<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, 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 September 30, 1997 the Registrant had 22,541,908 shares of common stock
outstanding.
Page 1
<PAGE>
SUSQUEHANNA BANCSHARES, INC.
INDEX
SEQUENTIAL
PAGE
REFERENCE
PART I. FINANCIAL INFORMATION.................................. 3
Item 1. FINANCIAL STATEMENTS................................... 3
Consolidated Balance Sheets -
as of September 30, 1997 and 1996,
and December 31, 1996...................................... 3
Consolidated Statements of Income -
for the three months ended and nine months ended
September 30, 1997 and 1996 ............................. 4
Consolidated Statements of Cash Flows -
for the nine month periods
ended September 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................................ 9-17
PART II OTHER INFORMATION...................................... 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K....................... 18
SIGNATURES............................................. 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) September 30 December 31 September 30
ASSETS 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 100,298 $ 106,840 $ 109,059
Short-term investments 35,027 103,125 44,953
Investment securities available for sale 577,913 532,748 547,652
Investment securities held to maturity 90,978 126,022 133,852
(Fair values of $91,818; $127,020 and $134,444)
Loans and leases, net of unearned income 2,538,761 2,349,776 2,345,366
Less: Allowance for loan and lease losses 34,547 33,800 33,530
----------- ----------- -----------
Net loans and leases 2,504,214 2,315,976 2,311,836
----------- ----------- -----------
Premises and equipment (net) 45,103 43,931 41,869
Accrued income receivable 21,866 21,824 23,269
Other assets 104,271 84,651 86,921
----------- ----------- -----------
Total assets $ 3,479,670 $ 3,335,117 $ 3,299,411
=========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Deposits:
Demand $ 345,504 $ 337,651 $ 316,224
Interest-bearing demand 763,314 757,103 737,393
Savings 424,857 432,253 432,029
Time 1,130,469 1,089,189 1,122,139
Time of $100 or more 146,509 137,922 127,758
----------- ----------- -----------
Total deposits 2,810,653 2,754,118 2,735,543
----------- ----------- -----------
Short-term borrowings 115,312 100,650 90,886
Long-term debt 170,932 120,368 121,813
Accrued interest, taxes, and expenses payable 32,696 29,836 28,651
Other liabilities 10,794 16,849 15,983
----------- ----------- -----------
Total liabilities 3,140,387 3,021,821 2,992,876
Stockholders' equity:
Common stock
Authorized: 32,000,000 shares ($2.00 par value)
Issued: 22,572,362; 14,665,471; and 14,657,475, respectively 45,145 29,331 29,315
Surplus 77,255 85,165 84,989
Retained earnings 214,214 197,765 193,822
Unrealized gains and losses for available-for-sale
securities, net of taxes 2,824 1,190 (1,436)
Less: Treasury stock, (30,454; 20,303 and 20,303 common shares
at cost, respectively) 155 155 155
----------- ----------- -----------
Total stockholders' equity 339,283 313,296 306,535
----------- ----------- -----------
Total liabilities and stockholders' equity $ 3,479,670 $ 3,335,117 $ 3,299,411
=========== =========== ===========
</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 ) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans and leases $ 56,618 $ 53,008 $164,090 $153,749
Interest on investment securities: Taxable 8,544 8,869 24,998 26,762
Tax-exempt 1,308 1,353 3,775 4,178
Interest on short-term investments 862 864 2,814 3,180
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 67,332 64,094 195,677 187,869
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 6,255 5,512 17,745 15,386
Savings 2,666 2,718 8,080 8,145
Time 17,497 17,197 50,348 51,770
Interest on short-term borrowings 1,376 868 3,239 2,312
Interest on long-term debt 2,700 2,322 7,610 6,926
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 30,494 28,617 87,022 84,539
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 36,838 35,477 108,655 103,330
Provision for loan and lease losses 981 1,165 3,407 3,617
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan and lease losses 35,857 34,312 105,248 99,713
- -----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 1,738 1,617 4,854 4,547
Other service charges, commissions, fees 920 777 2,380 1,769
Income from fiduciary-related activities 819 766 2,529 2,379
Gain on sale of mortgages 799 959 2,042 2,816
Other operating income 1,736 1,267 5,064 4,864
Investment security gains/(losses) 64 53 112 250
- -----------------------------------------------------------------------------------------------------------------------------
Total other income 6,076 5,439 16,981 16,625
- -----------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 13,387 13,829 42,991 40,605
Net occupancy expense 1,935 1,881 5,824 5,765
Furniture and equipment expense 1,532 1,410 4,481 4,039
FDIC insurance premiums 186 5,960 558 6,915
Other operating expenses 9,186 8,633 25,786 25,172
- -----------------------------------------------------------------------------------------------------------------------------
Total other expenses 26,226 31,713 79,640 82,496
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,707 8,038 42,589 33,842
Provision for income taxes 4,977 2,466 13,398 10,783
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 10,730 $ 5,572 $ 29,191 $ 23,059
=============================================================================================================================
Per share information:
Net income $ 0.48 $ 0.25 $ 1.32 $ 1.05
Cash dividends $ 0.21 $ 0.19 $ 0.61 $ 0.58
Average shares outstanding 22,541 21,956 22,162 21,932
- -----------------------------------------------------------------------------------------------------------------------------
</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 months period ended September 30 1997 1996
- --------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 29,191 $ 23,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 8,148 8,978
Provision for loan and lease losses 3,407 3,617
Gain on securities transactions (112) (250)
Gain on sale of loans (2,042) (2,816)
Gain on sale of other real estate owned (219) (55)
Mortgage loans originated for resale (109,809) (154,551)
Sale of mortgage loans originated for resale 105,165 154,964
Decrease/(increase) in accrued interest receivable (42) (1,666)
(Decrease)/increase in accrued interest payable (309) 774
Increase/(decrease) in accrued expenses and taxes payable 3,169 478
Other, net (1,810) (3,315)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 34,737 29,217
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from the sale of available-for-sale securities 32,857 30,436
Proceeds from the maturity of investment securities 186,252 130,595
Purchase of available-for-sale securities (206,278) (114,064)
Purchase of held-to-maturity securities (1,373) (19,100)
Net increase in loans and leases (110,871) (101,762)
Capital expenditures (4,055) (4,373)
Purchase of Bank-Owned Life Insurance (25,000) 0
Net cash (paid) / received in acquisition 3,579 (31,298)
- --------------------------------------------------------------------------------------------------------
Net cash used for investing activities (124,889) (109,566)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) /increase in deposits (33,047) 3,576
Net increase / (decrease) in short-term borrowings 14,662 21,454
Proceeds from issuance of long-term debt 65,000 35,000
Repayment of long-term debt (18,311) (11,921)
Proceeds from issuance of common stock 329 5,753
Cash paid for fractional shares of pooled entity (43) 0
Dividends paid (13,078) (11,671)
- --------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) financing activities 15,512 42,191
- --------------------------------------------------------------------------------------------------------
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (74,640) (38,158)
CASH AND CASH EQUIVALENTS AT JANUARY 1 209,965 192,170
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 135,325 $ 154,012
========================================================================================================
Cash and cash equivalents:
Cash and due from banks $ 100,298 $ 109,059
Short-term investments 35,027 44,953
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 135,325 $ 154,012
========================================================================================================
</TABLE>
Interest paid on deposits, short-term borrowings, and long-term debt was
$87,331 in 1997, and $85,313 in 1996. Income taxes paid were $11,719 in 1997,
and $10,776 in 1996. Amounts transferred to other real estate owned were $3,356
in 1997, and $5,813 in 1996.
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.
On July 30, 1997, Susquehanna acquired Founders' Bank, Bryn Mawr, PA. At
the time of the acquisition, loans acquired were $79,776; investment securities
were $19,130; and deposits were $92,520.
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>
UNREALIZED
Nine Month Periods Ended September 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 23,059 23,059
Stock issued in public offering 390 4,546 4,936
Common stock issued under
employee benefit plans 15 634 168 817
Change in unrealized gain/loss on securities (4,513) (4,513)
Cash dividends declared:
Per common share of $0.58 (11,671) (11,671)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1996 $ 29,315 $ 84,989 $ 193,822 ($ 1,436) ($155) $ 306,535
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - January 1, 1997 $ 29,331 $ 85,165 $ 197,765 $ 1,190 ($155) $ 313,296
Net income 29,191 29,191
Common stock issued under
employee benefit plans 24 305 329
Effect of three-for-two stock split 14,669 (14,707) (38)
Acquisition of Founders' Bank 1,121 6,497 336 (194) 7,760
Change in unrealized gain/loss on securities 1,828 1,828
Cash paid for fractional shares of
acquired entities (5) (5)
Cash dividends declared:
Per common share of $0.61 (13,078) (13,078)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1997 $ 45,145 $ 77,255 $ 214,214 $ 2,824 ($155) $ 339,283
==================================================================================================================================
</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, 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 July 2, 1997, Susquehanna paid a three-for-two stock split as a stock
dividend to shareholders of record June 10, 1997. Per share information has been
adjusted to reflect the stock split.
6
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The amortized costs and fair values of securities are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 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 $149,679 $150,240 $171,898 $172,241
U.S. Government agencies 188,823 189,380 128,312 128,243
State & municipal 32,400 33,060 9,505 9,680
Mortgage-backed 99,182 98,814 114,211 113,484
Corporates 81,129 81,768 86,398 87,130
Equities 22,411 24,651 20,576 21,970
- ------------------------------------------------------------------------------------------------------------------------------------
573,624 577,913 530,900 532,748
- ------------------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury $999 $999 $1,493 $1,493
U.S. Government agencies - - 2,487 2,439
State & municipal 87,173 83,988 104,815 105,788
Mortgage-backed 6,756 6,781 17,037 17,110
Corporates 50 50 190 190
- ------------------------------------------------------------------------------------------------------------------------------------
90,978 91,818 126,022 127,020
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $664,602 $669,731 $656,922 $659,768
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS AND LEASES
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income at September 30, 1997 and December 31, 1996, were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $284,151 $249,886
Real estate - construction 244,259 226,920
Real estate - mortgage 1,635,208 1,539,898
Consumer 311,160 278,527
Leases 63,983 54,545
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases $2,538,761 $2,349,776
====================================================================================================================================
IMPAIRED LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
An analysis of impaired loans as of September 30, 1997 and December 31, 1996, is presented as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Impaired loans without a related reserve $12,676 $10,401
Impaired loans with a reserve 1,442 3,961
- ------------------------------------------------------------------------------------------------------------------------------------
Total impaired loans $14,118 $14,362
====================================================================================================================================
Reserve for impaired loans $237 $601
====================================================================================================================================
An analysis of impaired loans for the three and nine months periods ended September 30, 1997 and 1996 is presented as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30 Nine Months Ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Average balance of impaired loans $15,459 $16,735 $14,467 $15,814
Interest income on impaired loans (cash-basis) 285 120 865 213
SHORT-TERM BORROWINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings at September 30, 1997 and December 31, 1996, were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements $79,986 $58,516
Treasury tax and loan notes 8,826 5,634
Federal funds purchased 5,500 11,500
Federal Home Loan Bank borrowings 21,000 25,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $115,312 $100,650
====================================================================================================================================
</TABLE>
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt at September 30, 1997 and December 31, 1996, was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 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 32 45
FHLB advances in varying maturities through December, 2003 80,278 29,795
Term loan note due September, 2014 522 528
Parent:
Senior notes due February, 2003 35,000 35,000
Subordinated notes due February, 2005 50,000 50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $170,932 $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 of 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 September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Susquehanna AI FBC Susquehanna
As reported As reported As reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $32,590 $1,975 $912 $35,477
Provision for loan and lease losses 1,090 60 15 1,165
Other income 5,258 143 38 5,439
Other expense 29,406 1,745 562 31,713
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 7,352 313 373 8,038
Taxes 2,243 127 96 2,466
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $5,109 $186 $277 $5,572
====================================================================================================================================
Earnings per share * $0.26 $0.16 $0.27 $0.25
Average shares outstanding * 19,760 1,158 1,038 21,956
<CAPTION>
Nine Months Ended September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Susquehanna AI FBC Susquehanna
As reported As reported As reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $95,341 $5,219 $2,770 $103,330
Provision for loan and lease losses 3,469 103 45 3,617
Other income 15,969 456 200 16,625
Other expense 76,135 4,676 1,685 82,496
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 31,706 896 1,240 33,842
Taxes 10,242 $253 $288 $10,783
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $21,464 $643 $952 $23,059
====================================================================================================================================
Earnings per share * $1.09 $0.56 $0.92 $1.05
Average shares outstanding * 19,736 1,158 1,038 21,932
</TABLE>
* Per share and 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 560,353 shares of common stock to the shareholders of Founders' based on
exchange ratio of .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 $103 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.
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 affect the
comparability of Susquehanna's financial performance for the first nine months
of 1997 versus the first nine months of 1996 and for the third 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
will be 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 will be amortized over 15
years.
In September 1996, Susquehanna's earnings 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.
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. 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
9
<PAGE>
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.
On July 30, 1997, Susquehanna completed the acquisition of Founders'
Bank ("Founders"), a Pennsylvania bank with approximately $103 million in
assets, $79 million in loans, $90 million in deposits and $8 million in equity
at the acquisition date. Susquehanna issued 560,353 shares of common stock to
the shareholders of Founders based on an exchange ratio of 0.566 shares of
Susquehanna common stock for each outstanding share of Founders. The transaction
was accounted for under the pooling-of-interests method of accounting; however,
the consolidated financial statements have not been restated prior to July 1,
1997 to include the consolidated accounts of Founders as the transaction was
immaterial to Susquehanna.
Earnings Summary
----------------
Susquehanna earned record profits for the third quarter of 1997. Net
income increased 93% from $5,572,000 in the third quarter of 1996 to $10,730,000
in the third quarter of 1997 while earnings per share increased 92% for the same
periods from $.25 per share to $.48 per share. In September 1996, Susquehanna
incurred a one-time, after-tax charge of $3.3 million assessed by the federal
government to recapitalize the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation. Excluding the one-time assessment, Susquehanna's
net income for the third quarter of 1997 would have exceeded net income for the
third quarter of 1996 by 21% and earnings per share would have exceeded the
previous year's quarter by 20%.
Net income for the nine months ended September 30, 1997 was a record
$29,191,000 or 27% above the results achieved in the same period of 1996 while
earnings per share for the same periods increased 26% from $1.05 per share in
1996 to $1.32 per share in 1997. Excluding the one-time assessment,
Susquehanna's net income for the nine months of 1997 would have exceeded net
income for the nine months of 1996 by 11% and earnings per share would have
exceeded the previous year's nine month period by 10%.
Return on average assets (ROA) and return on average equity (ROE)
increased from 0.67% and 7.28%, respectively, in the third quarter of 1996 to
1.23% and 12.75%, respectively, in the third quarter of 1997. Tangible earnings
per share, return on tangible average assets, and return on tangible average
equity were $.51, 1.33% and 15.32%, respectively, for the third quarter of 1997.
For the first nine months, ROA and ROE increased from 0.95% and 10.21%,
respectively, in 1996 to 1.17% and 12.08%, respectively, in 1997.
10
<PAGE>
Total assets at September 30, 1997 were $3.5 billion compared to $3.3
billion at September 30, 1996. Loans for the same period-ends totaled $2.5
billion compared to $2.3 billion and deposits were $2.8 billion up from $2.7
billion at September 30, 1996. Equity capital was $339 million at September 30,
1997, or $15.05 per share compared to $307 million, or $13.96 per share at
September 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 86% for both the nine
months ended September 30, 1997 and 1996, respectively, and for the quarters
ended September 30, 1997 and 1996 was 86% and 87%, respectively.
Net interest income increased $5.3 million (5%) from $103.3 million in
the first nine months of 1996 to $108.7 million in the first nine months of
1997. This increase was due to a 3% increase in average earning assets as noted
in Table 2 and an eight basis point increase in net interest margin from 4.70%
in 1996 to 4.78% in 1997. The increase in average earning assets was due to an
8% increase in loans and leases offset by a 9% decrease in investments. The
increase in net interest margin was primarily due to an $67 million movement
from investments to loans as increased loan demand is being partially funded by
investment maturities and a reduction in time deposit cost of funds from 5.51%
in 1996 to 5.46% in 1997 as Susquehanna has been lowering time deposit rates at
its savings bank. For the quarters ended September 30, net interest income
increased $1.4 million (4%) from $35.5 million in 1996 to $36.8 million in 1997.
This increase was due to a 4% increase in average earnings assets primarily
resulting from the Founders acquisition in July 1997.
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 nine
months ended September 30,
11
<PAGE>
1997 and 1996, respectively, and for the quarters ended September 30, 1997 and
1996 was 14% and 13%, respectively.
Non-interest income increased $0.4 million (2%) from $16.6 million in
the first nine months of 1996 to $17.0 million in the first nine months of 1997.
This increase is due primarily to an increase in service charges of $0.9 million
and trust income of $0.2 million offset by a reduction in gain on sale of
mortgages of $0.8 million. For the quarters ended September 30, non-interest
income increased $0.6 million (12%) from $5.4 million in 1996 to $6.0 million in
1997. This increase is due primarily to bank-owned life insurance cash value
increase of $0.7 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 decreased $2.9 million (3%) for the first nine
months of 1997 versus 1996 and for the quarters ended September 30, decreased
$5.5 million (17%) from 1996 to 1997. The nine month variance was due to normal
salary increases and a one-time second quarter severance charge of $1.3 million
in 1997 offset by the one-time SAIF assessment of $5.5 million in the third
quarter of 1996. The variance for the quarters was due to the one-time SAIF
assessment of $5.5 million in the third quarter of 1996.
Income Taxes
------------
Susquehanna's effective tax rate decreased from 31.86% in the first
nine months of 1996 to 31.46% in the first nine months of 1997 due primarily to
higher tax-exempt income.
Risk Assets
-----------
Table 3 shows a decline (13%) in nonperforming assets from $33.6
million at December 31, 1996 to $29.1 million at September 30, 1997, while
nonperforming assets to period-end loans and OREO also declined from 1.43% at
December 31, 1996 to 1.15% at September 30, 1997. Loan loss reserve to
non-performing loans improved from 130% at December 31, 1996 to 139% at
September 30, 1997.
Provision and Allowance for Loan and Lease Losses
-------------------------------------------------
As illustrated in Table 4, the provision decreased by $0.2 million from
the first nine months of 1996 to the first nine months of 1997 as net
charge-offs increased by $0.5 million for the same periods. The allowance at
September 30, 1997 was 1.36% of period-end loans and leases compared to 1.43% at
September 30, 1996.
12
<PAGE>
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,
1997 was 11.98% The minimum total capital (Tier II) ratio is 8%; Susquehanna's
ratio at September 30, 1997 was 15.23%. The minimum leverage ratio is 4%;
Susquehanna's leverage ratio at September 30, 1997 was 8.77%.
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 time periods.
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 $143.7 million or 21.5% of the investment
portfolio at September 30, 1997. Short-term investments totaling $35 million at
September 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 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, 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.
13
<PAGE>
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, 1997 September 30, 1996
- ------------------------------------------------------------------------------------ --------------------------------------
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
- ---------------------------------------------------------------------------------------------------------------------------------
Assets
- ------
<S> <C> <C> <C> <C> <C> <C>
Short - term investments $62,510 $862 5.47 $61,973 $864 5.55
Investment securities:
Taxable 538,539 8,544 6.29 574,293 8,869 6.14
Tax - advantaged 114,091 2,010 6.99 120,041 2,077 6.88
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities 652,630 10,554 6.42 694,334 10,946 6.27
- ---------------------------------------------------------------------------------------------------------------------------------
Loans and leases, (net):
Taxable 2,463,520 55,860 9.00 2,285,872 52,276 9.10
Tax - advantaged 47,392 1,166 9.76 45,901 1,125 9.75
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 2,510,912 57,026 9.01 2,331,773 53,401 9.11
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest - earning assets 3,226,052 $68,442 8.42 3,088,080 $65,211 8.40
========================== ========================
Allowance for loan and lease losses (35,332) (33,787)
Other non - earning assets 257,160 236,182
- -------------------------------------------------------- -------------
Total assets $3,447,880 $3,290,475
======================================================== =============
Liabilities & Equity
- --------------------
Deposits:
Interest - bearing demand $782,006 $6,255 3.17 $741,428 $5,512 2.96
Savings 431,942 2,666 2.45 438,946 2,718 2.46
Time 1,260,745 17,497 5.51 1,254,265 17,197 5.45
Short - term borrowings 102,486 1,376 5.33 66,566 868 5.19
Long - term debt 153,859 2,700 6.96 123,440 2,322 7.48
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest - bearing liabilities 2,731,038 $30,494 4.43 2,624,645 $28,617 4.34
========================== ========================
Demand deposits 331,967 312,478
Other liabilities 50,937 48,678
- -------------------------------------------------------- -------------
Total liabilities $3,113,942 $2,985,801
- -------------------------------------------------------- -------------
Stockholders' equity 333,938 304,674
- -------------------------------------------------------- -------------
Total liabilities &stockholders' equity $3,447,880 $3,290,475
======================================================== =============
Net interest income / yield on
average earning assets $37,948 4.67 $36,594 4.71
========================== ========================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Nine Month Period Ended For the Nine Month Period Ended
September 30, 1997 September 30, 1996
- ------------------------------------------------------------------------------------ --------------------------------------
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
- ---------------------------------------------------------------------------------------------------------------------------------
Assets
- ------
<S> <C> <C> <C> <C> <C> <C>
Short - term investments $68,636 $2,814 5.48 $79,291 $3,180 5.36
Investment securities:
Taxable 531,653 24,998 6.29 585,555 26,762 6.10
Tax - advantaged 110,451 5,797 7.02 123,695 6,414 6.93
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities 642,104 30,795 6.41 709,250 33,176 6.25
- ---------------------------------------------------------------------------------------------------------------------------------
Loans and leases, (net):
Taxable 2,372,202 161,934 9.13 2,198,652 151,520 9.21
Tax - advantaged 46,466 3,317 9.54 46,065 3,429 9.94
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 2,418,668 165,251 9.13 2,244,717 154,949 9.22
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest - earning assets 3,129,408 $198,860 8.50 3,033,258 $191,305 8.42
=========================== ========================
Allowance for loan and lease losses (34,279) (33,461)
Other non - earning assets 250,862 235,122
- -------------------------------------------------------- -------------
Total assets $3,345,991 $3,234,919
======================================================== =============
Liabilities & Equity
====================
Deposits:
Interest - bearing demand $759,792 $17,745 3.12 $705,068 $15,386 2.91
Savings 434,927 8,080 2.48 437,708 8,145 2.49
Time 1,233,483 50,348 5.46 1,254,810 51,770 5.51
Short - term borrowings 83,463 3,239 5.19 61,227 2,312 5.04
Long - term debt 142,987 7,610 7.12 122,823 6,926 7.53
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest - bearing liabilities 2,654,652 $87,022 4.38 2,581,636 $84,539 4.37
=========================== ========================
Demand deposits 321,880 306,889
Other liabilities 46,288 44,676
- -------------------------------------------------------- -------------
Total liabilities $3,022,820 $2,933,201
- -------------------------------------------------------- -------------
Stockholders' equity 323,171 301,718
- -------------------------------------------------------- -------------
Total liabilities &stockholders' equity $3,345,991 $3,234,919
======================================================== =============
Net interest income / yield on
average earning assets $111,838 4.78 $106,766 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%.
14
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
TABLE 2 - STATEMENTS OF CHANGES IN INCOME AND EXPENSES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, 1997 compared September 30, 1997 compared
(In thousands) to September 30, 1996 to September 30, 1996
- --------------------------------------------------------------------------------------------------------------------------
Average Volumes Income / Expense Average Volumes Income / Expense
----------------- ----------------- ------------------ ------------------
$ % $ % $ % $ %
ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and leases, net 179,139 7.7 3,610 6.8 173,951 7.7 10,341 6.7
Investments (41,704) (6.0) (370) (3.6) (67,146) (9.5) (2,167) (7.0)
Money market investments 537 0.9 (2) (0.2) (10,655) (13.4) (366) (11.5)
--------------------------------------- ----------------------------------------
Total 137,972 4.5 3,238 5.1 96,150 3.2 7,808 4.2
================= ----------------- ================== ------------------
LIABILITIES:
Interest-bearing demand 40,578 5.5 743 13.5 54,724 7.8 2,359 15.3
Savings (7,004) (1.6) (52) (1.9) (2,781) (0.6) (65) (0.8)
Time 6,480 0.5 300 1.7 (21,327) (1.7) (1,422) (2.7)
Short-term borrowings 35,920 54.0 508 58.5 22,236 36.3 927 40.1
Long-term debt 30,419 24.6 378 16.3 20,164 16.4 684 9.9
--------------------------------------- ----------------------------------------
Total 106,393 4.1 1,877 6.6 73,016 2.8 2,483 2.9
================= ----------------- ================== ------------------
Net interest income 1,361 3.8 5,325 5.2
Provision for loan and lease losses (184) (15.8) (210) (5.8)
----------------- ------------------
Net interest income after
provision for loan and lease losses 1,545 4.5 5,535 5.6
Investment security gains/(losses) 11 20.8 (138) (55.2)
Other operating income 626 11.6 494 3.0
----------------- ------------------
Income before operating expenses 2,182 5.5 5,891 5.1
Salaries and employee benefits (442) (3.2) 2,386 5.9
Net occupancy and equipment 176 5.3 501 5.1
Other operating expenses (5,221) (35.8) (5,743) (17.9)
----------------- ------------------
Total operating expenses (5,487) (17.3) (2,856) (3.5)
----------------- ------------------
Income before income taxes 7,669 95.4 8,747 25.8
Provision for income taxes 2,511 101.8 2,615 24.3
================= ==================
Net income 5,158 92.6 6,132 26.6
================= ==================
<CAPTION>
Three months ended
September 30, 1997 compared
to June 30, 1997
---------------------------------------
Average Volumes Income / Expense
----------------- -----------------
$ % $ %
ASSETS:
<S> <C> <C> <C> <C>
Loans and leases, net 124,927 5.2 1,948 3.6
Investments 21,865 3.5 444 4.7
Money market investments (8,578) (12.1) (113) (11.6)
---------------------------------------
Total 138,214 4.5 2,279 3.5
================= -----------------
LIABILITIES:
Interest-bearing demand 32,922 4.4 458 7.9
Savings (6,226) (1.4) (51) (1.9)
Time 43,025 3.5 914 5.5
Short-term borrowings 21,753 26.9 349 34.0
Long-term debt 18,909 14.0 269 11.1
---------------------------------------
Total 110,383 4.2 1,939 6.8
================= -----------------
Net interest income 340 0.9
Provision for loan and lease losses (239) (19.6)
-----------------
Net interest income after
provision for loan and lease losses 579 1.6
Investment security gains/(losses) 19 42.2
Other operating income 482 8.7
-----------------
Income before operating expenses 1,080 2.6
Salaries and employee benefits (2,046) (13.3)
Net occupancy and equipment 59 1.7
Other operating expenses 593 6.8
-----------------
Total operating expenses (1,394) (5.0)
-----------------
Income before income taxes 2,474 18.7
Provision for income taxes 749 17.7
=================
Net income 1,725 19.2
=================
</TABLE>
15
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 3- RISK ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31, September 30,
(Dollars in thousands) 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases $24,862 $19,574 $23,659
Restructured accrual loans --- 6,429 6,509
Other real estate owned 4,258 7,620 7,626
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $29,120 $33,623 $37,794
===================================================================================================================================
As a percent of period-end loans and leases and
other real estate owned 1.15% 1.43% 1.61%
Loans and leases contractually
past due 90 days and still accruing $7,494 $8,962 $8,491
</TABLE>
<TABLE>
<CAPTION>
TABLE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Beginning of period $33,799 $33,836 $33,800 $29,277
Allowance acquired in business combination 1,460 -- 1,460 4,229
Additions charged to operating expenses 981 1,165 3,407 3,617
- -----------------------------------------------------------------------------------------------------------------------------------
36,240 35,001 38,667 37,123
- -----------------------------------------------------------------------------------------------------------------------------------
Charge-offs (2,017) (1,728) (5,046) (4,636)
Recoveries 324 257 926 1,043
- -----------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (1,693) (1,471) (4,120) (3,593)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - Period end $34,547 $33,530 $34,547 $33,530
===================================================================================================================================
Net charge-offs as a percent of average loans and leases(annualized) 0.27% 0.25% 0.23% 0.21%
Allowance as a percent of period-end loans and leases 1.36% 1.43% 1.36% 1.43%
Average loans and leases $2,510,912 $2,331,773 $2,418,668 $2,244,717
Period-end loans and leases 2,538,761 2,345,366 2,538,761 2,345,366
</TABLE>
16
<PAGE>
Susquehanna Bancshares, Inc. and subsidiaries
<TABLE>
<CAPTION>
TABLE 5 --- Interest Rate Sensitivity
- -----------------------------------------------------------------------------------------------------------------------------
At September 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 $35,027 $35,027
Investment securities 58,975 36,349 94,213 479,354 668,891
Loans and leases, net of unearned income * 708,965 97,098 379,565 1,328,271 2,513,899
------------------------------------------------------------------------------
Total $802,967 $133,447 $473,778 $1,807,625 $3,217,817
==============================================================================
LIABILITIES:
Interest - bearing demand $763,314 $763,314
Savings 424,857 424,857
Time 258,733 198,946 229,272 443,518 1,130,469
Time in denominations of $100 or more 38,517 31,024 31,051 45,917 146,509
Short - term borrowings 105,347 3,216 6,500 249 115,312
Long - term debt 41,282 4 6,509 123,137 170,932
------------------------------------------------------------------------------
Total $1,632,050 $233,190 $273,332 $612,821 $2,751,393
==============================================================================
INTEREST SENSITIVITY GAP:
Periodic ($829,083) ($99,743) $200,446 $1,194,804 $466,424
Cumulative (928,826) (728,380) 466,424
Cumulative gap as a percentage of
earning assets -25.8% -28.9% -22.6% 14.5%
</TABLE>
* Does not include nonaccruing loans and leases.
17
<PAGE>
PART II. OTHER INFORMATION
-----------------
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.
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 7, 1997
/s/ Robert S. Bolinger
----------------------
Robert S. Bolinger
President and Chief Executive Officer
November 7, 1997
/s/ Drew K. Hostetter
---------------------
Drew K. Hostetter
Treasurer, and Principal Financial
Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 100,298
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,027
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 577,913
<INVESTMENTS-CARRYING> 90,978
<INVESTMENTS-MARKET> 91,818
<LOANS> 2,538,761
<ALLOWANCE> 34,547
<TOTAL-ASSETS> 3,479,670
<DEPOSITS> 2,810,653
<SHORT-TERM> 115,312
<LIABILITIES-OTHER> 43,490
<LONG-TERM> 170,932
0
0
<COMMON> 45,145
<OTHER-SE> 294,138
<TOTAL-LIABILITIES-AND-EQUITY> 3,479,670
<INTEREST-LOAN> 164,090
<INTEREST-INVEST> 28,773
<INTEREST-OTHER> 2,814
<INTEREST-TOTAL> 195,677
<INTEREST-DEPOSIT> 76,173
<INTEREST-EXPENSE> 87,022
<INTEREST-INCOME-NET> 108,655
<LOAN-LOSSES> 3,407
<SECURITIES-GAINS> 112
<EXPENSE-OTHER> 79,640
<INCOME-PRETAX> 42,589
<INCOME-PRE-EXTRAORDINARY> 29,191
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,191
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 8.42
<LOANS-NON> 24,862
<LOANS-PAST> 7,494
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 33,800
<CHARGE-OFFS> 5,046
<RECOVERIES> 926
<ALLOWANCE-CLOSE> 34,547
<ALLOWANCE-DOMESTIC> 34,547
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
