<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 June 30, 1997
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 June 30, 1997 the Registrant had 14,651,771 shares of common stock
outstanding.
Page 1
<PAGE>
SUSQUEHANNA BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
REFERENCE
<S> <C> <C>
PART I. FINANCIAL INFORMATION...................................... 3
Item 1. FINANCIAL STATEMENTS....................................... 3
Consolidated Balance Sheets -
as of June 30, 1997 and 1996,
and December 31, 1996........................................... 3
Consolidated Statements of Income -
for the three months ended and six months ended
June 30, 1997 and 1996......................................... 4
Consolidated Statements of Cash Flow -
for the six month periods
ended June 30, 1997 and 1996.................................... 5
Notes to Consolidated Financial Statements...................... 6-8
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.................................... 9-21
PART II OTHER INFORMATION.......................................... 22
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS........................................ 22-23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 23
SIGNATURES................................................. 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) June 30 December 31 June 30
ASSETS 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $97,310 $106,840 $101,484
Short-term investments 60,764 103,125 80,087
Investment securities available for sale 528,350 532,748 564,389
Investment securities held to maturity 98,321 126,022 146,920
(Fair values $99,057; $127,020 and $146,904)
Loans and leases, net of unearned income 2,414,730 2,349,776 2,286,261
Less: Allowance for loan and lease losses 33,799 33,800 33,836
---------- ---------- ----------
Net loans and leases 2,380,931 2,315,976 2,252,425
---------- ---------- ----------
Premises and equipment (net) 44,220 43,931 41,585
Accrued income receivable 20,921 21,824 24,538
Other assets 104,729 84,651 89,025
---------- ---------- ----------
Total assets $3,335,546 $3,335,117 $3,300,453
========== ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Deposits:
Demand $343,127 $337,651 $328,146
Interest-bearing demand 739,532 757,103 734,303
Savings 440,989 432,253 447,137
Time 1,066,561 1,089,189 1,155,870
Time of $100 or more 143,137 137,922 111,775
---------- ---------- ----------
Total deposits 2,733,346 2,754,118 2,777,231
---------- ---------- ----------
Short-term borrowings 104,832 100,650 53,584
Long-term debt 130,278 120,368 126,658
Accrued interest, taxes, and expenses payable 30,692 29,836 26,552
Other liabilities 17,097 16,849 12,896
---------- ---------- ----------
Total liabilities 3,016,245 3,021,821 2,996,921
Stockholders' equity:
Common stock
Authorized: 32,000,000 shares ($2.00 par value)
Issued: 22,008,111; 14,665,471; and 14,657,332, respectively 44,016 29,331 29,314
Surplus 70,684 85,165 84,985
Retained earnings 203,151 197,765 192,070
Unrealized gains and losses for available-for-sale
securities, net of taxes 1,605 1,190 (2,682)
Less: Treasury stock, (30,454; 20,303 and 20,303 common shares
at cost, respectively) 155 155 155
---------- ---------- ----------
Total stockholders' equity 319,301 313,296 303,532
---------- ---------- ----------
Total liabilities and stockholders' equity $3,335,546 $3,335,117 $3,300,453
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $54,670 $51,931 $107,472 $100,741
Interest on investment securities: Taxable 8,184 8,851 16,454 17,893
Tax-exempt 1,224 1,402 2,467 2,825
Interest on short-term investments 975 1,134 1,952 2,316
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 65,053 63,318 128,345 123,775
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 5,797 5,239 11,490 9,874
Savings 2,717 2,753 5,414 5,427
Time 16,583 17,616 32,851 34,573
Interest on short-term borrowings 1,027 767 1,863 1,444
Interest on long-term debt 2,431 2,368 4,910 4,604
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 28,555 28,743 56,528 55,922
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 36,498 34,575 71,817 67,853
Provision for loan and lease losses 1,220 1,406 2,426 2,452
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan and lease losses 35,278 33,169 69,391 65,401
- -----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 1,548 1,531 3,116 2,930
Other service charges, commissions, fees 871 527 1,460 992
Income from fiduciary-related activities 852 832 1,710 1,613
Gain on sale of mortgages 761 1,489 1,243 1,857
Other operating income 1,498 1,527 3,328 3,597
Investment security gains/(losses) 45 44 48 197
- -----------------------------------------------------------------------------------------------------------------------------
Total other income 5,575 5,950 10,905 11,186
- -----------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 15,433 13,624 29,604 26,776
Net occupancy expense 1,895 1,881 3,889 3,884
Furniture and equipment expense 1,513 1,367 2,949 2,629
FDIC insurance premiums 191 525 372 955
Other operating expenses 8,588 8,651 16,600 16,539
- -----------------------------------------------------------------------------------------------------------------------------
Total other expenses 27,620 26,048 53,414 50,783
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 13,233 13,071 26,882 25,804
Provision for income taxes 4,228 4,255 8,421 8,317
- -----------------------------------------------------------------------------------------------------------------------------
Net income $9,005 $8,816 $18,461 $17,487
=============================================================================================================================
Per share information:
Net income $0.41 $0.40 $0.84 $0.80
Cash dividends $0.20 $0.19 $0.40 $0.39
Average shares outstanding 21,968 21,931 21,968 21,920
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Six months period ended June 30 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $18,461 $17,487
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 5,153 5,981
Provision for loan and lease losses 2,426 2,452
Gain on securities transactions (48) (197)
Gain on sale of loans (1,243) (2,024)
Gain on sale of other real estate owned (98) 24
Mortgage loans originated for resale (32,283) (114,745)
Sale of mortgage loans originated for resale 31,655 112,915
Decrease/(increase) in accrued interest receivable 903 (2,935)
(Decrease)/increase in accrued interest payable (192) 636
Increase/(decrease) in accrued expenses and taxes payable 1,048 (2,739)
Other, net 911 (5,925)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,693 10,930
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from the sale of available-for-sale securities 30,094 28,153
Proceeds from the maturity of investment securities 111,367 72,066
Purchase of available-for-sale securities (108,667) (86,910)
Purchase of held-to-maturity securities (1,373) (16,818)
Net increase in loans and leases (67,695) (39,123)
Capital expenditures (2,374) (2,793)
Purchase of Bank-Owned Life Insurance (25,000) ---
Net cash (paid)/received in acquisition --- (31,298)
- ---------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (63,648) (76,723)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease)/increase in deposits (20,772) 45,726
Net increase/(decrease) in short-term borrowings 4,182 (15,848)
Proceeds from issuance of long-term debt 25,000 35,000
Repayment of long-term debt (15,090) (7,076)
Proceeds from issuance of common stock 208 5,748
Cash paid for fractional shares of pooled entity (3) ---
Dividends paid (8,461) (7,856)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) financing activities (14,936) 55,694
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (51,891) (10,099)
CASH AND CASH EQUIVALENTS AT JANUARY 1 209,965 191,670
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $158,074 $181,571
===============================================================================================================
Cash and cash equivalents:
Cash and due from banks $97,310 $101,484
Short-term investments 60,764 80,087
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $158,074 $181,571
===============================================================================================================
</TABLE>
Interest paid on deposits, short-term borrowings, and long-term debt was
$56,720 in 1997, and $55,285 in 1996. Income taxes paid were $6,947 in 1997, and
$7,395 in 1996. Amounts transferred to other real estate owned were $2,185 in
1997, and $3,401 in 1996. At June 30, 1997, dividends declared but not paid
amounted to $4,615.
On February 1, 1996, Susquehanna acquired Fairfax Financial 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.
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
Six Month Periods Ended June 30 COMMON RETAINED GAIN/(LOSS) ON TREASURY TOTAL
(In thousands, except per share) STOCK SURPLUS EARNINGS SECURITIES STOCK EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 $28,910 $79,809 $182,434 $3,077 ($323) $293,907
Net income 17,487 17,487
Stock issued in public offering 390 4,546 4,936
Common stock issued under
employee benefit plans 14 630 168 812
Change in unrealized gain/loss on securities (5,759) (5,759)
Cash dividends declared:
Per common share of $0.387 (7,851) (7,851)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 $29,314 $84,985 $192,070 ($2,682) ($155) $303,532
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - January 1, 1997 $29,331 $85,165 $197,765 $1,190 ($155) $313,296
Net income 18,461 18,461
Common stock issued under
employee benefit plans 13 195 208
Effect of three-for-two stock split 14,672 (14,672) --
Change in unrealized gain/loss on securities 415 415
Cash paid for fractional shares of pooled entity (4) (4)
Cash dividends declared:
Per common share of $0.61 (13,075) (13,075)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997 $44,016 $70,684 $203,151 $1,605 ($155) $319,301
=================================================================================================================================
</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 June 30, 1997 and 1996.
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 43 through 45 of the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 established standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or potential
common stock. SFAS 128 simplifies the standards for computing earnings per share
previously found in APB Opinion No.15, "Earnings Per Share," by replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex capital
structures.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is not
permitted; however, restatement of all prior-period earnings per share data is
required upon adoption. The impact of adoption of SFAS 128 on Susquehanna
earnings per share data is immaterial. Susquehanna currently reports basic
earnings per share on its Consolidated Statements of Income and diluted earnings
per share would not be materially different from basic earnings per share.
On May 30, 1997 Susquehanna declared a three-for-two stock split to be paid
as a stock dividend to shareholders of record June 10, 1997. Per share
information has been adjusted to reflect the stock split.
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
The amortized costs and fair values of securities are as follows:
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 1997 December 31, 1996
----------------------------- --------------------------------
(In thousands) Amortized cost Fair value Amortized cost Fair value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury $154,068 $154,281 $171,898 $172,241
U.S. Government agencies 159,481 159,800 128,312 128,243
State & municipal 22,546 22,984 9,505 9,680
Mortgage-backed 89,749 88,791 114,211 113,484
Corporates 78,858 79,343 86,398 87,130
Equities 21,210 23,151 20,576 21,970
- -----------------------------------------------------------------------------------------------------------------------------
525,912 528,350 530,900 532,748
- -----------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury $1,499 $1,499 $1,493 $1,493
U.S. Government agencies 1,000 1,000 2,487 2,439
State & municipal 88,766 89,509 104,815 105,788
Mortgage-backed 7,006 6,999 17,037 17,110
Corporates 50 50 190 190
- -----------------------------------------------------------------------------------------------------------------------------
98,321 99,057 126,022 127,020
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities $624,233 $627,407 $656,922 $659,768
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
LOANS AND LEASES
- -----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income at June 30, 1997 and December 31, 1996,
were as follows:
- -----------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $259,360 $249,886
Real estate - construction 219,050 226,920
Real estate - mortgage 1,594,398 1,539,898
Consumer 280,030 278,527
Leases 61,892 54,545
- -----------------------------------------------------------------------------------------------------------------------------
Total loans and leases $2,414,730 $2,349,776
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
IMPAIRED LOANS
- -----------------------------------------------------------------------------------------------------------------------------
An analysis of impaired loans as of June 30, 1997 and December 31, 1996, is
presented as follows:
- -----------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans without a related reserve $12,314 $10,401
Impaired loans with a reserve 1,452 3,961
- -----------------------------------------------------------------------------------------------------------------------------
Total impaired loans $13,766 $14,362
=============================================================================================================================
Reserve for impaired loans $244 $601
=============================================================================================================================
</TABLE>
An analysis of impaired loans for the three and six months periods ended June
30, 1997 and 1996 is presented as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average balance of impaired loans $14,640 $16,099 $13,962 $15,335
Interest income on impaired loans (cash-basis) 149 37 580 412
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS
- ------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings at June 30, 1997 and December 31, 1996, were as follows:
- ------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements $62,676 $58,516
Treasury tax and loan notes 10,156 5,634
Federal funds purchased 2,000 11,500
Federal Home Loan Bank borrowings 30,000 25,000
- ------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $104,832 $100,650
==============================================================================================================================
</TABLE>
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt at June 30, 1997 and December 31, 1996, was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Subsidiaries:
Term note due July, 1998 $5,000 $5,000
Installment note due June, 1999 37 45
FHLB advances in varying maturities through December, 2003 39,717 29,795
Term loan note due September, 2014 524 528
Parent:
Senior notes due February, 2003 35,000 35,000
Subordinated notes due February, 2005 50,000 50,000
- -----------------------------------------------------------------------------------------------------------------
Total long-term debt $130,278 $120,368
=================================================================================================================
</TABLE>
COMPLETED ACQUISITIONS
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share)
- --------------------------------------------------------------------------------
On February 28, 1997, Susquehanna completed the acquisition of ATCORP,
Inc. ("AI"), a New Jersey bank holding company with $210 million in assets and
$186 million in deposits at the acquisition date. Susquehanna issued one share
of common stock to the shareholders of AI for each of the 771,750 outstanding
common shares of AI. The transaction was accounted for under the pooling-of-
interests method of accounting; accordingly, the consolidated financial
statements have been restated to include the consolidated accounts of AI for all
periods presented.
Also on February 28, 1997, Susquehanna completed the acquisition of
Farmers Banc Corp ("FBC"), a New Jersey bank holding company with $88 million in
assets and $77 million in deposits at the acquisition date. Susquehanna issued
692,398 shares of common stock to the shareholders of FBC based on an exchange
ratio of 2.281 shares of Susquehanna common stock for each outstanding share of
FBC. The transaction was accounted for under the pooling-of-interests method of
accounting; accordingly, the consolidated financial statements have been
restated to include the consolidated accounts of FBC for all periods presented.
Previously reported information has been restated as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Susquehanna AI FBC Susquehanna
As reported As restated As reported Restated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $32,148 $1,496 $931 $34,575
Provision for loan and lease losses 1,348 43 15 1,406
Other income 5,722 130 98 5,950
Other expense 24,030 1,459 559 26,048
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 12,492 124 455 13,071
Taxes 4,157 2 96 4,255
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $8,335 $122 $359 $8,816
==================================================================================================================================
Earnings per share $0.42 $0.11 $0.35 $0.40
Average shares outstanding 19,736 1,158 1,038 21,931
<CAPTION>
Six Months Ended June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Susquehanna AI FBC Susquehanna
As reported As restated As reported Restated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $62,751 $3,244 $1,858 $67,853
Provision for loan and lease losses 2,379 43 30 2,452
Other income 10,711 314 161 11,186
Other expense 46,729 2,940 1,114 50,783
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 24,354 575 875 25,804
Taxes 7,999 126 192 8,317
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $16,355 $449 $683 $17,487
==================================================================================================================================
Earnings per share $0.83 $0.39 $0.66 $0.80
Average shares outstanding 19,724 1,158 1,038 21,920
</TABLE>
Per share amounts have been adjusted to reflect the three-for-two stock split
declared in May 1997.
On July 30, 1997, Susquehanna completed its acquisition of Founders'
Bank, Bryn Mawr, PA, ("Founders"). Under the terms of the agreement, Susquehanna
issued .566 shares of Susquehanna common stock for each share of Founders'
outstanding capital stock. Founders' has become a subsidiary of Susquehanna
Bancshares East, Inc., a wholly-owned subsidiary of Susquehanna. At the time of
the acquisition, Founders' reported total assets of approximately $100 million.
Results of operations for Founders' prior to the acquisition were not
significant to Susquehanna's consolidated financial statements, and accordingly,
pro forma condensed results of operations have not been presented.
<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 affect the comparability
of Susquehanna's financial performance for the first six months of 1997 versus
the first six months of 1996 and for the second quarter of 1997 versus 1996.
These transactions are described in the following paragraphs.
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 recorded 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 is being amortized over 15
years.
On February 28, 1997, Susquehanna completed the acquisition of ATCORP,
Inc. ("AI"), a New Jersey Bank holding company with $210 million in assets, $140
million in loans, $186 million in deposits and $11 million in equity at the
acquisition date.
<PAGE>
Susquehanna issued one share of common stock to the shareholders of AI for each
of the 771,750 outstanding common shares of AI. The transaction was accounted
for under the pooling-of-interests method of accounting; accordingly, the
consolidated financial statements have been restated to include the consolidated
accounts of AI for all periods presented.
Also, on February 28, 1997, Susquehanna completed the acquisition of
Farmers Banc Corp ("FBC"), a New Jersey bank holding company with $88 million in
assets, $44 million in loans, $77 million in deposits and $10 million in equity
at the acquisition date. Susquehanna issued 692,398 shares of common stock to
the shareholders of FBC based on an exchange ratio of 2.281 shares of
Susquehanna common stock for each outstanding share of FBC. The transaction was
accounted for under the pooling-of-interests method of accounting; accordingly,
the consolidated financial statements have been restated to include the
consolidated accounts of FBC for all periods presented.
On May 1, 1997, Susquehanna combined its three savings banks (Atlantic
Federal Savings Bank, Reisterstown Federal Savings Bank, and Fairfax Savings, a
FSB) into one savings bank named Susquehanna Bank. As a result of this
combination, there was a reduction in the work force of Susquehanna Bank with
related severance packages. Consequently, Susquehanna recorded pre-tax
severance expense of $1,325,000 in the second quarter of 1997 related to these
reductions. The annual pre-tax cost savings related to these reductions
approximates $1,335,000.
<PAGE>
Earnings Summary
----------------
Notwithstanding the severance charge, net income increased from
$8,816,000 in the second quarter of 1996 to $9,005,000 in the second quarter of
1997. Earnings per share also increased for the same periods from $.40 per
share to $.41 per share. Excluding the severance charge, net income for the
second quarter of 1997 would have been $9,866,000, an increase of 12%, and
earnings per share would have been $.45 per share, up 13% from the comparable
quarter in 1996 due primarily to Susquehanna's strong net interest income and
net interest margin.
Net income for the six months ended June 30, 1997 was a record
$18,461,000 or 6% above the results achieved in the same period of 1996 due
primarily to Susquehanna's strong net interest income and net interest margin.
Earnings per share for the same periods also increased from $.80 per share in
1996 to $.84 per share in 1997.
Excluding the severance charge, return on assets (ROA) and return on
equity (ROE) increased from 1.07% and 11.77% respectively, in the second quarter
of 1996 to 1.20% and 12.36%, respectively, in the second quarter of 1997.
Excluding the severance charge, for the second quarter of 1997, tangible EPS,
ROA and ROE were $.48, 1.30%, and 15.07%, respectively. For the first six
months, excluding the severance charge, ROA and ROE increased from 1.10% and
11.71%, respectively, in 1996 to 1.18% and 12.26%, respectively, in 1997.
Total assets at June 30, 1997 of $3.3 billion were unchanged from June
30, 1996 levels. Loans totaled $2.4 billion compared to $2.3 billion and
deposits were $2.7 billion
<PAGE>
down slightly from June 30, 1996 levels. Equity capital was $319 million at
June 30, 1997, or $14.53 per share compared to $304 million, or $13.82 per share
at June 30, 1996.
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 necessary
to support earning assets, the rates paid to attract and hold 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 net interest income and other income was 87% and 86% for the six
months ended June 30, 1997 and 1996, respectively, and for the quarters ended
June 30, 1997 and 1996 was 87% and 85%, respectively.
<PAGE>
Net interest income increased $3.9 million (6%) from $67.9 million in the
first six months of 1996 to $71.8 million in the first six months of 1997.
This increase was due to a 2% increase in average earning assets as noted in
Table 2 and a fourteen basis point increase in net interest margin from 4.70%
in 1996 to 4.84% in 1997. The increase in average earning assets was due to
an 8% increase in loans and leases offset by an 11% decrease in investments.
The increase in net interest margin was primarily due to an $80 million
movement from investments to loans as increased loan demand is being funded by
investment maturities and a reduction in time deposit cost of funds from 5.54%
in 1996 to 5.43% in 1997 as Susquehanna has been lowering time deposit rates
at its savings bank. For the quarters ended June 30, net interest income
increased $1.9 million (6%) from $34.6 million in 1996 to $36.5 million in
1997. This increase was due to a twenty-two basis increase in net interest
margin from 4.66% in 1996 to 4.88% in 1997 as a result of a $93 million
movement from investments to loans as increased loan demand is being funded by
investment maturities.
Other 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 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 13% and 14% for the
<PAGE>
six months ended June 30, 1997 and 1996, respectively, and for the quarters
ended June 30, 1997 and 1996 was 13% and 15%, respectively.
Non-interest income decreased $0.3 million (3%) from $11.2 million in the
first six months of 1996 to $10.9 million in the first six months of 1997.
This decrease is due primarily to a reduction in gain on sale of mortgages of
$0.6 million. For the quarters ended June 30, non-interest income decreased
$0.4 million (6%) from $6.0 million in 1996 to $5.6 million in 1997. This
decrease is also due primarily to a reduction in gain on sale of mortgages of
$0.6 million.
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 Insurance Corporation's
insurance premiums on deposits; and other expenses incurred in operating
Susquehanna's business.
Non-interest expense increased $2.6 million (5%) for the first six months
of 1997 versus 1996 and for the quarters ended June 30, increased $1.6 million
(6%) from 1996 to 1997. These variances were due to increases in salaries and
employee benefits caused primarily by the one-time second quarter severance
charge of $1.3 million.
<PAGE>
Income Taxes
------------
Susquehanna's effective tax rate decreased from 32.23% in the first six
months of 1996 to 31.33% in the first six months of 1997 due primarily to
higher tax-exempt income.
Risk Assets
-----------
Table 3 shows a decline (8%) in nonperforming assets from $33.6 million
at December 31, 1996 to $31.0 million at June 30, 1997, while nonperforming
assets to period-end loans and OREO also declined from 1.43% at December 31,
1996 to 1.28% at June 30, 1997. Loan loss reserve to non-performing loans at
June 30, 1997 was 130% unchanged from December 31, 1996.
Provision and Allowance for Loan and Lease Losses
-------------------------------------------------
As illustrated in Table 4, the provision remained approximately the same
from the first six months of 1996 to the first six months of 1997 as net
charge-offs increased by $0.3 million for the same periods. The allowance at
June 30, 1997 was 1.40% of period-end loans and leases compared to 1.48% at
June 30, 1996.
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 June 30, 1997
was 11.91% The minimum total capital (Tier II)
<PAGE>
ratio is 8%; Susquehanna's ratio at June 30, 1997 was 15.29%. The minimum
leverage ratio is 4%; Susquehanna's leverage ratio at June 30, 1997 was 8.58%.
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 carrying value of investment securities maturing
within one year amounted to $140.6 million or 22.4% of the investment
portfolio at June 30, 1997. Short-term investments totaling $61 million at
June 30, 1997 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
<PAGE>
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 June 30, 1997. 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.
<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
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------- --------------------------------------------
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Short - term investments $71,088 $975 5.50 $87,840 $1,134 5.19
Investment securities:
Taxable 523,362 8,184 6.27 597,494 8,851 5.96
Tax - advantaged 107,403 1,879 7.02 126,117 2,153 6.87
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities 630,765 10,063 6.40 723,611 11,004 6.12
- ---------------------------------------------------------------------------------------------------------------------------------
Loans and leases, (net):
Taxable 2,340,145 53,967 9.25 2,225,746 51,183 9.25
Tax - advantaged 45,840 1,082 9.47 45,990 1,151 10.07
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 2,385,985 55,049 9.25 2,271,736 52,334 9.27
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest - earning assets 3,087,838 $66,087 8.58 3,083,187 $64,472 8.41
==================== =========================
Allowance for loan and lease losses (33,699) (34,270)
Other non - earning assets 255,164 252,593
- -------------------------------------------------------- -----------
Total assets $3,309,303 $3,301,510
======================================================== ===========
Liabilities & Equity
- --------------------
Deposits:
Interest - bearing demand $749,084 $5,797 3.10 $715,989 $5,239 2.94
Savings 438,168 2,717 2.49 438,955 2,753 2.52
Time 1,217,720 16,583 5.46 1,296,522 17,616 5.46
Short - term borrowings 80,733 1,027 5.10 62,336 767 4.95
Long - term debt 134,950 2,431 7.23 137,436 2,368 6.93
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest - bearing liabilities 2,620,655 $28,555 4.37 2,651,238 $28,743 4.36
==================== ========================
Demand deposits 322,444 313,944
Other liabilities 46,013 35,101
- -------------------------------------------------------- -----------
Total liabilities $2,989,112 $3,000,283
- -------------------------------------------------------- -----------
Stockholders' equity 320,191 301,227
- -------------------------------------------------------- -----------
Total liabilities &stockholders' equity $3,309,303 $3,301,510
======================================================== ===========
Net interest income / yield on
average earning assets $37,532 4.88 $35,729 4.66
==================== =========================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For the Six Month Period Ended For the Six Month Period Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------- ------------------------------------------
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Short - term investments $71,750 $1,952 5.49 $88,045 $2,316 5.29
Investment securities:
Taxable 528,153 16,454 6.28 591,248 17,893 6.09
Tax - advantaged 108,601 3,787 7.03 125,542 4,337 6.95
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 636,754 20,241 6.41 716,790 22,230 6.24
- ----------------------------------------------------------------------------------------------------------------------------------
Loans and leases, (net):
Taxable 2,325,975 106,074 9.20 2,154,563 99,244 9.26
Tax - advantaged 45,806 2,151 9.47 46,148 2,304 10.04
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 2,371,781 108,225 9.20 2,200,711 101,548 9.28
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest - earning assets 3,080,285 $130,418 8.54 3,005,546 $126,094 8.44
===================== =========================
Allowance for loan and lease losses (33,744) (33,296)
Other non - earning assets 247,661 234,586
- ----------------------------------------------------------- -----------
Total assets $3,294,202 $3,206,836
=========================================================== ===========
Liabilities & Equity
Deposits:
Interest - bearing demand $748,501 $11,490 3.10 $686,688 $9,874 2.89
Savings 436,444 5,414 2.50 437,082 5,427 2.50
Time 1,219,626 32,851 5.43 1,255,086 34,573 5.54
Short - term borrowings 73,794 1,863 5.09 58,528 1,444 4.96
Long - term debt 137,461 4,910 7.20 122,511 4,604 7.56
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest - bearing liabilities 2,615,826 $56,528 4.36 2,559,895 $55,922 4.39
===================== ========================
Demand deposits 316,753 304,064
Other liabilities 43,925 42,653
- ----------------------------------------------------------- -----------
Total liabilities $2,976,504 $2,906,612
- ----------------------------------------------------------- -----------
Stockholders' equity 317,698 300,224
- ----------------------------------------------------------- -----------
Total liabilities &stockholders' equity $3,294,202 $3,206,836
=========================================================== ===========
Net interest income / yield on
average earning assets $73,890 4.84 $70,172 4.70
===================== ========================
</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%.
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
TABLE 2 - STATEMENTS OF CHANGES IN INCOME AND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1997 compared June 30, 1997 compared
(In thousands) to June 30, 1996 to June 30, 1996
- -------------------------------------------------------------------------------------------- ------------------------------------
Average Volumes Income/Expense Average Volumes Income/Expense
--------------------- ------------------ -------------------- -------------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans and leases, net 114,249 5.0 2,739 5.3 171,070 7.8 6,731 6.7
Investments (92,846) (12.8) (845) (8.2) (80,036) (11.2) (1,797) (8.7)
Money market investments (16,752) (19.1) (159) (14.0) (16,295) (18.5) (364) (15.7)
------------------------------------------- ------------------------------------------
Total 4,651 0.2 1,735 2.7 74,739 2.5 4,570 3.7
===================== ------------------ ==================== -------------------
LIABILITIES:
Interest-bearing demand 33,095 4.6 558 10.7 61,813 9.0 1,616 16.4
Savings (787) (0.2) (36) (1.3) (638) (0.1) (13) (0.2)
Time (78,802) (6.1) (1,033) (5.9) (35,460) (2.8) (1,722) (5.0)
Short-term borrowings 18,397 29.5 260 33.9 15,266 26.1 419 29.0
Long-term debt (2,486) (1.8) 63 2.7 14,950 12.2 306 6.6
------------------------------------------- ------------------------------------------
Total (30,583) (1.2) (188) (0.7) 55,931 2.2 606 1.1
===================== ------------------ ==================== -------------------
Net interest income 1,923 5.6 3,964 5.8
Provision for loan and lease losses (186) (13.2) (26) (1.1)
------------------ -------------------
Net interest income after
provision for loan and lease losses 2,109 6.4 3,990 6.1
Investment security gains/(losses) 1 2.3 (149) (75.6)
Other operating income (376) (6.4) (132) (1.2)
------------------ -------------------
Income before operating expenses 1,734 4.4 3,709 4.8
Salaries and employee benefits 1,809 13.3 2,828 10.6
Net occupancy and equipment 160 4.9 325 5.0
Other operating expenses (397) (4.3) (522) (3.0)
------------------ -------------------
Total operating expenses 1,572 6.0 2,631 5.2
------------------ -------------------
Income before income taxes 162 1.2 1,078 4.2
Provision for income taxes (27) (0.6) 104 1.3
------------------ -------------------
Net income 189 2.1 974 5.6
================== ===================
<CAPTION>
Three months ended
June 30, 1997 compared
(In thousands) to March 31, 1997
- ----------------------------------------------------------------------------------
Average Volumes Income/Expense
--------------------- ------------------
$ % $ %
<S> <C> <C> <C> <C>
ASSETS:
Loans and leases, net 28,565 1.2 1,868 3.5
Investments (12,044) (1.9) (105) (1.1)
Money market investments (1,331) (1.8) (2) (0.2)
-------------------------------------------
Total 15,190 0.5 1,761 2.8
===================== ------------------
LIABILITIES:
Interest-bearing demand 1,172 0.2 104 1.8
Savings 3,467 0.8 20 0.7
Time (3,833) (0.3) 315 1.9
Short-term borrowings 13,955 20.9 191 22.8
Long-term debt (5,050) (3.6) (48) (1.9)
-------------------------------------------
Total 9,711 0.4 582 2.1
===================== ------------------
Net interest income 1,179 3.3
Provision for loan and lease losses 14 1.2
------------------
Net interest income after
provision for loan and lease losses 1,165 3.4
Investment security gains/(losses) 42 1,400.0
Other operating income 203 3.8
------------------
Income before operating expenses 1,410 3.6
Salaries and employee benefits 1,262 8.9
Net occupancy and equipment (22) (0.6)
Other operating expenses 586 7.2
------------------
Total operating expenses 1,826 7.1
------------------
Income before income taxes (416) (3.0)
Provision for income taxes 35 0.8
------------------
Net income (451) (4.8)
==================
</TABLE>
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 3- RISK ASSETS
- --------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
(Dollars in thousands) 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases $26,029 $19,574 $26,527
Restructured accrual loans --- 6,429 6,589
Other real estate owned 4,978 7,620 6,227
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $31,007 $33,623 $39,343
====================================================================================================================
As a percent of period-end loans and leases and
other real estate owned 1.28% 1.43% 1.72%
Loans and leases contractually
past due 90 days and still accruing $7,173 $8,962 $8,026
</TABLE>
<TABLE>
<CAPTION>
TABLE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Beginning of period $33,624 $34,054 $33,800 $29,277
Allowance acquired in business combination -- -- -- 4,229
Additions charged to operating expenses 1,220 1,406 2,426 2,452
- -----------------------------------------------------------------------------------------------------------------------------
34,844 35,460 36,226 35,958
- -----------------------------------------------------------------------------------------------------------------------------
Charge-offs (1,287) (2,101) (3,029) (2,908)
Recoveries 242 477 602 786
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs (1,045) (1,624) (2,427) (2,122)
- -----------------------------------------------------------------------------------------------------------------------------
Balance - Period end $33,799 $33,836 $33,799 $33,836
=============================================================================================================================
Net charge-offs as a percent of average loans
and leases (annualized) 0.18% 0.29% 0.21% 0.19%
Allowance as a percent of period-end loans
and leases 1.40% 1.48% 1.40% 1.48%
Average loans and leases $2,385,985 $2,271,736 $2,371,781 $2,200,711
Period-end loans and leases 2,414,730 2,286,261 2,414,730 2,286,261
</TABLE>
<PAGE>
Susquehanna Bancshares, Inc. and subsidiaries
<TABLE>
<CAPTION>
TABLE 5 --- Interest Rate Sensitivity
- -------------------------------------------------------------------------------------------------------------------------------
At June 30, 1997 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 $60,664 $100 $60,764
Investment securities 61,521 55,189 63,916 446,045 626,671
Loans and leases, net of unearned income * 671,241 95,967 372,076 1,249,417 2,388,701
---------------------------------------------------------------------------
Total $793,426 $151,256 $435,992 $1,695,462 $3,076,136
===========================================================================
LIABILITIES:
Interest - bearing demand $739,532 $739,532
Savings 440,989 440,989
Time 246,178 196,356 255,832 368,195 1,066,561
Time in denominations of $100 or more 47,952 25,553 32,425 37,207 143,137
Short - term borrowings 103,957 875 104,832
Long - term debt 25,004 354 5,977 98,943 130,278
---------------------------------------------------------------------------
Total $1,603,612 $223,138 $294,234 $504,345 $2,625,329
===========================================================================
INTEREST SENSITIVITY GAP:
Periodic ($810,186) ($71,882) $141,758 $1,191,117 $450,807
Cumulative (882,068) (740,310) 450,807
Cumulative gap as a percentage of
earning assets -26.3% -28.7% -24.1% 14.7%
</TABLE>
* Does not include nonaccruing loans and leases.
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Shareholders was held on May 30, 1997. Proxies
of the meeting were solicited by management; there was no solicitation in
opposition to management's nominees for directors set forth in the Proxy
Statement and all such nominees were elected.
a). The following details the voting results with respect to each nominee
for office, including the number of shares not voted at all (Not
Present) and the proxies that brokers did not vote in full (Broker
Non-voted):
<TABLE>
<CAPTION>
NOMINEE COMMON STOCK
------------------- --------------
<S> <C>
Robert S. Bolinger
For 12,280,977
Withold/abstain 70,543
Not present 2,237,690
Broker non-voted 56,125
Henry H. Gibbel
For 12,305,602
Withold/abstain 45,918
Not present 2,237,690
Broker non-voted 56,125
George J. Morgan
For 12,280,465
Withold/abstain 71,055
Not present 2,237,690
Broker non-voted 56,125
Robert C. Reymer, Jr.
For 12,293,083
Withold/abstain 58,437
Not present 2,237,690
Broker non-voted 56,125
Roger V. Wiest
For 12,297,884
Withold/abstain 53,636
Not present 2,237,690
Broker non-voted 56,125
</TABLE>
<PAGE>
The terms of office of James G. Apple, Richard M. Cloney, John M.
Denlinger, Richard E. Funke, Marley R. Gross, T. Max Hall, Edward W. Helfrick,
C. William Hetzer, and Raymond M. O'Connell continued after the meeting.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
On August 6, 1997, Registrant filed a Report on Form 8-K, under Item 5,
which discussed completion of the acquisition of Founders' Bank by the
Registrant.
<PAGE>
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.
August 7, 1997
/s/ Richard M. Cloney
---------------------
Richard M. Cloney
Vice President and Secretary
August 7, 1997
/s/ Drew K. Hostetter
---------------------
Drew K. Hostetter
Treasurer, and Principal Financial
Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 97,310
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 60,764
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 528,350
<INVESTMENTS-CARRYING> 98,321
<INVESTMENTS-MARKET> 99,057
<LOANS> 2,414,730
<ALLOWANCE> 33,799
<TOTAL-ASSETS> 3,335,546
<DEPOSITS> 2,733,346
<SHORT-TERM> 104,832
<LIABILITIES-OTHER> 47,789
<LONG-TERM> 130,278
0
0
<COMMON> 44,016
<OTHER-SE> 275,285
<TOTAL-LIABILITIES-AND-EQUITY> 3,335,546
<INTEREST-LOAN> 107,472
<INTEREST-INVEST> 18,921
<INTEREST-OTHER> 1,952
<INTEREST-TOTAL> 128,345
<INTEREST-DEPOSIT> 49,755
<INTEREST-EXPENSE> 56,528
<INTEREST-INCOME-NET> 71,817
<LOAN-LOSSES> 2,426
<SECURITIES-GAINS> 48
<EXPENSE-OTHER> 53,414
<INCOME-PRETAX> 26,882
<INCOME-PRE-EXTRAORDINARY> 26,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,461
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 8.54
<LOANS-NON> 26,029
<LOANS-PAST> 7,173
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 33,800
<CHARGE-OFFS> 3,029
<RECOVERIES> 602
<ALLOWANCE-CLOSE> 33,799
<ALLOWANCE-DOMESTIC> 33,799
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
