<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, 1999
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 July 31, 1999 the Registrant had 36,972,477 shares of common stock
outstanding.
1
<PAGE>
SUSQUEHANNA BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
REFERENCE
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. FINANCIAL STATEMENTS 3
Consolidated Balance Sheets - as of June 30, 1999 and 1998
and December 31, 1998 3
Consolidated Statements of Income - for the three months ended
and six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flow - for the six months
periods ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND
FINANCIAL CONDITION 10 - 17
PART II OTHER INFORMATION 18
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 18 - 19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
</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,
1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $106,196 $113,210 $111,955
Short-term investments 31,308 83,063 56,658
Investment securities available for sale 848,803 891,907 827,203
Investment securities held to maturity 49,127 59,837 71,649
(Fair values of $49,800; $61,019 and $72,347, respectively)
Loans and leases, net of unearned income 2,905,911 2,847,185 2,778,479
Less: Allowance for loan and lease losses 36,141 36,158 36,284
- ------------------------------------------------------------------------------------------------------------------------------
Net loans and leases 2,869,770 2,811,027 2,742,195
- ------------------------------------------------------------------------------------------------------------------------------
Premises and equipment (net) 55,589 55,566 53,531
Accrued income receivable 23,394 22,774 24,096
Other assets 196,870 138,642 129,105
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $4,181,057 $4,176,026 $4,016,392
==============================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
Demand $420,229 $433,133 $407,198
Interest-bearing demand 962,605 997,718 885,021
Savings 456,348 448,865 458,251
Time 1,145,785 1,166,002 1,213,050
Time of $100 or more 174,617 171,161 150,961
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 3,159,584 3,216,879 3,114,481
- ------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 184,378 137,601 100,472
Long-term debt 391,311 375,576 369,910
Accrued interest, taxes, and expenses payable 31,362 31,522 33,870
Other liabilities 11,225 12,367 9,065
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,777,860 3,773,945 3,627,798
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock
Authorized: 100,000,000 shares ($2.00 par value)
Issued: 36,986,004; 36,967,572; and 36,967,572, respectively 73,972 73,935 73,935
Surplus 61,774 61,882 61,514
Retained earnings 273,944 261,043 248,802
Accumulated other comprehensive income, net of taxes of ($3,324)
$3,225 and $2,640 respectively (6,292) 6,004 4,674
Less: Treasury stock, (13,527; 65,050 and 44,971 common shares
at cost, respectively) 201 783 331
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 403,197 402,081 388,594
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,181,057 $4,176,026 $4,016,392
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $59,936 $60,642 $118,740 $120,403
Interest on investment securities: Taxable 12,358 12,316 24,776 23,772
Tax-exempt 1,360 1,436 2,795 2,774
Interest on short-term investments 522 1,255 1,326 2,561
- ------------------------------------------------------------------------------------------------------------
Total interest income 74,176 75,649 147,637 149,510
- ------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 6,793 7,220 13,993 14,291
Savings 2,041 2,652 4,195 5,385
Time 17,072 18,982 34,667 37,894
Interest on short-term borrowings 1,656 1,356 2,903 2,613
Interest on long-term debt 5,946 5,718 11,881 10,682
- ------------------------------------------------------------------------------------------------------------
Total interest expense 33,508 35,928 67,639 70,865
- ------------------------------------------------------------------------------------------------------------
Net interest income 40,668 39,721 79,998 78,645
Provision for loan and lease losses 1,294 1,262 2,718 2,531
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan and lease losses 39,374 38,459 77,280 76,114
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 2,416 2,124 4,666 4,062
Other service charges, commissions, fees 1,074 1,234 2,070 2,282
Income from fiduciary-related activities 917 992 1,676 1,853
Gain on sale of mortgages 990 1,360 2,000 2,425
Other operating income 2,421 2,654 4,740 4,915
Investment security gains 101 28 100 61
- ------------------------------------------------------------------------------------------------------------
Total other income 7,919 8,392 15,252 15,598
- ------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 14,647 14,942 27,787 29,576
Net occupancy expense 2,088 2,021 4,341 4,174
Furniture and equipment expense 1,891 2,142 3,795 3,818
Amortization of intangible assets 960 1,061 1,974 2,122
Other operating expenses 10,316 9,618 20,124 18,742
- ------------------------------------------------------------------------------------------------------------
Total other expenses 29,902 29,784 58,021 58,432
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 17,391 17,067 34,511 33,280
Provision for income taxes 5,176 5,580 10,526 10,582
- ------------------------------------------------------------------------------------------------------------
Net income $12,215 $11,487 $23,985 $22,698
============================================================================================================
Per share information:
Basic earnings $0.33 $0.31 $0.65 $0.62
Diluted earnings $0.33 $0.31 $0.65 $0.61
Cash dividends $0.15 $0.14 $0.30 $0.28
Average shares outstanding: Basic 36,944 36,890 36,943 36,857
Diluted 37,131 37,228 37,142 37,196
- ------------------------------------------------------------------------------------------------------------
</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 ended June 30 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $23,985 $22,698
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 5,660 6,045
Provision for loan and lease losses 2,718 2,531
Gain on securities transactions (100) (61)
Gain on sale of loans (2,000) (2,425)
Loss / (gain) on sale of other real estate owned 35 (34)
Mortgage loans originated for resale (95,159) (145,765)
Sale of mortgage loans originated for resale 102,618 138,819
(Increase) in accrued interest receivable (620) (815)
(Decrease) / increase in accrued interest payable (711) 1,509
Increase in accrued expenses and taxes payable 551 225
Other, net (283) (4,945)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,694 17,782
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from the sale of available-for-sale securities 27,695 40,788
Proceeds from the maturity of investment securities 119,217 146,118
Purchase of available-for-sale securities (112,403) (362,379)
Net increase in loans and leases (71,453) (58,920)
Capital expenditures (3,163) (4,787)
Purchase of insurance products (50,000) 0
- --------------------------------------------------------------------------------------------------------------
Net cash (used for) investing activities (90,107) (239,180)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) / increase in deposits (57,295) 72,950
Net increase / (decrease) in short-term borrowings 46,777 (16,288)
Proceeds from issuance of long-term debt 18,199 225,000
Repayment of long-term debt (2,464) (41,511)
Proceeds from issuance of common stock 798 1,201
Cash paid for treasury stock (287) (113)
Cash paid for fractional shares 0 (38)
Dividends paid (11,084) (9,908)
- --------------------------------------------------------------------------------------------------------------
Net cash (used for) / provided from financing activities (5,356) 231,293
- --------------------------------------------------------------------------------------------------------------
Net (decrease) / increase in cash and cash equivalents (58,769) 9,895
Cash and cash equivalents at January 1 196,273 158,718
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June 30 $137,504 $168,613
==============================================================================================================
Cash and cash equivalents:
Cash and due from banks $106,196 $111,955
Short-term investments 31,308 56,658
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June 30 $137,504 $168,613
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Interest paid on deposits, short-term borrowings, and long-term debt was
$68,350 in 1999, and $70,865 in 1998. Income taxes paid were $5,246 in 1999, and
$10,582 in 1998. Amounts transferred to other real estate owned were $4,533 in
1999, and $4,587 in 1998.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE TREASURY TOTAL
Six Month Periods Ended June 30 STOCK SURPLUS EARNINGS INCOME STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1998 $49,128 $85,196 $236,012 $3,825 ($255) $373,906
Comprehensive income:
Net income 22,698 22,698
Change in unrealized gain/(loss) on securities,
net of taxes of $190 and reclassification
adjustment of $61 849 849
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 22,698 849 23,547
Common stock issued under
employee benefit plans 126 1,037 37 1,200
Effect of three-for-two stock split 24,681 (24,719) (38)
Purchase of treasury stock (113) (113)
Cash dividends paid:
By pooled entities (431) (431)
Per common share of $0.28 (9,477) (9,477)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1998 $73,935 $61,514 $248,802 $4,674 ($331) $388,594
====================================================================================================================================
Balance - January 1, 1999 $73,935 $61,882 $261,043 $6,004 ($783) $402,081
Comprehensive income:
Net income 23,985 23,985
Change in unrealized gain/(loss) on securities,
net of taxes of $(6,549) and reclassification
adjustment of $100 (12,296) (12,296)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 23,985 (12,296) 11,689
Common stock issued under
employee benefit plans 37 (108) 869 798
Purchase/conversion of treasury stock (287) (287)
Cash dividends paid:
Per common share of $0.30 (11,084) (11,084)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1999 $73,972 $61,774 $273,944 ($6,292) ($201) $403,197
====================================================================================================================================
</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, 1999 and 1998.
The accounting policies of Susquehanna Bancshares, Inc. & Subsidiaries, 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 45 through 47 of the Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
The amortized costs and fair values of securities are as follows:
- ------------------------------------------------------------------------------------------------------------------
June 30, 1999 December 31, 1998
------------------------------ -----------------------------
(In thousands) Amortized cost Fair value Amortized cost Fair value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S.Treasury $51,903 $52,170 $67,043 $67,954
U.S. Government agencies 247,531 243,557 214,841 215,967
State & municipal 71,138 71,429 70,417 71,990
Mortgage-backed 433,730 423,672 466,005 466,534
Corporates 19,873 19,892 34,993 35,392
Equities 34,244 38,083 29,379 34,070
- ------------------------------------------------------------------------------------------------------------------
858,419 848,803 882,678 891,907
- ------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S.Treasury $0 $0 $500 $500
State & municipal 47,789 48,450 55,810 56,965
Mortgage-backed 1,338 1,350 3,502 3,529
Corporates 0 0 25 25
- ------------------------------------------------------------------------------------------------------------------
49,127 49,800 59,837 61,019
- ------------------------------------------------------------------------------------------------------------------
Total investment securities $907,546 $898,603 $942,515 $952,926
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
LOANS AND LEASES
- ------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income at June 30, 1999 and December 31, 1998, were as follows:
- ------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $311,792 $301,385
Real estate - construction 253,468 256,451
Real estate - mortgage 1,813,755 1,821,485
Consumer 387,645 346,180
Leases 139,251 121,684
- ------------------------------------------------------------------------------------------------------------------
Total loans and leases $2,905,911 $2,847,185
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
IMPAIRED LOANS
- ------------------------------------------------------------------------------------------------------------------
An analysis of impaired loans as of June 30, 1999 and December 31, 1998, is presented as follows:
- ------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans without a related reserve $6,609 $9,437
Impaired loans with a reserve 786 3,571
- ------------------------------------------------------------------------------------------------------------------
Total impaired loans $7,395 $13,008
- ------------------------------------------------------------------------------------------------------------------
Reserve for impaired loans $248 $591
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
An analysis of impaired loans for the three and six months periods ended June 30, 1999 and 1998 is presented as follows:
- ------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average balance of impaired loans $8,004 $11,990 $9,053 $ 12,542
Interest income on impaired loans (cash-basis) 33 79 52 113
</TABLE>
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings at June 30, 1999 and December 31, 1998, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements $88,252 $98,694
Federal Home Loan Bank borrowings 87,706 33,070
Treasury tax and loan notes 8,420 4,837
Federal funds purchased 0 1,000
- ---------------------------------------------------------------------------------------------------------------
Total short-term borrowings $184,378 $137,601
- ---------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT
- ---------------------------------------------------------------------------------------------------------------
Long-term debt at June 30, 1999 and December 31, 1998, was as follows:
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------
Subsidiaries:
FHLB advances in varying maturities through April, 2008 $295,255 $280,054
Term loan note due July, 2003 10,000 10,000
Term loan note due September, 2014 1,056 512
Installment note due June, 1999 0 10
Parent:
Senior notes due February, 2003 35,000 35,000
Subordinated notes due February, 2005 50,000 50,000
- ---------------------------------------------------------------------------------------------------------------
Total long-term debt $391,311 $375,576
- ---------------------------------------------------------------------------------------------------------------
EARNINGS-PER-SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
The following tables sets forth the calculation of basic and diluted earnings per share for the periods ended June 30, 1999 and
1998:
- ------------------------------------------------------------------------------------------------------------------------------------
For the three months ended June 30,
--------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to common stockholders $12,215 36,944 $0.33 $11,487 36,890 $0.31
Effect of Diluted Securities:
Stock options outstanding 187 338
--------- ---------
Diluted Earnings per Share:
Income available to common stockholders
and assumed conversion $12,215 37,131 $0.33 $11,487 37,228 $0.31
- --------------------------------------------------------------------------------------------------------------------
For the six months ended June 30,
--------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to common stockholders $23,985 36,943 $0.65 $22,698 36,857 $0.62
Effect of Diluted Securities:
Stock options outstanding 199 339
--------- ---------
Diluted Earnings per Share:
Income available to common stockholders
and assumed conversion $23,985 37,142 $0.65 $22,698 37,196 $0.61
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
COMPLETED ACQUISITIONS
On December 16, 1998, Susquehanna completed the acquisition of Cardinal
Bancorp, Inc. ("CBI"), a Pennsylvania bank holding company with $138 million in
assets and $114 million in deposits at the acquisition date. Susquehanna issued
2.048 shares of common stock to the shareholders of CBI for each of the 990,000
outstanding common shares of CBI. 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
CBI for all periods presented.
On January 4, 1999, Susquehanna completed the acquisition of First
Capitol Bank ("FCB"), a Pennsylvania commercial bank with $111 million in assets
and $93 million in deposits at the acquisition date. Susquehanna issued 2.028
shares of common stock to the shareholders of FCB for each of the 520,393
outstanding common shares of FCB. 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
FCB for all periods presented.
Previously reported information has been restated as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
- ----------------------------------------------------------------------------------------------------------------------
Susquehanna CBI FCB Susquehanna
As Reported As Reported As Reported Restated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $37,263 $1,466 $992 $39,721
Provision for loan and lease losses 1,252 0 10 1,262
Other income 8,101 214 77 8,392
Other expense 27,906 1,023 855 29,784
- ----------------------------------------------------------------------------------------------------------------------
Income before taxes 16,206 657 204 17,067
Taxes 5,340 193 47 5,580
- ----------------------------------------------------------------------------------------------------------------------
Net income $10,866 $464 $157 $11,487
======================================================================================================================
Earnings per share: Basic $0.32 $0.23 $0.15 $0.31
Diluted $0.32 $0.22 $0.15 $0.31
Average shares outstanding: Basic 33,837 2,027 1,026 36,890
Diluted 34,044 2,158 1,026 37,228
<CAPTION>
Six Months Ended June 30, 1998
- ----------------------------------------------------------------------------------------------------------------------
Susquehanna CBI FCB Susquehanna
As Reported As Reported As Reported Restated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $73,757 $2,930 $1,958 $78,645
Provision for loan and lease losses 2,485 0 46 2,531
Other income 15,032 430 136 15,598
Other expense 54,733 2,092 1,607 58,432
- ----------------------------------------------------------------------------------------------------------------------
Income before taxes 31,571 1,268 441 33,280
Taxes 10,101 373 108 10,582
- ----------------------------------------------------------------------------------------------------------------------
Net income $21,470 $895 $333 $22,698
======================================================================================================================
Earnings per share: Basic $0.63 $0.44 $0.33 $0.62
Diluted $0.63 $0.41 $0.33 $0.61
Average shares outstanding: Basic 33,835 2,027 995 36,857
Diluted 34,043 2,158 995 37,196
</TABLE>
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF
------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
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") is set forth below for the periods
indicated.
Certain statements in this document may be considered to be
"forward-looking statements" as that term is defined in the U.S. Private
Securities Litigation Reform Act of 1995. These statements include the words
"expect", "estimate", "project", "anticipate", "should", "intend",
"probability", "risk", "target", "objective" and similar expressions or
variations on such expressions. In particular, this document includes
forward-looking statements relating, but not limited to, Susquehanna's potential
exposures to Year 2000 compliance issues and various types of market risks, such
as interest rate risk and credit risk. These statements are subject to certain
risks and uncertainties. For example, certain market risk disclosures are
dependent on choices about key model characteristics and assumptions and are
subject to various limitations. By their nature, certain market risk disclosures
are only estimates and could be materially different from what actually occurs
in the future. As a result, actual income gains and losses could materially
differ from those that have been estimated. Other factors that could cause
actual results to differ materially from those estimated by the forward-looking
statements contained in this document include, but are not limited to: general
economic conditions in market areas which Susquehanna has significant business
activities or investments; the monetary and interest rate policies of the Board
of Governors of the Federal Reserve System; inflation; deflation; unanticipated
turbulence in interest rates; changes in laws, regulations and taxes; changes in
competition and pricing environments; natural disasters; the inability to hedge
certain risks economically; the adequacy of loss reserves; acquisitions or
restructurings; technological changes; changes in consumer spending and saving
habits; economic and social turbulence which might result from the Y2K or
millennium problem; and the success of Susquehanna in managing the risks
involved in the foregoing.
On December 16, 1998, Susquehanna completed the acquisition of Cardinal
Bancorp, Inc. ("Cardinal"), a Pennsylvania bank holding company. On January 4,
1999, Susquehanna completed the acquisition of First Capitol Bank, ("First
Capitol"), a Pennsylvania state-chartered bank. Since these transactions were
accounted for under the pooling-of-interests method of accounting, all financial
results reported include Cardinal and First Capitol.
Earnings Summary
----------------
Susquehanna's net income for the second quarter of 1999 was $12.2
million, a 6% increase over the net income of $11.5 million reported in the
second quarter of 1998. Steady loan growth and a drop in the cost of deposits
has improved the net interest income during the second quarter of 1999.
Diluted earnings per share ("EPS") were $0.33 per share for the second
quarter of 1999 compared with $0.31 per share in the second quarter of 1998.
Return on average assets ("ROA") and return on average equity ("ROE") were 1.18%
and 12.09%, respectively, in the second quarter of 1999 compared with 1.15% and
11.95%, respectively, in the second quarter of 1998.
10
<PAGE>
For the second quarter of 1999, tangible EPS, ROA and ROE were $0.35, 1.27%, and
14.01%, respectively.
Net income for the six months ended June 30, 1999 was $24.0 million, a
6% increase over the net income of $22.7 million reported for the same period of
1998. The drop in the cost of interest-bearing liabilities and steady loan
growth has improved the net interest income during the first half of 1999. The
yield on total interest-bearing liabilities dropped from 4.56% during the first
six months of 1998 to 4.17% during the same period of 1999.
Diluted earnings per share ("EPS") were $0.65 per share for the first
six months of 1999 compared with $0.61 per share during the same period of 1998.
Return on average assets ("ROA") and return on average equity ("ROE") were 1.17%
and 11.99%, respectively, for the six months ended June 30, 1999 compared with
1.16% and 12.01%, respectively, for the six months ended June 30, 1998. For the
first six months of 1999, tangible EPS, ROA and ROE were $0.69, 1.26%, and
13.93%, respectively.
Total assets at June 30, 1999 of $4.2 billion were $165 million higher
than one year ago. Loans totaled $2.9 billion at June 30, 1999, compared to $2.8
billion at June 30, 1998, and deposits were $3.2 billion at June 30, 1999,
compared to $3.1 billion at June 30, 1998. Equity capital was $403 million at
June 30, 1999, or $10.91 per share, compared to $389 million, or $10.53 per
share, at June 30, 1998.
Net Interest Income
-------------------
The major source of operating revenues is net interest income, which
rose to a level of $40.7 million in the second quarter of 1999 compared to $39.7
million for the same period in 1998. For the six months ended June 30, 1999, net
interest income was $80.0 million compared with $78.6 million for the same
period of 1998. 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 requiring supporting earning assets. Income from
earning assets includes income from loans, investment securities and 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 assets.
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 the 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 84% for the quarter ended
and the six months ended June 30, 1999 and was 83% for the comparable periods of
1998.
Net interest income as of second quarter 1999 increased $1.0 million
compared to the second quarter of 1998. This improvement was due to an increase
in average earning assets of $103 million offset by a decline in the net
interest margin from 4.40% in the second quarter of 1998 to 4.37% in the second
quarter of 1999. This decline in margin was due to a 38 basis point drop in
earning asset yield that was partially offset by a 42 basis point drop in the
cost of funds.
Net interest income for the six months ended June 30, 1999 increased
$1.4 million over the same period of 1998. An increase in average earning assets
of $157 million was offset by a
11
<PAGE>
decline in the net interest margin from 4.44% in the first half of 1998 to 4.33%
during the comparable period of 1999. This decline in margin was due to a 44
basis point drop in yield on earning assets, partially offset by a 39 basis
point drop in the cost of funds.
Other Income
------------
Non-interest income decreased $0.5 million, or 6%, from $8.4 million in
the second quarter of 1998 to $7.9 million in the second quarter of 1999. Gain
on sale of mortgages decreased $0.4 million in the second quarter of 1999
compared with the second quarter of 1998. Loans originated for sale decreased
$33 million during the second quarter of 1999 compared with the second quarter
of 1998 while the amount of loans sold during the second quarter of 1999 was $35
million less than the same period of 1998. Service charges on deposit accounts
increased $0.3 million while other service charges and other fee income
decreased $0.2 million during the second quarter of 1999 compared with the
second quarter of 1998. During the second quarter of 1998, Susquehanna sold its
mortgage-servicing portfolio and realized a gain on the sale of $0.7 million,
which affected other operating income.
For the first six months of 1999, non-interest income of $15.3 million
was $0.3 million less than the same period of 1998. Gain on the sale of loans
was $2.0 million in the first half of 1999 compared with $2.4 million in 1998
due to volume. Service charges on deposits were $0.6 million higher while other
service charges and other fee income decreased $0.2 million during the first six
months of 1999 compared with the first six months of 1998. Partially offsetting
the gain on sale of the mortgage-servicing portfolio of 1998 was an increase in
income on bank-owned life insurance of $0.4 million in 1999 over the same period
of 1998. Both of these items affected other operating income.
Other income as a percentage of net interest income and other income
was 16% for the quarter and six months ended June 30, and was 17% for the
comparable periods of 1998.
Other Expenses
--------------
Total non-interest expenses increased $0.1 million from $29.8 million
in the second quarter of 1998 to $29.9 million in the second quarter of 1999.
For the six months ended June 30, 1999, total non-interest expenses decreased
$0.4 million from the same period in 1998. Salaries and benefits expense
decreased $1.8 million in the first six months of 1999 compared with the first
six months of 1998. This improvement was offset by an increase of $1.4 million
in other operating expenses, namely consulting, insurance, and delivery
expenses, during the first six months of 1999.
During the second quarter of 1999, Susquehanna incurred charges of
$0.3 million related to Year 2000 systems remediation compared with $0.6 million
in the second quarter of 1998. Total expense for Year 2000 remediation is $3.8
million at June 30, 1999. Susquehanna estimates that the total project expenses
it will incur regarding Year 2000 remediation during 1998 and 1999 will total
approximately $4.0 million. For a further discussion on these matters, please
see the following section entitled "Impact of the Year 2000 Issue".
Income Taxes
------------
Susquehanna's effective tax rate decreased from 31.80% for the first
six months of 1998 to 30.50% for the first six months of 1999 due to an increase
in tax-advantaged income.
12
<PAGE>
Risk Assets
-----------
Table 2 shows a decrease in nonperforming assets from $26.4 million at
December 31, 1998 to $21.7 million at June 30, 1999, as nonperforming assets to
period-end loans and OREO declined from 0.92% at December 31, 1998 to 0.75% at
June 30, 1999. Loan loss reserve to non-performing loans at June 30, 1999 was
220% compared with 167% at December 31, 1998.
Provision and Allowance for Loan and Lease Losses
-------------------------------------------------
As illustrated in Table 3, the provision remained at $1.3 million in
the second quarter of 1999 and 1998. For the six months ended June 30, 1999, the
provision was $0.2 million higher than one year ago. Net charge-offs remained at
$2.7 million for the same six month periods.
The allowance at June 30, 1999 was 1.24% of period-end loans and
leases compared to 1.31% at June 30, 1998 as period-end loans increased $127
million at June 30, 1999 from one year ago.
Capital Resources
-----------------
Capital elements for Susquehanna 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,
1999 was 12.23%. The minimum total capital (Tier II) ratio is 8%; Susquehanna's
ratio at, June 30, 1999 was 15.03%. The minimum leverage ratio is 4%;
Susquehanna's leverage ratio at June 30, 1999 was 9.16%.
Market Risks
------------
The types of market risk exposures generally faced by banking entities
include interest rate risk, liquidity risk, equity market price risk, foreign
currency risk and commodity price risk. Due to the nature of its operations,
only interest rate and liquidity risks are significant to Susquehanna.
Liquidity and interest rate risk 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. At June 30, 1999, Susquehanna's
subsidiary banks and its savings bank have unused lines of credit available to
them from the Federal Home Loan Bank totaling approximately $500 million.
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 $83 million at June 30, 1999. These
maturing investments represent 9% of total investment securities. Short-term
investments amounted to $31 million and represent additional sources of
liquidity. Consequently, Susquehanna's exposure to liquidity risk is not
considered significant.
Closely related to the management of liquidity is the management of
interest rate risk, 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. Management's objective is to control
the difference in the timing of the rate changes for these assets and
liabilities to preserve a satisfactory net
13
<PAGE>
interest margin. In doing so, Susquehanna endeavors to maximize earnings in an
environment of changing interest rates. However, there is a lag in maintaining
the desired matching because the repricing of products does occur at varying
time intervals.
Susquehanna employs a variety of methods to monitor interest rate risk.
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 and interest rate shock analyses to evaluate
interest rate sensitivity.
Susquehanna's policy, as approved by its Board of Directors, is for
Susquehanna to experience no more than a 15% decline in net interest income and
no more than a 25% decline in economic equity for a 200 basis point shock
(immediate change) in interest rates. The assumptions used for the interest rate
shock analysis are reviewed and updated on a periodic basis. Based upon the most
recent interest rate shock analysis, Susquehanna was well within the policy
limits.
Impact of the Year 2000 Issue
-----------------------------
The following section contains forward-looking statements, which
involve risks and uncertainties. Susquehanna's actual impact from the Year 2000
issue could materially differ from that which is anticipated in these
forward-looking statements as a result of certain factors identified below.
The "Year 2000 Issue" is the result of computer programs having been
written using two digits rather than four to define the applicable year. Any of
Susquehanna's computer systems that have date-sensitive software or date
sensitive hardware may recognize a date using "00" as the Year 1900 rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send statements, or engage in similar normal business
activities.
Based on a system assessment, Susquehanna has determined that it was
necessary to modify or replace portions of its software and hardware so that its
computer systems would properly utilize dates beyond December 31, 1999.
Susquehanna presently believes that as a result of modifications to existing
software and hardware and conversions to new software and hardware, the Year
2000 Issue has been mitigated internally.
Susquehanna's Year 2000 Action Plan has been categorized into five
phases: Awareness, Assessment, Renovation (testing), Validation and
Implementation. The initial focus within those phases has been on systems and
vendors that are related to mission critical business processes. Mission
critical processes are defined as those areas of the business whose continued
operations are required in order to provide basic banking services. All other
business processes were categorized as either significant or ancillary and have
also been subject to Y2K remediation programs. As of June 30, 1999, the
Awareness, Assessment, Renovation and Validation phases for all business
processes (mission critical, significant and ancillary) were completed. The
Implementation phase for all business processes (mission critical, significant
and ancillary) is on schedule and substantially completed.
Susquehanna has initiated formal communications with all of its vendors
and large commercial customers to determine the extent to which Susquehanna is
vulnerable to those third parties' failure to remedy their own Year 2000 Issue.
Susquehanna's estimated Year 2000 project costs include the costs and time
associated with the impact of a third party's Year 2000 Issue, and are based on
presently available information.
14
<PAGE>
Vendors of services to Susquehanna were evaluated for Y2K compliancy.
As of June 30, 1999, the evaluation of vendors has been completed. All vendors
evaluated have been determined to be Y2K compliant or alternative vendors have
been designated. Y2K risk assessments of borrowers and depositors have been
conducted. Identified risks are deemed to be nominal.
Susquehanna believes that it will be Year 2000 ready before December
31, 1999 and testing to date has not revealed a need for business remediation
contingency plans for core or other internal processing systems. Exposure to
counter-parties and other directly related external vendors was deemed limited
and required only nominal contingency planning, such as the designation of an
alternative vendor. The greatest risk is believed to be through external parties
that are not within Susquehanna's control. A significant electrical failure, for
example, may require the company to limit or even eliminate services until power
is restored. Backup records will be produced immediately prior to January 1,
2000 to assure an orderly resumption of business if major disruptions occur.
Further, business resumption contingency planning is being done throughout the
company in order to assure rapid and disciplined approaches to handling any
unexpected occurrence.
Included within the scope of Susquehanna's Year 2000 Action Plan is the
assessment of non-information technology systems with embedded chips.
Susquehanna's assessment process generally includes inventorying such equipment
and making a determination as to the Year 2000 readiness status of these items.
This assessment has been completed. No Year 2000 modifications or replacements
of a material nature have been identified for non-information technology
systems.
Susquehanna is utilizing both internal and external resources to
reprogram, or replace, and test its software and hardware for Year 2000
modifications. Concurrent with the Year 2000 project, Susquehanna is also
converting all its major data processing systems, both hardware and software, to
current Year 2000 compliant technology. As of June 30, 1999, Susquehanna has
completed the systems conversion projects for all critical systems. The total
cost of the Year 2000 and systems conversion projects is estimated at $12
million. Of the total projects' cost, approximately $8 million is attributable
to the purchase of new software and hardware, which is capitalized. The
remaining $4 million is expensed as incurred during 1998 and 1999. These costs
are not expected to have a material effect on the results of operations of
Susquehanna.
The costs of the projects and the date on which Susquehanna plans to
complete both the Year 2000 modifications and systems conversions are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, new initiatives, if any, undertaken to assure
compliancy, and information regarding externalities presently unknown.
As a bank holding company, Susquehanna and its subsidiaries are subject
to the regulation and oversight of various banking regulators. Their oversight
includes the provision of specific timetables, programs and guidance regarding
Year 2000 issues. Regulatory examination of the holding company and its
subsidiaries' Year 2000 program are conducted on a quarterly basis, and reports
are submitted by Susquehanna to the regulators on a periodic basis.
15
<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, 1999 June 30, 1998
- ------------------------------------------------------------------------------- --------------------------------------
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Short - term investments $43,307 $522 4.83 $90,947 $1,255 5.53
Investment securities:
Taxable 806,761 12,358 6.14 770,573 12,316 6.41
Tax - advantaged 120,543 2,092 6.94 124,492 2,206 7.09
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 927,304 14,450 6.25 895,065 14,522 6.51
- ----------------------------------------------------------------------------------------------------------------------------
Loans and leases, (net):
Taxable 2,815,698 59,190 8.43 2,690,773 59,807 8.92
Tax - advantaged 49,244 1,148 9.35 55,917 1,284 9.21
- ----------------------------------------------------------------------------------------------------------------------------
Total loans and leases 2,864,942 60,338 8.45 2,746,690 61,091 8.92
- ----------------------------------------------------------------------------------------------------------------------------
Total interest - earning assets 3,835,553 $75,310 7.88 3,732,702 $76,868 8.26
--------------------- ----------------------
Allowance for loan and lease losses (36,411) (36,001)
Other non - earning assets 339,595 308,970
- ------------------------------------------------------ -----------
Total assets $4,138,737 4,005,671
- ------------------------------------------------------ -----------
Liabilities & Equity
- --------------------
Deposits:
Interest - bearing demand $966,978 $6,793 2.82 $889,011 $7,220 3.26
Savings 453,922 2,041 1.80 453,300 2,652 2.35
Time 1,313,837 17,072 5.21 1,366,460 18,982 5.57
Short - term borrowings 144,978 1,656 4.58 90,907 1,177 5.19
Long - term debt 389,626 5,946 6.12 378,770 5,897 6.24
- ----------------------------------------------------------------------------------------------------------------------------
Total interest - bearing liabilities 3,269,341 $33,508 4.11 3,178,448 $35,928 4.53
--------------------- ----------------------
Demand deposits 424,063 395,498
Other liabilities 40,188 46,094
- ------------------------------------------------------ -----------
Total liabilities $3,733,592 3,620,040
- ------------------------------------------------------ -----------
Stockholders' equity 405,145 385,631
- ------------------------------------------------------ -----------
Total liabilities & stockholders' equity $4,138,737 4,005,671
- ------------------------------------------------------ -----------
Net interest income / yield on
average earning assets $41,802 4.37 $40,940 4.40
--------------------- ----------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
For the Six Month Period Ended For the Six Month Period Ended
June 30, 1999 June 30, 1998
- ------------------------------------------------------------------------------- --------------------------------------
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Short - term investments $56,308 $1,326 4.75 $93,510 $2,561 5.52
Investment securities:
Taxable 812,115 24,776 6.15 738,690 23,772 6.49
Tax - advantaged 122,504 4,300 7.02 119,693 4,261 7.12
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 934,619 29,076 6.27 858,383 28,033 6.59
- ----------------------------------------------------------------------------------------------------------------------------
Loans and leases, (net):
Taxable 2,795,623 117,273 8.46 2,671,877 118,723 8.96
Tax - advantaged 49,610 2,257 9.17 55,823 2,585 9.34
- ----------------------------------------------------------------------------------------------------------------------------
Total loans and leases 2,845,233 119,530 8.47 2,727,700 121,308 8.97
- ----------------------------------------------------------------------------------------------------------------------------
Total interest - earning assets 3,836,160 $149,932 7.88 3,679,593 $151,902 8.32
--------------------- ----------------------
Allowance for loan and lease losses (36,435) (36,187)
Other non - earning assets 329,592 302,506
- ------------------------------------------------------ --------------
Total assets $4,129,317 $3,945,912
- ------------------------------------------------------ --------------
Liabilities & Equity
- --------------------
Deposits:
Interest - bearing demand $977,395 $13,993 2.89 $877,723 $14,291 3.28
Savings 450,368 4,195 1.88 449,419 5,385 2.42
Time 1,323,163 34,667 5.28 1,369,689 37,894 5.58
Short - term borrowings 131,199 2,903 4.46 94,419 2,434 5.20
Long - term debt 389,476 11,881 6.15 344,772 10,861 6.35
- ----------------------------------------------------------------------------------------------------------------------------
Total interest - bearing liabilities 3,271,601 $67,639 4.17 3,136,022 $70,865 4.56
--------------------- ----------------------
Demand deposits 413,877 382,864
Other liabilities 40,540 45,812
- ------------------------------------------------------ --------------
Total liabilities $3,726,018 $3,564,698
- ------------------------------------------------------ --------------
Stockholders' equity 403,299 381,214
- ------------------------------------------------------ --------------
Total liabilities &stockholders' equity $4,129,317 $3,945,912
- ------------------------------------------------------ --------------
Net interest income / yield on
average earning assets $82,293 4.33 $81,037 4.44
--------------------- ----------------------
</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 in 35%.
16
<PAGE>
Susquehanna Bancshares, Inc. and Subsidiaries
TABLE 2 - RISK ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
(Dollars in thousands) 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases $16,454 $20,412 $22,793
Restructured accrual loans -- 1,201 1,095
Other real estate owned 5,236 4,745 3,689
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $21,690 $26,358 $27,577
- ------------------------------------------------------------------------------------------------------------------------------
As a percent of period-end loans and leases and
other real estate owned 0.75% 0.92% 0.99%
Loans and leases contractually
past due 90 days and still accruing $10,186 $10,531 $7,025
<CAPTION>
TABLE 3 - ALLOWANCE FOR LOAN AND LEASE LOSSES
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Beginning of period $36,560 $36,273 $36,157 $36,481
Additions charged to operating expenses 1,294 1,262 2,718 2,531
- ------------------------------------------------------------------------------------------------------------------------------
37,854 37,535 38,875 39,012
- ------------------------------------------------------------------------------------------------------------------------------
Charge-offs (2,299) (1,636) (3,671) (3,495)
Recoveries 586 385 937 767
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (1,713) (1,251) (2,734) (2,728)
- ------------------------------------------------------------------------------------------------------------------------------
Balance - Period end $36,141 $36,284 $36,141 $36,284
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs as a percent of average loans and leases (annualized) 0.24% 0.18% 0.19% 0.20%
Allowance as a percent of period-end loans and leases 1.24% 1.31% 1.24% 1.31%
Average loans and leases $2,864,942 $2,746,690 $2,845,233 $2,727,700
Period-end loans and leases 2,905,911 2,778,479 2,905,911 2,778,479
</TABLE>
<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 28, 1999. 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). The
terms of office of Robert S. Bolinger, James G. Apple, Trudy B. Cunningham,
John M. Denlinger, Henry H. Gibbel, Marley R. Gross, T. Max Hall, George J.
Morgan, and Roger V. Wiest continued after the meeting.
NOMINEE COMMON STOCK
------- ------------
C. William Hetzer
For 30,110,737
Withhold/abstain 274,885
Not present 6,384,582
Broker non-voted 167,255
William J. Reuter
For 30,114,008
Withhold/abstain 271,614
Not present 6,384,582
Broker non-voted 167,255
Guy W. Miller, Jr
For 30,108,477
Withhold/abstain 277,145
Not present 6,384,582
Broker non-voted 167,255
Owen O. Freeman
For 30,119,173
Withhold/abstain 266,449
Not present 6,384,582
Broker non-voted 167,255
18
<PAGE>
Richard M. Cloney
For 30,016,680
Withhold/abstain 368,942
Not present 6,384,582
Broker non-voted 167,255
Clyde R. Morris
For 30,022,130
Withhold/abstain 363,492
Not present 6,384,582
Broker non-voted 167,255
Edward W. Helfrick
For 30,105,791
Withhold/abstain 279,831
Not present 6,384,582
Broker non-voted 167,255
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a). Exhibits
--------
3.1 Registrant's Articles of Incorporation.
3.2 Registrant's By-laws.
3.3 Articles of Amendent to Registrant's Articles of Incorporation.
27.1 Financial Data Schedule.
b). Report on Form 8 - K NONE
--------------------
19
<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 6, 1999
/s/ Robert S. Bolinger
----------------------
Robert S, Bolinger
President and Chief Executive Officer
August 6, 1999
/s/ Drew K. Hostetter
---------------------
Drew K. Hostetter
Vice President, Treasurer,
and Chief Financial Officer
20
<PAGE>
Exhibit Index
-------------
Exhibit Description Method
- ------- ----------- ------
3.1 Articles of Incorporation. Previously filed.Incorporated
by reference to Attachment E
to the Registrant's Joint Proxy
Statement/Prospectus on
Registrant's Registration
Statement on Form S-4,
Registration No. 33-76319.
3.2 By-laws. Previously filed. Incorporated
by reference to Exhibit (3)(b)
of Registrant's Annual Report on
Form 10-K for the fiscal year
ended December 31, 1994.
3.3 Amendment of June 1, 1998 Previously filed. Incorporated
to Registrant's Articles of by reference to Exhibit 3.3 of
Incorporation. Registrant's Quarterly Report
on Form 10-Q for the quarterly
period ended June 30, 1998.
27.1 Financial Data Schedule. Submitted electronically to
the Securities and Exchange
Commission for information
only and not filed.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 106,196
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 31,308
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 848,803
<INVESTMENTS-CARRYING> 49,127
<INVESTMENTS-MARKET> 49,800
<LOANS> 2,905,911
<ALLOWANCE> 36,141
<TOTAL-ASSETS> 4,181,057
<DEPOSITS> 3,159,584
<SHORT-TERM> 184,378
<LIABILITIES-OTHER> 42,587
<LONG-TERM> 391,311
0
0
<COMMON> 73,972
<OTHER-SE> 329,225
<TOTAL-LIABILITIES-AND-EQUITY> 4,181,057
<INTEREST-LOAN> 118,740
<INTEREST-INVEST> 27,571
<INTEREST-OTHER> 1,326
<INTEREST-TOTAL> 147,637
<INTEREST-DEPOSIT> 52,855
<INTEREST-EXPENSE> 67,639
<INTEREST-INCOME-NET> 79,998
<LOAN-LOSSES> 2,718
<SECURITIES-GAINS> 100
<EXPENSE-OTHER> 58,021
<INCOME-PRETAX> 34,511
<INCOME-PRE-EXTRAORDINARY> 23,985
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,985
<EPS-BASIC> 0.65
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 7.88
<LOANS-NON> 16,454
<LOANS-PAST> 10,186
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,157
<CHARGE-OFFS> 3,671
<RECOVERIES> 937
<ALLOWANCE-CLOSE> 36,141
<ALLOWANCE-DOMESTIC> 36,141
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
