.
         (99)   The Rights Agreement, dated as of January 22, 1990, between Dauphin
                and Dauphin Bank, as Rights Agent, is incorporated herein by
                reference to Exhibit 1 to Dauphin's Current Report on Form 8-K,
                dated January 22, 1990, and filed with the Securities and Exchange
                Commission on February 9, 1990.
   (b)   Reports on Form 8-K
         There were no reports on Form 8-K filed for the three months ended
         December 31, 1995.
</TABLE>
 
                                       64
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                   SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
 
                                          Dauphin Deposit Corporation
 
February 20, 1996                               /s/ Christopher R. Jennings
                                          By: _________________________________
                                                  CHRISTOPHER R. JENNINGS
                                               CHAIRMAN OF THE BOARD, CHIEF
                                              EXECUTIVE OFFICER AND DIRECTOR
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT IS SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
 
                                                                     DATE
 
     /s/ Christopher R. Jennings        Chairman of the          February 20,
-------------------------------------    Board, Chief                1996
       CHRISTOPHER R. JENNINGS           Executive Officer
                                         and Director
 
      /s/ Robert L. Fryer, Jr.          President, Chief         February 20,
-------------------------------------    Operating Officer           1996
        ROBERT L. FRYER, JR.             and Director
 
         /s/ Paul B. Shannon            Vice Chairman and        February 20,
-------------------------------------    Chief Credit Policy         1996
           PAUL B. SHANNON               Officer
 
    /s/ Lawrence J. LaMaina, Jr.        Vice Chairman and        February 20,
-------------------------------------    Director                    1996
      LAWRENCE J. LAMAINA, JR.
 
        /s/ Dennis L. Dinger            Senior Executive         February 20,
-------------------------------------    Vice President,             1996
          DENNIS L. DINGER               Chief Fiscal and
                                         Administrative
                                         Officer (Principal
                                         Financial Officer)
 
     /s/ Joseph T. Lysczek, Jr.         Senior Vice              February 20,
-------------------------------------    President and               1996
       JOSEPH T. LYSCZEK, JR.            Treasurer
 
                                       65
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                                                     DATE
 
         /s/ James O. Green             Director               February 20, 1996
-------------------------------------                                
           JAMES O. GREEN
 
        /s/ Derek C. Hathaway           Director               February 20, 1996
-------------------------------------                               
          DEREK C. HATHAWAY
 
                                        Director
-------------------------------------
         ALFRED G. HEMMERICH
 
         /s/ Lee H. Javitch             Director               February 20, 1996
-------------------------------------                               
           LEE H. JAVITCH
 
                                        Director
-------------------------------------
           WILLIAM J. KING
 
      /s/ William T. Kirchhoff          Director               February 20, 1996
-------------------------------------                                
        WILLIAM T. KIRCHHOFF
 
         /s/ Andrew Maier,II            Director               February 20, 1996
-------------------------------------                              
          ANDREW MAIER, II
 
                                        Director
-------------------------------------
           JAMES E. MARLEY
 
        /s/ Robert F. Nation            Director               February 20, 1996
-------------------------------------                                
          ROBERT F. NATION
 
                                       66
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                                                     DATE
 
         /s/ Elmer E. Naugle            Director                 February 20,
-------------------------------------                                1996
           ELMER E. NAUGLE
 
                                        Director
-------------------------------------
           WALTER F. RAAB
 
                                        Director
-------------------------------------
            PAUL C. RAUB
 
         /s/ Henry W. Rhoads            Director                 February 20,
-------------------------------------                                1996
           HENRY W. RHOADS
 
         /s/ Jean D. Seibert            Director                 February 20,
-------------------------------------                                1996
           JEAN D. SEIBERT
 
    /s/ R. Champlin Sheridan, Jr.       Director                 February 20,
-------------------------------------                                1996
      R. CHAMPLIN SHERIDAN, JR.
 
 
                                       67
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT                                                            SEQUENTIAL
 NUMBER                                                             PAGE NUMBER
 -------                                                            -----------
 <C>     <S>                                                        <C>
  (3)(a) Articles of Incorporation, as amended, of Dauphin, are
         incorporated herein by reference to Exhibit 3(b) to
         Dauphin's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1992 (Commission File Number 0-
         8415).
  (3)(b) By-Laws, as amended, of Dauphin.
 (10)(a) Dauphin Stock Option Plan of 1986, as amended, is
         incorporated herein by reference to Exhibit 4.1 to
         Amendment No. 1 to Dauphin's Registration Statement on
         Form S-8, as filed with the Commission on April 28, 1993
         (Commission File Number 33-17401).
 (10)(b) Dauphin Annual Management Performance Incentive Plan, as
         amended.
 (10)(c) Dauphin 1995 Stock Incentive Plan is incorporated herein
         by reference to Exhibit 4.1 to Dauphin's Registration
         Statement on Form S-8, as filed with the Commission on
         June 5, 1995 (Commission File Number 33-59941).
 (10)(d) Form of Performance Share Agreement entered into in 1995 
         between Dauphin and the following officers of Dauphin, 
         Dauphin Bank and other wholly-owned subsidiaries of 
         Dauphin or Dauphin Bank: David L. Brewin, Richard B. 
         Brokenshire, Dennis L. Dinger, Robert L. Fryer, Jr., 
         Richard A. Gold, Christopher R. Jennings, Michael B. 
         Johnson, George W. King, Lawrence J. LaMaina, Jr., 
         Stewart P. McEntee, Richard W. Payne, III, Donald H. 
         Ross, Robert A. Rupel, Kenneth H. Sallade, Paul B. 
         Shannon and Michael D. Zarcone (also see the Long Term 
         Incentive Plan Award Table in Dauphin's 1996 Proxy 
         Statement which is incorporated by reference under Item 
         11, Part III of this Report).
 (10)(e) Dauphin 1996 Non-Employee Directors' Stock Plan.
 (10)(f) Supplemental Executive Benefit and Change in Control 
         Agreement, dated as of January 23, 1984, between Dauphin  
         Bank and William J. King (the King Agreement) is 
         incorporated herein by reference to Exhibit 10(c) to
         Dauphin's Annual Report on Form 10-K for the year ended 
         December 31, 1992 (Commission File Number 0-8415).
 (10)(g) Corrective Amendment, dated as of July 18, 1989, to the
         King Agreement is incorporated herein by reference to
         Exhibit 10(d) to Dauphin's Annual Report on Form 10-K
         for the year ended December 31, 1992 (Commission File
         Number 0-8415).
 (10)(h) Amendment, dated as of November 8, 1991, to the King
         Agreement is incorporated herein by reference to Exhibit
         10(e) to Dauphin's Annual Report on Form 10-K for the
         year ended December 31, 1992 (Commission File Number 0-
         8415).
 (10)(i) Supplemental Executive Benefit and Change in Control
         Agreement, as Amended and Restated, dated as of October
         15, 1992, between Dauphin and Christopher R. Jennings is
         incorporated herein by reference to Exhibit 10(f) to
         Dauphin's Annual Report on Form 10-K for the year ended
         December 31, 1992 (Commission File Number 0-8415).
 (10)(j) Form of Change in Control Agreement entered into in 1995
         between Dauphin and the following officers of Dauphin,
         Dauphin Bank and other wholly-owned subsidiaries of
         Dauphin or Dauphin Bank: David L. Brewin, Richard B.
         Brokenshire, Dennis L. Dinger, Richard A. Gold, Michael
         B. Johnson, George W. King, Stewart P. McEntee, Richard
         W. Payne, III, Donald H. Ross, Jacqueline E. Rothschild,
         Robert A. Rupel, Kenneth H. Sallade, Paul B. Shannon,
         James J. Trupp, Jr. and Michael D. Zarcone.
</TABLE>
 
 
                                       68
<PAGE>
 
                          DAUPHIN DEPOSIT CORPORATION
<TABLE>
<CAPTION>
 EXHIBIT                                                            SEQUENTIAL
 NUMBER                                                             PAGE NUMBER
 -------                                                            -----------
 <C>     <S>                                                        <C>
 (10)(k) Employment and Consulting Agreement, dated as of January
         27, 1992, between FB&T Corporation, Dauphin and Lawrence
         J. LaMaina, Jr. (the LaMaina Agreement) is
         incorporated herein by reference to Exhibit 10(k) to
         Dauphin's Annual Report on Form 10-K for the year ended
         December 31, 1992 (Commission File Number 0-8415).
 (10)(l) First Amendment, dated as of April 2, 1993, to the
         LaMaina Agreement is incorporated herein by reference to
         Exhibit 10(l) to Dauphin's Annual Report on Form 10-K
         for the year ended December 31, 1993.
 (10)(m) Form of Director and Executive Officer Indemnification
         Agreements.
 (11)    Statement regarding computation of per share earnings.
 (21)    Subsidiaries of the Registrant.
 (23)    Consent of Independent Auditors.
 (27)    Financial Data Schedule.
 (99)    The Rights Agreement, dated as of January 22, 1990,
         between Dauphin and Dauphin Bank, as Rights Agent, is
         incorporated herein by reference to Exhibit 1 to
         Dauphin's Current Report on Form 8-K, dated January 22,
         1990, and filed with the Securities and Exchange
         Commission on February 9, 1990.
</TABLE>
 
                                       69