<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-10674
SUSQUEHANNA BANCSHARES, INC.
----------------------------
(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-2201716
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
26 North Cedar Street
Lititz, Pennsylvania 17543
---------------------------
(Address of principal executive offices) (Zip Code)
(717) 626-4721
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of September 30, 1996 the Registrant had 13,173,024 shares of common stock
outstanding.
1
<PAGE>
SUSQUEHANNA BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
REFERENCE
<S> <C>
PART I. FINANCIAL INFORMATION..................................... 3
Item 1. FINANCIAL STATEMENTS...................................... 3
Consolidated Balance Sheets -
As of September 30, 1996 and 1995,
And December 31, 1995.......................................... 3
Consolidated Statements of Income
For the three months ended and nine months ended
September 30, 1996 and 1995.................................... 4
Consolidated Statements of Cash Flow
For the Nine Month Periods
Ended September 30, 1996 and 1995.............................. 5
Notes to Consolidated Financial Statements..................... 6 - 8
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION................................... 9 - 23
PART II OTHER INFORMATION......................................... 23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 23
SIGNATURES................................................ 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) September 30, December 31 September 30
ASSETS 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $100,010 $87,107 $80,665
Short-term investments 36,557 92,110 70,068
Investment securities available for sale 461,234 476,139 417,725
Investment securities held to maturity 115,206 133,879 174,756
(Fair values of $115,729; $135,106; and $176,771)
Loans and leases, net of unearned income 2,177,264 1,712,951 1,692,790
Less: Allowance for loan and lease losses 31,664 27,563 27,948
--------------- ------------ ------------
Net loans and leases 2,145,600 1,685,388 1,664,842
--------------- ------------ ------------
Premises and equipment (net) 37,521 36,414 34,689
Accrued income receivable 20,763 19,148 19,995
Other assets 84,836 55,972 59,385
--------------- ------------ ------------
Total assets $3,001,727 $2,586,157 $2,522,125
=============== ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Deposits:
Demand $283,099 $270,411 $255,191
Interest-bearing demand 663,936 483,835 471,909
Savings 397,868 390,257 388,331
Time 1,030,788 899,013 882,796
Time of $100 or more 101,377 72,526 89,814
--------------- ------------ ------------
Total deposits 2,477,068 2,116,042 2,088,041
--------------- ------------ ------------
Short-term borrowings 76,186 69,432 76,266
Long-term debt 121,813 86,274 91,979
Accrued interest, taxes, and expenses payable 25,472 25,732 21,560
Other liabilities 15,611 15,278 10,073
--------------- ------------ ------------
Total liabilities 2,716,150 2,312,758 2,287,919
Stockholders' equity:
Common stock
Authorized: 32,000,000 shares ($2.00 par value)
Issued: 13,193,327; 12,991,007; and 11,682,880, respectively 26,387 25,982 23,366
Surplus 78,353 73,173 43,014
Retained earnings 182,225 172,209 168,436
Unrealized gains and losses for available-for-sale
securities, net of taxes (1,233) 2,358 (287)
Less: Treasury stock, (20,303; 48,962 and 42,331 common shares
at cost, respectively) 155 323 323
--------------- ------------ ------------
Total stockholders' equity 285,577 273,399 234,206
--------------- ------------ ------------
Total liabilities and stockholders' equity $3,001,727 $2,586,157 $2,522,125
=============== ============ ============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
- ------------------------------------------------------------------------------------------
(In thousands, except per share ) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $49,335 $39,732 $143,348 $111,365
Interest on investment securities: Taxable 7,409 8,043 22,808 21,638
Tax-exempt 1,166 1,227 3,630 3,933
Interest on short-term investments 766 672 2,911 2,061
- ------------------------------------------------------------------------------------------
Total interest income 58,676 49,674 172,697 138,997
- ------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 4,849 3,272 13,590 9,703
Savings 2,457 2,595 7,363 7,610
Time 15,723 13,615 47,454 35,109
Interest on short-term borrowings 735 937 2,023 2,620
Interest on long-term debt 2,322 1,885 6,926 5,385
- ------------------------------------------------------------------------------------------
Total interest expense 26,086 22,304 77,356 60,427
- ------------------------------------------------------------------------------------------
Net interest income 32,590 27,370 95,341 78,570
Provision for loan and lease losses 1,090 1,140 3,469 3,711
- ------------------------------------------------------------------------------------------
Net interest income after provision for loan
and lease losses 31,500 26,230 91,872 74,859
- ------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 1,478 1,289 4,143 3,735
Other service charges, commissions, fees 768 254 1,729 785
Income from fiduciary-related activities 766 704 2,379 2,116
Other operating income 2,210 2,430 7,487 5,152
Investment security gains/(losses) 36 27 231 (46)
- ------------------------------------------------------------------------------------------
Total other income 5,258 4,704 15,969 11,742
- ------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 12,646 10,835 37,354 31,264
Net occupancy expense 1,660 1,430 5,097 4,158
Furniture and equipment expense 1,255 1,003 3,583 3,033
FDIC insurance premiums 5,960 117 6,912 2,356
Other operating expenses 7,885 6,833 23,189 18,738
- ------------------------------------------------------------------------------------------
Total other expenses 29,406 20,218 76,135 59,549
- ------------------------------------------------------------------------------------------
Income before income taxes 7,352 10,716 31,706 27,052
Provision for income taxes 2,243 3,467 10,242 8,184
- ------------------------------------------------------------------------------------------
NET INCOME $5,109 $7,249 $21,464 $18,868
==========================================================================================
Per share information:
Net income $0.39 $0.62 $1.63 $1.62
Cash dividends 0.29 0.27 0.87 0.81
Average shares outstanding 13,173 11,641 13,157 11,638
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Nine month periods ended September 30 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $21,464 $18,868
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 8,386 7,079
Provision for loan and lease losses 3,469 3,711
Deferred taxes -- 160
(Gain) / loss on securities transactions (231) 46
Gain on sale of mortgages (3,001) (1,369)
(Gain)(loss) on sale of other real estate owned (55) (76)
Mortgage loans originated for resale (154,551) (47,945)
Sale of mortgage loans originated for resale 154,964 77,518
(Increase)/decrease in accrued interest receivable (1,615) (444)
Decrease in accrued interest payable (1,498) (1,533)
Increase in accrued expenses and taxes payable 514 (1,838)
Change in fiscal year of pooled entity -- (1,174)
Other, net (1,482) (4,406)
------------ -----------
Net cash provided by operating activities 26,364 48,597
INVESTING ACTIVITIES:
Proceeds from the sale of available-for-sale securities 23,968 26,220
Proceeds from the maturity of investment securities 117,989 108,698
Purchase of available-for-sale securities (78,408) (88,774)
Purchase of held-to-maturity securities (16,934) (4,267)
Net increase in loans and leases (69,542) (53,062)
Capital expenditures (3,563) (3,210)
Net cash (paid) / received in acquisition (31,298) (17,517)
Change in fiscal year of pooled entity -- (1,049)
------------ -----------
Net cash used for investing activities (57,788) (32,961)
FINANCING ACTIVITIES:
Net increase / (decrease) in deposits (35,364) 11,892
Net increase / (decrease) in short-term borrowings 6,754 (6,488)
Proceeds from issuance of long-term debt 35,000 90,672
Repayment of long-term debt (11,921) (49,896)
Proceeds from issuance of common stock 5,753 768
Dividends paid (11,448) (9,102)
Change in fiscal year of pooled entity -- 2,175
------------ -----------
Net cash provided by/(used for) financing activities (11,226) 40,021
------------ -----------
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (42,650) 55,657
CASH AND CASH EQUIVALENTS AT JANUARY 1 179,217 95,076
------------ -----------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $136,567 $150,733
============ ===========
Cash and cash equivalents:
Cash and due from banks $100,010 $80,665
Short-term investments 36,557 70,068
------------ -----------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $136,567 $150,733
============ ===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest paid on deposits, short-term borrowings, and long-term debt was
$78,854 in 1996, and $58,960 in 1995. Income taxes paid were $10,776 in 1996,
and $6,943 in 1995. Amounts transferred to other real estate owned were $5,813
in 1996, and $3,578 in 1995.
On April 21, 1995, Susquehanna acquired Reisterstown Holdings, Inc.,
Reisterstown, MD for $28,640. At the time of the acquisition, loans acquired
were $201,182; investment securities were $26,798; and deposits were $209,819.
On February 1, 1996, Susquehanna acquired Fairfax Finanacial Corp,
Baltimore, MD for $62,725. At the time of the acquisition, loans acquired were
$401,658; investment securities were $19,467; and deposits were $396,390.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Month Periods Ended September 30 COMMON RETAINED
(In thousands, except per share) STOCK SURPLUS EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - January 1, 1995 $23,366 $42,919 $159,051
Change in fiscal year of pooled entity (623) (381)
Common stock issued under
employee benefit plans 718
Net income 18,868
Change in unrealized gain/loss on securities
Cash dividends paid:
Per common share of $0.81 (9,102)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1995 $23,366 $43,014 $168,436
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - January 1, 1996 $25,982 $73,173 $172,209
Net income 21,464
Common stock issued under
employee benefit plans 15 634
Stock issued in public offering 390 4,546
Change in unrealized gain/loss on securities
Cash dividends paid:
Per common share of $0.87 (11,448)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1996 $26,387 $78,353 $182,225
=================================================================================================================================
<CAPTION>
UNREALIZED
Nine Month Periods Ended September 30 GAIN/(LOSS) ON TREASURY TOTAL
(In thousands, except per share) SECURITIES STOCK EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - January 1, 1995 ($7,859) ($373) $217,104
Change in fiscal year of pooled entity (44) (1,048)
Common stock issued under
employee benefit plans 50 768
Net income 18,868
Change in unrealized gain/loss on securities 7,616 7,616
Cash dividends paid:
Per common share of $0.81 (9,102)
- -----------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1995 ($287) ($323) $234,206
- -----------------------------------------------------------------------------------------------------------------------------
Balance - January 1, 1996 $2,358 ($323) $273,399
Net income 21,464
Common stock issued under
employee benefit plans 168 817
Stock issued in public offering 4,936
Change in unrealized gain/loss on securities (3,591) (3,591)
Cash dividends paid:
Per common share of $0.87 (11,448)
- -----------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1996 ($1,233) ($155) $285,577
=============================================================================================================================
</TABLE>
ACCOUNTING POLICIES
The information contained in this report is unaudited and is subject to
year-end adjustments. However, in the opinion of management, the information
reflects all adjustments necessary for a fair statement of results for the
periods ended September 30, 1996 and 1995.
The accounting policies of Susquehanna Bancshares, Inc. & Subsidiaries
("Susquehanna"), as applied in the consolidated interim financial statements
presented herein, are substantially the same as those followed on an annual
basis as presented on pages 44 and 45 of the Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, except as noted in the following
paragraphs.
Susquehanna adopted Statement of Financial Accounting Standards No.121 -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121") in the first quarter of 1996. SFAS 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 had no effect on Susquehanna's financial
condition or results of operations as Susquehanna has historically applied the
principles of SFAS 121 to its financial statements and notes.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 122 - "Accounting for Mortgage-Servicing Rights" ("SFAS
122") in 1995. SFAS 122 requires that a portion of the cost of originating a
mortgage loan be allocated to the mortgage servicing right based on its fair
value relative to the loans as a whole and recorded as an asset separate from
the underlying loans. SFAS 122 prohibits retroactive application; accordingly,
SFAS 122 was adopted in the first quarter of 1996 and did not have a material
effect on Susquehanna's financial condition or results of operations.
6
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The amortized costs and fair values of securities are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1996 December 31, 1995
--------------------------------------------------------------------------------
(In thousands) Amortized cost Fair value Amortized cost Fair value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S.Treasury $172,442 $171,782 $171,733 $173,203
U.S. Government agencies 83,293 82,576 70,530 70,641
Mortgage-backed 104,499 102,737 118,580 118,341
Corporates 82,867 82,838 94,798 96,318
Equities 20,191 21,301 16,798 17,636
- ------------------------------------------------------------------------------------------------------------------------------------
463,292 461,234 472,439 476,139
- ------------------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Government agencies $4,997 $4,995 $21,883 $21,914
State & municipal 101,817 102,415 102,927 104,074
Mortgage-backed 8,342 8,269 9,019 9,068
Corporates 50 50 50 50
- ------------------------------------------------------------------------------------------------------------------------------------
115,206 115,729 133,879 135,106
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $578,498 $576,963 $606,318 $611,245
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS AND LEASES
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income at September 30, 1996 and December 31, 1995, were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $209,682 $198,802
Real estate - construction 185,981 177,253
Real estate - mortgage 1,479,477 1,091,066
Consumer 263,034 223,039
Leases 39,090 22,791
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases $2,177,264 $1,712,951
====================================================================================================================================
<CAPTION>
IMPAIRED LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
An analysis of impaired loans as of September 30, 1996 and December 31, 1995, is presented as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans without a related reserve $11,745 $12,656
Impaired loans with a reserve 3,900 2,685
- ------------------------------------------------------------------------------------------------------------------------------------
Total impaired loans $15,645 $15,341
====================================================================================================================================
Reserve for impaired loans $887 $416
====================================================================================================================================
<CAPTION>
An analysis of impaired loans for the three and nine months periods ended September 30, 1996 and 1995 is presented as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average balance of impaired loans $15,603 $21,465 $14,421 $18,304
Interest income on impaired loans (cash-basis) 120 89 213 348
<CAPTION>
SHORT-TERM BORROWINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings at September 30, 1996 and December 31, 1995, were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements $52,234 $47,032
Treasury tax and loan notes 9,952 4,400
Federal funds purchased 6,000 --
Federal Home Loan Bank borrowings 8,000 18,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $76,186 $69,432
====================================================================================================================================
</TABLE>
7
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
LONG-TERM DEBT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt at September 30, 1996 and December 31, 1995, was as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Subsidiaries:
Term note due July, 1996 --- $4,000
Term note due October, 1997 --- 2,000
Term note due July, 1998 5,000 5,000
Installment note due June, 1999 49 60
FHLB advances in varying maturities through December, 2003 31,234 24,678
Term loan note due September, 2014 530 536
Parent:
Senior notes due February, 2003 35,000 ---
Subordinated notes due February, 2005 50,000 50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $121,813 $86,274
====================================================================================================================================
COMPLETED ACQUISITIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On April 21, 1995, SBI purchased Reisterstown Holdings, Inc.
("Reisterstown"), a Maryland thrift holding company with $248 million in assets
and $210 million in deposits at the acquisition date, for $28.6 million. The
transaction was accounted for under the purchase method of accounting and,
accordingly, the results of operations of Reisterstown have been included in
Susquehanna since the date of the acquisition. Under this method of accounting,
the purchase price is allocated to the respective assets acquired and
liabilities assumed based on their estimated fair values, net of income tax
effects. Goodwill of $12.7 million was created in this transaction and will be
amortized to other operating expense on a straight-line basis over 15 years.
On February 1, 1996, SBI purchased Fairfax Financial Corporation
("Fairfax"), a Maryland thrift holding company with $455 million in assets and
$396 million in deposits at the acquisition date, for $62.7 million. The
transaction was accounted for under the purchase method of accounting and,
accordingly, the results of operations of Fairfax have been included in Susque-
hanna since the date of the acquisition. Under this method of accounting, the
purchase price is allocated to the respective assets acquired and liabilities
assumed based on their estimated fair values, net of income tax effects.
Goodwill of $21.4 million was created in this transaction and will be amortized
to other operating expense on a straight-line basis over 15 years.
A summary of unaudited pro forma combined financial information for
Susquehanna, Reisterstown, and Fairfax follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $32,590 $31,978 $96,459 $94,017
Provision for loan and lease losses 1,090 1,140 3,971 3,755
Other income 5,258 5,143 16,457 14,002
Other expense 29,406 24,096 76,836 72,124
- -----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 7,352 11,885 32,109 32,140
Taxes 2,243 3,606 10,510 10,240
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $5,109 $8,279 $21,599 $21,900
===================================================================================================================================
Earnings per share $0.39 $0.63 $1.64 $1.67
Average shares outstanding 13,173 13,136 13,158 13,133
</TABLE>
8
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
- -------------------------------------------------------------------------------
CONDITION
- ---------
The following is management's discussion and analysis of the significant changes
in the consolidated results of operations, financial condition, and cash flows
of Susquehanna Bancshares, Inc. ("Susquehanna").
Significant Transactions
------------------------
Several significant transactions occurred which affected the comparability
of Susquehanna's financial performance for the nine months ended September 30,
1996 and 1995 and for the third quarter of 1996 and 1995. These transactions
are described in the following paragraphs.
On February 9, 1995, Susquehanna issued $50 million 9.00% subordinated
notes due 2005. The proceeds of the issuance were used to acquire Reisterstown
Holdings, Inc. ("Reisterstown") on April 21, 1995, and retire $10 million in
short-term borrowings. The balance of the proceeds were used for general
corporate purposes.
On April 1, 1995, Susquehanna completed the acquisition of Atlanfed
Bancorp, Inc. ("Atlanfed") issuing 1,199,333 common shares for all of Atlanfed's
outstanding shares. Total assets of Atlanfed at the acquisition date were $255
million. Deposits totaled $179 million; loans outstanding were $189 million; and
stockholders' equity was $22.6 million. The transaction was treated as a
pooling-of-interests and Susquehanna's financial results for all reported
periods are restated to include Atlanfed's financial results.
9
<PAGE>
On April 21, 1995, Susquehanna completed the acquisition of Reisterstown
acquiring all of the assets and assuming all the liabilities of Reisterstown for
$28.6 million. Accordingly, the transaction was treated under the purchase
method of accounting whereby all the financial results are included with
Susquehanna from April 21, 1995 forward. The loans acquired totaled $201
million, total assets were $248 million and deposits were $210 million. The
excess purchase price of $12.7 million will be amortized over 15 years.
On December 22, 1995, Susquehanna closed a public common equity offering of
1,300,000 shares at $26.50 per share, netting $32.6 million after underwriting
commissions. The proceeds from the offering were used as part of the purchase
price to acquire Fairfax Financial Corporation ("Fairfax").
On January 2, 1996, the underwriters exercised their 15% over-allotment
option and another 195,000 shares of Susquehanna's common stock were issued to
the public. The net proceeds to Susquehanna after underwriting commissions were
$4.9 million and were used as part of the purchase price to acquire Fairfax.
On January 29, 1996, Susquehanna issued $35 million 6.30% senior notes due
2003. The proceeds of this issuance were used to partially fund the purchase of
Fairfax and for general corporate purposes.
On February 1, 1996, Susquehanna acquired all of the assets and assumed all
the liabilities of Fairfax for $62.7 million. Accordingly, the transaction was
treated under the purchase method of accounting. Assets acquired were $455
million; loans acquired were $402 million; and deposits acquired were $396
million. The excess purchase price of $21.4 million will be amortized over 15
years.
10
<PAGE>
Earnings Summary
----------------
Susquehanna's earnings for the third quarter of 1996 were significantly
affected by a one-time special charge assessed by the federal government to
recapitalize the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation. All U.S. banks and thrifts with deposits insured
by SAIF were assessed a one-time charge of 65.7 cents per $100 of deposits.
Susquehanna's assessment was $5.5 million before taxes. The assessment reflects
SAIF deposits held by three affiliated thrifts in Maryland and one affiliated
bank in Pennsylvania. However, going forward, annual SAIF deposit premiums for
well capitalized institutions will be reduced from 23 cents per $100 of deposits
to 6.44 cents per $100 of deposits, and in the year 2000 when the Bank Insurance
Fund and SAIF are combined, the annual premium will be reduced to 2.43 cents per
$100 of deposits. These reductions result in a payback period of approximately
four years to recover the one-time special assessment of 65.7 cents per $100 of
deposits.
As a result of this one-time special charge, net income decreased from $7.2
million in the third quarter of 1995 to $5.1 million in the third quarter of
1996. Earnings per share also decreased for the same periods from $.62 per share
to $.39 per share. Excluding this one-time special charge, net income for the
third quarter of 1996 would have been $8.4 million and earnings per share would
have been $.64 per share, both of which would have been new records for
Susquehanna.
11
<PAGE>
Despite the one-time special charge, net income for the nine months ended
September 30, was a record $21.5 million or 13.8% above the results achieved in
the same period of 1995 due primarily to Susquehanna's strong net interest
income and net interest margin. Earnings per share for the same periods also
increased from $1.62 per share in 1995 to $1.63 per share in 1996.
Return on average assets ("ROA") for the first nine months decreased from
1.05% in 1995 to 0.97% in 1996 and return on average equity ("ROE") also
decreased for the same period from 11.22% in 1995 to 10.20% in 1996. Excluding
the one-time special charge, ROA and ROE for the first nine months of 1996 would
have been 1.12% and 11.78%, respectively.
Total assets at September 30, 1996, were $3.0 billion compared to $2.5
billion at September 30, 1995. Loans totaled $2.2 billion compared to $1.7
billion and deposits were $2.5 billion up from $2.1 billion at September 30,
1995. Equity capital was $286 million at September 30, 1996, or $21.68 per share
compared to $234 million, or $20.12 per share at September 30, 1995.
Net Interest Income
-------------------
Net interest income is the income which remains after deducting from total
income generated by earning assets the interest expense attributable to the
acquisition of the funds required to support earning assets. Income from earning
assets includes income from loans, income from investment securities and income
from short-term investments. The amount of interest income is dependent upon
many factors including the volume of earning assets, the general level of
interest rates, the dynamics of the change in interest rates, and levels of non-
performing loans. The cost of funds varies with the amount of funds
12
<PAGE>
necessary to support earning assets, the rates paid to attract and retain
deposits, rates paid on borrowed funds, and the levels of non-interest-bearing
demand deposits and equity capital.
Table 1 presents average balances, taxable equivalent interest income and
expenses and yields earned or paid on these assets and liabilities of
Susquehanna. For purposes of calculating taxable equivalent interest income,
tax-exempt interest has been adjusted using a marginal tax rate of 35% in order
to equate the yield to that of taxable interest rates. Net interest income as a
percentage of the sum of net interest income and other income was 85.7% and
87.0% for the nine months ended September 30, 1996 and 1995, respectively, and
for the quarters ended September 30, 1996 and 1995 was 86.1% and 85.3%,
respectively.
Net interest income, which is the major source of operating income, reached
$95.3 million through the nine month period ending September 30, 1996, $16.8
million or 21.3% above that realized through September 30, 1995. This increase
was the result of a 23.2% increase in average earning assets as shown in Table 2
offset by a slight decline in the net interest margin from 4.85% to 4.74%. The
primary factor for the asset growth was the acquisitions of Reisterstown and
Fairfax. The decline in the net interest margin was the result of a 12 basis
point increase in the cost of interest-bearing liabilities, compared to a 3
basis point rise in the yield on earning assets. The yield on time deposits rose
from 5.35% during the first nine months of 1995 to 5.53% for the same period of
1996. For the three months ending September 30, 1996, net interest income
increased $5.2 million or 19.1% over the same period in 1995. This increase was
the result of a 19.5% increase in average
13
<PAGE>
earning assets offset by a slight decline in the net interest margin from 4.78%
to 4.75%. The primary factor for the asset growth was the acquisition of
Fairfax.
Other Income
------------
Non-interest income, recorded as other income, consists of service charges
on deposit accounts, commissions, fees received for servicing loans, fees for
trust services, premium income generated from reinsurance activities, gains and
losses on security 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 14.3% and 13.0% for the nine months ended September 30, 1996 and
1995, respectively and for the three months ended September 30, 1996 and 1995
was 13.9% and 14.7% respectively.
Non-interest income increased $4.2 million, or 36.0%, from $11.8 million in
the first nine months of 1995 to $16.0 million in the first nine months of 1996.
For the three months ended September 30, 1996, non-interest income was $5.3
million. This was $0.6 million or 11.8% above the comparable quarter of 1995.
The $4.2 million increase noted above was primarily caused by a $2.1 million
increase in gain on mortgage loans sold and a $1.0 million increase in other
commissions and fees.
Other Expenses
--------------
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; Federal Deposit
14
<PAGE>
Insurance Corporation's insurance premiums on deposits; and other expenses
incurred in operating Susquehanna's business.
Non-interest expenses totaled $76.1 million in 1996, a $16.6 million, or
27.9%, increase over the first nine months of 1995. For the quarter ended
September 30, 1996, non-interest expenses were $29.4 million. This was $9.2
million, or 45.4%, above the comparable quarter of 1995. These increases were
primarily the result of a one-time special SAIF assessment in the third quarter
of 1996 totaling $5.5 million and the acquisitions of Reisterstown and Fairfax.
Income Taxes
------------
Susquehanna's effective tax rate increased from 30.3% through the first
nine months of 1995 to 32.3% through the first nine months of 1996. Maryland
state income taxes and additional non-deductible expenses relating to the
Reisterstown and Fairfax acquisitions are the principal causes for this rise.
Risk Assets
-----------
Table 3 shows an increase in non-performing assets at September 30, 1996 of
$4.8 million from that reported at December 31, 1995, compared to a decrease
from September 30, 1995 of $3.4 million. The increase shown for the period
January 1 through September 30, 1996 includes $5.9 million acquired in the
Fairfax transaction. Consequently, the ratio of non-performing assets to period-
end loans and leases and other real estate owned fell to 1.63% at September 30,
1996 from 1.79% at December 31, 1995.
Provision and Allowance for Loan and Lease Losses
-------------------------------------------------
As illustrated in Table 4, the year-to-date provision was $242 thousand
lower in 1996 while year-to-date net charge-offs rose by $674 thousand. The
allowance totaled $31.7
15
<PAGE>
million at September 30, 1996 and represents 1.45% of period-end loans and
leases and 111% of non-performing loans and leases.
Capital Resources
-----------------
Capital elements are segmented into two tiers. Tier I capital represents
shareholders' equity reduced by most intangible assets, while total capital
includes certain allowable long-term debt and the general portion of the
allowance for loan and lease losses limited to 1.25% of risk-adjusted assets.
The minimum Tier I capital ratio is 4%; Susquehanna's ratio at September 30,
1996 was 11.85%. The minimum total capital (Tier II) ratio is 8%; Susquehanna's
ratio at September 30, 1996 was 15.50%. The minimum leverage ratio is 4%;
Susquehanna's leverage ratio at September 30, 1996 was 8.35%.
Asset/Liability Management
--------------------------
Liquidity and interest rate sensitivity are related but distinctly
different from one another. The maintenance of adequate liquidity -- the ability
to meet the cash requirements of its customers and other financial commitments
- -- is a fundamental aspect of Susquehanna's asset/liability management strategy.
Susquehanna's policy of diversifying its funding sources -- purchased funds,
repurchase agreements, and deposit accounts -- allows it to avoid undue
concentration in any single financial market and also to avoid heavy funding
requirements within short periods of time.
However, liquidity is not entirely dependent on increasing Susquehanna's
liability balances. Liquidity can also be generated from maturing or readily
marketable assets. The
16
<PAGE>
carrying value of investment securities maturing within one year amounted to
$108 million or 18.8% of the investment portfolio at September 30, 1996. Short-
term investments totaling $37 million at September 30, 1996 represent additional
sources of liquidity.
Closely related to the management of liquidity is the management of rate
sensitivity which focuses on maintaining stability in the net interest margin,
an important factor in earnings growth. Interest rate sensitivity is the
matching or mismatching of the maturity and rate structure of the interest-
bearing assets and liabilities. It is the objective of management to control the
difference in the timing of the rate changes for these assets and liabilities to
preserve a satisfactory net interest margin. In doing so, Susquehanna endeavors
to maximize earnings in an environment of changing interest rates. However,
there can be a lag in maintaining the desired matching because the repricing of
products occurs at varying time intervals.
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.
Table 5 illustrates Susquehanna's estimated interest rate sensitivity and
periodic and cumulative gap positions as calculated at September 30, 1996. 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
17
<PAGE>
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.
18
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
TABLE 1 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL - TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Three Month Period Ended For the Three Month Period Ended
September 30, 1996 September 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
(Dollars in thousands) Balance Interest Rate (%) Balance Interest Rate (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Short - term investments $55,100 $766 5.53 $49,635 $672 5.37
Investment securities:
Taxable 487,607 7,409 6.04 480,881 8,043 6.64
Tax - advantaged 105,237 1,789 6.76 110,504 1,884 6.76
---------- ---------- ---------- ----------
Total investment securities 592,844 9,198 6.17 591,385 9,927 6.66
---------- ---------- ---------- ----------
Loans and leases, (net):
Taxable 2,120,805 48,624 9.12 1,675,498 39,143 9.27
Tax - advantaged 44,147 1,094 9.86 37,798 905 9.50
---------- ---------- ---------- ----------
Total loans and leases 2,164,952 49,718 9.14 1,713,296 40,048 9.27
---------- ---------- ---------- ----------
Total interest - earning assets 2,812,896 $59,682 8.44 2,354,316 $50,647 8.53
---------- ========== ---------- ----------
Allowance for loan and lease losses (31,938) (28,114)
Other non - earning assets 222,180 188,393
---------- ----------
Total assets $3,003,138 $2,514,595
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Interest - bearing demand $661,361 $4,849 2.92 $481,240 $3,272 2.70
Savings 403,952 2,457 2.42 393,865 2,595 2.61
Time 1,145,298 15,723 5.46 963,793 13,615 5.60
Short - term borrowings 58,575 735 4.99 68,572 937 5.42
Long - term debt 123,440 2,322 7.48 91,897 1,885 8.14
---------- ---------- ---------- ----------
Total interest - bearing liabilities 2,392,626 $26,086 4.34 1,999,367 $22,304 4.43
---------- ========== ---------- ==========
Demand deposits 281,417 256,382
Other liabilities 45,189 27,958
---------- ----------
Total liabilities $2,719,232 $2,283,707
---------- ----------
Stockholders' equity 283,906 230,888
---------- ----------
Total liabilities and stockholders' equity $3,003,138 $2,514,595
========== ==========
Net interest income / yield on
average earning assets $33,596 4.75 $28,343 4.78
========== ==========
<CAPTION>
For the Nine Month Period Ended For the Nine Month Period Ended
September 30, 1996 September 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
(Dollars in thousands) Balance Interest Rate (%) Balance Interest Rate (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Short - term investments $72,291 $2,911 5.38 $47,064 $2,061 5.85
Investment securities:
Taxable 499,067 22,808 6.10 473,792 21,638 6.11
Tax - advantaged 108,693 5,572 6.85 114,484 6,041 7.05
---------- ---------- ---------- ----------
Total investment securities 607,760 28,380 6.24 588,276 27,679 6.29
---------- ---------- ---------- ----------
Loans and leases, (net):
Taxable 2,047,960 141,185 9.21 1,575,440 109,583 9.30
Tax - advantaged 44,210 3,328 10.06 39,435 2,741 9.29
---------- ---------- ---------- ----------
Total loans and leases 2,092,170 144,513 9.23 1,614,875 112,324 9.30
---------- ---------- ---------- ----------
Total interest - earning assets 2,772,221 $175,804 8.47 2,250,215 $142,064 8.44
---------- ---------- ---------- ----------
Allowance for loan and lease losses (31,685) (26,306)
Other non - earning assets 220,427 175,661
---------- ----------
Total assets $2,960,963 $2,399,570
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Interest - bearing demand $633,818 $13,590 2.86 $472,886 $9,703 2.74
Savings 402,965 7,363 2.44 394,048 7,610 2.58
Time 1,147,100 47,454 5.53 876,974 35,109 5.35
Short - term borrowings 54,727 2,023 4.94 62,473 2,620 5.61
Long - term debt 122,823 6,926 7.53 89,605 5,385 8.03
---------- ---------- ---------- ----------
Total interest - bearing liabilities 2,361,433 $77,356 4.38 1,895,986 $60,427 4.26
---------- ========== ---------- ==========
Demand deposits 277,108 248,906
Other liabilities 41,361 29,907
---------- ----------
Total liabilities $2,679,902 $2,174,799
---------- ----------
Stockholders' equity 281,061 224,771
---------- ----------
Total liabilities and stockholders' equity $2,960,963 $2,399,570
========== ==========
Net interest income / yield on
average earning assets $98,448 4.74 $81,637 4.85
========== ==========
</TABLE>
For purposes of calculating loan yields, the average loan volume includes
non-accrual loans. For purposes of calculating yields on non-taxable interest
income, the taxable equivalent adjustment is made to equate non-taxable interest
on the same basis as taxable interest. The marginal tax rate is 35%.
19
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
TABLE 2-STATEMENTS OF CHANGES IN INCOME AND EXPENSES
<TABLE>
<CAPTION>
Three months ended
September 30, 1996 compared
(In thousands) to September 30, 1995
- --------------------------------------------------------------------------------------------------------------
Average Volumes Income / Expense
$ % $ %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Loans and leases, net 451,656 26.4 9,603 24.2
Investments 1,459 0.2 (695) (7.5)
Money market investments 5,465 11.0 94 14.0
---------- --------
Total 458,580 19.5 9,002 18.1
========== --------
LIABILITIES:
Interest-bearing demand 180,121 37.4 1,577 48.2
Savings 10,087 2.6 (138) (5.3)
Time 181,505 18.8 2,108 15.5
Short-term borrowings (9,997) (14.6) (202) (21.6)
Long-term debt 31,543 34.3 437 23.2
---------- --------
Total 393,259 19.7 3,782 17.0
========== --------
Net interest income 5,220 19.1
Provision for loan and lease losses (50) (4.4)
Net interest income after --------
provision for loan and lease losses 5,270 20.1
Investment security gains/(losses) 9 33.3
Other operating income 545 11.7
--------
Income before operating expenses 5,824 18.8
--------
Salaries and employee benefits 1,811 16.7
Net occupancy and equipment 482 19.8
Other operating expenses 6,895 99.2
--------
Total operating expenses 9,188 45.4
--------
Income before income taxes (3,364) (31.4)
Provision for income taxes (1,224) (35.3)
--------
Net income (2,140) (29.5)
========
<CAPTION>
Nine months ended
September 30, 1996 compared
to September 30, 1995
- -------------------------------------------------------------------------------------------------------
Average Volumes Income / Expense
$ % $ %
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Loans and leases, net 477,295 29.6 31,983 28.7
Investments 19,484 3.3 867 3.4
Money market investments 25,227 53.6 850 41.2
---------- --------
Total 522,006 23.2 33,700 24.2
========= --------
LIABILITIES:
Interest-bearing demand 160,932 34.0 3,887 40.1
Savings 8,917 2.3 (247) (3.2)
Time 270,126 30.8 12,345 35.2
Short-term borrowings (7,746) (12.4) (597) (22.8)
Long-term debt 33,218 37.1 1,541 28.6
---------- --------
Total 465,447 24.5 16,929 28.0
========== --------
Net interest income 16,771 21.3
Provision for loan and lease losses (242) (6.5)
--------
Net interest income after
provision for loan and lease losses 17,013 22.7
Investment security gains/(losses) 277 602.2
Other operating income 3,950 33.5
--------
Income before operating expenses 21,240 24.5
--------
Salaries and employee benefits 6,090 19.5
Net occupancy and equipment 1,489 20.7
Other operating expenses 9,007 42.7
--------
Total operating expenses 16,586 27.9
--------
Income before income taxes 4,654 17.2
Provision for income taxes 2,058 25.1
--------
Net income 2,596 13.8
========
<CAPTION>
Three months ended
September 30, 1996 compared
to June 30, 1996
- --------------------------------------------------------------------------------------------------------------------
Average Volumes Income / Expense
$ % $ %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Loans and leases, net 44,335 2.1 857 1.8
Investments (24,233) (3.9) (353) (4.0)
Money market investments (24,208) (30.5) (262) (25.5)
---------- --------
Total (4,106) (0.1) 242 0.4
========== --------
LIABILITIES:
Interest-bearing demand 12,617 1.9 165 3.5
Savings (58) (0.0) (28) (1.1)
Time (34,043) (2.9) (344) (2.1)
Short-term borrowings 2,204 3.9 53 7.8
Long-term debt (13,996) (10.2) (46) (1.9)
========== --------
Total (33,276) (1.4) (200) (0.8)
========== --------
Net interest income 442 1.4
Provision for loan and lease losses (258) (19.1)
--------
Net interest income after
provision for loan and lease losses 700 2.3
Investment security gains/(losses) (8) (18.2)
Other operating income (456) (8.0)
--------
Income before operating expenses 236 0.6
--------
Salaries and employee benefits 46 0.4
Net occupancy and equipment 57 2.0
Other operating expenses 5,273 61.5
--------
Total operating expenses 5,376 22.4
--------
Income before income taxes (5,140) (41.1)
Provision for income taxes (1,914) (46.0)
--------
Net income (3,226) (38.7)
========
</TABLE>
20
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 3- RISK ASSETS
- ---------------------------------------------------------------------------------------------------------
September 30, December 31, September 30,
(Dollars in thousands) 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases $22,036 $18,754 $26,216
Restructured accrual loans 6,509 6,703 6,760
Other real estate owned 7,037 5,344 6,022
- ---------------------------------------------------------------------------------------------------------
Total nonperforming assets $35,582 $30,801 $38,998
=========================================================================================================
As a percent of period-end loans and leases and
other real estate owned 1.63% 1.79% 2.30%
Loans and leases contractually
past due 90 days and still accruing $8,353 $4,820 $4,402
<CAPTION>
TABLE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
- ---------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Beginning of period $32,004 $27,779 $27,563 $23,845
Allowance acquired in business combination -- -- 4,229 3,323
Change in fiscal year of pooled entity -- -- -- (8)
Additions charged to operating expenses 1,090 1,140 3,469 3,711
- ---------------------------------------------------------------------------------------------------------
33,094 28,919 35,261 30,871
- ---------------------------------------------------------------------------------------------------------
Charge-offs (1,680) (1,281) (4,532) (3,694)
Recoveries 250 310 935 771
- ---------------------------------------------------------------------------------------------------------
Net charge-offs (1,430) (971) (3,597) (2,923)
- ---------------------------------------------------------------------------------------------------------
Balance - Period end $31,664 $27,948 $31,664 $27,948
=========================================================================================================
Net charge-offs as a percent of average loans
and leases (annualized 0.26% 0.22% 0.23% 0.24%
Allowance as a percent of period-end loans
and leases 1.45% 1.65% 1.45% 1.65%
Average loans and leases $2,164,952 $1,713,296 $2,092,170 $1,614,875
Period-end loans and leases 2,177,264 1,692,790 2,177,264 1,692,790
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Susquehanna Bancshares, Inc. and subsidiaries
TABLE 5 --- Interest Rate Sensitivity
At September 30, 1996 1 - 90 90 - 180 180 - 365 1 year
(In thousands) days days days or more TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Short-term investments $36,557 $36,557
Investment securities 44,261 29,403 92,034 410,742 576,440
Loans and leases, net of unearned income* 648,358 76,449 382,498 1,047,923 2,155,228
------------------------------------------------------------------
Total $729,176 $105,852 $474,532 $1,458,665 $2,768,225
------------------------------------------------------------------
LIABILITIES:
Deposits:
Interest-bearing demand $663,936 $663,936
Savings 397,868 397,868
Time 215,993 193,020 244,650 377,125 1,030,788
Time in denominations of $100 or more 18,901 19,635 25,333 37,508 101,377
Short-term borrowings 75,030 1,156 76,186
Long-term debt 4,001 2,200 9,000 106,612 121,813
------------------------------------------------------------------
Total $1,375,729 $216,011 $278,983 $521,245 $2,391,968
------------------------------------------------------------------
INTEREST SENSITIVITY GAP:
Periodic ($646,553) ($110,159) $195,549 $937,420 $376,257
Cumulative (756,712) (561,163) 376,257
CUMULATIVE GAP AS A PERCENTAGE
OF EARNING ASSETS -23.4% -27.3% -20.3% 13.6%
*Does not include nonaccruing loans and leases.
</TABLE>
22
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Registrant filed a report on Form 8-K on or about July 30, 1996, covering
the proposed acquisition of ATCORP, INC., and its wholly-owned subsidiary Equity
National Bank, and the proposed acquisition of Farmers Banc Corp, and its
wholly-owned subsidiary Farmers National Bank.
Registrant filed a registration statement on Form S-4 on October 17, 1996
providing for the registration of 1,464,370 shares of its common stock to be
used in connection with the proposed acquisition of ATCORP, INC and Farmers Banc
Corp. The registration statement was declared effective November 5, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUSQUEHANNA BANCSHARES, INC.
November 12, 1996
/s/ Robert S. Bolinger
___________________________________
Robert S. Bolinger
President and Chief Executive Officer
November 12, 1996
/s/ Drew K. Hostetter
____________________________________
Drew K. Hostetter
Treasurer & Principal Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 100,010
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 36,557
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 461,234
<INVESTMENTS-CARRYING> 115,206
<INVESTMENTS-MARKET> 115,729
<LOANS> 2,177,264
<ALLOWANCE> 31,664
<TOTAL-ASSETS> 3,001,727
<DEPOSITS> 2,477,068
<SHORT-TERM> 76,186
<LIABILITIES-OTHER> 41,083
<LONG-TERM> 121,813
0
0
<COMMON> 26,387
<OTHER-SE> 259,190
<TOTAL-LIABILITIES-AND-EQUITY> 3,001,727
<INTEREST-LOAN> 143,348
<INTEREST-INVEST> 26,438
<INTEREST-OTHER> 2,911
<INTEREST-TOTAL> 172,697
<INTEREST-DEPOSIT> 68,407
<INTEREST-EXPENSE> 77,356
<INTEREST-INCOME-NET> 95,341
<LOAN-LOSSES> 3,469
<SECURITIES-GAINS> 231
<EXPENSE-OTHER> 76,135
<INCOME-PRETAX> 31,706
<INCOME-PRE-EXTRAORDINARY> 21,464
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,464
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.63
<YIELD-ACTUAL> 4.74
<LOANS-NON> 22,036
<LOANS-PAST> 8,353
<LOANS-TROUBLED> 6,509
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 27,563
<CHARGE-OFFS> 4,532
<RECOVERIES> 935
<ALLOWANCE-CLOSE> 31,664
<ALLOWANCE-DOMESTIC> 31,664
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
