<PAGE>
1,300,000 SHARES
SUSQUEHANNA BANCSHARES, INC.
COMMON STOCK
----------------
The Common Stock of Susquehanna Bancshares, Inc. ("Susquehanna" or the
"Company") is listed on the Nasdaq National Market under the symbol "SUSQ." On
December 18, 1995, the last reported sale price of the Common Stock on the
Nasdaq National Market was $26.50.
----------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $26.50 $1.19 $25.31
Total(3).................................. $34,450,000 $1,547,000 $32,903,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering estimated at $250,000 payable by
the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 195,000 additional shares of
Common Stock at the Price to Public per share less the Underwriting
Discount, for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $39,617,500,
$1,779,050 and $37,838,450, respectively. See "Underwriting."
----------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel
or reject orders in whole or in part and subject to certain other conditions.
It is expected that delivery of certificates representing the shares will be
made against payment on or about December 22, 1995 at the office of
Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
----------------
OPPENHEIMER & CO., INC.
LEGG MASON WOOD WALKER
INCORPORATED
KEEFE, BRUYETTE & WOODS, INC.
The date of this Prospectus is December 19, 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed with the Commission are available for inspection and
copying at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade
Center, New York, New York 10048. Copies of such documents may also be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company's Common Stock is authorized for quotation on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq")
National Market. Such materials and other information concerning the Company,
therefore, can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
The Company has filed with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"), a Registration Statement on Form S-3
(including all amendments and exhibits thereto, the "Registration Statement")
with respect to the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement, including any
amendments and exhibits thereto, is available for inspection and copying as
set forth above. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
2
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by the Company with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus as follows:
(1) the Annual Report on Form 10-K for the year ended December 31, 1994;
(2) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1995, June 30, 1995 and September 30, 1995;
(3) the Current Report on Form 8-K dated March 31, 1995, as amended by
Form 8-K/A-1 dated May 26, 1995, which Report contains audited consolidated
financial information for Atlanfed Bancorp, Inc. as of March 31, 1995 and
1994 and for the years ended March 31, 1995, 1994 and 1993;
(4) the Current Report on Form 8-K dated April 21, 1995, as amended by
Form 8-K/A-1 dated May 24, 1995, which Report contains audited consolidated
financial information for Reisterstown Holdings, Inc. as of March 31, 1995
and September 30, 1994, and for the six months ended March 31, 1995 and for
the years ended September 30, 1994 and 1993;
(5) the Current Report on Form 8-K dated November 20, 1995, which Report
contains audited consolidated financial information of the Company as of
December 31, 1994 and 1993 and for the years ended December 31, 1994, 1993
and 1992, which information has been restated to reflect the acquisition of
Atlanfed Bancorp, Inc., accounted for as a pooling of interests; and
(6) the Current Report on Form 8-K dated November 21, 1995, which Report
contains audited consolidated financial information of Fairfax Financial
Corporation as of September 30, 1995 and 1994 and for the years ended
September 30, 1995, 1994 and 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination
of the offering of the Common Stock shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing thereof. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus. All information appearing
in this Prospectus should be read in conjunction with, and is qualified in its
entirety by, the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference, except
to the extent set forth in the immediately preceding statement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person,
a copy of any or all of the documents referred to above (not including
exhibits thereto, unless such exhibits are specifically incorporated by
reference therein). Such requests should be directed to the Secretary,
Susquehanna Bancshares, Inc., 26 North Cedar Street, Lititz, Pennsylvania
17543, telephone number (717) 626-4721.
3
<PAGE>
All information contained in this Prospectus is qualified in its entirety by
reference to the more detailed financial information and financial statements,
including notes thereto, appearing elsewhere in this Prospectus or
incorporated by reference herein. Unless otherwise indicated, all information
in this Prospectus assumes no exercise of the Underwriters' over-allotment
option.
SUSQUEHANNA BANCSHARES, INC.
GENERAL
Susquehanna Bancshares, Inc. ("Susquehanna" or the "Company") is a bank
holding company headquartered in Lititz, Pennsylvania. The Company operates as
a super-community bank holding company with six banks, two thrifts and two
non-bank subsidiaries. These subsidiaries provide banking and banking-related
services from 99 branches in central and south central Pennsylvania and west
and central Maryland. Based on total assets at March 31, 1995, Susquehanna is
the twelfth largest bank holding company headquartered in Pennsylvania. The
Company's two non-bank subsidiaries provide leasing and insurance services. As
of September 30, 1995, Susquehanna had assets of $2.5 billion, net loans of
$1.7 billion, deposits of $2.1 billion and shareholders' equity of $234
million.
The following table lists, as of September 30, 1995, each bank and thrift
subsidiary, the location of its principal office, its number of branches, and
(in millions of dollars) its total assets and deposits:
<TABLE>
<CAPTION>
LOCATION OF NUMBER OF TOTAL TOTAL
PRINCIPAL OFFICE BRANCHES ASSETS DEPOSITS
---------------- --------- ------ --------
<S> <C> <C> <C> <C>
Farmers First Bank(1).............. Lititz, PA 32 $777 $650
Farmers & Merchants Bank and
Trust(1).......................... Hagerstown, MD 27 486 425
First National Trust Bank(2)....... Sunbury, PA 10 255 222
Williamsport National Bank(2)...... Williamsport, PA 10 225 194
Citizens National Bank of Southern
PA(2)............................. Greencastle, PA 6 167 147
Spring Grove National Bank(2)...... Spring Grove, PA 3 63 55
Reisterstown Federal Savings
Bank(3)........................... Reisterstown, MD 2 262 220
Atlantic Federal Savings Bank(3)... Baltimore, MD 9 250 175
</TABLE>
- --------
(1) State chartered bank.
(2) Nationally chartered bank.
(3) Federally chartered stock savings bank.
As a "super-community" bank holding company, the Company's strategy has been
to manage its banking subsidiaries on a decentralized basis, allowing each
subsidiary operating in different markets to retain its name and board of
directors as well as substantial autonomy in its day to day operations. The
Company feels such a strategy permits each subsidiary greater flexibility to
better serve its markets and be responsive to local customer needs.
Susquehanna continues, however, to implement consolidations in selected
businesses, operations and support functions in order to achieve greater
economies of scale and cost savings. The Company has commenced a full
consolidation of back office data processing operations of its six bank
subsidiaries which is expected to be completed by mid-1996. The Company
further anticipates integrating its trust and mortgage banking operations.
Susquehanna also provides its banking subsidiaries guidance in the areas of
credit policy and administration, strategic planning, investment portfolio
management and other financial and administrative services.
Susquehanna was incorporated in Pennsylvania in 1982. Its executive offices
are located at 26 North Cedar Street, Lititz, Pennsylvania 17543, and its
telephone number is (717) 626-4721.
MARKET AREAS
Susquehanna's market is increasingly geographically and economically
diversified with access to both rural markets and the more affluent markets of
Lancaster, York, Sunbury, Williamsport and Baltimore.
4
<PAGE>
Susquehanna's Pennsylvania franchise is centered in Lancaster County and
also includes Lycoming, Franklin, Snyder, Northumberland, Columbia and York
Counties. The Company's market area, near the Pennsylvania state capital of
Harrisburg, has a diverse economic base which includes farming and farm-
related industry, light and heavy manufacturing, government activities,
tourism, educational facilities and natural resources.
In Pennsylvania, Susquehanna operates 61 branches (including three branches
located in supermarkets) and 44 ATMs connected to the MAC network. As of June
30, 1994, the latest date for which information is available, all but one of
the Company's Pennsylvania-based bank subsidiaries had deposit market shares
of between 10% and 21% in their respective principal market areas.
The Company's Maryland franchise includes Baltimore County, Baltimore City,
Carroll County, Harford County, Cecil County and Anne Arundel County in
central Maryland, and Allegany and Washington Counties in western Maryland.
Susquehanna's market in Allegany and Washington Counties is economically
similar to the Company's Pennsylvania market. As of June 30, 1994, the latest
date for which information is available, the Company's Maryland-based bank
subsidiary had a deposit market share in excess of 20% in this market area. As
part of its strategy to reinforce and expand its Maryland franchise, in the
first half of 1995 Susquehanna completed the acquisition of two Maryland
thrift holding companies, Reisterstown Holdings, Inc. ("Reisterstown") and
Atlanfed Bancorp, Inc. ("Atlanfed"), totalling $512 million in assets. The
acquisition of a third thrift holding company, Fairfax Financial Corporation
("Fairfax"), totalling $476 million in assets at September 30, 1995, is
expected to close in December 1995 or during the first quarter of 1996 and
will add Wicomico and Worcester Counties to Susquehanna's Maryland franchise.
These Maryland thrift acquisitions have expanded Susquehanna's market into the
more urban Baltimore banking market, providing the Company with attractive
commercial and consumer lending, trust service and mortgage banking growth
opportunities.
Including the Fairfax acquisition, in Maryland the Company operates 47
branches and 27 ATMs connected to the MAC and MOST networks. Given the market
overlap of the three Maryland thrifts, upon completion of the Fairfax
acquisition, it is management's intention to consolidate the thrifts into a
single Maryland thrift subsidiary.
BUSINESS
Susquehanna provides a wide range of retail and commercial banking services.
Susquehanna's strategy for its retail banking businesses is to expand its
deposit and other product market share through a high level of customer
service, new product offerings, application of new technologies and delivery
systems, and selective acquisitions. The Company operates an extensive branch
network and has a strong market presence in its primary markets in
Pennsylvania and Maryland. As a result of the development of broad banking
relations with its customers, the Company's lending and investing activities
are funded almost entirely by core deposits.
The Company's retail banking services include checking and savings accounts,
money market accounts, certificates of deposits, individual retirement
accounts, Christmas clubs, mutual funds, annuities, home equity lines of
credit, residential mortgage loans, home improvement loans, student loans,
automobile loans and personal loans. In general, the maximum unsecured
consumer loan the Company will extend is $15,000. Including home equity loans,
consumer loans accounted for 19% and residential mortgage loans accounted for
39% of the Company's portfolio at September 30, 1995.
Prior to year-end 1995, Susquehanna plans to introduce six automatic lending
machines ("ALM"), three in its Maryland franchise and three in its
Pennsylvania franchise. ALMs represent a relatively new development in bank
services delivery systems and will afford consumers the convenience of 24 hour
credit up to a maximum loan amount of $5,000.
The Company is also initiating a credit card offering. Using experience and
resources developed in a pilot program operated through one of its
Pennsylvania bank subsidiaries, the credit card program has now been expanded
to include similar offerings through other Susquehanna subsidiaries. The
program targets existing customers and selected prospects in Susquehanna's
market areas. Susquehanna expects to begin offering a debit card some time in
1996.
5
<PAGE>
Through employees of Invest Financial Corporation based in Company offices,
Susquehanna offers its customers mutual funds and other financial products.
In 1994, Susquehanna established a Marketing Customer Information File
("MCIF") system to provide instant access to customer and market data.
Management can quickly manipulate and analyze data to update ongoing strategic
planning processes. Examples of MCIF applications include measurement of
product usage by branch, profitability by product, and product customer usage
and market penetration. The MCIF has significantly improved the Company's
speed, efficiency and cost-effectiveness in cross-selling its retail products.
Through its subsidiary, Susque-Bancshares Life Insurance Co., the Company
additionally offers certain credit related insurance products.
The acquisition of the Maryland thrifts substantially enhances Susquehanna's
mortgage origination and mortgage banking capabilities. The consolidation of
the resources that are available throughout its system, planned for 1996, will
facilitate an expansion of Susquehanna's mortgage banking operations in its
Maryland and Pennsylvania markets.
The Company's subsidiary banks and thrifts focus their commercial lending
efforts on small and mid-size companies. Virtually all commercial loans are
secured by tangible assets.
Susquehanna's commercial lending operations include commercial, financial
and agricultural lending (11% of the total loan portfolio at September 30,
1995), real estate construction lending (10%), and commercial mortgage lending
(20%). Loans originated by each subsidiary are subject to central review and
uniform Company credit standards. Nearly all of the Company's loans are
concentrated in the markets served by its subsidiary banks and thrifts.
COMPLETED AND PENDING ACQUISITIONS
Since 1982, Susquehanna has made 16 acquisitions totalling $1 billion in
assets, including the 1995 acquisitions in Maryland of Reisterstown and
Atlanfed totalling $512 million in assets. See "UNAUDITED SELECTED PRO FORMA
FINANCIAL DATA" and "UNAUDITED PRO FORMA FINANCIAL STATEMENTS." The Company
continues to selectively pursue the acquisition of strategically located
branch offices and whole institutions offering product expansion and/or
geographic expansion into nearby markets. The Company believes that attractive
acquisition opportunities could exist in central Pennsylvania, Maryland,
Delaware, Virginia and West Virginia.
The acquisition of Fairfax is anticipated to close in December 1995 or
during the first quarter of 1996. Fairfax is the holding company for Fairfax
Savings, FSB ("Fairfax Savings"), a federally chartered stock savings bank
which, as of September 30, 1995, had assets of $476 million and operated nine
banking offices located in metropolitan Baltimore and Carroll, Wicomico and
Worcester Counties in Maryland. Susquehanna currently anticipates that the
purchase price for the Fairfax acquisition will be approximately $63 million
in cash (subject to a closing book value adjustment) (the "Fairfax Merger").
Consummation of the Fairfax Merger is subject to the approval of the Board
of Governors of the Federal Reserve System ("Federal Reserve Board") and the
Director of the Office of Thrift Supervision ("OTS"). The required approvals
have been applied for, and management of Susquehanna believes that all
required regulatory approvals will be obtained by December 31, 1995. The
Fairfax Merger is also subject to satisfaction of various other conditions
specified in the acquisition agreement. All shareholder approvals required for
the consummation of the Fairfax Merger have been obtained.
Management of Susquehanna believes that the Fairfax Merger will be
consummated in December 1995 or during the first quarter of 1996. There is no
assurance, however, that the Fairfax Merger will be consummated, or that it
will not extend beyond such time period or be consummated on terms different
than those described herein. The merger agreement relating to the Fairfax
Merger may be terminated after December 31, 1995, unless the
6
<PAGE>
respective parties agree to extend the time period by which the closing of
such transaction must occur; Susquehanna management believes that such
expiration date will be extended (if necessary) until March 31, 1996.
FINANCING ACTIVITIES
Susquehanna intends to use the proceeds of the Common Stock offered hereby
to fund a portion of the estimated $63 million cash consideration required to
consummate the Fairfax Merger. See "USE OF PROCEEDS." In addition, Susquehanna
presently intends to raise an additional $35 million through a public offering
of senior debt securities (the "Senior Notes"). The net proceeds of such
offering (the "Senior Note Offering"), which is expected to be consummated in
December 1995 or the first quarter of 1996, will be used to fund the remaining
portion of the cash consideration required in connection with the Fairfax
Merger and for other general corporate purposes. The offering of the Common
Stock contemplated hereby and the anticipated Senior Note Offering are both
reflected in the pro forma financial information contained in this Prospectus.
See "UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by
the Company............ 1,300,000 shares
Common Stock to be
outstanding after the
offering............... 12,940,549 shares
Common Stock dividends.. Currently paid at the rate of $1.16 per share annually
Nasdaq National Market
symbol................. SUSQ
</TABLE>
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market and quoted on the
Nasdaq National Market under the symbol "SUSQ." As of December 18, 1995, there
were 11,640,549 shares outstanding and approximately 5,750 shareholders of
record. Set forth below are the high and low sales prices of the Common Stock
as reported on the Nasdaq National Market for the period October 1 through
December 18, 1995, the first three quarters of 1995, and the four quarters of
1994 and 1993. Also set forth below are the cash dividends declared during
such periods. All amounts have been adjusted to reflect the five-for-four
stock split issued on August 27, 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
MARKET DIVIDENDS MARKET DIVIDENDS MARKET DIVIDENDS
PRICE DECLARED PRICE DECLARED PRICE DECLARED
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter............. $21.50-24.25 $.27 $23.75-28.00 $.25 $22.00-24.20 $.224
2nd Quarter............. $22.50-24.00 $.27 $23.75-25.00 $.25 $24.20-27.80 $.224
3rd Quarter............. $23.25-28.25 $.27 $23.50-24.25 $.25 $24.80-28.75 $.224
4th Quarter............. $26.50-30.25 $.29 $21.25-24.75 $.27 $26.75-28.75 $.250
</TABLE>
The last reported sale price for the Common Stock on the Nasdaq National
Market on December 18, 1995 was $26.50 per share. On November 20, 1995
Susquehanna paid a dividend of $.29 per share to shareholders of record on
October 31, 1995.
It is the current policy of the Board of Directors to pay quarterly
dividends on the Common Stock. The payment of future dividends, however, is
dependent upon the earnings and financial condition of the Company and its
subsidiaries, the ability of the Company's subsidiaries to pay dividends to
the Company and other relevant factors. Payment of dividends by the Company's
banking and thrift subsidiaries is subject to a number of regulatory
restrictions. See "REGULATORY MATTERS--Limits on Dividends and Other
Payments." Each of Susquehanna's banking subsidiaries is presently permitted
to pay dividends without prior approval under such regulatory requirements; at
September 30, 1995, an aggregate of $23 million was available for the payment
of dividends to the Company without such prior regulatory approval.
7
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Common
Stock to fund a portion of the cash consideration for the Fairfax Merger. The
issuance of the Common Stock is not conditioned on the closing of the Fairfax
Merger or on the completion of the Senior Note Offering. In the event that the
Fairfax Merger is not consummated, the net proceeds will be used for general
corporate purposes, which may include funding possible future acquisitions and
increasing investments in the Company's banking subsidiaries.
CAPITALIZATION
The following table sets forth the consolidated capitalization of
Susquehanna, as of September 30, 1995, (i) on a historical basis as reported,
(ii) as adjusted on a pro forma basis to reflect the Senior Note Offering and
the offering of the shares of Common Stock contemplated hereby (assuming no
exercise of the Underwriters' overallotment option) and (iii) as further
adjusted on a pro forma basis to reflect the use of the net proceeds from such
offerings to fund the cash consideration for the Fairfax Merger. The pro forma
capitalization is based on, and is subject to, the assumptions set forth in
the notes to the Unaudited Pro Forma Financial Statements appearing elsewhere
in this Prospectus. The information presented should be read in conjunction
with such pro forma financial statements and the notes thereto.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------------------------------
AS ADJUSTED
AS FOR THE PRO FORMA FOR
REPORTED OFFERINGS FAIRFAX MERGER
-------------- -------------- -----------------
(IN THOUSANDS, EXCEPT RATIOS AND SHARE DATA)
<S> <C> <C> <C>
Long Term Debt:
Debt of parent........... $ 50,000 $ 50,000 $ 50,000
Debt of subsidiaries..... 41,979 41,979 54,179
Senior Note offering..... -- 35,000 35,000
-------------- -------------- --------------
Total Long Term Debt... 91,979 126,979 139,179
Shareholders' Equity:
Common stock: $2.00 par
value; 32,000,000 shares
authorized; 11,682,880,
12,982,880 and
12,982,880 shares
issued; 11,640,549,
12,940,549 and
12,940,549 shares
outstanding............. 23,366 25,966 25,966
Surplus.................. 43,014 73,067 73,067
Retained earnings........ 168,436 168,436 168,436
Unrealized gains and
losses for available-
for-sale securities,
net of tax effects...... (287) (287) (280)
Less: Treasury stock
(42,331 shares at
cost)................... 323 323 323
-------------- -------------- --------------
Total shareholders'
equity................ 234,206 266,859 266,866
-------------- -------------- --------------
Total capitalization... $ 326,185 $ 393,838 $4 06,045
============== ============== ==============
Capital Ratios:
Tier 1 risk-based capital
ratio................... 11.85% 13.55% 10.70%
Total risk-based capital
ratio................... 15.87 17.55 14.32
Leverage ratio........... 8.57 9.88 7.70
</TABLE>
8
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected consolidated historical
financial information for Susquehanna which has been derived from and should
be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements of Susquehanna, including the notes thereto,
incorporated by reference in this Prospectus. Interim unaudited data for the
nine month periods ended September 30, 1995 and 1994 reflect, in the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
periods ended September 30, 1995 and 1994 are not necessarily indicative of
results which may be expected for any other period or for the fiscal year as a
whole.
BALANCE SHEET AND INCOME STATEMENT DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------------------------
1995(1) 1994(2) 1994(2) 1993(2) 1992(2) 1991(2) 1990(2)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Average assets.......... $2,399,570 $2,089,519 $2,123,294 $1,965,863 $1,920,166 $1,859,874 $1,787,212
Average loans and
leases,
net of unearned
income................. 1,614,875 1,360,363 1,382,111 1,287,078 1,275,431 1,277,676 1,242,327
Average investment
securities............. 588,276 554,382 565,395 491,210 469,019 407,444 359,513
Average deposits........ 1,992,814 1,762,360 1,785,782 1,669,427 1,631,472 1,574,316 1,513,274
Average shareholders'
equity................. 224,771 217,027 217,206 202,383 186,629 173,712 162,625
INCOME STATEMENT DATA:
Net interest income..... $ 78,570 $ 69,004 $ 94,145 $ 87,027 $ 83,761 $ 77,898 $ 73,049
Provision for loan and
lease losses........... 3,711 2,989 3,987 5,130 4,721 4,869 5,021
Net interest income
after provision for
loan and lease losses.. 74,859 66,015 90,158 81,897 79,040 73,029 68,028
Other income............ 11,742 11,894 15,098 15,816 15,284 13,262 10,244
Other expense........... 59,549 53,402 72,710 66,004 63,611 58,489 54,435
Income before income
taxes, extraordinary
item and cumulative
effect of a change in
accounting principle... 27,052 24,507 32,546 31,709 30,713 27,802 23,837
Provision for income
taxes.................. 8,184 7,374 9,718 9,527 8,541 6,515 4,995
Income before
extraordinary item and
cumulative effect of a
change in accounting
principle.............. 18,868 17,133 22,828 22,182 22,172 21,287 18,842
Extraordinary item...... -- (732) (732) -- -- -- --
Cumulative effect of a
change in accounting
principle.............. -- -- -- 1,023 -- -- --
Net income.............. 18,868 16,401 22,096 23,205 22,172 21,287 18,842
Income per common share
before extraordinary
item and cumulative
effect of a change in
accounting principle... 1.62 1.47 1.96 1.96 1.99 1.91 1.69
Net income per common
share.................. 1.62 1.41 1.90 2.05 1.99 1.91 1.69
Average common shares
outstanding............ 11,638 11,634 11,634 11,331 11,169 11,161 11,153
</TABLE>
- --------
(1) Data for the nine months ended September 30, 1995 reflect the acquisition
of Reisterstown on April 21, 1995, accounted for as a purchase and the
acquisition of Atlanfed on April 1, 1995, accounted for as a pooling of
interests.
(2) Data for the nine months ended September 30, 1994 and for the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 have been restated to reflect
the acquisition of Atlanfed, accounted for as a pooling of interests.
9
<PAGE>
FINANCIAL RATIOS
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------
1995(1) 1994(2) 1994(2) 1993(2) 1992(2) 1991(2) 1990(2)
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PERFORMANCE
RATIOS:(3)
Return on average total
assets before
extraordinary item and
cumulative effect of a
change in accounting
principle.............. 1.05% 1.10% 1.08% 1.13% 1.15% 1.14% 1.05%
Return on average common
shareholders' equity
before extraordinary
item and cumulative
effect of a change in
accounting principle... 11.22 10.55 10.51 10.96 11.88 12.25 11.59
Net interest margin..... 4.90 4.90 4.90 4.90 4.90 4.80 4.70
ASSET QUALITY RATIOS:(3)
Allowance for loan and
lease losses to total
loans and leases....... 1.65% 1.61% 1.63% 1.66% 1.41% 1.28% 1.16%
Allowance for loan and
lease losses to
nonperforming loans and
leases................. 84.75 90.86 98.71 119.96 113.76 101.49 92.65
Net loans and leases
charged off to average
loans and leases....... .24 .16 .13 .15 .25 .25 .37
Nonperforming assets to
total loans and leases
and other real estate
owned.................. 2.30 2.31 2.00 2.05 2.06 1.91 1.88
Nonperforming loans and
leases to net loans and
leases................. 1.95 1.77 1.65 1.38 1.24 1.26 1.26
CAPITAL RATIOS:
Average shareholders'
equity to average total
assets................. 9.37% 10.39% 10.23% 10.29% 9.72% 9.34% 9.10%
Tier 1 risk-based
capital ratio.......... 11.85 13.55 14.20 15.23 13.88 13.02 12.12
Total risk-based capital
ratio.................. 15.87 14.80 15.45 16.48 15.13 14.21 13.21
Leverage ratio.......... 8.57 9.34 9.89 10.32 9.49 9.51 8.95
</TABLE>
- --------
(1) Data for the nine months ended September 30, 1995 reflect the acquisition
of Reisterstown on April 21, 1995, accounted for as a purchase and the
acquisition of Atlanfed on April 1, 1995, accounted for as a pooling of
interests.
(2) Data for the nine months ended September 30, 1994 and for the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 have been restated to reflect
the acquisition of Atlanfed, accounted for as a pooling of interests.
(3) Annualized where applicable.
10
<PAGE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following tables set forth unaudited selected pro forma data for
Susquehanna which gives effect to the Atlanfed acquisition, accounted for as a
pooling of interests, and each of the Fairfax Merger (together with the Common
Stock offering contemplated hereby and the Senior Note Offering) and the
Reisterstown acquisition, accounted for as purchases, all as if they had been
consummated as of January 1, 1994. The selected pro forma data is not
necessarily indicative of the results that would have been achieved had such
transactions been consummated on such dates and should not be construed as
representative of future operations. This presentation is subject to the
assumptions set forth in the notes to the Unaudited Pro Forma Financial
Statements appearing elsewhere in this Prospectus. The information presented
should be read in conjunction with such pro forma financial statements, and
the notes thereto, and the historical consolidated financial statements,
including the notes thereto, of Susquehanna, Atlanfed, Fairfax and
Reisterstown incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- -------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA AND
RATIOS)
<S> <C> <C>
BALANCE SHEET DATA:
Average assets................................ $2,972,826 $2,808,784
Average loans and leases, net of unearned
income....................................... 2,099,105 1,921,820
Average investment securities................. 626,126 635,513
Average deposits.............................. 2,442,068 2,336,176
Average shareholders' equity.................. 257,424 249,859
INCOME STATEMENT DATA:
Net interest income........................... $ 91,861 $ 114,542
Provision for loan and lease losses........... 3,756 4,003
Other income.................................. 14,514 25,995
Other expense................................. 71,657 91,584
Income before income taxes.................... 30,962 44,950
Net income from operations.................... 20,786 29,146
Net income per common share................... 1.61 2.25
Average common shares outstanding............. 12,938 12,934
EARNINGS PERFORMANCE RATIOS:(1)
Return on average total assets................ 0.93% 1.04%
Return on average common shareholders'
equity....................................... 10.80 11.66
Net interest margin........................... 4.57 4.54
ASSET QUALITY RATIOS:(1)
Allowance for loan and lease losses to total
loans and leases............................. 1.51% 1.52%
Allowance for loan and lease losses to
nonperforming loans and leases............... 86.77 112.86
Net loans and leases charged off to average
loans and leases............................. 0.19 0.11
Nonperforming assets to total loans and leases
and other real estate owned.................. 2.15 1.82
Nonperforming loans and leases to net loans
and leases................................... 1.74 1.35
</TABLE>
- --------
(1) Annualized where applicable.
11
<PAGE>
FINANCIAL OVERVIEW
The following should be read in conjunction with Susquehanna's Consolidated
Financial Statements for the year ended December 31, 1994, and for the nine
months ended September 30, 1995, including the related Management's Discussion
and Analysis of Financial Condition and Results of Operations included in
Susquehanna's Current Report on Form 8-K dated November 20, 1995, and
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995,
respectively, which are incorporated herein by reference. See "INCORPORATION
OF DOCUMENTS BY REFERENCE."
EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 VS 1994
Net income for the nine months ending September 30, 1995 was $18.9 million
compared to $16.4 million for the nine months ending September 30, 1994 or a
15% increase. Net income before extraordinary item for the nine months ending
September 30, 1994 was $17.1 million compared with $18.9 million in 1995 or an
increase of $1.7 million or 10%. Earnings per share for the first nine months
before and after extraordinary item increased from $1.47 and $1.41 per share,
respectively, in 1994 to $1.62 per share for both before and after
extraordinary item in 1995. The increase in net income before extraordinary
item for the nine months is due primarily to an increase in net interest
income of $9.6 million offset by increases in operating expenses, loan loss
provision and income taxes of $6.1 million, $0.7 million and $0.8 million,
respectively.
For the nine months ended September 30, 1995, return on average assets was
1.05% which did not change from the comparable period in 1994, while return on
average equity was 11.22% for the first nine months of 1995 compared to 10.10%
for 1994. Book value per share increased to $20.12 per share at September 30,
1995 from $18.66 per share at December 31, 1994 and from $18.65 per share at
September 30, 1994.
NET INTEREST INCOME
Susquehanna's major source of operating revenue is net interest income which
increased $9.6 million, 14%, over the comparable nine month period of 1994.
The net interest margin, on a tax equivalent basis, for the nine month periods
ended September 30, 1995 and 1994 was 4.9%. Average yields on earning assets
were 8.4% for the nine month period ending September 30, 1995 compared to 7.7%
in the comparable period of 1994. Average funding costs increased to 4.3% for
the nine months ended September 30, 1995 from 3.3% in the comparable period in
1994. Therefore, the increase in net interest income was due to the growth in
earning assets primarily resulting from the acquisition of the Allegany branch
offices in July 1994 and Reisterstown in April 1995 and the $50 million
subordinated debt offering in February 1995.
An additional positive influence on the ability of Susquehanna to maintain a
net interest margin at or near 5.0% has been the increase in non-interest-
bearing demand deposits and earnings retention. While Susquehanna's interest
margin has generally remained at or near the 5.0% level, variances do occur as
an exact repricing match of assets and liabilities is not possible. See "--
Interest Rate Sensitivity."
12
<PAGE>
PROVISION AND ALLOWANCE FOR LOSSES ON LOANS AND LEASES
The following table summarizes the Company's provision and allowance for
loan and lease losses for the nine month periods ended September 30, 1995 and
1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance--Beginning of period........................ $ 23,845 $ 21,717
Allowance acquired in business combination........ 3,323 --
Change in fiscal year............................. (8) --
Additions charged to operating expenses........... 3,711 2,989
----------- -----------
30,871 24,706
----------- -----------
Charge-offs....................................... (3,694) (2,387)
Recoveries........................................ 771 795
----------- -----------
Net charge-offs................................. (2,923) (1,592)
----------- -----------
Balance--Period end................................. $ 27,948 $ 23,114
=========== ===========
Net charge-offs as a percent of average loans and
leases (annualized)................................ 0.24% 0.16%
Allowance as a percent of period-end loans and
leases............................................. 1.65% 1.61%
Average loans and leases............................ $ 1,614,875 $ 1,360,363
Period-end loans and leases......................... 1,692,790 1,435,731
</TABLE>
As indicated by the table, the provision for losses on loans and leases for
the nine months ended September 30, 1995 was $3.7 million compared to $3.0
million for the nine months ended September 30, 1994. This increase resulted
primarily from the rapid deterioration of one borrower. Susquehanna performs
quarterly reviews of the adequacy of the allowance for loan and lease losses
to determine the appropriate provision to be charged in that period.
NON-INTEREST INCOME
Non-interest income, recorded as other income, consists of service charges
on deposit accounts, commissions, fees received for travelers' check sales and
money orders, fees for trust services, premium income generated from
reinsurance activities, gains and losses on securities transactions, net gains
on sales of mortgages, net gains on sales of other real estate owned and other
miscellaneous income, such as safe deposit box rents. Other income as a
percentage of net interest income and other income was 13% and 15% for the
nine months ended September 30, 1995 and 1994, respectively.
Non-interest income for the first nine months decreased from $11.9 million
in 1994 to $11.7 million in 1995 primarily due to net investment security
gains of $1.0 million in 1994 offset by the $0.6 million gain on sale of
student loans in September 1995.
NON-INTEREST EXPENSE
Non-interest expenses are categorized into five main groupings: employee-
related expenses, which include salaries, fringe benefits, and employment
taxes; occupancy expenses, which include depreciation, rents, maintenance,
utilities, and insurance; equipment expenses, which include depreciation,
rents and maintenance; FDIC insurance premiums on deposits; and other expenses
incurred in operating Susquehanna's business.
Non-interest expenses for the first nine months increased $6.1 million from
$53.4 million in 1994 to $59.5 million in 1995. This increase was primarily
due to salaries and employee benefits, an increase of $4.3 million and other
operating expenses, an increase of $2.0 million offset by a decline in FDIC
insurance premiums of $0.5 million. These increases and the decline were
significantly affected by the purchases of Reisterstown in
13
<PAGE>
April 1995 and the Allegany branch offices in July 1994 and by the Bank
Insurance Fund refund of $1.0 million in September 1995. See "REGULATORY
MATTERS--Federal Deposit Insurance Corporation Improvement Act of 1991" and
"--Proposed Legislation Regarding SAIF Assessments."
LOAN PORTFOLIO
Loans and leases, net of unearned income, at September 30, 1995 and December
31, 1994 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ ------------------
BALANCE PERCENT BALANCE PERCENT
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, and
agricultural............. $ 192,502 11% $ 186,013 13%
Real estate--
construction............. 175,682 10 84,886 6
Residential mortgage...... 655,252 39 557,969 38
Commercial mortgage....... 330,883 20 294,673 20
Home equity............... 104,039 6 102,715 7
Consumer.................. 216,250 13 223,963 15
Leases.................... 18,182 1 15,967 1
---------- --- ---------- ---
Total loans and leases.. $1,692,790 100% $1,466,186 100%
========== === ========== ===
</TABLE>
Loans at September 30, 1995 were $1.7 billion compared to $1.4 billion at
September 30, 1994 and accounted for 67% of period-end assets in 1995 compared
to 65% in 1994. Most of this growth is attributable to the Reisterstown
acquisition in April 1995. Average loans represented 72% and 69% of average
earning assets for the nine month periods in 1995 and 1994, respectively.
ASSET QUALITY
The following table summarizes Susquehanna's risk assets at September 30,
1995, December 31, 1994 and September 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1994 1994
------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases........ $26,216 $17,215 $18,462
Restructured accrual loans......... 6,760 6,941 6,976
Other real estate owned............ 6,022 5,341 7,838
------- ------- -------
Total nonperforming assets........... $38,998 $29,497 $33,276
======= ======= =======
As a percent of period-end loans and
leases and other real estate owned.. 2.30% 2.00% 2.31%
Loans and leases contractually past
due 90 days and still accruing...... $ 4,402 $14,450 $ 7,387
</TABLE>
Non-performing assets at September 30, 1995 were $39.0 million compared to
$33.3 million at September 30, 1994. This increase was primarily due to one
hotel loan with a principal balance of approximately $7 million that went on
nonaccrual status in March 1995. This loan is now current for principal and
interest and has been removed from nonaccrual status. Non-performing assets as
a percentage of total loans and other real estate owned was 2.30% at September
30, 1995 compared to 2.31% at September 30, 1994. The allowance for loan
losses as a percentage of non-performing loans was 85% at September 30, 1995
compared to 91% at September 30, 1994. Net charge-offs annualized as a
percentage of average loans and leases equaled 0.24% at September 30, 1995 and
0.16% at September 30, 1994. Virtually all non-performing assets are secured
by property having substantial value, principally in the form of real estate.
Property included in the category of other real estate owned is carried at the
lower of cost or fair value.
14
<PAGE>
INVESTMENT SECURITIES
The following table summarizes the Company's investment portfolio at
September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury........................... $161,946 $162,134 $189,461 $184,494
U.S. Government agencies................ 52,538 52,153 22,042 20,932
Mortgage-backed......................... 113,701 112,451 70,797 68,505
Corporates.............................. 73,225 73,451 89,629 84,989
Equities................................ 16,748 17,536 14,443 15,125
-------- -------- -------- --------
Total available-for-sale.............. 418,158 417,725 386,372 374,045
-------- -------- -------- --------
Held-to-maturity:
U.S. Treasury........................... $ 9,962 $ 10,180 $ 10,948 $ 10,658
U.S. Governmental agencies.............. 19,973 20,105 28,506 27,166
State & municipal....................... 106,270 107,543 120,582 118,677
Mortgage-backed......................... 19,526 19,694 44,913 42,310
Corporates.............................. 19,025 19,249 19,002 18,224
-------- -------- -------- --------
Total held-to-maturity................ 174,756 176,771 223,951 217,035
-------- -------- -------- --------
Total investment securities......... $592,914 $594,496 $610,323 $591,080
======== ======== ======== ========
</TABLE>
The investment security portfolio at September 30, 1995 totaled $593 million
of which $418 million was classified as available-for-sale. The held-to-
maturity portfolio was $175 million at September 30, 1995 with a fair value of
$177 million. U.S. Treasury and U.S. government agency obligations accounted
for 41% of the total investment security portfolio; state and municipal bonds,
18%; corporate bonds, 16%; and mortgage-backed securities, 22%. The tax
equivalent yield for the nine months ended September 30, 1995 was 6.3%
compared to 6.0% for the same period of 1994.
DEPOSITS
The following table summarizes the Company's deposits at September 30, 1995,
December 31, 1994 and September 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994 SEPTEMBER 30, 1994
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand.................. $ 255,191 12% $ 261,045 14% $ 248,984 13%
Interest-bearing
demand................. 471,909 23 464,052 25 475,060 26
Savings................. 388,331 19 398,423 21 414,257 22
Time.................... 882,796 42 697,406 37 681,377 37
Time of $100 or more.... 89,814 4 45,404 3 39,961 2
---------- --- ---------- --- ---------- ---
Total deposits........ $2,088,041 100% $1,866,330 100% $1,859,639 100%
========== === ========== === ========== ===
</TABLE>
Susquehanna's core deposit base is its primary funding source. Deposits are
the primary funding source for earning assets. The deposit base increased over
the past year primarily through the Reisterstown acquisition. Total deposits
as of September 30, 1995 were $2.1 billion compared to $1.9 billion as of
September 30, 1994. The deposit base consists primarily of in-market deposits
and there are no brokered deposits. Certificates of deposit of $100,000 or
more represent 4.3% of the total deposits.
15
<PAGE>
CAPITAL ADEQUACY
Susquehanna's total shareholders' equity at September 30, 1995 was $234
million compared to $217 million at September 30, 1994. To date, the growth of
the equity account has been achieved through the retention of earnings. At
September 30, 1995, the Tier 1 risk-based capital, the total risk-based
capital and the leverage ratios were 11.85%; 15.87%; and 8.57%; respectively.
INTEREST RATE SENSITIVITY
Susquehanna employs a variety of methods to monitor interest rate
sensitivity and limit net interest income exposure. By dividing the assets and
liabilities into three groups (fixed rate, floating rate, and those which
reprice only at management's discretion) strategies are developed which are
designed to minimize exposure to interest rate fluctuations. Management also
utilizes gap analysis to evaluate rate sensitivity at a given point in time.
An institution with more assets repricing than liabilities over a given time
frame is considered asset sensitive, and one with more liabilities repricing
than assets is considered liability sensitive. An asset sensitive institution
will generally benefit from rising rates, and a liability sensitive
institution will generally benefit from declining rates. While Susquehanna has
had and will into the foreseeable future experience a negative gap position
(liability sensitive), the impact of a rapid rise in interest rates, as
occurred in 1994, did not have a significant effect on the net interest margin
of Susquehanna, which has consistently remained at or near the 5.0% level.
REGULATORY MATTERS
The Company is a bank holding company subject to supervision and regulation
by the Federal Reserve Board under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). In general, the BHC Act and regulations promulgated
by the Federal Reserve Board limit the business of bank holding companies to
owning or controlling banks and engaging in such other activities as the
Federal Reserve Board may determine to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. With certain
exceptions, the BHC Act prohibits bank holding companies from acquiring direct
or indirect ownership or control of more than 5% of any class of voting shares
in any company, including any bank, without the prior approval of the Federal
Reserve Board. Since consummation of the Atlanfed and Reisterstown
acquisitions, the Company has also been subject to supervision and regulation
by the Office of Thrift Supervision ("OTS") as a savings and loan holding
company.
Susquehanna's banking subsidiaries include four national banks, a Maryland
state-chartered bank, a Pennsylvania state-chartered bank and two federally-
chartered savings banks. These subsidiaries, therefore, are subject to
regulation and supervision by various regulatory agencies, including the state
banking authorities of Pennsylvania and Maryland, the Federal Reserve Board,
the Comptroller of the Currency, the Federal Deposit Insurance Corporation
(the "FDIC") and the OTS. Various consumer laws and regulations also affect
the operations of the Company's subsidiaries.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
Susquehanna's ability to pay dividends is largely dependent upon the receipt
of dividends from its banking subsidiaries. Both federal and state laws impose
restrictions on the ability of these banking subsidiaries to pay dividends. In
addition to the specific restrictions discussed below, bank regulatory
agencies, in general, also have the ability to prohibit proposed dividends by
a bank or savings institution which would otherwise be permitted under
applicable regulations if the regulatory body determines that such
distribution would constitute an unsafe or unsound practice.
The Federal Reserve Board and the FDIC have issued policy statements which
provide that, as a general matter, insured banks and bank holding companies
may pay dividends only out of current operating earnings.
16
<PAGE>
For national banks, the approval of the Comptroller of the Currency is
required for the payment of dividends in any calendar year by a national bank
subsidiary if the total of all dividends declared by such bank in a calendar
year exceeds the current year's net income combined with the retained net
income of the two preceding years. "Retained net income" means the net income
of a specified period less any common or preferred stock dividends declared
for that period. Moreover, no dividends may be paid by a national bank in
excess of its undivided profits account.
Dividends payable by a Pennsylvania state-chartered bank are restricted due
to the requirement that such bank set aside to a surplus fund each year at
least 10% of its net earnings until such surplus equals the amount of its
capital. Furthermore, the payment of a dividend may not be made if it results
in the reduction of the surplus available to the bank.
For a Maryland state-chartered bank, dividends may be paid out of undivided
profits or, with the approval of the Maryland Bank Commissioner, from surplus
in excess of 100% of required capital stock. If, however, the surplus of a
Maryland bank is less than 100% of its required capital stock, cash dividends
may not be paid in excess of 90% of net earnings.
Federal regulations impose restrictions on dividend payments by savings
institutions, like Atlantic Federal Savings Bank and Reisterstown Federal
Savings Bank, which converted from mutual to stock ownership and were
federally insured at the time of the conversion. Upon conversion, these
regulations require that a "liquidation account" be established by restricting
a portion of net capital for the benefit of eligible savings account holders
who maintain their savings accounts with the institution after conversion. In
the event of complete liquidation (and only in such event), each savings
account holder who continues to maintain a savings account will be entitled to
receive a distribution from the liquidation account after payment to all
creditors, but before any liquidation distribution with respect to capital
stock. This account is proportionately reduced for any decreases in the
eligible holder's savings accounts. Under federal regulations, Atlantic
Federal Savings Bank and Reisterstown Federal Savings Bank may not declare or
pay a cash dividend on common stock if the dividend would cause the
institution's capital to be reduced below the amount required for the
liquidation account or, as to all savings institutions, below the capital
requirements imposed by the OTS under the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), and regulations promulgated
thereunder.
Savings institution holding companies are required to give the OTS 30 days'
prior notice of any proposed declaration of dividends to the holding company.
Under OTS regulations, a savings institution that, immediately prior to, and
on a pro forma basis after giving effect to, a proposed dividend or other
capital distribution, has total capital (as defined by OTS regulation) that is
equal to or greater than the amount of its fully phased-in capital
requirements (a "Tier 1 Institution") generally is permitted without OTS
approval to make capital distributions during a calendar year in an aggregate
amount equal to the greater of (i) up to 100% of its net income to date during
the calendar year plus an amount that would reduce by one-half the amount by
which its total capital exceeded its fully phased-in risk-based capital
requirement at the beginning of the calendar year or (ii) up to 75% of its net
income for the previous four quarters. A savings institution with total
capital in excess of current minimum capital requirements but not in excess of
the fully phased-in requirements (a "Tier 2 Institution") is permitted,
depending on the institution's level of capital, to make capital distributions
without OTS approval of up to 25%, 50% or 75% of its net income for the
previous four quarters, less dividends already paid for such period, depending
on the savings institution's level of risk-based capital. A savings
institution that fails to meet current minimum capital requirements (a "Tier 3
Institution") is prohibited from making any capital distributions without the
prior approval of the OTS. Tier 1 Institutions that have been notified by the
OTS that they are in need of more than normal supervision will be treated as
either a Tier 2 or Tier 3 Institution. As of September 30, 1995, each of
Atlantic Federal Savings Bank, Reisterstown Federal Savings Bank and Fairfax
Savings satisfied the requirements of a Tier 1 Institution.
17
<PAGE>
Savings institutions are further prohibited from making any capital
distributions if after making the distribution, an institution would have: (i)
a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based
capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.
In accordance with the above regulatory restrictions, each of Susquehanna's
banking subsidiaries currently has the ability to pay dividends and at
September 30, 1995, an aggregate of $23 million was available for the payment
of dividends to Susquehanna without prior regulatory approval.
There are also statutory limits on the transfer of funds to the Company and
its nonbanking subsidiaries by its banking subsidiaries whether in the form of
loans or other extensions of credit, investments or asset purchases. Such
transfers by any banking subsidiary to the Company or to any such nonbanking
subsidiary generally are limited in amount to 10% of such bank's capital and
surplus, or 20% in the aggregate. Furthermore, such loans and extensions of
credit are required to be collateralized in specified amounts.
HOLDING COMPANY STRUCTURE
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to its subsidiary banks and to make
capital injections into a troubled subsidiary bank, and the Federal Reserve
Board may charge the bank holding company with engaging in unsafe and unsound
practices for failure to commit resources to a subsidiary bank when required.
A required capital injection may be called for at a time when the Company does
not have the resources to provide it. Any capital loans by the Company to its
subsidiary bank would be subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank.
In addition, under FIRREA, depository institutions insured by the FDIC can
be held liable for any losses incurred by, or reasonably anticipated to be
incurred by, the FDIC after August 9, 1989 in connection with (i) the default
of a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default. "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured subsidiary of the Company causes a
loss to the FDIC, other insured subsidiaries of the Company could be required
to compensate the FDIC by reimbursing it for the estimated amount of such
loss.
For a description of certain other requirements relating to capital
distributions between depository institutions and bank holding companies and
the potential obligation of a bank holding company to guarantee the capital
restoration plans of any of its undercapitalized depository institution
subsidiaries, see "--Federal Deposit Insurance Corporation Improvement Act of
1991."
CAPITAL REQUIREMENTS
Bank holding companies are required to comply with risk-based capital
guidelines established by the Federal Reserve Board. The guidelines, which
were fully phased in at the end of 1992, establish a framework that is
intended to make regulatory capital requirements more sensitive to differences
in risk profiles among banking organizations and take off-balance sheet
exposures into explicit account in assessing capital adequacy. The risk-based
ratios are determined by allocating assets and specified off-balance sheet
commitments into four risk-weight categories, with higher levels of capital
being required for categories perceived as representing greater risk.
Susquehanna's banking subsidiaries are subject to substantially similar
capital requirements.
Generally, under the applicable guidelines, a banking organization's capital
is divided into two tiers. "Tier 1", or core capital, includes common equity,
perpetual preferred stock (excluding auction rate issues) and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and
other intangibles, subject to certain exceptions. "Tier 2", or supplementary
capital, includes, among other things, limited-life preferred stock,
18
<PAGE>
hybrid capital instruments, mandatory convertible securities, qualifying
subordinated debt, and the allowance for loan and lease losses, subject to
certain limitations and less required deductions. "Total capital" is the sum
of Tier 1 and Tier 2 capital. The Tier 1 component must comprise at least 50%
of qualifying total capital.
Banking organizations that are subject to the guidelines are required to
maintain a ratio of Tier 1 capital to risk-weighted assets of at least 4% and
a ratio of total capital to risk-weighted assets of at least 8%. The
appropriate regulatory authority may set higher capital requirements when an
organization's particular circumstances warrant.
The Federal Reserve Board and the FDIC have also adopted leverage capital
guidelines to which the Company and its banking subsidiaries are subject. The
guidelines provide for a minimum leverage ratio (Tier 1 capital to adjusted
total assets) of 3% for financial institutions that have the highest
regulatory examination ratings and are not experiencing or anticipating
significant growth. Financial institutions not meeting these criteria are
required to maintain leverage ratios of at least one to two percentage points
higher.
On December 15, 1994, the federal banking agencies adopted amendments to
their respective risk-based capital requirements that explicitly identify
concentration of credit risk and certain risks arising from nontraditional
activities and the management of such risks, as important factors to consider
in assessing an institution's overall capital adequacy. The amendments do not,
however, mandate any specific adjustments to the risk-based capital
calculations as a result of such factors. On August 2, 1995, the federal
banking agencies published amendments to their risk-based capital rules that
include interest-rate risk as a qualitative factor to be considered in
assessing capital adequacy. Concurrent with the publication of the amendments,
the federal banking agencies proposed a system for measuring interest rate
risk and announced their intention, after a trial period to evaluate the
reliability and accuracy of the proposed system, to initiate a rulemaking
process for the purpose of amending the risk-based capital rules to include an
explicit capital charge for interest-rate risk that will be based upon the
level of a bank's measured interest-rate risk exposure.
On July 14, 1995, the federal banking regulators issued a proposal to amend
their risk-based capital rules to incorporate a measure for market risk in
foreign exchange and commodity activities and in the trading of debt and
equity instruments. Under the proposal, banks with relatively large trading
activities would calculate their capital charges for market risk using their
own internal value-at-risk models (subject to parameters set by the
regulators) or, alternatively, risk management techniques developed by the
regulators. The effect of the proposed rules would be that, in addition to
existing capital requirements for credit risk, certain institutions would be
required to hold capital based on the measure of their market risk exposure.
These institutions would be able to satisfy this additional requirement, in
part, by issuing short-term subordinated debt that qualifies as Tier 3
capital. The proposed rule would go into effect at the end of 1997.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority
of a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "--Federal Deposit Insurance Corporation
Improvement Act of 1991" below, as applicable to undercapitalized
institutions.
As of September 30, 1995 the Company's ratios of Tier 1 and total capital to
risk-weighted assets were 11.85% and 15.87%, respectively, and its leverage
ratio as of such date was 8.57%. As of September 30, 1995, each of the
Company's banking subsidiaries had capital in excess of all such requirements.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December, 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised
the bank regulatory and funding provisions of the Federal Deposit Insurance
Act and made significant revisions to several other federal banking statutes.
FDICIA provides for, among other things, (i) a recapitalization of the Bank
Insurance Fund of the FDIC (the "BIF") by increasing the
19
<PAGE>
FDIC's borrowing authority and providing for adjustments in its assessment
rates; (ii) annual on-site examinations of federally-insured depository
institutions by banking regulators; (iii) publicly available annual financial
condition and management reports for financial institutions, including audits
by independent accountants; (iv) the establishment of uniform accounting
standards by federal banking agencies; (v) the establishment of a "prompt
corrective action" system of regulatory supervision and intervention, based on
capitalization levels, with more scrutiny and restrictions placed on
depository institutions with lower levels of capital; (vi) additional grounds
for the appointment of a conservator or receiver; (vii) a requirement that the
FDIC use the least-cost method of resolving cases of troubled institutions in
order to keep the costs to insurance funds at a minimum; (viii) more
comprehensive regulation and examination of foreign banks; (ix) consumer
protection provisions including a Truth-in-Savings Act; (x) a requirement that
the FDIC establish a risk-based deposit insurance assessment system; (xi)
restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements; and
(xii) certain additional limits on deposit insurance coverage.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. Pursuant to
FDICIA, the federal bank regulatory authorities have adopted regulations
setting forth a five-tiered system for measuring the capital adequacy of the
depository institutions that they supervise. Under these regulations, a
depository institution is classified in one of the following capital
categories: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." A
depository institution is "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, regulatory agreement or written directive to meet and maintain a
specific capital level for any capital measure. An "adequately capitalized"
institution is defined 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 and
(iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank with a composite CAMEL rating of 1). A depository institution is
considered (i) "undercapitalized" if it has (A) a total risk-based capital
ratio of less than 8%, (B) a Tier 1 risk-based capital ratio of less than 4%
or (C) a leverage ratio of less than 4% (or 3% in the case of an institution
with a CAMEL rating of 1), (ii) "significantly undercapitalized" if it has (A)
a total risk-based capital ratio of less than 6%, (B) a Tier 1 risk-based
capital ratio of less than 3% or (C) a leverage ratio of less than 3% and
(iii) "critically undercapitalized" if it has a ratio of tangible equity to
total assets equal to or less than 2%. An institution may be deemed by the
regulators to be in a capitalization category that is lower than is indicated
by its actual capital position if, among other things, it receives an
unsatisfactory examination rating with respect to asset quality, management,
earnings or liquidity.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit capital restoration plans. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company in respect of any capital restoration plan is limited
to the lesser of (i) an amount equal to 5% of the depository institution's
total assets at the time it became undercapitalized and (ii) the amount which
is necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and stop accepting deposits from correspondent banks.
Critically undercapitalized institutions
20
<PAGE>
are subject to the appointment of a receiver or conservator, generally within
90 days of the date such institution is determined to be critically
undercapitalized.
FDICIA also provides for increased funding of the FDIC insurance funds.
Under the FDIC's risk-based insurance premium assessment system, each bank
whose deposits are insured by the BIF is assigned one of the nine risk
classifications based upon certain capital and supervisory measures and,
depending upon its classification, is assessed premiums ranging from .04% to
.31% of domestic deposits. On November 14, 1995, the FDIC board of directors
voted to lower the BIF premium range to zero to .27% effective January 1996.
The rate schedule for deposits which are insured by the Savings Association
Insurance Fund ("SAIF") ranges from .23% to .31% of domestic deposits. All or
a portion of the deposits of several of Susquehanna's subsidiaries are SAIF-
insured. The rate schedule is subject to future adjustments by the FDIC. In
addition, the FDIC has authority to impose special assessments from time to
time. See "REGULATORY MATTERS--Proposed Legislation Regarding SAIF
Assessments."
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply
with capital or other standards. Such action may include the termination of
deposit insurance by the FDIC or the appointment of a receiver or conservator
for the institution. FDICIA also limits the circumstances under which the FDIC
is permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act") was enacted into law on September 29, 1994. The law
eliminated substantially all state law barriers to the acquisition of banks by
out-of-state bank holding companies as of September 29, 1995. The law will
also permit interstate branching by banks effective as of June 1, 1997,
subject to the ability of states to opt-out completely or to set an earlier
effective date.
In response to the Interstate Banking Act, in April 1995 Maryland adopted
legislation permitting the acquisition of banks primarily subject to Maryland
banking laws by any out-of-state bank holding companies. The Maryland
legislation permits branching in Maryland prior to June 1, 1997 by out-of-
state banks as long as their home state reciprocates by allowing Maryland
banks to open branches there; after June 1, 1997 there are no reciprocity-
based restrictions. On July 6, 1995 Pennsylvania adopted legislation
permitting out-of-state bank holding companies unrestricted access to acquire
Pennsylvania banks. The Pennsylvania legislation permits out-of-state banks to
set up branches in Pennsylvania so long as their home state reciprocates by
allowing Pennsylvania banks to open branches there. The Company anticipates
that the effect of these new laws will be to increase competition within the
markets in which the Company now operates, although the Company cannot predict
the extent to which competition will increase in such markets or the timing of
such increase.
PROPOSED LEGISLATION REGARDING SAIF ASSESSMENTS
The Seven-Year Balanced Budget Reconciliation Act of 1995 presently before
Congress includes provision for funding of the FDIC's SAIF at levels mandated
under current law. Known as the "Thrift Fund Bailout", the proposed
legislation would impose a one-time assessment between 77 and 85 basis points
per $100 of thrift deposits, including thrift deposits held by commercial
banks. Without the assessment it is believed that premiums paid by thrifts for
federal deposit insurance would be higher than premiums paid by banks for the
foreseeable future.
If enacted, the one-time assessment would be levied on January 1, 1996, and
would affect several Susquehanna subsidiaries as follows (assuming an
assessment of 85 basis points on the deposit base at June 30, 1995):
Reisterstown Federal Savings Bank which paid a SAIF premium of $498,000 in
1995 but is expected to pay $1,934,000 in 1996 as the result of the one-time
assessment and $148,000 in 1997 by reason of the stabilization of the SAIF and
the concurrent reduction in premium; Atlantic Federal Savings Bank, which paid
a
21
<PAGE>
SAIF premium of $412,000 in 1995 but is expected to pay $1,527,000 in 1996 and
$117,000 in 1997 by reason of the stabilization of the SAIF and the concurrent
reduction in premium; and Farmers First Bank which paid a SAIF premium of
$138,000 in 1995 (by virtue of its acquisition by merger of a thrift in 1993)
but is expected to pay $509,000 in 1996 and $39,000 in 1997 by reason of
stabilization of the SAIF and the concurrent reduction in premium.
Fairfax Savings also would be subject to the assessment. In 1995, Fairfax
Savings paid $807,000 in SAIF premiums but is expected to pay $3,297,000 in
1996 as a result of the assessment and $252,000 in 1997 by reason of
stabilization of the SAIF and the concurrent reduction in premium. Whether the
Fairfax Merger is consummated in December 1995 or in the first quarter of
1996, it is expected that Susquehanna will pay all, or substantially all, of
the assessment.
Payment of the 1996 one-time assessments is not expected to have a material
adverse effect upon the financial condition of Susquehanna, although such
assessments may have a material adverse effect upon results of operations for
1995 if such legislation is enacted in 1995.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 32,000,000 shares of Common Stock, par
value $2.00 per share, and 5,000,000 shares of preferred stock, without par
value ("Preferred Stock").
As of December 18, 1995, the Company had outstanding 11,640,549 shares of
Common Stock. No shares of Preferred Stock are currently outstanding.
COMMON STOCK
Dividends
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors out of funds legally available
therefor. Since the Company is a holding company, the funds required by the
Company to enable it to pay dividends are derived predominantly from the
dividends paid to the Company by its subsidiaries. The Company's ability to
pay dividends, therefore, is dependent upon the earnings, financial condition
and ability to pay dividends of the Company's subsidiaries, principally its
banking subsidiaries. Payment of dividends by the banking subsidiaries is
subject to a number of regulatory restrictions. See "REGULATORY MATTERS--
Limits on Dividends and Other Payments." Each of the Company's banking
subsidiaries is presently permitted to pay dividends without prior approval
under such regulatory requirements; at September 30, 1995, an aggregate of $23
million was available for the payment of dividends to the Company.
Liquidation
In the event of liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of
Preferred Stock, if any, then outstanding.
Voting
Holders of Common Stock are entitled to one vote for each share held by them
at all meetings of the shareholders and are not entitled to cumulate their
votes for the election of directors.
No Preemptive Rights
Holders of Common Stock do not have any preemptive rights.
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<PAGE>
Transfer Agent and Registrar
Farmers First Bank, a subsidiary of the Company, is the transfer agent and
registrar for the Company's Common Stock.
PREFERRED STOCK
The Company's Board of Directors has authority, without further vote or
action by the shareholders, to issue the Preferred Stock in one or more series
and to fix and determine the relative rights and preferences of each such
series.
PENNSYLVANIA ANTI-TAKEOVER LAW PROVISIONS
The Company is subject to various statutory "anti-takeover" provisions of
the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
including Subchapters 25E, F, G and H of the BCL.
Subchapter 25E (relating to control transactions) provides that if any
person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or group
the fair value of their shares, including a proportionate amount of any
control premium.
Subchapter 25F (relating to business combinations) delays for five years and
imposes conditions upon "business combinations" between an "interested
shareholder" and the corporation. The term "business combination" is defined
broadly to include various transactions utilizing a corporation's assets for
purchase price amortization or refinancing purposes. An "interested
shareholder" is defined generally as the beneficial owner of at least 20% of a
corporation's voting shares.
Subchapter 25G (relating to control-share acquisitions) prevents a person
who has acquired 20% or more of the voting power of a covered corporation from
voting such shares unless the "disinterested" shareholders approve such voting
rights. Failure to obtain such approval exposes the owner to the risk of a
forced sale of the shares to the issuer. If shareholder approval is obtained,
the corporation is also subject to Subchapters 25I and J of the BCL.
Subchapter 25I provides for a minimum severance payment to certain employees
terminated within two years of the approval. Subchapter 25J prohibits the
abrogation of certain labor contracts prior to their stated date of
expiration.
Subchapter 25H (relating to disgorgement) applies in the event that (1) any
person or group publicly discloses that the person or group may acquire
control of the corporation or (2) a person or group acquires (or publicly
discloses an offer or intent to acquire) 20% or more of the voting power of
the corporation and, in either case, sells shares within 18 months thereafter.
Any profits from sales of equity securities of the corporation by the person
or group during the 18-month period belong to the corporation if the
securities that were sold were acquired during the 18-month period or within
24 months prior thereto.
Subchapters 25E, F, G and H contain a wide variety of transactional and
status exemptions, exclusions and safe harbors. The foregoing descriptions are
qualified in their entirety by reference to the statutory provisions which are
filed as an exhibit to the Registration Statement and incorporated herein by
reference.
In addition, the BCL permits an amendment of the corporation's articles or
other corporate action, if approved by shareholders generally, to provide
mandatory special treatment for specified groups of nonconsenting shareholders
of the same class by providing, for example, that shares of common stock held
only by designated shareholders of record, and no other shares of common
stock, shall be cashed out at a price determined by the corporation, subject
to applicable dissenters' rights.
The BCL also provides that directors may, in discharging their duties,
consider the interests of a number of different constituencies, including
shareholders, employees, suppliers, customers, creditors and the communities
in which the corporation is located. Directors are not required to consider
the interests of shareholders to a greater
23
<PAGE>
degree than other constituencies' interests. The BCL expressly provides that
directors do not violate their fiduciary duties solely by relying on poison
pills or the anti-takeover provisions of the BCL.
PROVISIONS IN THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Company's articles of incorporation and bylaws may
have the effect of making more difficult non-negotiated tender or exchange
offers or other attempts to take over or acquire the Company's business. These
provisions may discourage some potential acquirors from attempting such a
transaction on terms which some shareholders might favor.
Currently, the Company has 5 million shares of authorized but unissued
shares of Preferred Stock and approximately 20 million shares of authorized
but unissued shares of Common Stock. Following the offering contemplated
hereby, the Company would have approximately 19 million shares of authorized
but unissued shares of Common Stock. As a general matter, the existence of
unissued and unreserved shares of capital stock provides a board of directors
with the ability to cause the issuance of shares of capital stock under
circumstances that might prevent or render more difficult or costly the
completion of a takeover. In addition, the rights and preferences of Preferred
Stock as may be established by the Company's Board of Directors could have the
effect of impeding a takeover of the Company.
The Company's bylaws provide that the number of directors shall be fixed by
the Board of Directors, and that the directors shall be divided into three
classes as nearly equal as possible, with each class serving for staggered
three year terms. Directors may be removed, with or without cause, by the vote
of the holders of 75% of the Company's outstanding shares entitled to vote for
directors generally.
The Company's bylaws establish advance notice procedures with regard to the
nomination, other than by management, of candidates for election as directors.
The Company's shareholders may act only at a shareholders' meeting or by
unanimous written consent.
The Board of Directors is authorized to amend the bylaws, subject to the
right of the shareholders to change such action by vote of 75% of the
Company's outstanding shares entitled to vote.
Article 10 of the Company's articles of incorporation authorizes the Board
of Directors to use defensive measures to oppose acquisition transactions that
it determines are not in the best interests of the Company, and permits the
Board of Directors to consider a broad range of factors in deciding whether to
oppose an acquisition transaction, including effects on employees, depositors,
customers and the communities served by the Company. Article 10 may not be
amended without the vote of 75% of the Company's outstanding shares entitled
to vote.
Article 11 of the Company's articles of incorporation, in general, prohibits
the Company from engaging in a broad range of business combinations with any
person or group having beneficial ownership of 20% or more of the Company's
shares entitled to vote generally for the election of directors unless such
business combination (i) was approved by the Board of Directors prior to the
time such person or group acquired more than 10% of the Company's voting
shares, (ii) is approved by 75% of the Company's voting shares where the
transaction satisfies specified fair price criteria and the 20% shareholder
has complied with specified procedural requirements, or (iii) is approved by
85% of the Company's voting shares. In addition, where no 20% shareholder is
involved, Article 11 requires a merger or consolidation of the Company or a
significant sale or disposition of securities or assets of the Company or its
subsidiaries to be approved by 66 2/3% of the Company's outstanding shares
entitled to vote on such matter. Article 11 may only be amended by vote of 85%
of the Company's voting shares (75% if the amendment is approved by 85% of a
board consisting only of "continuing directors" as such term is defined in
Article 11).
Article 14 of the Company's articles of incorporation limits the voting
rights of any person or group acquiring more than 10% of the Company's
outstanding voting shares. The voting rights limitations of Article 14, when
taken together with the provisions of Article 11, render it extremely unlikely
that a person or group
24
<PAGE>
subject to its provisions will be able to determine the outcome of a vote on
any transaction covered by Article 11. Shares held by such person or group in
excess of 10% of any class or series of Susquehanna stock are entitled to only
1/10 of a vote per share, and all shares held by such person or group may not
cast more than 35% of the total number of votes which all holders of a class
or series of the Company's shares are entitled to cast with respect to a
particular matter. These provisions limiting voting rights may not be waived
or rendered inapplicable by the Board of Directors. Because the voting rights
limitations are imposed on persons or groups owning more than 10% of the
Company's outstanding voting shares (rather than the owners of more than 10%
of the outstanding voting power), the Board of Directors could issue shares of
Preferred Stock with enhanced voting rights that would permit a person to
exercise more than 10% of the voting power while owning 10% or less of the
outstanding voting shares. These voting rights limitations do not apply to a
person or group that consummates a tender offer which was an offer to acquire
all outstanding shares of Common Stock and which tender offer complied with
specified procedural and fair price requirements. Article 14 may only be
amended by vote of 85% of the votes entitled to be cast by all of the
Company's outstanding voting shares (two-thirds if the amendment is first
approved by two-thirds of a board consisting only of "continuing directors" as
such term is defined in Article 14).
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following tables set forth certain pro forma combined condensed
financial information of Susquehanna giving effect, as of January 1, 1994, to
(i) the Atlanfed acquisition, accounted for as a pooling of interests,
(ii) the Reisterstown acquisition, accounted for as a purchase, (iii) the
issuance of additional shares of Common Stock in the offering contemplated
hereby and the proposed issuance of Senior Notes in the Senior Note Offering
to fund the cash consideration for the Fairfax Merger, and (iv) the Fairfax
Merger, accounted for as a purchase.
The information in the following tables is not necessarily indicative of the
results that would have been achieved had such transactions been consummated
on such dates and should not be construed as representative of future
operations. Such information is subject to the assumptions set forth in the
notes to these Unaudited Pro Forma Financial Statements. The information
presented should be read in conjunction with such notes and with the
historical financial statements, including the notes thereto, of Susquehanna,
Atlanfed, Fairfax and Reisterstown incorporated by reference in this
Prospectus.
25
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SUSQUEHANNA FAIRFAX FOR FAIRFAX SUSQUEHANNA
AS REPORTED AS REPORTED* ACQUISITION PRO FORMA
----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.. $ 80,665 $ 2,942 $ 83,607
Short-term investments... 70,068 6,776 $ 67,253 [A] 81,097
(63,000)[B]
Investment securities.... 592,481 22,861 615,342
Loans and leases, net of
unearned income......... 1,692,790 424,648 2,117,438
Allowance for loan and
lease losses............ 27,948 3,968 31,916
---------- -------- ----------
Net loans and leases..... 1,664,842 420,680 2,085,522
Intangible assets[C]..... 20,659 20,589 [D] 41,248
Other assets............. 93,410 17,028 400 [A] 110,838
---------- -------- -------- ----------
Total Assets........... $2,522,125 $470,287 $ 25,242 $3,017,654
========== ======== ======== ==========
LIABILITIES
Deposits................. $2,088,041 $386,247 $2,474,288
Short-term borrowings.... 76,266 20,036 96,302
Long-term debt........... 91,979 12,200 $ 35,000 [A] 139,179
Other liabilities........ 31,633 9,386 41,019
---------- -------- -------- ----------
Total Liabilities...... 2,287,919 427,869 35,000 2,750,788
EQUITY
Common stock............. 23,366 150 2,600 [A] 25,966
(150)[E]
Surplus.................. 43,014 195 30,053 [A] 73,067
(195)[E]
Retained earnings........ 168,436 42,066 (42,066)[E] 168,436
Unrealized gain (loss) on
securities
available-for-sale, net
of tax.................. (287) 7 (280)
Less: Treasury stock..... 323 323
---------- -------- -------- ----------
Total Equity........... 234,206 42,418 (9,758) 266,866
---------- -------- -------- ----------
Total Liabilities &
Equity.............. $2,522,125 $470,287 $ 25,242 $3,017,654
========== ======== ======== ==========
</TABLE>
- --------
* Fairfax information is as of June 30, 1995
[A] To record the issuance of 1.3 million shares of Common Stock at an assumed
public offering price of $26.50 per share and $35 million of Senior Notes
at an assumed interest rate of 7% for the acquisition of Fairfax and for
other general corporate purposes.
[B] To record the purchase of Fairfax for cash.
[C] Includes only those intangibles which are excluded from Tier 1 capital.
[D] To record excess purchase price (goodwill) for Fairfax.
[E] To eliminate the equity of Fairfax in consolidation (purchase accounting).
26
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS SUSQUEHANNA ADJUSTMENTS
FOR PRO FORMA FOR FAIRFAX FOR
SUSQUEHANNA REISTERSTOWN REISTERSTOWN REISTERSTOWN AS FAIRFAX SUSQUEHANNA
AS REPORTED AS REPORTED* ACQUISITION ACQUISITION REPORTED** ACQUISITION PRO FORMA
----------- ------------ ------------ ------------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $138,997 $7,137 $(326)[A] $145,808 $26,014 $171,822
Interest expense........ 60,427 3,490 286 [B] 64,203 14,101 $ 1,657 [B] 79,961
-------- ------ ----- -------- ------- ------- --------
Net interest income..... 78,570 3,647 (612) 81,605 11,913 (1,657) 91,861
Provision for loan and
lease losses........... 3,711 -- 3,711 45 3,756
-------- ------ ----- -------- ------- ------- --------
Net interest income
after provision........ 74,859 3,647 (612) 77,894 11,868 (1,657) 88,105
Investment losses....... (46) (46) (46)
Other income............ 11,788 565 12,353 2,207 14,560
Salaries and benefits... 31,264 1,089 32,353 4,657 37,010
Other expense........... 28,285 1,174 62 [C] 29,581 4,036 34,647
60 [D] 1,030 [C]
-------- ------ ----- -------- ------- ------- --------
Income before taxes..... 27,052 1,949 (734) 28,267 5,382 (2,687) 30,962
Taxes................... 8,184 843 (237)[E] 8,790 1,966 (580)[E] 10,176
-------- ------ ----- -------- ------- ------- --------
Net income from
operations............. $ 18,868 $1,106 $(497) $ 19,477 $ 3,416 $(2,107) $ 20,786
======== ====== ===== ======== ======= ======= ========
Earnings per share...... $ 1.62 N/A $ 1.67 N/A $ 1.61
Average shares
outstanding............ 11,638 N/A 11,638 N/A 1,300 [F] 12,938
</TABLE>
- -------
* Reisterstown information is for the three months ended December 31, 1994
and the first 21 days of April 1995.
** Fairfax information is for the nine months ended June 30, 1995.
[A] Reduction of interest income to exclude use of proceeds prior to
Reisterstown purchase.
[B] Increase in interest expense regarding purchase price borrowings of
$28,640 for Reisterstown and $30,747 for Fairfax.
[C] Goodwill amortization adjustment.
[D] Amortization of fair value purchase accounting adjustments.
[E] Tax effect on adjustments.
[F] Common Stock issued to satisfy part of Fairfax purchase price.
27
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS SUSQUEHANNA PRO FORMA
FOR PRO FORMA FOR ADJUSTMENTS
SUSQUEHANNA REISTERSTOWN REISTERSTOWN REISTERSTOWN FAIRFAX AS FOR FAIRFAX SUSQUEHANNA
AS REPORTED AS REPORTED* ACQUISITION ACQUISITION REPORTED* ACQUISITION PRO FORMA
----------- ------------ ------------ ------------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $150,633 $22,499 $ 27 [A] $173,159 $27,731 $200,890
Interest expense........ 56,488 11,392 2,578 [B] 70,458 13,681 $ 2,209 [B] 86,348
-------- ------- ------- -------- ------- ------- --------
Net interest income..... 94,145 11,107 (2,551) 102,701 14,050 (2,209) 114,582
Provision for loan and
lease losses........... 3,987 127 4,114 (111) 4,003
-------- ------- ------- -------- ------- ------- --------
Net interest income
after provision........ 90,158 10,980 (2,551) 98,587 14,161 (2,209) 110,539
Investment gains........ 999 141 1,140 1,923 3,063
Other income............ 14,099 3,374 17,473 5,459 22,932
Salaries and benefits... 36,227 3,237 39,464 5,805 45,269
Other expense........... 36,483 3,288 251 [C] 40,262 4,680 46,315
240 [A] 1,373 [C]
-------- ------- ------- -------- ------- ------- --------
Income before taxes..... 32,546 7,970 (3,042) 37,474 11,058 (3,582) 44,950
Taxes................... 9,718 3,385 (983)[D] 12,120 4,457 (773)[D] 15,804
-------- ------- ------- -------- ------- ------- --------
Net income from
operations............. $ 22,828 $ 4,585 $(2,059) $ 25,354 $ 6,601 $(2,809) $ 29,146
======== ======= ======= ======== ======= ======= ========
Earnings per share...... $ 1.96 N/A $ 2.18 N/A $ 2.25
Average shares
outstanding............ 11,634 N/A 11,634 N/A 1,300 [E] 12,934
</TABLE>
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* Reisterstown and Fairfax information is for the fiscal year ended September
30, 1994.
[A] Amortization of fair value purchase accounting adjustments.
[B] Increase in interest expense regarding purchase price borrowings of
$28,640 for Reisterstown and $30,747 for Fairfax.
[C] Goodwill amortization adjustment.
[D] Tax effect on adjustments.
[E] Common Stock issued to satisfy part of Fairfax purchase price.
28
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company and the underwriters named below (the "Underwriters"), for
whom Oppenheimer & Co., Inc., Legg Mason Wood Walker, Incorporated and Keefe,
Bruyette & Woods, Inc. are acting as representatives (the "Representatives"),
each of the Underwriters has severally agreed to purchase from the Company,
and the Company has agreed to sell to the Underwriters, the respective number
of shares set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Oppenheimer & Co., Inc........................................... 365,500
Legg Mason Wood Walker, Incorporated............................. 361,000
Keefe, Bruyette & Woods, Inc..................................... 361,000
Ferris, Baker Watts, Inc. ....................................... 42,500
First Montauk Securities Corporation............................. 42,500
Janney Montgomery Scott Inc...................................... 42,500
Pennsylvania Merchant Group Ltd.................................. 42,500
Ryan, Beck & Co., Inc............................................ 42,500
---------
Total.......................................................... 1,300,000
=========
</TABLE>
The Underwriters are committed to purchase and pay for all such shares if
any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
offering price set forth on the cover page of this Prospectus and to certain
selected dealers at such price less a concession of $.65 per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $.10 per share to certain other dealers. After the initial public
offering of the shares, the public offering price, concession and reallowance
to dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable during a
30-day period after the date of this Prospectus to purchase up to 195,000
additional shares of Common Stock, solely to cover over-allotments, if any, at
the public offering price less the underwriting discount, as set forth on the
cover page of this Prospectus. To the extent the Underwriters exercise such
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
shares to be purchased by each of them, as shown in the foregoing table, bears
to the 1,300,000 shares of Common Stock offered.
The Company has agreed that it will not issue or sell, and each director and
executive officer of the Company has also agreed not to sell, or otherwise
dispose of, directly or indirectly, any equity securities of the Company (or
any securities convertible into or exercisable or exchangeable for equity
securities of the Company) for a period of 120 days after the date of this
Prospectus without the prior written consent of the Representatives, except
for the Common Stock offered hereby and the issuance of Common Stock by the
Company pursuant to certain existing option and dividend reinvestment plans.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to
make in respect thereof.
Certain of the Underwriters may in the ordinary course of business engage in
transactions with and perform services for the Company which may include,
among other things, investment banking transactions and services.
29
<PAGE>
In connection with the offering contemplated hereby, certain underwriters
and selling group members (if any) or their respective affiliates who are
qualified registered market makers on the Nasdaq National Market may engage in
passive market making transactions in the Common Stock on the Nasdaq National
Market in accordance with Rule 10b-6A under the Exchange Act during the two
business day period before commencement of offers of sales of the Common
Stock. The passive market making transactions must comply with applicable
volume and price limits and be identified as such. In general, a passive
market maker may display its bid at a price not in excess of the highest
independent bid for the security; however if all independent bids are lowered
below the passive market maker's bid, such bid must be lowered when certain
purchase limits are exceeded.
EXPERTS
SUSQUEHANNA
The consolidated balance sheets of Susquehanna as of December 31, 1994 and
1993 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994, incorporated by reference in this Prospectus, have
been incorporated herein in reliance on the report, which includes an
explanatory paragraph relating to the change in method of accounting for
investments and income taxes in 1993, of Coopers & Lybrand L.L.P., independent
accountants to Susquehanna, given upon the authority of said firm as experts
in accounting and auditing.
ATLANFED
The consolidated statements of financial condition of Atlanfed as of March
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 March 31, 1995, incorporated by reference in this Prospectus,
have been incorporated herein in reliance on the report of KPMG Peat Marwick
LLP, independent accountants to Atlanfed, given upon the authority of said
firm as experts in accounting and auditing.
FAIRFAX
The consolidated financial statements of Fairfax and subsidiaries as of
September 30, 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 September 30, 1995, incorporated by reference in this
registration statement, have been incorporated herein in reliance on the
report of KPMG Peat Marwick LLP, independent accountants, and upon the
authority of said firm as experts in accounting and auditing. Such report
refers to the Company's adoption in 1995 of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
REISTERSTOWN
The consolidated balance sheets of Reisterstown as of March 31, 1995 and
September 30, 1994, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for the six months ended March 31, 1995
and each of the two years in the period ended September 30, 1994, incorporated
by reference in this Prospectus, have been incorporated herein in reliance on
the report, which includes an explanatory paragraph relating to the change in
method of accounting for income taxes in 1993 and accounting for certain debt
and equity securities in 1995, of Coopers & Lybrand L.L.P., independent
accountants to Reisterstown, given upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon by
Morgan, Lewis & Bockius LLP, Harrisburg, Pennsylvania. Certain legal matters
will be passed upon for the Underwriters by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York.
Simpson Thacher & Bartlett will rely as to all matters of Pennsylvania law
upon the opinion of Morgan, Lewis & Bockius LLP.
30
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Documents by Reference.................................... 3
Susquehanna Bancshares, Inc................................................ 4
The Offering............................................................... 7
Dividends and Price Range of Common Stock.................................. 7
Use of Proceeds............................................................ 8
Capitalization............................................................. 8
Selected Financial Data.................................................... 9
Unaudited Selected Pro Forma Financial Data................................ 11
Financial Overview......................................................... 12
Regulatory Matters......................................................... 16
Description of Capital Stock............................................... 22
Unaudited Pro Forma Financial Statements................................... 25
Underwriting............................................................... 29
Experts.................................................................... 30
Legal Matters.............................................................. 30
</TABLE>
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1,300,000 SHARES
SUSQUEHANNA BANCSHARES, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
OPPENHEIMER & CO., INC.
LEGG MASON WOOD WALKER
INCORPORATED
KEEFE, BRUYETTE & WOODS, INC.
DECEMBER 19, 1995
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