ITEM 1. BUSINESS ---------
Computer Task Group, Incorporated (Company or CTG or Registrant) was incorporated in Buffalo, New York on March 11, 1966, and its corporate headquarters are located at 800 Delaware Avenue, Buffalo, New York 14209 (716-882-8000). CTG is an information technology services company. CTG employs approximately 5,000 people and serves customers through an international network of offices in North America and Europe. The Company has four operating subsidiaries: Computer Task Group of Canada, Inc.; Computer Task Group (U.K.) Ltd.; Computer Task Group Nederland B.V.; and Computer Task Group Belgium N.V. As of July 1, 1994, the Company sold its petroleum industry subsidiaries, Profimatics, Inc. and Profimatics & Co., GmbH.
BACKGROUND - ----------
The Company operates in one area of the computer industry -- providing information technology services. A typical customer is a Fortune 500-size organization with large, complex information and data processing requirements. CTG's customer base is large and diverse, consisting of approximately 900 customers. The Company serves approximately 35 percent of the Fortune 100.
CTG works with customers to develop effective business solutions through information systems and technology. The Company's professional staff may support a customer's software development team on a specific application or project or may manage the project entirely for the customer. The Company's range of services extends from flexible staffing provided on a per diem basis to managing multi-million dollar technology projects. Approximately 51 percent of the Company's services are provided to customers in the service sector, followed by 23 percent in the manufacturing industry, 9 percent in the banking and finance sector and 17 percent in other industries. Most of CTG's services are provided on-site at the customer's facilities. CTG's network of offices provides wide geographical coverage with the capability of servicing large companies with multiple locations.
In 1993, the Company completed an extensive reengineering of its operations, resulting in a new business strategy and a complementary organization. CTG's business strategy is based upon the concept of a strategic variable workplace, being cost competitive while being responsive in supplying qualified staff to work on client engagements. CTG's services are sold and delivered on a local level through its network of geographically dispersed delivery teams made up of sales managers, resource managers and business consultants. The Company has a staff of over 90 recruiting specialists located in five regional locations who utilize an electronic recruiting database to screen and qualify individuals who are available to work on CTG's clients' information technology needs. The Company maintains a qualified database of over 160,000 candidates available for assignments.
In the 1980's, CTG's growth strategy included expansion via geographic acquisitions primarily in North America. The Company also completed two acquisitions in Europe, one in 1986 and the other in 1990. In total, between 1979 and 1990, CTG acquired 21 firms ranging in size from $1 million to approximately $30 million in revenue. CTG has not made an acquisition in the last five years, but instead has focused on internal growth and divesting small non-strategic businesses. Future growth will come from internal growth and strategic investments.
International Business Machines Corporation (IBM) is CTG's largest customer. CTG provides services to various IBM divisions in approximately 50 locations. In 1995, CTG was awarded a two year contract to be one of IBM's nine national technical service providers. IBM accounted for $80 million or 23.7 percent of CTG's 1995 revenue, $68 million or 22.7 percent of CTG's 1994 revenue, and $80 million or 27.1 percent of CTG's 1993 revenue. The Company expects to continue to derive a significant portion of its business from IBM in 1996 and to actively pursue new business with IBM. A significant decline in revenues from IBM could have a material adverse impact on the Company's revenues and profits. Because of the diversity of the projects performed for IBM and the number of locations and divisions involved, the Company
believes the simultaneous loss of all IBM business is unlikely to occur. IBM accounted for approximately 24.2 percent of North American revenue and 7.3 percent of European revenue during 1995. In addition, the Company continues to expand its non-IBM business, which grew 11 percent or $25.8 million in 1995 compared to 1994.
In 1989, CTG entered into an agreement with IBM where IBM purchased 1,448,276 shares of CTG Series B Preferred Stock. On February 25, 1994, IBM converted all of its CTG Series B Preferred Stock into common stock and CTG repurchased 500,000 of its common shares from IBM for $3,515,000. This repurchase reduced IBM's ownership of the Company to approximately 9.2 percent. IBM subsequently sold 550,000 CTG common shares on the open market. The Company and its Stock Employee Compensation Trust repurchased IBM's remaining 398,276 shares in December 1994 for $2,950,000.
The Company holds no patents, trademarks, or service marks other than its registered name and logo. It has entered into agreements with various software and hardware vendors from time to time in the normal course of business, none of which are material to the business.
SERVICES - --------
CTG operates in one area of the Information Technology (IT) industry, the services area. Segment information is included in CTG's 1995 Annual Report to Shareholders on page 24 and is incorporated herein by reference.
Most companies follow a continuous process to create business solutions. The business solution life cycle begins with planning, as companies design strategies to meet overall business objectives using IT. Planning is followed by development, in which companies develop and implement IT solutions using their newly devised plans. Finally, managing and maintaining ensure systems and technologies are supported to preserve their effectiveness. CTG provides services in each of these three areas as follows:
Business Consulting. Business Consulting focuses on the planning phase of the IT life cycle. CTG's consultants help a customer develop the plan to reengineer its business processes, assess its technology needs, and choose the appropriate technology.
Development & Integration. Development & Integration supports the implementation phase of the IT life cycle, including software package implementation, application development, and client/server development.
Managed Support. Managed Support addresses the maintenance segment of the IT life cycle. It encompasses service offerings such as operations and network support (running or maintaining a customer's systems), application support (maintaining a company's programs and documentation) and setting-up and maintaining a Help Desk.
SALES AND MARKETING - --------------------
CTG's marketing efforts span all strata of the organization, involving virtually all of the Company's professionals.
On the corporate and regional level, management performs strategic, tactical and operational sales planning to assess industry and customer needs and target markets.
Customers are served by local teams, comprised of Sales Managers, Business Consultants and Resource Managers who work together -- the first two focused on identifying an engagement and the latter focused on finding appropriate, high quality professionals for an engagement. Supporting these local teams are sourcing specialists backed by a national electronic database of professional computer consultants and programmers -- to improve effectiveness at locating qualified IT candidates. In addition, Project Managers are responsible for profitability, client satisfaction and risk management in the project delivery of consulting offerings.
Sales Managers are full-time employees who receive a base salary and are paid commissions based on objectives such as the amount and profitability of the business they sell. Each Sales Manager is assigned a sales quota and is paid in relationship to this quota. Sales Managers, and the professionals serving our customers, continually seek to identify new opportunities with existing and prospective customers. CTG publishes brochures that explain its services, produces informative customer newsletters, advertises in trade publications, participates in trade shows, and encourages employees to author articles, which keeps the CTG name in front of clients.
The Internet and the World Wide Web (Web) are also key components of the Company's communications infrastructure, called CTGNet. The Web is the foundation of an ongoing knowledge exchange effort and the Company is currently refining and building new Web functionality to continuously provide current information to its customers, suppliers, investors and potential employees. The Internet and the Web present important opportunities for new business and CTG is currently developing Internet tools to support its clients. Internally, the Company is at the leading edge of using the Internet to exchange knowledge. CTG has been using the Internet and the Web for two years as a communications tool, to connect wide-spread employees, and as a resource tool for recruiting, marketing and service delivery.
PRICING AND BACKLOG - -------------------
CTG provides the majority of its business on a time and materials basis. Rates vary based on the type and level of skill required by the customer. Consulting services are more specialized; therefore, they generally command higher rates. Agreements for work performed on a per diem basis generally do not specify any dollar amount because services are rendered on an "as required" basis, and are subject to cancellation without penalty on thirty days' notice.
The Company performs project business on either a fixed-price or time and materials basis. These contracts generally have different terms and conditions regarding cancellation and warranties, and are usually negotiated based on the unique aspects of the project. Approximately 4 percent of the Company's 1995 revenue is from fixed-price contracts accounted for under the percentage of completion method, compared to 5 percent in 1994. Revenue from all fixed price contracts, including those accounted for under the percentage of completion method and managed support contracts, totaled 13 percent in 1995, compared to 8 percent in 1994. As of December 31, 1995 and 1994, the backlog for fixed-price and managed support contracts was approximately $51 million and $55 million, respectively. Approximately 42 percent of the December 31, 1995 backlog is expected to be earned in 1996. Revenue is subject to seasonal variations, with a minor downturn in months of high vacation and legal holidays (July, August and December). The backlog is not seasonal.
COMPETITION - -----------
The IT services market is highly competitive. The market is also highly fragmented among many providers with no single competitor maintaining clear market leadership. The Company's competition varies from city to city and by the type of service provided. Competition comes from four primary channels: a customer's internal data processing staff; small local firms or individuals specializing in specific programming services or applications; hardware vendors and suppliers of packaged software systems; and large national or international vendors, including major accounting and consulting firms, which offer a variety of development services to a broad spectrum of commercial customers. CTG competes against all four of these for its share of the market.
Management believes the Company's customers have different buying values. In order to compete for their business, the Company believes that it must quickly respond to customers with high quality skills at a low cost, utilizing CTG's strategic variable workforce. Customers demand the ability to solve business problems, backed by a defined approach and experience. CTG's organization is designed to allow it to compete in the IT services industry.
CTG has implemented a Total Quality Management Program, with a goal to achieve continuous, measured improvements in services and deliverables. As part of this program, CTG has developed specific methodologies for providing value added services which result in unique solutions and specified deliverables for its clients. The Company believes these methodologies will enhance its ability to compete.
MANAGEMENT AND PROFESSIONAL STAFF - ---------------------------------
As of December 31, 1995, CTG employed 5,014 people, of which 4,402 were professional technical staff.
CTG's long-term profitability and growth depend on its ability to attract qualified information systems professionals with the skills to fulfill customer requirements. Qualified systems engineers and professionals with computer-related skills are in great demand and the Company faces considerable competition in attracting such individuals. Competing employers include not only computer-related professional services companies, but also businesses with internal data processing staffs.
The Company offers several employment options to enable it to attract professional staff. The Company pays its employees on either a salaried or hourly basis. Management has developed a professional staff resources database. This database provides a pipeline of quality professional resources to assist management in providing customers with responsive, dependable and cost-effective service to fulfill the needs required.
CTG's service agreements with its customers generally state that neither party may hire the other's personnel for the term of the project and a stated period thereafter. The Company's employees are required to sign non-solicitation and non-disclosure agreements which state they will not accept employment directly or indirectly with a customer or solicit or hire another employee, for a specified period after termination of employment. The agreements also provide that the employee will not use or disclose Company or client confidential information. In addition, entry level staff who attend the Company's systems training course and more experienced staff who complete new technology training sign agreements to reimburse the Company for the cost of the training if they voluntarily terminate their employment within a defined period from the date the training program starts.
No employees are covered by a collective bargaining agreement or are represented by a labor union. CTG is an equal opportunity employer.
TECHNICAL AND MANAGEMENT TRAINING - ---------------------------------
For a services company, amounts spent on education and training for staff to keep abreast of technology are similar to research and development expense. CTG recognizes that its ability to remain competitive depends on its ability to offer customers services that make the highest and best use of emerging new technologies. The Company provides ongoing educational programs so that its technical staff has the skills needed to respond to today's new demands. Classroom and distributed training, using videos and computer-based training courses, are utilized.
CTG also offers its employees management and sales training. These courses offer the latest marketing and management practices and serve both as refresher courses and as training vehicles to ensure that the technical staff has the skills necessary for promotion. They also provide a forum for imparting Company policies to ensure consistency in the quality of services throughout the Company's organization.
CTG believes its training and continuing education programs keep its technical staff current and provide the Company with the necessary management and marketing personnel to support future growth. CTG invested approximately $4.0 million, $4.4 million and $4.5 million, on education in 1995, 1994, and 1993, respectively, including compensation paid to technical staff while in training.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS - -----------------------------------------------------------------
Executive Officers of the Company ---------------------------------
- --------------- [FN]
(1) Business Experience -------------------
Ms. Fitzgerald was appointed Chairman of the Board and chief executive officer as of October 3, 1994 and President and chief operating officer as of July 1, 1993. She joined the Company in May 1991 as Senior Vice President responsible for the Company's Northeastern U.S. and Canadian operations. She was previously Vice President, Professional Services at International Business Machines Corporation (IBM), where she had worked for 18 years in various management positions.
Mr. Ballou was promoted to Vice President in November 1993 and has been employed by the Company for 12 years. He has held a variety of technical and management positions and is presently responsible for the operations of the Company's Mid-Atlantic and South regions.
Mr. Barbour was promoted to Vice President in November 1993 and has been employed by the Company for 16 years. He has held a variety of management positions and is presently responsible for the operations of the Company's Mid-West region.
Mr. Boldt joined the Company as a Vice President in February 1996. He was previously Vice President of Finance, Secretary and Chief Financial Officer of Pratt and Lambert United, Inc., where he worked for 20 years in a variety of management positions. He is currently responsible for the Company's Finance, Accounting and Internal Audit functions.
Mr. Boyle joined the Company as an officer in July 1994, and currently serves as Vice President and Chief Information Officer. He was Manager, Northern New England Consulting Practice with Coopers & Lybrand from 1992 to June 1994 and held a variety of technical consulting and management positions prior to that.
Ms. Cole was promoted to Vice President in November 1993 and has been employed by the Company since 1980. She has held a variety of technical and management positions and is presently responsible for the operations of the Company's Northeast region.
Ms. DeRocco joined the Company as a Vice President in April 1995. She previously held a variety of management positions at IBM and is presently responsible for the operations of the Company's West region.
Mr. Grich was promoted to Vice President in February 1995 and has been employed by the Company since 1991. He has held a variety of sales and management positions and is presently responsible for the operations of the Company's Central region. Prior to joining the Company, he was employed by Cap Gemini as Northeastern Director for Sales and Marketing. He also spent 20 years with IBM where his last position was Branch Manager for IBM's Hartford Professional Services office.
Mr. Hoffman was promoted to Vice President in November 1990 and is currently responsible for the operations of the Company's National Delivery Team, which focuses primarily on IBM. Prior to joining the Company in March 1990, he worked 13 years at IBM where his last position was IBM's Buffalo branch manager.
Mr. Makowski was promoted to Vice President in September 1993. He has served as Secretary and General Counsel since September 1989. He has served as the Company's Corporate Counsel since 1985.
Mr. Molenaar was promoted to Vice President in January 1996 and has been employed by the Company since 1988. He has held a variety of management positions and is presently responsible for the Company's European operations.
Mr. Megregian joined the Company as an officer in January, 1994 and currently serves as Vice President, Offerings and Performance. Most recently, Mr. Megregian was an independent business consultant with KWR Information Systems for two years. Prior to that, he was with IBM for 27 years where he had held various management and technical positions.
ITEM 2.

ITEM 2. PROPERTIES ----------
The Company occupies a headquarters building (approximately 40,000 square feet) at 800 Delaware Avenue, Buffalo, New York, under a Lease Agreement with the Erie County Industrial Development Agency (Agency), dated as of September 1, 1978. At the end of the term of the Lease Agreement in 1996, the Company has the right to purchase its headquarters building and the real property on which it is situated for $1.00. Until such time, the building and real property are encumbered by a mortgage held by the trustee for the purchaser of the industrial revenue bond issued by the Agency to finance its purchase of the building and real property.
The Company also occupies an office building at 700 Delaware Avenue, Buffalo, New York under a Lease Agreement with the Agency, dated April 1, 1990. The building consists of approximately 39,000 square feet and is occupied by the Company's Buffalo sales office and corporate administrative operations. At the end of the Lease Agreement in 2001, the Company has the right to purchase the building and the real property on which it is situated for $10.00. There is no mortgage on this building.
The Company also owns a 37,000 square foot building in Melbourne, Florida and a 24,000 square foot office and operations facility in Pittsburgh, Pennsylvania, which was financed by an industrial revenue bond.
Three of the four properties are currently on the market as the Company looks for more efficient space. The buildings are still in use while they are on the market, and the Company does not expect to incur a loss on the sale of these buildings. The Melbourne, Florida building, with a net book value of $1.8 million, is leased to a third party under a five year lease.
The remainder of the Company's locations are leased facilities. Most of these facilities serve as sales and support offices and their size varies, generally in the range of 1,000 to 12,000 square feet, with the number of people employed at each office. The Company's lease terms generally vary from periods of less than a year to five years and generally have flexible renewal options. The Company believes that its present owned and leased facilities are adequate to support its current and future needs.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS -----------------
Not applicable.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
Not applicable.
PART II -------
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS --------------------------------------------------------------------
Information relating to the market and market prices of the Company's Common Stock, the approximate number of Company shareholders and the Company's dividend history for the past two years is included under the caption "Stock Market Information" in the Company's Annual Report to Shareholders for the year ended December 31, 1995, submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA -----------------------
A ten-year summary of certain financial information relating to the financial condition and results of operations of the Company is included under the caption "Consolidated Summary - Ten-Year Selected Financial Information" in the Company's Annual Report to Shareholders for the year ended December 31, 1995, submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------
Management's discussion and analysis of financial condition and results of operations is included in the Company's Annual Report to Shareholders for the year ended December 31, 1995, submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
The consolidated financial statements of the Company and the supplementary data information are included in the Company's Annual Report to Shareholders for the year ended December 31, 1995, submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
On October 16, 1995, the Company engaged KPMG Peat Marwick LLP (KPMG) as the principal accountants to audit the Company's financial statements for the fiscal year ending December 31, 1995, and dismissed Price Waterhouse LLP (Price Waterhouse). The Company did not consult with KPMG regarding accounting advice prior to its engagement.
Price Waterhouse had been engaged since 1977 as the principal accountants to audit the Company's financial statements. Price Waterhouse's report on the financial statements of the Company as of December 31, 1994 and 1993 and for the years then ended contained no adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles. Also, during the aforementioned period, there occurred no "reportable event" within the meaning of Item 304(a)(1)(v) of Regulation S-K of the Commission.
The decision to change accountants was approved by the Board of Directors of the Company. During the Company's two most recent fiscal years and any subsequent interim period preceding the dismissal, there were no disagreements between the Company and Price Waterhouse on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which if not resolved to the satisfaction of Price Waterhouse would have caused Price Waterhouse to make reference to the subject matter of the disagreement in connection with its report.
II-1 10
PART III --------
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ---------------------------------------------------
The information in response to this item is incorporated herein by reference to the information set forth on pages 2 and 5 in the Company's definitive Proxy Statement filed pursuant to Regulation 14A and used in connection with the Company's 1996 annual meeting of shareholders to be held on April 24, 1996, except insofar as information with respect to executive officers is presented in Part I, Item 1 hereof pursuant to General Instruction G(3) of Form 10-K.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION ----------------------
The information in response to this item is incorporated herein by reference to the information under the caption "Information about Management" presented in the Company's definitive Proxy Statement filed pursuant to Regulation 14A and used in connection with the Company's 1996 annual meeting of shareholders to be held on April 24, 1996, excluding the Compensation Committee Report on Executive Compensation and the Company's Performance Graph as set forth in the Company's definitive Proxy Statement dated March 27, 1996.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------
The information in response to this item is incorporated herein by reference to the information under the caption "Security Ownership of the Company's Common Shares by Certain Beneficial Owners and by Management" presented in the Company's definitive Proxy Statement filed pursuant to Regulation 14A and used in connection with the Company's 1996 annual meeting of shareholders to be held on April 24, 1996, as set forth in the Company's definitive Proxy Statement dated March 27, 1996.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
The information in response to this item is incorporated herein by reference to the information under the captions "Indebtedness of Management" and "Compensation Committee Interlocks and Insider Participation" presented in the Company's definitive Proxy Statement filed pursuant to Regulation 14A and used in connection with the Company's 1996 annual meeting of shareholders to be held on April 24, 1996, excluding the Compensation Committee Report on Executive Compensation and the Company's Performance Graph as set forth in the Company's definitive Proxy Statement dated March 27, 1996.
III-1 11
PART IV -------
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ---------------------------------------------------------------
(A) Index to Financial Statements and Financial Statement Schedules ---------------------------------------------------------------
The 1995, 1994 and 1993 consolidated financial statements, and the report of KPMG Peat Marwick LLP dated February 9, 1996, on the consolidated balance sheet as of December 31, 1995 and the related consolidated statements of income, shareholder's equity and cash flows for the year then ended, appearing in the accompanying 1995 Annual Report to Shareholders, are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and the information incorporated in Parts I and II, the 1995 Annual Report to Shareholders is not to be deemed filed as part of this report. The following financial statement schedule should be read in conjunction with the financial statements in such 1995 Annual Report to Shareholders. All other financial statement schedules have been omitted because they are not material or the required information is shown in the financial statements or the notes thereto.
(B) Form 8-K --------
Filing on Form 8-K was made October 16, 1995 in regard to the change in certifying accountants from Price Waterhouse LLP to KPMG Peat Marwick LLP.
(C) Exhibits --------
The Exhibits to this Form 10-K Annual Report are listed on the attached Exhibit Index appearing on pages E-1 to E-4.
IV-1 12
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Board of Directors and Shareholders of Computer Task Group, Incorporated
In our opinion, the consolidated balance sheet and the related consolidated statements of income, of cash flows and of changes in stockholders' equity as of and for each of the two years in the period ended December 31, 1994 (appearing on pages 11 though 25 of the Computer Task Group, Incorporated Annual Report to Shareholders which has been included in this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operations and cash flows of Computer Task Group, Incorporated and its subsidiaries as of and for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Computer Task Group, Incorporated for any period subsequent to December 31, 1994.
PRICE WATERHOUSE LLP
Buffalo, New York February 10, 1995
IV-2 13
REPORT OF INDEPENDENT ACCOUNTANTS ON ------------------------------------ FINANCIAL STATEMENT SCHEDULE ----------------------------
To the Board of Directors and Stockholders of Computer Task Group, Incorporated
Under date of February 9, 1996, we reported on the consolidated balance sheet of Computer Task Group, Incorporated and subsidiaries as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended, as contained in the 1995 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year 1995. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule, insofar as it relates to the year ended December 31, 1995, as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, insofar as it relates to the year ended December 31, 1995, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Buffalo, New York February 9, 1996
IV-3 14
REPORT OF INDEPENDENT ACCOUNTANTS ON ------------------------------------ FINANCIAL STATEMENT SCHEDULE ----------------------------
To the Board of Directors of Computer Task Group, Incorporated
Our audits of the consolidated financial statements referred to in our report dated February 10, 1995 appearing on page IV-2 included in this Annual Report on Form 10-K also included an audit of the Financial Statement Schedule for 1994 and 1993 listed in Item 14. (A) of this Form 10-K. In our opinion, this Financial Statement Schedule for 1994 and 1993 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Buffalo, New York February 10, 1995
IV-4 15
COMPUTER TASK GROUP, INCORPORATED SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
- --------------- [FN]
(A) Includes additions charged to costs and expenses less accounts written off and translation adjustments.
(B) Utilization of foreign net operating losses that were previously offset completely by the valuation allowance.
(C) Includes benefit of unrealized capital loss carryforward that was realized during the year.
(D) Includes additions charged to costs and expenses for net operating loss carryforwards that are not expected to be realized.
IV-5 16
IV-6 17
EXHIBIT INDEX --------------
E-1 18
EXHIBIT INDEX (Continued) -------------
E-2 19
EXHIBIT INDEX (Continued) -------------
E-3 20
EXHIBIT INDEX (Continued) -------------
E-4 21


Item 1. Business.
History and Business - --------------------
Harleysville National Corporation (the "Corporation"), a Pennsylvania business corporation, was incorporated in June 1982. On January 1, 1983, the Corporation acquired all of the outstanding common stock of Harleysville National Bank and Trust Company ("Harleysville") at which time Harleysville became a wholly-owned subsidiary of the Corporation. On February 13, 1991, the Corporation acquired all of the outstanding common stock of The Citizens National Bank of Lansford ("Citizens"). On June 1, 1992, the Corporation acquired all of the outstanding stock of Summit Hill Trust Company ("Summit Hill"). On September 25, 1992, Summit Hill merged into Citizens and is now operating as a branch office of Citizens. On September 7, 1995, the Corporation, Citizens and Farmers and Merchants Bank ("Farmers") executed an Agreement and Plan of Reorganization and an Agreement and Plan of Merger. On March 1, 1996, the Corporation acquired all of the outstanding stock of Farmers and merged it with and into Citizens. On July 1, 1994 the Corporation acquired all of the outstanding stock of Security National Bank ("Security"). The Corporation is a three-bank holding company providing financial services through its Bank subsidiaries. Since commencing operations, the Corporation's business has consisted primarily of managing Harleysville, Citizens and Security (collectively the "Banks"), and its principal source of income has been dividends paid by the Banks. The Corporation is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). As of December 31, 1995, the Company had total consolidated assets, deposits and shareholders' equity of $874,145,992, $741,218,395 and $77,516,176 respectively.
Harleysville, which was established in 1909, Citizens, which was established in 1903, and Security, which was established in 1988, are national banking associations under the supervision of the Comptroller of the Currency of the United States of America. The Corporation's and Harleysville's legal headquarters are located at 483 Main Street, Harleysville, Pennsylvania 19438. Citizens' legal headquarters is located at 13-15 West Ridge Street, Lansford, Pennsylvania 18232. Security's legal headquarters is located at One Security Plaza, Pottstown, Pennsylvania 19464.
The Banks engage in the full-service commercial banking and trust business, including accepting time and demand deposits, making secured and unsecured commercial and consumer loans, financing commercial transactions, making construction and mortgage loans and performing corporate pension and personal trust services. Their deposits are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum extent provided by law.
The Banks enjoy a stable base of core deposits and are leading community banks in their service areas. The Banks believe they have gained their position as a result of a customer oriented philosophy and a strong commitment to service. Senior management has made the development of a sales orientation throughout the Banks one of their highest priorities and emphasizes this objective with extensive training and sales incentive programs that the Company believes are unusual for community banks. The Banks maintain close contact with the local business community to monitor commercial lending needs and believes they respond to customer requests quickly and with flexibility. Management believes these competitive strengths are reflected in the Corporation's results of operations.
The Banks have twenty-two (22) offices located in Montgomery, Bucks and Carbon Counties, 12 of which are owned by the Banks and 10 of which are leased from third parties.
As of December 31, 1995, the Corporation and the Banks employed approximately 350 full-time and full-time equivalent persons. The Corporation provides a variety of employment benefits and considers its relationships with its employees to be satisfactory.
Competition - -----------
The Banks compete actively with other eastern Pennsylvania financial institutions, many larger than the Banks, as well as with financial and non-financial institutions headquartered elsewhere. The Banks are generally competitive with all institutions in their service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. At December 31, 1995, Harleysville's legal lending limit to a single customer was $9,650,000 and Citizens' and Security's legal lending limits to a single customer were $1,815,000 and $590,000, respectively. Many of the institutions with which the Banks compete are able to lend significantly more than these amounts to a single customer.
Supervision and Regulation - The Registrant - -------------------------------------------
The Registrant is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and to supervision by the Federal Reserve Board. The Bank Holding Company Act requires the Registrant to secure the prior approval of the Federal Reserve Board before it owns or controls, directly or indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of any institution, including another bank. In addition, the Bank Holding Company Act has been amended by the Riegle-Neal Interstate Banking and Branching Efficiency Act which permits bank holding companies to acquire a bank located in any state subject to certain limitation and restrictions which are more fully described below.
A bank holding company is prohibited from engaging in or acquiring direct or indirect control of more than five percent (5%) of the voting shares of any company engaged in non-banking activities unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making this determination, the Federal Reserve Board considers whether the performance of these activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects.
Federal law also prohibits acquisitions of control of a bank holding company without prior notice to certain federal bank regulators. Control is defined for this purpose as the power, directly or indirectly, to direct the management or policies of the bank or bank holding company or to vote twenty-five percent (25%) or more of any class of voting securities.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities of the bank holding company and on taking of such stock or securities of the bank holding company and on taking of such stock or securities as collateral for loans to any borrower.
Permitted Activities - --------------------
The Federal Reserve Board permits bank holding companies to engage in certain activities so closely related to banking or managing or controlling banks as to be proper incident thereto. Other than making an equity investment in a low to moderate income housing limited partnership, the Registrant does not at this time engage in any other permissible activities, nor does the Registrant have any current plans to engage in any other permissible activities in the foreseeable future.
Legislation and Regulatory Changes - ----------------------------------
From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, and before various bank regulatory agencies. No prediction can be made as to the likelihood of any major changes or the impact such changes might have on the Registrant and its subsidiaries. Certain changes of potential significance to the Registrant which have been enacted recently and others which are currently under consideration by Congress or various regulatory or professional agencies are discussed below.
The passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Riegle Community Development and Regulatory Improvement Act may have a significant impact upon the Corporation. The key provisions pertain to interstate banking and interstate branching as well as a reduction in the regulatory burden on the banking industry. Since September 1995, bank holding companies may acquire banks in other states without regard to state law. In addition, banks can merge with other banks in another state beginning in June 1997. States may adopt laws preventing interstate branching but, if so, no out-of-state bank can establish a branch in such state and no banks in such state may branch outside the state. Pennsylvania recently amended the provisions of its banking code to authorize full interstate banking and branching under Pennsylvania law and to facilitate the operations of interstate banks in Pennsylvania. As a result of legal and industry changes, management predicts that consolidation will continue as the financial services industry strives for greater cost efficiencies and market share. Management believes that such consolidation may enhance its competitive position as a community bank.
The Interstate Banking and Branching Act also amends the International Banking Act to allow a foreign bank to establish and operate a federal branch or agency upon approval of the appropriate federal and state banking regulator. As a national bank, the Bank currently can relocate its main office across state lines by utilizing a provision in the National Bank Act which permits such relocation to a location not more than thirty miles from its existing main office. In effect, a national bank can thereby move across state lines as long as the relocation does not exceed thirty miles and also retain as branches the offices located in the original state.
The Federal Reserve Board, the FDIC, and the Comptroller of the Currency ("Comptroller") have issued certain risk-based capital guidelines. See pages 34 and 35 of Registrant's 1995 Annual Report, which is incorporated by reference herein, for information concerning the Registrant's capital.
Pending Legislation - -------------------
Various congressional bills and other proposals have proposed a sweeping overhaul of the banking system, including provisions for: limitations on deposit insurance coverage; changing the timing and method financial institutions use to pay for deposit insurance; expanding the power of banks by removing the restrictions on bank underwriting activities; tightening the regulation of bank derivatives activities; allowing commercial enterprises to own banks; and permitting bank holding companies to own affiliates that engage in securities, mutual funds and insurance activities.
There are numerous proposals before Congress to modify the financial services industry and the way commercial banks operate. However, it is difficult to determine at this time what effect such provisions may have until they are enacted into law. Except as specifically described on page 35 of the 1995 Annual Report to Shareholders, management believes that the effect of the provisions of the aforementioned legislation on the liquidity, capital resources, and results of operations of the Corporation will be immaterial. Management is not aware of any other current specific recommendations by regulatory authorities or proposed legislation which, if they were implemented, would have a material adverse effect upon the liquidity, capital resources, or results of operations, although the general cost of compliance with numerous and multiple federal and state laws and regulations does have, and in the future may have, a negative impact on the Corporation's results of operations.
Effects of Inflation - --------------------
Inflation has some impact on the Corporation's and the Banks' operating costs. Unlike many industrial companies, however, substantially all of the Banks' assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation's and the Banks' performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.
Effect of Government Monetary Policies - --------------------------------------
The earnings of the Registrant are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve System is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect rates charged on loans or paid for deposits.
The Banks are members of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Banks' operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation and the Banks cannot be predicted.
Environmental Regulations - -------------------------
There are several federal and state statutes which regulate the obligations and liabilities of financial institutions pertaining to environmental issues. In addition to the potential for attachment of liability resulting from its own actions, a bank may be held liable under certain circumstances for the actions of its borrowers, or third parties, when such actions result in environmental problems on properties that collateralize loans held by the bank. Further, the liability has the potential to far exceed the original amount of the loan issued by the Bank. Currently, neither the Corporation nor the Banks are a party to any pending legal proceeding pursuant to any environmental statute, nor is the Corporation and the Banks aware of any circumstances which may give rise to liability under any such statute.
Supervision and Regulation - Banks - ----------------------------------
The operations of the Banks are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System and to banks whose deposits are insured by the Federal Deposit Insurance Corporation. The Banks' operations are also subject to regulations of the Comptroller of the Currency (Comptroller), the Federal Reserve Board and the FDIC. The primary supervisory authority of the Banks is the Comptroller, who regularly examines the Banks. The Comptroller has authority to prevent a national bank from engaging in unsafe or unsound practices in conducting its business.
Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, the investments a bank may make, the reserves against deposits a bank must maintain, loans a bank makes and collateral it takes, the maximum interest rates a bank may pay on deposits, the activities of a bank with respect to mergers and consolidations and the establishment of branches.
As a subsidiary bank of a bank holding company, the Banks are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or its subsidiaries, or investments in the stock or other securities as collateral for loans. The Federal Reserve Act and Federal Reserve Board regulations also place certain limitations and reporting requirements on extensions of credit by a bank to principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders. In addition, such legislation and regulations may affect the terms upon which any person becoming a principal shareholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship.
FDIC - ----
Under the Federal Deposit Insurance Act, the Comptroller possesses the power to prohibit institutions regulated by it (such as the Banks) from engaging in any activity that would be an unsafe and unsound banking practice or would otherwise be in violation of the law.
CRA - ---
Under the Community Reinvestment Act of 1977, as amended ("CRA"), the Comptroller is required to assess the record of all financial institutions regulated by it to determine if these institutions are meeting the credit needs of the community (including low and moderate income neighborhoods) which they serve and to take this record into account in its evaluation of any application made by any of such institutions for, among other things, approval of a branch or other deposit facility, office relocation, a merger or an acquisition of bank shares. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 amended the CRA to require, among other things, that the Comptroller make publicly available the evaluation of a bank's record of meeting the credit needs of its entire community, including low and moderate income neighborhoods. This evaluation will include a descriptive rating ("outstanding", "satisfactory", "needs to improve" or "substantial noncompliance") and a statement describing the basis for the rating. These ratings are publicly disclosed.
BSA - ---
Under the Bank Secrecy Act ("BSA"), banks and other financial institutions are required to report to the Internal Revenue Service currency transactions of more than $10,000 or multiple transactions of which the bank is aware in any one day that aggregate in excess of $10,000. Civil and criminal penalties are provided under the BSA for failure to file a required report, for failure to supply information required by the BSA or for filing a false or fraudulent report.
FDICIA - ------
Capital Categories: On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") became law. Under FDICIA, institutions must be classified, based on their risk-based capital ratios into one of five defined categories, as illustrated below (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized).
Total Tier 1 Under a Risk- Risk- Tier 1 Capital Based Based Leverage Order or Ratio Ratio Ratio Directive
CAPITAL CATEGORY Well capitalized >10.0 >6.0 >5.0 NO Adequately capitalized > 8.0 >4.0 >4.0* Undercapitalized < 8.0 <4.0 <4.0* Significantly Under- capitalized < 6.0 <3.0 <3.0 Critically Under- capitalized <2.0
*3.0 for those banks having the highest available regulatory rating.
Prompt Corrective Action: In the event an institution's capital deteriorates to the undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including: (1) the institution of a capital restoration plan and a guarantee of the plan by a parent institution; and (2) the placement of a hold on increases in assets, number of branches or lines of business. If capital has reached the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and (in critically undercapitalized situations) appointment of a receiver. For well capitalized institutions, FDICIA provides authority for regulatory intervention where the institution is deemed to be engaging in unsafe or unsound practices or receives a less than satisfactory examination report rating for asset quality, management, earnings or liquidity. All but well capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval.
Operational Controls: Under FDICIA, financial institutions are subject to increased regulatory scrutiny and must comply with certain operational, managerial and compensation standards to be developed by Federal Reserve Board regulations. FDICIA also requires the regulators to issue new rules establishing certain minimum standards to which an institution must adhere including standards requiring a minimum ratio of classified assets to capital, minimum earnings necessary to absorb losses and minimum ratio of market value to book value for publicly held institutions. Additional regulations are required to be developed relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth and excessive compensation, fees and benefits.
Examinations and Audits: Annual full-scope, on site regulatory examinations are required for all the FDIC- insured institutions except institutions with assets under $100 million which are well capitalized, well-managed and not subject to a recent change in control, in which case, the examination period is every eighteen (18) months. Banks with total assets of $500 million or more, as of the beginning of fiscal year 1993, are required to submit to their supervising federal and state banking agencies a publicly available annual audit report. The independent accountants of such bank are required to attest to the accuracy of management's report. The accountants also are required to monitor management's compliance with governing laws and regulations. In addition, such banks also are required to have an independent audit committee composed of outside directors who are independent of management, to review with management and the independent accountants, the reports that must be submitted to the bank regulatory agencies. If the independent accountants resign or are dismissed, written notification must be given to the bank's supervising government banking agencies. These accounting and reporting reforms do not apply to an institution such as a bank with total assets at the beginning of its fiscal year of less than $500 million, such as Citizens or Security.
Real Estate Loans: FDICIA also requires that banking agencies reintroduce loan-to-value ("LTV") ratio regulations which were previously repealed by the 1982 Act. LTVs limit the amount of money a financial institution may lend to a borrower, when the loan is secured by real estate, to no more than a percentage, set by regulation, of the value of the real estate.
Truth-In-Savings: A separate subtitle within FDICIA, called the "Bank Enterprise Act of 1991", requires "truth-in- savings" on consumer deposit accounts so that consumers can make meaningful comparisons between the competing claims of banks with regard to deposit accounts and products. Under this provision, the Bank is required to provide information to depositors concerning the terms of their deposit accounts, and in particular, to disclose the annual percentage yield. The operational cost of complying with the Truth-In-Savings law had no material impact on liquidity, capital resources or reported results of operations.
While the overall impact of fully implementing all provisions of the FDICIA cannot be accurately calculated, Management believes that full implementation of the FDICIA had no material impact on liquidity, capital resources or reported results of operation in future periods.
Other: From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restriction on, the business of the Banks. It cannot be predicted whether any such legislation will be adopted or, if adopted, how such legislation would affect the business of the Banks. As a consequence of the extensive regulation of commercial banking activities in the United States, the Banks' business is particularly susceptible to being affected by federal legislation and regulations that may increase the costs of doing business.
Statistical Data - ----------------
The information for this Item is incorporated by reference to pages 23 through 37 of the Company's Annual Report to Shareholders for the year ended December 31, 1995, which is included as Exhibit (13) to this Form 10-K Report.
Item 2.

Item 2. Properties. - -------------------
The principal executive offices of the Company and of Harleysville are located in Harleysville, Pennsylvania in a two-story office building owned by Harleysville which was built in 1929. Harleysville also owns the buildings in which nine of its branches are located and leases space for the other seven branches from unaffiliated third parties under leases expiring at various times through 2012. The principal executive offices of Citizens are located in Lansford, Pennsylvania in a two-story office building owned by Citizens. Citizens also owns the buildings where the Summit Hill and Lehighton branches are located. The principal executive offices of Security are located in Pottstown, Pennsylvania in a building leased by Security. Security also leases its East End and North End Branches.
Office Office Location Owned/Leased Harleysville 483 Main Street Owned Harleysville Pa
Skippack Route 73 Owned Skippack Pa
Limerick Ridge Pike Owned Limerick Pa
North Penn Welsh & North Wales Rd Owned North Wales Pa
Gilbertsville Gilbertsville Shopping Leased Gilbertsville Pa
Hatfield Snyder Square Leased Hatfield Pa
North Broad North Broad Street Owned Lansdale Pa
Marketplace Marketplace Shopping Leased Lansdale Pa
Normandy Farms Morris Road Leased Blue Bell Pa
Horsham Babylon Business Center Leased Horsham Pa
Meadowood Route 73 Leased Worcester Pa
Collegeville 364 Main Street Owned Collegeville Pa
Sellersville 209 North Main St Owned Sellersville Pa
Trainers Corner Trainers Corner Center Leased Quakertown Pa
Quakertown Main 224 West Broad St Owned Quakertown PA
Red Hill 400 Main Street Owned Red Hill PA
Citizens 13-15 West Ridge Street Owned Lansford PA
Summit Hill 2 East Ludlow Street Owned Summit Hill PA
Lehighton 904 Blakeslee Blvd Owned Lehighton PA
Pottstown One Security Plaza Leased Pottstown PA
Pottstown 1450 East High Street Leased Pottstown PA
Pottstown Charlotte & Mervine Sts. Leased Pottstown PA
All of the above properties are in good condition and are adequate for the Registrant's and the Banks' purposes.
Item 3.

Item 3. Legal Proceedings. - --------------------------
Management, based on consultation with the Corporation's legal counsel, is not aware of any litigation that would have a material adverse effect on the consolidated financial position of the Company. There are no proceedings pending other than the ordinary routine litigation incident to the business of the Corporation and its subsidiaries - Harleysville National Bank and Trust Company, The Citizens National Bank of Lansford and Security National Bank. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation and the Banks by government authorities.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------
No matter was submitted during the fourth quarter of 1995 to a vote of holders of the Company's Common Stock.
PART II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters. - -------------------------------------------------------------
The information for this Item is incorporated by reference to pages 8 and 18 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1995, which is included as Exhibit (13) to this Form 10-K Report.
Item 6.

Item 6. Selected Financial Data. - --------------------------------
The information for this Item is incorporated by reference to pages 23 and 37 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1995, which is included as Exhibit (13) to this Form 10-K Report.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - ------------------------------------------------------------------------
The information for this Item is incorporated by reference to pages 23 through 36 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1995, which is included as Exhibit (13) to this Form 10-K Report.
Item 8.

Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------
The information for this Item is incorporated by reference to pages 8 through 22 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1995, which is included as Exhibit (13) to this Form 10-K Report.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - ------------------------------------------------------------------------
The information for this Item is incorporated by reference to pages 18 and 19 of the Registrant's Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 9, 1996.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------
The information for this Item with respect to the Corporation's directors is incorporated by reference to pages 3 through 7 of the Corporation's Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 9, 1996.
Executive Officers of Registrant - -------------------------------- Name Age Position
Walter E. Daller, Jr. 56 President and Chief Executive Officer of the Company and of Harleysville
James W. Hamilton 49 Senior Vice President and Senior Trust Officer of Harleysville
Demetra M. Takes 45 Executive Vice President and Chief Operating Officer of Harleysville
Frank J. Lochetto 48 Senior Vice President and Senior Lending Officer of Harleysville
Vernon L. Hunsberger 47 Treasurer of the Company, Senior Vice President/CFO and Cashier of Harleysville
Fred C. Reim, Jr. 52 Senior Vice President of Harleysville since August 1993; Senior Vice President of First Valley Bank from December 1990 to August 1993
Henry R. Gehman 60 Vice President of Harleysville
Jo Ann M. Bynon 44 Secretary of the Company
Dennis L. Detwiler 48 Vice President of Harleysville
Bruce D. Fellman 49 Vice President of Harleysville
Thomas L. Spence 49 Vice President of Harleysville
Robert L. Reilly 46 Vice President of Harleysville
David R. Crews 45 Vice President of Harleysville
Larry E. Nolt 50 Vice President and Trust Officer of Harleysville since July 1993; Trust Officer of Harleysville from August 1991 to July 1993; Trust Officer of Union National Bank of Souderton for 4 years prior thereto
Mikkalya W. Walton 40 Vice President of Loan Administration of Harleysville since July 1994; Vice President Security National Bank September 1991 to June 1994; Assistant Vice President Mellon Bank January 1990 to August 1991
Gregg J. Wagner 35 Vice President and Comptroller of Harleysville National Bank since December 1994; Senior Vice President Security National Bank March 1992 to November 1994; Vice President and Comptroller Bryn Mawr Trust Company December 1989 to February 1992
Harry T. Weierbach 51 Vice President of Investments of Harleysville since December 1995; Assistant Vice President of Harleysville from June 1994 to December 1995; Vice President of Investments of Continental Bank from
Thomas D. Oleksa 42 President and Chief Executive Officer of Citizens
Martha A. Rex 47 Vice President and Cashier of Citizens
Maurice Infante 56 Vice President Consumer Lending of Citizens since April 1994; Assistant Vice President Consumer Lending of Citizens December 1991 to March 1994; Vice President Home Savings Association of Pennsylvania January 1988 to November 1991
Raymond H. Melcher 44 President and Chief Executive Officer of Security since November 1994; Executive Vice President, Chief Operating Officer Hi-Tech Connections 1990 to 1994; Executive Vice President Keystone Financial 1988 to 1990
Allen R. Loeb 47 Vice President of Lending of Security since April 1995; Vice President of Lending National Penn Bank from April 1994 to April 1995
Item 11.

Item 11. Executive Compensation. - --------------------------------
The information for this Item is incorporated by reference to pages 7 through 13 of the Corporation's Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 9, 1996.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------
The information for this Item is incorporated by reference to pages 3 through 4 of the Corporation's Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 9, 1996.
Item 13.

Item 13. Certain Relationships and Related Transactions. - --------------------------------------------------------
The information for this Item is incorporated by reference to page 18 of the Corporation's Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held April 9, 1996, and to page 16 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1995, which is included as Exhibit (13) to this form 10- K Report.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - -------------------------------------------------------------------------
(a) Financial Statements, Financial Statement Schedules and Exhibits Filed:
(1) Consolidated Financial Statements Page
Harleysville National Corporation and Subsidiary: Consolidated Balance Sheets as of December 31, 1995 and 1994 9* Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 10* Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 11* Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 12* Notes to Consolidated Financial Statements 13-22* Independent Auditors' Report 8*
(2) Financial Statement Schedules
None
All other schedules are omitted since they are not required, not applicable or the information is included in the consolidated financial statements or notes thereto.
- ---------------------------------------------------------------- *Refers to the respective page of Harleysville National Corporation's 1995 Annual Report to Shareholders. The Consolidated Financial Statements and Notes to Consolidated Financial Statements and Auditor's Report thereon on pages 8 to 22 are incorporated by reference. With the exception of the portions of such Annual Report specifically incorporated by reference in this Item and in Items 1, 5, 6, 7 and 8, such Annual Report shall not be deemed filed as part of this Form 10-K Report or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.
(3) Exhibits
Exhibit No. Description of Exhibits - ---------- -----------------------
(3.1) Articles of Incorporation as amended were previously filed with the Commission on December 14, 1995 as Exhibit 3a to Registration Statement 33-65021 and is hereby incorporated by reference
(3.2) Amended By-laws of the Registrant were previously filed with the Commission on December 14, 1995 as Exhibit 3b to registration statement 33-65021 and is hereby incorporated by reference
(13) 1995 Annual Report to Shareholders (this document is filed only to the extent of pages 8 through 37 which are incorporated by reference herein.)
(21) Subsidiaries of Registrant
(23) (a) Consent of Grant Thornton LLP Independent Certified Public Accountants
(b) Consent of KPMG Peat Marwick LLP Independent Certified Public Accountants
(27) Financial Data Schedule.
(99) Additional Exhibits
(a) Report of Independent Certified Public Accountants - Grant Thornton LLP
(b) Report of Independent Certified Public Accountants - KPMG Peat Marwick LLP
(b) Reports on Form 8-K
During the quarter ended December 31, 1995, the Registrant did not file any reports on Form 8-K.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HARLEYSVILLE NATIONAL CORPORATION
Date: March 14, 1996 By: /s/ Walter E. Daller, Jr. Walter E. Daller, Jr. President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- -----
/s/ John W. Clemens Director March 14, 1996 John W. Clemens
/s/ Walter E. Daller, Jr. President, Chief March 14, 1996 Walter E. Daller, Jr. Executive Officer and Director (Princi- pal Executive Officer)
/s/ Martin E. Fossler Director March 14, 1996 Martin E. Fossler
/s/ Harold A. Herr Director March 14, 1996 Harold A. Herr
/s/ Vernon L. Hunsberger Treasurer (Princi- March 14, 1996 Vernon L. Hunsberger pal Financial and Accounting Officer)
/s/ Howard E. Kalis, III Director March 14, 1996 Howard E. Kalis, III
/s/ Bradford W. Mitchell Director March 14, 1996 Bradford W. Mitchell
/s/ Walter F. Vilsmeier Director March 14, 1996 Walter F. Vilsmeier
/s/ William M. Yocum Director March 14, 1996 William M. Yocum
EXHIBIT INDEX -------------
(13) 1995 Annual Report to Shareholders (this document is filed only to the extent of pages 8 through 37 which are incorporated by reference herein)
(21) Subsidiaries of Registrant
(23) Consent of Grant Thornton LLP Independent Certified Public Accountants
(99) Additional Exhibits
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