UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
(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, 2005
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
| 26 North Cedar St., Lititz, Pennsylvania | 17543 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (717) 626-4721
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 by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
46,882,478 shares of common stock, par value $2.00 per share, were issued and outstanding as of February 28, 2006.
EXPLANATORY NOTE REGARDING THIS FORM 10-Q/A
This Amendment No. 1 on Form 10-Q/A amends our Form 10-Q for the quarter ended September 30, 2005, initially filed with the Securities and Exchange Commission on November 7, 2005 (the “original Form 10-Q”).
This Form 10-Q/A includes our restated consolidated financial statements for the quarter ended September 30, 2005, including the notes thereto. Our financial statements have been restated principally to restate our consolidated statements of cash flows in order to reclassify items related to origination, repayment and disposition of our portfolio of vehicle leases from operating activities to investing activities. Refer to Note 12, “Restatement,” in this Form 10-Q/A for further information on the restatement impact for the quarter ended September 30, 2005.
This Form 10-Q/A only amends and restates Items 1 and 4 of Part I of the original Form 10-Q and no other items in the original Form 10-Q are amended hereby. The foregoing items have not been updated to reflect other events occurring after the original Form 10-Q or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of the Securities and Exchange Commission, Item 6 of Part II of the original Form 10-Q has been amended to contain currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
2
SUSQUEHANNA BANCSHARES, INC.
| PART I. | FINANCIAL INFORMATION | |||
| Item 1 | Financial Statements | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
Consolidated Statements of Changes in Shareholders’ Equity (unaudited) | 7 | |||
| Notes to the Consolidated Financial Statements (unaudited) | 8 | |||
| Item 4 | Controls and Procedures | 17 | ||
| PART II. | OTHER INFORMATION | |||
| Item 6 | Exhibits | 17 | ||
| SIGNATURES | 18 | |||
| EXHIBIT INDEX | 19 | |||
3
Susquehanna Bancshares, Inc. and Subsidiaries
| September 30 2005 | December 31 2004 | September 30 2004 | |||||||||
| (in thousands, except share data) | |||||||||||
Assets | |||||||||||
Cash and due from banks | $ | 185,623 | $ | 160,574 | $ | 182,857 | |||||
Short-term investments: | |||||||||||
Restricted | 27,379 | 27,190 | 26,637 | ||||||||
Unrestricted | 44,086 | 31,544 | 26,952 | ||||||||
Total short-term investments | 71,465 | 58,734 | 53,589 | ||||||||
Securities available for sale | 1,161,576 | 1,240,945 | 1,289,222 | ||||||||
Securities held to maturity (fair values approximate $6,467; $4,469; and $4,602) | 6,467 | 4,469 | 4,602 | ||||||||
Loans and leases, net of unearned income | 5,334,008 | 5,253,008 | 5,166,137 | ||||||||
Less: Allowance for loan and lease losses | 53,232 | 54,093 | 52,468 | ||||||||
Net loans and leases | 5,280,776 | 5,198,915 | 5,113,669 | ||||||||
Premises and equipment, net | 88,988 | 83,606 | 80,399 | ||||||||
Foreclosed assets | 3,417 | 1,340 | 1,210 | ||||||||
Accrued income receivable | 23,830 | 21,661 | 21,711 | ||||||||
Bank-owned life insurance | 255,120 | 249,691 | 247,336 | ||||||||
Goodwill | 242,718 | 240,632 | 239,432 | ||||||||
Intangible assets with finite lives | 12,149 | 11,960 | 12,640 | ||||||||
Investment in and receivables from unconsolidated entities | 103,310 | 68,384 | 62,541 | ||||||||
Other assets | 104,528 | 134,162 | 140,648 | ||||||||
| $ | 7,539,967 | $ | 7,475,073 | $ | 7,449,856 | ||||||
Liabilities and Shareholders’ Equity | |||||||||||
Deposits: | |||||||||||
Demand | $ | 900,715 | $ | 853,411 | $ | 817,744 | |||||
Interest-bearing demand | 1,774,273 | 1,765,077 | 1,811,651 | ||||||||
Savings | 481,778 | 559,530 | 574,339 | ||||||||
Time | 1,362,494 | 1,367,282 | 1,375,371 | ||||||||
Time of $100 or more | 779,128 | 585,382 | 506,465 | ||||||||
Total deposits | 5,298,388 | 5,130,682 | 5,085,570 | ||||||||
Short-term borrowings | 374,123 | 420,868 | 460,820 | ||||||||
FHLB borrowings | 718,257 | 751,220 | 750,049 | ||||||||
Long-term debt | 150,000 | 200,000 | 200,000 | ||||||||
Junior subordinated debentures | 22,905 | 23,277 | 23,397 | ||||||||
Accrued interest, taxes, and expenses payable | 73,430 | 41,255 | 58,185 | ||||||||
Deferred taxes | 103,887 | 114,050 | 94,431 | ||||||||
Other liabilities | 31,334 | 42,027 | 30,991 | ||||||||
Total liabilities | 6,772,324 | 6,723,379 | 6,703,443 | ||||||||
Shareholders’ equity: | |||||||||||
Common stock, $2.00 par value, 100,000,000 shares authorized; | 93,619 | 93,186 | 93,010 | ||||||||
Additional paid-in capital | 230,221 | 226,384 | 225,021 | ||||||||
Retained earnings | 454,833 | 435,159 | 426,607 | ||||||||
Accumulated other comprehensive income (loss), net of taxes of$(5,939); $(1,634); and $956, respectively | (11,030 | ) | (3,035 | ) | 1,775 | ||||||
Total shareholders’ equity | 767,643 | 751,694 | 746,413 | ||||||||
| $ | 7,539,967 | $ | 7,475,073 | $ | 7,449,856 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
| (in thousands, except per share data) | ||||||||||||
Interest Income: | ||||||||||||
Loans and leases, including fees | $ | 87,747 | $ | 74,255 | $ | 249,065 | $ | 198,790 | ||||
Securities: | ||||||||||||
Taxable | 9,898 | 11,761 | 31,169 | 29,174 | ||||||||
Tax-exempt | 206 | 508 | 1,020 | 1,067 | ||||||||
Dividends | 587 | 765 | 1,924 | 1,655 | ||||||||
Short-term investments | 500 | 159 | 1,186 | 543 | ||||||||
Total interest income | 98,938 | 87,448 | 284,364 | 231,229 | ||||||||
Interest Expense: | ||||||||||||
Deposits: | ||||||||||||
Interest-bearing demand | 7,961 | 5,092 | 19,157 | 11,452 | ||||||||
Savings | 538 | 655 | 1,704 | 1,487 | ||||||||
Time | 16,636 | 12,554 | 45,953 | 35,977 | ||||||||
Short-term borrowings | 2,814 | 1,228 | 6,949 | 2,646 | ||||||||
FHLB borrowings | 7,815 | 5,946 | 22,805 | 16,254 | ||||||||
Long-term debt | 2,468 | 3,561 | 7,776 | 8,965 | ||||||||
Total interest expense | 38,232 | 29,036 | 104,344 | 76,781 | ||||||||
Net interest income | 60,706 | 58,412 | 180,020 | 154,448 | ||||||||
Provision for loan and lease losses | 3,215 | 2,783 | 8,445 | 6,590 | ||||||||
Net interest income, after provision for loan and lease losses | 57,491 | 55,629 | 171,575 | 147,858 | ||||||||
Noninterest Income: | ||||||||||||
Service charges on deposit accounts | 5,574 | 5,955 | 15,866 | 16,270 | ||||||||
Vehicle origination, servicing, and securitization fees | 4,444 | 4,894 | 12,276 | 15,575 | ||||||||
Asset management fees | 4,505 | 3,784 | 13,331 | 10,478 | ||||||||
Income from fiduciary-related activities | 1,495 | 1,434 | 4,441 | 4,260 | ||||||||
Commissions on brokerage, life insurance, and annuity sales | 1,019 | 943 | 3,278 | 2,999 | ||||||||
Commissions on property and casualty insurance sales | 2,372 | 2,101 | 8,327 | 6,690 | ||||||||
Income from bank-owned life insurance | 2,349 | 2,430 | 6,876 | 6,694 | ||||||||
Net gain on sale of loans and leases | 1,104 | 977 | 5,674 | 7,625 | ||||||||
Net gain on securities | 807 | 3,770 | 4,188 | 4,338 | ||||||||
Other | 3,507 | 3,834 | 11,113 | 9,621 | ||||||||
Total noninterest income | 27,176 | 30,122 | 85,370 | 84,550 | ||||||||
Noninterest Expenses: | ||||||||||||
Salaries and employee benefits | 27,444 | 28,331 | 83,914 | 78,127 | ||||||||
Occupancy | 4,574 | 4,160 | 14,194 | 11,544 | ||||||||
Furniture and equipment | 2,534 | 2,388 | 7,523 | 6,675 | ||||||||
Amortization of intangible assets | 386 | 413 | 1,140 | 792 | ||||||||
Vehicle residual value | 2,477 | 1,663 | 7,727 | 4,053 | ||||||||
Vehicle delivery and preparation | 3,249 | 4,120 | 9,697 | 10,199 | ||||||||
Other | 17,884 | 18,427 | 56,470 | 48,777 | ||||||||
Total noninterest expenses | 58,548 | 59,502 | 180,665 | 160,167 | ||||||||
Income before income taxes | 26,119 | 26,249 | 76,280 | 72,241 | ||||||||
Provision for income taxes | 8,358 | 7,743 | 24,410 | 21,310 | ||||||||
Net Income | $ | 17,761 | $ | 18,506 | $ | 51,870 | $ | 50,931 | ||||
Earnings per share: | ||||||||||||
Basic | $ | 0.38 | $ | 0.40 | $ | 1.11 | $ | 1.20 | ||||
Diluted | $ | 0.38 | $ | 0.40 | $ | 1.11 | $ | 1.19 | ||||
Cash dividends | $ | 0.23 | $ | 0.22 | $ | 0.69 | $ | 0.66 | ||||
Average shares outstanding: | ||||||||||||
Basic | 46,763 | 46,478 | 46,676 | 42,596 | ||||||||
Diluted | 46,988 | 46,711 | 46,896 | 42,883 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Restated | ||||||||
(Dollars in thousands) Nine months ended September 30, | 2005 | 2004 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 51,870 | $ | 50,931 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, amortization, and accretion | 14,376 | 11,920 | ||||||
Provision for loan and lease losses | 8,445 | 6,590 | ||||||
Realized gain on sales of available-for-sale securities, net | (4,188 | ) | (4,338 | ) | ||||
Deferred income taxes | (5,858 | ) | (9,850 | ) | ||||
Gain on sale of loans and leases | (5,674 | ) | (7,625 | ) | ||||
Gain on sale of other real estate owned | (172 | ) | (441 | ) | ||||
Gain on sale of branch offices | (638 | ) | (1,068 | ) | ||||
Mortgage loans originated for sale | (112,654 | ) | (100,547 | ) | ||||
Proceeds from sale of mortgage loans originated for sale | 111,037 | 102,772 | ||||||
Leases originated for sale, net of payments received | (279,921 | ) | (194,852 | ) | ||||
Proceeds from sale of leases originated for sale | 5,218 | 179,971 | ||||||
Increase in cash surrender value of bank-owned life insurance | (6,876 | ) | (6,694 | ) | ||||
Increase in accrued interest receivable | (2,169 | ) | (4,217 | ) | ||||
Increase in accrued interest payable | 3,486 | 2,768 | ||||||
Increase in accrued expenses and taxes payable | 28,719 | 21,681 | ||||||
Other, net | (29,836 | ) | (25,938 | ) | ||||
Net cash (used in) provided by operating activities | (224,835 | ) | 21,063 | |||||
Cash Flows from Investing Activities: | ||||||||
Net (increase) decrease in restricted short-term investments | (189 | ) | 18,180 | |||||
Activity in available-for-sale securities: | ||||||||
Sales | 175,025 | 207,159 | ||||||
Maturities, repayments and calls | 202,170 | 356,958 | ||||||
Purchases | (313,729 | ) | (554,884 | ) | ||||
Net proceeds from sale of leases in banks’ portfolios | 318,350 | 0 | ||||||
Net increase in loans and leases | (127,769 | ) | (251,561 | ) | ||||
Cash flows received on retained interests | 12,990 | 3,411 | ||||||
Purchase of bank-owned life insurance | 0 | (29,900 | ) | |||||
Acquisitions, net of cash acquired | (3,412 | ) | (36,278 | ) | ||||
Additions to premises and equipment | (11,953 | ) | (11,229 | ) | ||||
Net cash provided by (used in) investing activities | 251,483 | (298,144 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Net increase in deposits | 175,438 | 312,323 | ||||||
Sale of branch offices net of premium received | (6,861 | ) | (8,949 | ) | ||||
Net (decrease) increase in short-term borrowings | (46,745 | ) | 105,266 | |||||
Net decrease in FHLB borrowings | (32,963 | ) | (177,529 | ) | ||||
Repayment of long-term debt | (50,000 | ) | (5,000 | ) | ||||
Proceeds from issuance of long-term debt | 0 | 74,356 | ||||||
Proceeds from issuance of common stock | 4,270 | 3,812 | ||||||
Cash dividends paid | (32,196 | ) | (27,774 | ) | ||||
Net cash provided by (used in) financing activities | 10,943 | 276,505 | ||||||
Net change in cash and cash equivalents | 37,591 | (576 | ) | |||||
Cash and cash equivalents at January 1 | 192,118 | 210,385 | ||||||
Cash and cash equivalents at September 30 | $ | 229,709 | $ | 209,809 | ||||
Cash and cash equivalents: | ||||||||
Cash and due from banks | $ | 185,623 | $ | 182,857 | ||||
Unrestricted short-term investments | 44,086 | 26,952 | ||||||
Cash and cash equivalents at September 30 | $ | 229,709 | $ | 209,809 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid for interest on deposits and borrowings | $ | 100,858 | $ | 74,013 | ||||
Income tax payments (refunds) | $ | 3,359 | $ | (3,151 | ) | |||
Supplemental Schedule of Noncash Investing Activities | ||||||||
Real estate acquired in settlement of loans | $ | 4,643 | $ | 1,154 | ||||
Interests retained in securitizations | $ | 48,920 | $ | 14,881 | ||||
Acquisition of Patriot Bank Corp. | ||||||||
Common stock issued | $ | 166,454 | ||||||
Fair value of assets acquired (noncash) | $ | 1,138,122 | ||||||
Liabilities assumed | $ | 985,922 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Susquehanna Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands, except share data)
| Shares of Common Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||
Balance at January 1, 2004 | 39,861,317 | $ | 79,723 | $ | 66,264 | $ | 403,450 | $ | (2,055 | ) | $ | 547,382 | ||||||||
Comprehensive income: | ||||||||||||||||||||
Net income | 50,931 | 50,931 | ||||||||||||||||||
Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect | 4,554 | 4,554 | ||||||||||||||||||
Change in unrealized gain on recorded interest in securitized assets, net of taxes | (724 | ) | (724 | ) | ||||||||||||||||
Total comprehensive income | 54,761 | |||||||||||||||||||
Common stock issued in acquisition | 6,402,074 | 12,804 | 155,428 | 168,232 | ||||||||||||||||
Common stock issued under employee benefit plans (including related tax benefit of $786) | 241,550 | 483 | 3,329 | 3,812 | ||||||||||||||||
Cash dividends declared ($0.66 per share) | (27,774 | ) | (27,774 | ) | ||||||||||||||||
Balance at September 30, 2004 | 46,504,941 | $ | 93,010 | $ | 225,021 | $ | 426,607 | $ | 1,775 | $ | 746,413 | |||||||||
Balance at January 1, 2005 | 46,592,930 | $ | 93,186 | $ | 226,384 | $ | 435,159 | $ | (3,035 | ) | $ | 751,694 | ||||||||
Comprehensive income: | ||||||||||||||||||||
Net income | 51,870 | 51,870 | ||||||||||||||||||
Change in unrealized loss on securities available for sale, net of tax effect and reclassification adjustment | (9,442 | ) | (9,442 | ) | ||||||||||||||||
Change in unrealized loss on recorded interests in securitized assets, net of tax effect | 626 | 626 | ||||||||||||||||||
Unrealized gain on cash flow hedges, net of tax effect | 821 | 821 | ||||||||||||||||||
Total comprehensive income | 43,875 | |||||||||||||||||||
Common stock issued under employee benefit plans (including related tax benefit of $599) | 195,630 | 391 | 3,411 | 3,802 | ||||||||||||||||
Common stock issued under contingent earnings agreement | 21,012 | 42 | 426 | 468 | ||||||||||||||||
Cash dividends declared ($0.69 per share) | (32,196 | ) | (32,196 | ) | ||||||||||||||||
Balance at September 30, 2005 | 46,809,572 | $ | 93,619 | $ | 230,221 | $ | 454,833 | $ | (11,030 | ) | $ | 767,643 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Susquehanna Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except as noted and per share data)
NOTE 1. Accounting Policies
The information contained in this report is unaudited and is subject to year-end adjustments. Certain prior year amounts have been reclassified to conform with current period classifications. The adjustments had no effect on gross revenues, gross expenses or net income. In the opinion of management, the information reflects all adjustments necessary for a fair statement of results for the periods ended September 30, 2005 and 2004.
The accounting policies of Susquehanna Bancshares, Inc. and 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 62 through 70 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
Recent Accounting Pronouncements.
In June, 2005, the Financial Accounting Standards Board issued Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FAS Statement No.3.” Statement No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. In addition, Statement No. 154 requires that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. Opinion 20 previously required that such a change be reported as a change in accounting principle. Statement No. 154 carries forward many provisions of Opinion 20 without change, including the provisions related to the reporting of a change in accounting estimate, a change in reporting entity, and the correction of an error. Statement No. 154 also carries forward the provisions of Statement No. 3 that govern reporting accounting changes in interim financial statements. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Adoption of this statement is not expected to have an effect on results of operations or financial condition.
In April 2005, the Securities and Exchange Commission approved a new rule that, for public companies, delays the effective date of FASB Statement No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)).” Under the SEC’s rule, FAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. For most public companies the delay will eliminate the comparability issues that would have arisen from adopting FAS 123(R) in the middle of a fiscal year as originally required. Except for this deferral of the effective date, the guidance in FAS 123(R) is unchanged.
In December 2004, the Financial Accounting Standards Board issued FAS No. 123 (revised 2004), “Share-Based Payment.” Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured on the fair value of the equity or liability instruments issued. Susquehanna expects to adopt this standard on January 1, 2006, and select the Modified Prospective Application (“MPA”) as its transition method. It is estimated that adoption of Statement 123(R) will reduce Susquehanna’s net income by approximately $536 in 2006.
In March 2005, the Financial Accounting Standards Board issued FASB Staff Position No. FIN 46(R)-5, “Implicit Variable Interests under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.” The FSP gives guidance to a reporting enterprise on determining whether it holds an implicit variable interest in a variable interest entity (“VIE”) or potential VIE. For entities to which Interpretation 46(R) has been applied, the FSP was to be applied in the first reporting period beginning after March 3, 2005. Application of this FSP has not had a material effect on Susquehanna’s financial condition or results of operations.
NOTE 2. Acquisitions
Brandywine Benefits Corporation and Rockford Pensions, LLC
On February 1, 2005, Susquehanna acquired Brandywine Benefits Corporation and Rockford Pensions, LLC (collectively “Brandywine”) located in Wilmington, Delaware. Brandywine is a financial planning, consulting and administration firm specializing in retirement benefit plans for small-to-medium-sized businesses. Brandywine Benefits Corporation is a wholly owned subsidiary of Brandywine Benefits Corp., LLC, which in turn is a wholly owned subsidiary of VFAM.
The acquisition of Brandywine is considered immaterial for purposes of the disclosures required by FAS No. 141.
Patriot Bank Corp.
On June 10, 2004, Susquehanna acquired 100% of the outstanding voting shares of Patriot Bank Corp., a financial services company with total assets in excess of $1.0 billion, and the holding company for Patriot Bank. The results of Patriot’s operations have been included in the consolidated financial statements since that date.
Presented below is certain unaudited pro forma information for the nine-month period ended September 30, 2004, as if Patriot had been acquired on January 1, 2004. These results combine the historical results of Patriot, including the termination of certain employee benefit programs and costs incurred in connection with the merger, with Susquehanna’s consolidated statements of income and, while certain adjustments were made for the estimated impact of purchase accounting adjustments, they are not necessarily indicative of what would have occurred had the acquisition taken place on the indicated date.
| Nine Months Ended September 30 | ||||||
| 2005 Actual | 2004 | |||||
Net income | $ | 51,870 | $ | 44,627 | ||
Basic EPS | $ | 1.11 | $ | 0.96 | ||
Diluted EPS | $ | 1.11 | $ | 0.96 | ||
8
Susquehanna Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands, except as noted and per share data)
NOTE 3. Investment Securities
The amortized costs and fair values of securities were as follows:
| September 30, 2005 | December 31, 2004 | |||||||||||
| Amortized cost | Fair value | Amortized cost | Fair value | |||||||||
Available-for-sale: | ||||||||||||
U.S. Government agencies | $ | 378,473 | $ | 374,172 | $ | 263,835 | $ | 262,340 | ||||
State & municipal | 12,094 | 12,139 | 37,050 | 38,219 | ||||||||
Mortgage-backed | 667,115 | 653,384 | 872,324 | 868,266 | ||||||||
Other debt securities | 54,251 | 54,197 | 7,376 | 7,365 | ||||||||
Equities | 67,649 | 67,684 | 63,840 | 64,755 | ||||||||
| 1,179,582 | 1,161,576 | 1,244,425 | 1,240,945 | |||||||||
Held-to-maturity: | ||||||||||||
State & municipal | 6,467 | 6,467 | 4,469 | 4,469 | ||||||||
Total investment securities | $ | 1,186,049 | $ | 1,168,043 | $ | 1,248,894 | $ | 1,245,414 | ||||
NOTE 4. Loans and Leases
Loans and leases, net of unearned income, were as follows:
| September 30, 2005 | December 31, 2004 | |||||
Commercial, financial, and agricultural | $ | 810,112 | $ | 760,106 | ||
Real estate - construction | 896,243 | 741,660 | ||||
Real estate secured - residential | 1,603,837 | 1,611,999 | ||||
Real estate secured - commercial | 1,240,774 | 1,252,753 | ||||
Consumer | 328,395 | 351,846 | ||||
Leases | 454,647 | 534,644 | ||||
Total loans and leases | $ | 5,334,008 | $ | 5,253,008 | ||
The net investment in direct financing leases was as follows:
Minimum lease payments receivable | $ | 306,548 | $ | 332,016 | ||||
Estimated residual value of leases | 204,467 | 260,514 | ||||||
Unearned income under lease contracts | (56,368 | ) | (57,886 | ) | ||||
Total leases | $ | 454,647 | $ | 534,644 | ||||
At September 30, 2005, leases held for sale totaled $274,250.
An analysis of impaired loans, as of September 30, 2005 and December 31, 2004, is as follows:
Impaired loans without a related reserve | $ | 3,253 | $ | 3,024 | ||
Impaired loans with a reserve | 2,374 | 3,687 | ||||
Total impaired loans | $ | 5,627 | $ | 6,711 | ||
Reserve for impaired loans | $ | 1,361 | $ | 1,194 | ||
An analysis of impaired loans, for the three and nine month periods ended September 30, 2005 and 2004, is as follows:
| Three Months ended September 30, | ||||||
| 2005 | 2004 | |||||
Average balance of impaired loans | $ | 4,566 | $ | 7,065 | ||
Interest income on impaired loans (cash-basis) | 40 | 13 | ||||
Nine Months ended September 30, | ||||||
| 2005 | 2004 | |||||
Average balance of impaired loans | $ | 4,756 | $ | 8,178 | ||
Interest income on impaired loans (cash-basis) | 113 | 84 | ||||
9
Susquehanna Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands, except as noted and per share data)
NOTE 5. Borrowings
Short-term borrowings were as follows:
| September 30, 2005 | December 31, 2004 | |||||
Securities sold under repurchase agreements | $ | 309,418 | $ | 307,765 | ||
Federal funds purchased | 62,700 | 108,600 | ||||
Treasury tax and loan notes | 2,005 | 4,503 | ||||
Total short-term borrowings | $ | 374,123 | $ | 420,868 | ||
Long-term debt was as follows:
Subordinated notes due February, 2005 | $ | 0 | $ | 50,000 | ||
Subordinated notes due November, 2012 | 75,000 | 75,000 | ||||
Subordinated notes due May, 2014 | 75,000 | 75,000 | ||||
Junior subordinated notes callable 2007 | 22,905 | 23,277 | ||||
Total long-term debt | $ | 172,905 | $ | 223,277 | ||
NOTE 6. Earnings per Share
The following tables set forth the calculation of basic and diluted earnings per share for the three and nine month periods ended September 30, 2005 and 2004.
| For the three months ended September 30 | ||||||||||||||||
| 2005 | 2004 | |||||||||||||||
| Income | Shares | Per Share Amount | Income | Shares | Per Share Amount | |||||||||||
Basic Earnings per Share: | ||||||||||||||||
Income available to common shareholders | $ | 17,761 | 46,763 | $ | 0.38 | $ | 18,506 | 46,478 | $ | 0.40 | ||||||
Effect of Diluted Securities: | ||||||||||||||||
Stock options outstanding | 225 | 233 | ||||||||||||||
Diluted Earnings per Share: | ||||||||||||||||
Income available to common shareholders and assuming conversion | $ | 17,761 | 46,988 | $ | 0.38 | $ | 18,506 | 46,711 | $ | 0.40 | ||||||
For the three months ended September 30, 2005 and 2004, average options to purchase 7 and 362 shares, respectively, were outstanding but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares; and the options were, therefore, antidilutive.
| For the nine months ended September 30 | ||||||||||||||||
| 2005 | 2004 | |||||||||||||||
| Income | Shares | Per Share Amount | Income | Shares | Per Share Amount | |||||||||||
Basic Earnings per Share: | ||||||||||||||||
Income available to common shareholders | $ | 51,870 | 46,676 | $ | 1.11 | $ | 50,931 | 42,596 | $ | 1.20 | ||||||
Effect of Diluted Securities: | ||||||||||||||||
Stock options outstanding | 220 | 287 | ||||||||||||||
Diluted Earnings per Share: | ||||||||||||||||
Income available to common shareholders and assuming conversion | $ | 51,870 | 46,896 | $ | 1.11 | $ | 50,931 | 42,883 | $ | 1.19 | ||||||
For the nine months ended September 30, 2005 and 2004, average options to purchase 503 and 362 shares, respectively, were outstanding but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares; and the options were, therefore, antidilutive.
10
Susquehanna Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands, except as noted and per share data)
NOTE 7. Stock-Based Compensation
Susquehanna’s stock-based compensation plan is accounted for using the intrinsic value method set forth in Accounting Principles Board (APB) Opinion 25, “Accounting for Stock Issued to Employees” and related Interpretations. Under APB 25, no compensation expense is recognized, as the exercise price of Susquehanna’s stock options is equal to the fair market value of its common stock on the date of grant.
Pursuant to FAS No. 123, “Accounting for Stock-Based Compensation,” as amended by FAS No. 148, “Accounting for Stock-Based Compensation - Transitions and Disclosure,” disclosure requirements, pro forma net income, and earnings per share are presented in the following table as if compensation cost for stock options was determined under the fair value method and amortized to expense over the options’ vesting periods. On March 1, 2005, options to purchase 151 shares of common stock were granted to employees and directors, with an exercise price of $24.95 per share on the date of grant; the options vested immediately.
| For the three months ended September 30 | For the nine months ended September 30 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Net income, as reported | $ | 17,761 | $ | 18,506 | $ | 51,870 | $ | 50,931 | ||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | 213 | 238 | 1,097 | 718 | ||||||||
Pro forma net income | $ | 17,548 | $ | 18,268 | $ | 50,773 | $ | 50,213 | ||||
Earnings per share: | ||||||||||||
Basic - as reported | $ | 0.38 | $ | 0.40 | $ | 1.11 | $ | 1.20 | ||||
Basic - pro forma | $ | 0.38 | $ | 0.39 | $ | 1.09 | $ | 1.18 | ||||
Diluted - as reported | $ | 0.38 | $ | 0.40 | $ | 1.11 | $ | 1.19 | ||||
Diluted - pro forma | $ | 0.37 | $ | 0.39 | $ | 1.08 | $ | 1.17 | ||||
NOTE 8. Benefit Plans
Components of Net Periodic Benefit Cost
| Three months ended September 30 | |||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||
| 2005 | 2004 | 2005 | 2004 | ||||||||||||
Service cost | $ | 981 | $ | 739 | $ | 94 | $ | 121 | |||||||
Interest cost | 891 | 755 | 75 | 102 | |||||||||||
Expected return on plan assets | (1,327 | ) | (1,104 | ) | 0 | 0 | |||||||||
Amortization of prior service cost | (15 | ) | (20 | ) | 12 | 12 | |||||||||
Amortization of transition obligation (asset) | (17 | ) | (51 | ) | 29 | 29 | |||||||||
Amortization of net actuarial (gain) or loss | 90 | 42 | (12 | ) | 16 | ||||||||||
Net periodic benefit cost | $ | 603 | $ | 361 | $ | 198 | $ | 280 | |||||||
| Nine months ended September 30 | |||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||
| 2005 | 2004 | 2005 | 2004 | ||||||||||||
Service cost | $ | 2,661 | $ | 2,079 | $ | 266 | $ | 229 | |||||||
Interest cost | 2,875 | 2,667 | 261 | 242 | |||||||||||
Expected return on plan assets | (3,981 | ) | (3,310 | ) | 0 | 0 | |||||||||
Amortization of prior service cost | (43 | ) | (44 | ) | 36 | 36 | |||||||||
Amortization of transition obligation (asset) | (51 | ) | (51 | ) | 85 | 85 | |||||||||
Amortization of net actuarial (gain) or loss | 530 | 268 | 0 | 0 | |||||||||||
Net periodic benefit cost | $ | 1,991 | $ | 1,609 | $ | 648 | $ | 592 | |||||||
Employer Contributions
Susquehanna previously disclosed in its financial statements for the year ended December 31, 2004, that it expected to contribute $118 to its pension plans and $249 to its other postretirement benefit plan in 2005. As of September 30, 2005, $90 of contributions have been made to its pension plans, and $152 of contributions have been made to its other postretirement benefit plan. Susquehanna anticipates contributing an additional $28 to fund its pension plans in 2005 for a total of $118, and $98 to its other postretirement benefit plan for a total of $249.
11
Susquehanna Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands, except as noted and per share data)
NOTE 9. Goodwill and Other Intangible Assets
The change in the carrying amount of goodwill for the nine months ended September 30, 2005, is as follows:
Balance as of January 1, 2005 | $ | 240,632 | |
Goodwill acquired through the Brandywine acquisition, deemed to be tax deductible | 1,901 | ||
Additional goodwill related to contingent earnings agreement associated with the Patriot acquisition | 185 | ||
Balance at September 30, 2005 | $ | 242,718 | |
In addition, $1,326 was recorded as customer lists relating to the Brandywine acquisition.
NOTE 10. Derivative Financial Instruments and Hedging Activities
On March 16, 2005, Susquehanna entered into a $219,836 amortizing interest rate swap; and in the third quarter of 2005, Susquehanna entered into two incremental swaps totaling $81,157. For purposes of Susquehanna’s consolidated financial statements, the $300,993 amortizing interest rate swaps (the hedging instruments) are designated as cash flow hedges of expected future cash flows (proceeds) associated with a forecasted sale of auto leases (the hedged forecasted transaction). This transaction is subject to FAS No. 133 (as amended), “Accounting for Derivative Instruments and Hedging Activities.” At September 30, 2005, the unrealized gain, net of taxes, recorded in other comprehensive income was $272.
Susquehanna’s risk management objective and strategy is to mitigate its exposure to changes in interest rates associated with future securitizations of auto leases. Susquehanna is meeting this objective by entering into forward-starting, pay-fixed and receive-LIBOR interest rate swaps. The swaps are expected to be effective in hedging the risk of changes in expected future cash flows associated with the forecasted sale of auto leases due to changes in the LIBOR swap rate, the designated benchmark interest rate being hedged, over the term of the hedging relationship.
Since the critical terms of the swap and the hedged transaction match at inception, and it is probable that the swap counterparty will not default on the swaps, Susquehanna has concluded at inception that the hedging relationship is expected to be highly effective at achieving offsetting changes in cash flows. Throughout the life of the hedging relationship, both retrospective evaluations and prospective assessments of hedge effectiveness will be based on the hypothetical derivative method and performed at least quarterly. Assuming the hedging relationship qualifies as highly effective, the actual swaps will then be recorded on the balance sheet at fair value, and accumulated other comprehensive income will be adjusted to a balance that reflects the lesser of either the cumulative change in the fair value of the actual swaps or the cumulative change in the fair value of a “perfect” hypothetical swap. At the date of securitization, the balance in accumulated other comprehensive income will be reclassified to earnings when the associated gain on sale from securitization is recognized. At September 30, 2005, the hedge was assessed as prospectively effective.
In June 2005, Susquehanna entered into two $25,000 interest rate swaps to hedge the interest rate risk exposure on $50,000 of variable-rate debt. The risk management objective with respect to this interest rate swap is to hedge the risk of changes in Susquehanna’s cash flow attributable to changes in the LIBOR swap rate.
Prospective effectiveness evaluations will be performed by qualitatively assessing on an ongoing basis that the critical terms of the swaps and hedged transactions still match, and will periodically review the credit quality of the swap counterparty to evaluate whether it is probable that the swap counterparty will not default. At September 30, 2005, the hedges were assessed as effective.
The following table summarizes our derivative financial instruments at September 30, 2005:
| Notional Amount | Fair Value | Variable Rate | Fixed Rate | ||||||
| $ | 300,993 | $ | 419 | One-month LIBOR | 4.415% - 4.475 | % | |||
| 25,000 | 352 | Three-month LIBOR | 3.934 | % | |||||
| 25,000 | 492 | Three-month LIBOR | 4.083 | % | |||||
| $ | 350,993 | $ | 1,263 | ||||||
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands, except as noted and per share data)
Note 11. Securitization Activity
Since 2001, Susquehanna has sold the beneficial interests in automobile leases in securitization transactions. In all those securitizations, Susquehanna retained servicing responsibilities and subordinated interests. Susquehanna receives annual servicing fees approximating 1.0% of the outstanding balance and rights to future cash flows arising after the investors have received the return for which they contracted. Susquehanna recognizes no servicing asset, as servicing income approximates servicing costs. Susquehanna enters into securitization transactions primarily to achieve low-cost funding for the growth of its auto portfolio, and not primarily to maximize its ongoing servicing fee revenue. Susquehanna monitors its servicing costs to ensure that future costs do not exceed servicing income. If servicing costs were to exceed servicing income, Susquehanna would record the present value of that liability as an expense.
The investors and the securitization trusts have no recourse to Susquehanna’s other assets, except retained interests, for failure of debtors to pay when due. Susquehanna’s retained interests are subordinate to investors’ interests. Their value is subject to credit, prepayment, and interest rate risks on the transferred financial assets.
The following table presents quantitative information about delinquencies, net credit losses, and components of lease sales serviced by Susquehanna, including securitization transactions.
| As of September 30 | For the Nine Months Ended | ||||||||||||||||||
| Principal Balance | Past Due 30 Days or More | Net Credit Losses (Recoveries) | |||||||||||||||||
| 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||
Leases and loans held in portfolio | $ | 381,457 | $ | 460,771 | $ | 241 | $ | 567 | $ | (2 | ) | $ | 46 | ||||||
Leases securitized | 631,400 | 399,748 | 921 | 406 | 220 | 114 | |||||||||||||
Leases serviced for others (1) | 543,204 | 751,933 | 2,505 | 2,795 | 14 | 100 | |||||||||||||
Total leases and loans serviced | $ | 1,556,061 | $ | 1,612,452 | $ | 3,667 | $ | 3,768 | $ | 232 | $ | 260 | |||||||
| (1) | Amounts include the sale-leaseback transaction and agency arrangements. |
Certain cash flows received from the structured entities associated with the lease securitizations described above are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30 | September 30 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Proceeds from lease securitizations | $ | 0 | $ | 0 | $ | 323,568 | $ | 179,971 | ||||
Amounts derecognized | 0 | 0 | 372,488 | 194,852 | ||||||||
Servicing fees received | 2,055 | 1,421 | 6,012 | 2,846 | ||||||||
Other cash flows received on retained interests | 4,804 | 1,823 | 12,990 | 3,411 | ||||||||
Set forth below is a summary of the fair values of the interest-only strips, key economic assumptions used to arrive at the fair values, and the sensitivity of the September 30, 2005 fair values to immediate 10% and 20% adverse changes in those assumptions. The sensitivities are hypothetical and should be used with caution. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption: in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
13
As of September 30, 2005
Automobile Leases | Fair Value | Weighted- average Life (in months) | Monthly Prepayment Speed | Expected Cumulative Credit Losses (2) | Annual Discount Rate (1) | ||||||||||||
2005 transaction - Interest-Only Strip | $ | 1,532 | 18 | 3.40 | % | 0.00 | % | 4.51 | % | ||||||||
Decline in fair value of 10% adverse change | $ | 27 | $ | 0 | $ | 16 | |||||||||||
Decline in fair value of 20% adverse change | 54 | 0 | 32 | ||||||||||||||
2004 revolving transaction - Interest-Only Strip | $ | 516 | 28 | 3.00 | % | 0.00 | % | 4.58 | % | ||||||||
Decline in fair value of 10% adverse change | $ | 2 | $ | 0 | $ | 5 | |||||||||||
Decline in fair value of 20% adverse change | 4 | 0 | 10 | ||||||||||||||
2003 revolving transaction - Interest-Only Strip | $ | 1,456 | 20 | 2.00 | % | 0.00 | % | 4.54 | % | ||||||||
Decline in fair value of 10% adverse change | $ | 0 | $ | 0 | $ | 11 | |||||||||||
Decline in fair value of 20% adverse change | 0 | 0 | 22 | ||||||||||||||
2003 transaction - Interest-Only Strip | $ | 1,668 | 7 | 5.00 | % | 0.00 | % | 4.25 | % | ||||||||
Decline in fair value of 10% adverse change | $ | 0 | $ | 0 | $ | 4 | |||||||||||
Decline in fair value of 20% adverse change | 0 | 0 | 8 | ||||||||||||||
| (1) | The annual discount rate used is derived from the interpolated Treasury swap rate as of the reporting date. |
| (2) | The expected cumulative credit losses assumption is supported by historical credit loss experience. |
14
Note 12. Restatement
In connection with the preparation of Susquehanna’s Consolidated Statements of Cash Flows included in this Interim Report on Form 10-Q/A, management reconsidered the classification of certain transactions related to the origination, repayment and disposition of its portfolio of vehicle leases as presented for the periods ended September 30, 2005 and 2004.
During 2004, Susquehanna originated leases that were either sold to an off-balance sheet warehouse facility or held in portfolio. Those leases that were originated specifically for sale and sold to the warehouse facility are to be reported as cash flows from an operating activity. Those leases that were originated and held in portfolio are to be reported as cash flows from investing activities. For the period ended September 30, 2004, Susquehanna did report these transactions consistent with this criteria on the previously filed Form 10-Q. During the first nine months of 2005, Susquehanna originated leases that it held for sale. Those originations were reported as cash flows from investing activities and are being restated to cash flows from operations.
In consideration for the sale of leases, Susquehanna receives cash and records retained interests in securitized assets, including debt securities and interest-only strips. For the periods ended September 30, 2005 and 2004, Susquehanna reported the noncash retained interests in securitized assets as cash flows from operating activities offset by cash flows from investing activities in the Consolidated Statements of Cash Flows. These noncash retained interests are being restated to report the noncash recorded interests in the Supplemental Schedule of Noncash Investing Activities as well as reducing proceeds from lease securitizations for the nine months ending September 30, 2005 in Note 11.
Retained interests in securitized assets represents the rights to future cash flows after the investors have received the return for which they contracted. For the periods ended September 30, 2005 and 2004, Susquehanna reported these cash flows from retained interests in securitized assets as cash flows from operating activities and are being restated to cash flows from investing activities.
The following table identifies the restatements made to the Consolidated Statement of Cash Flows for the periods presented:
Nine Months Ended September 30, 2005 | As Previously Reported | Restatement Adjustments | As Restated | |||||||||
Cash Flows from Operating Activities: | ||||||||||||
Leases originated for sale, net of payments received | $ | (5,671 | ) | $ | (274,250 | ) | $ | (279,921 | ) | |||
Proceeds from sale of leases originated for sale | 5,218 | 5,218 | ||||||||||
Other, net | 32,074 | (61,910 | ) | (29,836 | ) | |||||||
All other operating cash flows | 79,704 | 79,704 | ||||||||||
Net cash provided by (used in) operating activities | 111,325 | (336,160 | ) | (224,835 | ) | |||||||
Cash Flows from Investing Activities: | ||||||||||||
Net proceeds from the sale of leases in banks’ portfolios | 320,754 | (2,404 | ) | 318,350 | ||||||||
Net increase in loans and leases | (453,343 | ) | 325,574 | (127,769 | ) | |||||||
Cash flows received on retained interests | 0 | 12,990 | 12,990 | |||||||||
All other investing cash flows | 47,912 | 47,912 | ||||||||||
Net cash provided by (used in) investing activities | (84,677 | ) | 336,160 | 251,483 | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Sale of branch deposits, net of premium received | (6,861 | ) | (6,861 | ) | ||||||||
All other financing cash flows | 17,804 | 17,804 | ||||||||||
Net cash provided by (used in) financing activities | 10,943 | 0 | 10,943 | |||||||||
Net change in cash and cash equivalents | $ | 37,591 | $ | 0 | $ | 37,591 | ||||||
Supplemental Schedule of Noncash Investing Activities | ||||||||||||
Real estate acquired in settlement of loans | $ | 4,643 | $ | 4,643 | ||||||||
Interests retained in securitizations | $ | 0 | $ | 48,920 | $ | 48,920 | ||||||
15
Nine Months ended September 30, 2004 | As Previously Reported | Restatement Adjustments | As Restated | |||||||||
Cash Flows from Operating Activities: | ||||||||||||
Leases originated for sale, net of payments received | $ | (194,852 | ) | $ | (194,852 | ) | ||||||
Proceeds from sale of leases originated for sale | 179,971 | 179,971 | ||||||||||
Other, net | (7,646 | ) | (18,292 | ) | (25,938 | ) | ||||||
All other operating cash flows | 61,882 | 61,882 | ||||||||||
Net cash provided by (used in) operating activities | 39,355 | (18,292 | ) | 21,063 | ||||||||
Cash Flows from Investing Activities: | ||||||||||||
Net increase in loans and leases | (266,442 | ) | 14,881 | (251,561 | ) | |||||||
Cash flows received on retained interests | 0 | 3,411 | 3,411 | |||||||||
All other investing cash flows | (49,994 | ) | (49,994 | ) | ||||||||
Net cash provided by (used in) investing activities | (316,436 | ) | 18,292 | (298,144 | ) | |||||||
Cash Flows from Financing Activities: | ||||||||||||
Sale of branch deposits, net of premium received | (8,949 | ) | (8,949 | ) | ||||||||
All other financing cash flows | 285,454 | 285,454 | ||||||||||
Net cash provided by (used in) financing activities | 276,505 | 0 | 276,505 | |||||||||
Net change in cash and cash equivalents | $ | (576 | ) | $ | 0 | $ | (576 | ) | ||||
Supplemental Schedule of Noncash Investing Activities | ||||||||||||
Real estate acquired in settlement of loans | $ | 1,154 | $ | 1,154 | ||||||||
Interests retained in securitizations | $ | 0 | $ | 14,881 | $ | 14,881 | ||||||
16
Item 4. Controls and Procedures.
| (a) | Evaluation of Disclosure Controls and Procedures |
The original Form 10-Q stated that management had performed an evaluation (at the direction and with the participation of Susquehanna’s Chief Executive Officer and Susquehanna’s Chief Financial Officer ) of Susquehanna’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) and concluded that Susquehanna’s disclosure controls and procedures were effective as of the end of the quarterly period covered by the original Form 10-Q. As a result of the identification of errors relating to the preparation and review of Susquehanna’s consolidated statements of cash flows included in the original Form 10-Q that required Susquehanna to restate its consolidated financial statements for the periods ended September 30, 2005 and 2004, the Chief Executive Officer and Chief Financial Officer reassessed their conclusion and have determined that Susquehanna’s disclosure controls and procedures were not effective as of that date. Accordingly, management has concluded that this control deficiency was a material weakness. As a result, of these findings, management has commenced an internal review of its processes in order to better collect cash flow data related to lease originations, repayments and dispositions and properly prepare and review the consolidated statements of cash flows and to design a system that will enable Susquehanna to obtain reasonable assurance that the requisite approvals are received prior to the filing of documents with the Securities and Exchange Commission.
| (b) | Change in Internal Control over Financial Reporting |
There were no changes in Susquehanna’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Susquehanna’s internal control over financial reporting during the quarterly period ended September 30, 2005.
PART II—OTHER INFORMATION
| (a) | Exhibits. The Exhibits filed as part of this report are as follows: |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer | |
| 32. | Section 1350 Certifications | |
17
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. | ||||
| March 21, 2006 | By: | /s/ William J. Reuter | ||
| Name: | William J. Reuter | |||
| Title: | President and Chief Executive Officer | |||
| March 21, 2006 | By: | /s/ Drew K. Hostetter | ||
| Name: | Drew K. Hostetter | |||
| Title: | Executive Vice President, Treasurer and Chief Financial Officer | |||
18
Exhibit Numbers | Description and Method of Filing | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer | |
| 32. | Section 1350 Certifications | |
19
