Exhibit 23
------- --
Accountants' Consent
--------------------
The Board of Directors
Susquehanna Bancshares, Inc.
We consent to the use of our report on the financial statements of Atlanfed
Bancorp, Inc. incorporated herein by reference in the registration statement on
Form S-8 filed by Susquehanna Bancshares, Inc.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
May 22, 1995
[LOGO OF KPMG PEAT MARWICK APPEARS HERE] Appendix A
----------
ATLANFED BANCORP, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
----------------------------
The Board of Directors
Atlanfed Bancorp, Inc.
Baltimore, Maryland:
We have audited the accompanying consolidated statements of financial condition
of Atlanfed Bancorp, Inc. and subsidiaries as of March 31, 1995 and 1994 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended March 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atlanfed Bancorp,
Inc. and subsidiaries as of March 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
May 5, 1995
A-1
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
Cash:
On hand and in banks $ 2,050,476 1,332,677
Interest-bearing deposits 4,521,648 10,934,331
Investment securities, market value of $18,628,385
in 1995 and $18,178,935 in 1994 (note 3) 19,453,490 18,500,000
Mortgage loans held for sale 2,459,317 5,688,269
Loans receivable, net (notes 4 and 9) 185,576,566 151,571,868
Mortgage-backed securities, market value of $28,478,902
in 1995 and $35,277,743 in 1994 (note 5) 30,322,529 36,614,360
Federal Home Loan Bank of Atlanta stock, at cost
(notes 2 and 9) 4,719,700 4,719,700
Investments in real estate, net (note 6) 2,238,525 3,402,250
Ground rents owned, at cost 954,949 969,549
Property and equipment, net (note 7) 1,217,091 1,453,432
Prepaid expenses and other assets 528,250 561,905
Income taxes recoverable 227,404 -
Intangible assets acquired, net 260,952 348,231
Accrued interest receivable on investments 408,274 348,638
Deferred income taxes (note 10) 184,000 224,000
------------ -----------
$255,123,171 236,669,210
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings accounts (note 8) $176,229,267 179,776,679
Borrowed funds (note 9) 50,378,000 29,378,000
Drafts payable 1,756,907 2,156,779
Mortgage escrow accounts 3,195,145 2,737,156
Accrued expenses and other liabilities 983,481 1,215,576
Income taxes currently payable - 79,869
------------ -----------
Total liabilities 232,542,800 215,344,059
------------ -----------
Stockholders' equity (notes 2, 11, and 16):
Serial preferred stock, $1 par value; 2,000,000
shares authorized; none issued - -
Common stock, $1 par value; 8,000,000 shares
authorized; issued and outstanding 1,495,840
shares in 1995 and 1,393,414 shares in 1994 1,495,840 1,393,414
Additional paid-in capital 10,386,622 9,663,230
Retained income - substantially restricted 10,726,909 10,268,507
Unrealized losses on securities available for sale, net (29,000) -
------------ -----------
Total stockholders' equity 22,580,371 21,325,151
------------ -----------
Commitments and contingencies (notes 4, 7, 12 and 14)
$255,123,171 236,669,210
============ ===========
See accompanying notes to consolidated financial statements.
A-2
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended March 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Interest income:
Loans $ 15,048,109 14,834,826 17,584,439
Mortgage-backed securities 2,018,878 1,150,972 1,129,485
Investment securities 1,129,080 836,288 581,888
Other 493,460 714,955 582,873
----------- ---------- ----------
Total interest income 18,689,527 17,537,041 19,878,685
----------- ---------- ----------
Interest expense:
Savings accounts (note 8) 7,513,261 8,152,110 9,192,275
Borrowed funds and other (note 9) 2,612,898 1,662,126 2,282,952
----------- ---------- ----------
Total interest expense 10,126,159 9,814,236 11,475,227
----------- ---------- ----------
Net interest income 8,563,368 7,722,805 8,403,458
Provision for loan losses (note 4) 164,000 169,000 304,000
----------- ---------- ----------
Net interest income after
provision for loan losses 8,399,368 7,553,805 8,099,458
----------- ---------- ----------
Noninterest income:
Service fees on loans 158,560 209,499 242,338
Service fees on deposits 298,829 289,395 269,497
Gain on sales of investment securities - 96,152 -
Gain on sales of loans 482,829 1,383,839 1,209,968
Insurance commissions 441,763 562,097 629,767
Other 657,961 838,808 745,300
----------- ---------- ----------
Total noninterest income 2,039,942 3,379,790 3,096,870
----------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits 3,843,954 4,121,836 3,960,504
Net occupancy 1,069,878 1,086,580 1,017,783
Insurance premiums 548,237 518,923 496,493
Furniture, fixtures and equipment 343,923 423,402 404,820
Professional services 989,644 396,074 341,758
Data processing 310,345 265,072 324,012
Advertising 199,234 157,295 160,724
Operation of investments in real estate (note 6) 184,253 252,290 110,746
Amortization of cost of intangible assets 117,279 121,372 122,740
Other 988,457 1,041,541 1,140,246
----------- ---------- ----------
Total noninterest expenses 8,595,204 8,384,385 8,079,826
----------- ---------- ----------
Income before income
tax provision 1,844,106 2,549,210 3,116,502
Income tax provision (note 10) 1,005,000 1,026,000 1,239,000
----------- ---------- ----------
Net income $ 839,106 1,523,210 1,877,502
=========== ========== ==========
Net income per share of common stock (note 11) $ .58 1.06 1.34
==== ===== =====
See accompanying notes to consolidated financial statements.
A-3
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1995, 1994 and 1993
Additional Unrealized losses on
Common paid-in Retained securities available
stock capital income for sale, net Total
----- ------- ------ ------------- -----
Balance at March 31, 1992 $ 945,264 8,070,183 9,503,563 - 18,519,010
Net income - 1993 - - 1,877,502 - 1,877,502
Exercise of stock options (note 11) 4,175 17,577 - - 21,752
Stock dividend - 141,812 shares (note 11) 141,812 1,559,932 (1,701,744) - -
Dividends declared on common stock -
$.32 per share - - (436,082) - (436,082)
---------- ---------- ---------- ------- ----------
Balance at March 31, 1993 1,091,251 9,647,692 9,243,239 - 19,982,182
Net income - 1994 - - 1,523,210 - 1,523,210
Exercise of stock options (note 11) 15,250 125,956 - - 141,206
Issuance of common stock 13,832 162,663 - - 176,495
5 for 4 stock split - 273,081 shares (note 11) 273,081 (273,081) - - -
Dividends declared on common stock -
$.36 per share - - (497,942) - (497,942)
---------- ---------- ---------- ------- ----------
Balance at March 31, 1994 1,393,414 9,663,230 10,268,507 - 21,325,151
Net income - 1995 - - 839,106 - 839,106
Exercise of stock options (note 11) 102,426 723,392 - - 825,818
Dividends declared on common stock -
$.27 per share - - (380,704) - (380,704)
Unrealized losses on securities available for sale, net - - - (29,000) (29,000)
---------- ---------- ---------- ------- ----------
Balance at March 31, 1995 $1,495,840 10,386,622 10,726,909 (29,000) 22,580,371
========== ========== ========== ======= ==========
See accompanying notes to consolidated financial statements.
A-4
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 839,106 1,523,210 1,877,502
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of unearned loan fees, net (909,908) (865,405) (598,855)
Amortization of discounts on loans (16,250) (16,250) (40,823)
Amortization of cost of intangible assets 117,279 121,372 122,740
Depreciation and amortization 376,257 454,279 470,454
Deferred income taxes 40,000 27,000 (15,000)
Provision for losses on loans and
investments in real estate 310,000 405,000 404,000
Gain on sale of investment securities -- (96,152) --
Mortgage loans originated for sale (21,623,900) (91,130,912) (80,883,450)
Sales of mortgage loans originated
for sale 24,852,852 90,684,334 86,366,465
Net decrease (increase) in accrued
interest receivable (246,910) (182,848) 420,765
Net decrease in accrued
interest payable on deposits (334,711) (220,709) (349,197)
Net increase (decrease) in accrued
expenses and other liabilities (232,095) 39,669 (102,039)
Other, net (177,529) (279,606) (259,991)
------------ ----------- -----------
Net cash provided by operating
activities 2,994,191 462,982 7,412,571
------------ ----------- -----------
Cash flows from investing activities:
Loan disbursements (69,269,660) (35,011,786) (51,817,914)
Loan fees deferred, net 803,245 644,041 721,337
Principal repayments on loans 34,569,995 69,774,650 66,798,239
Principal repayments on mortgage-
backed securities 6,169,444 7,141,744 7,286,968
Sales of loans -- 728,475 204,330
Purchases of loans -- (3,544,363) (227,536)
Purchases of mortgage-backed securities -- (31,754,656) (3,850,951)
Sales of investment securities -- 103,202 --
Redemptions of investment securities 2,500,000 -- 1,500,000
Purchases of investment securities (3,500,490) (10,000,000) --
Additions to investments in real estate (93,776) (111,252) (871,771)
Sales of investments in real estate 2,097,048 1,226,611 855,644
Purchases of property and equipment (139,916) (234,421) (595,932)
Other, net 9,594 (1,322) (112,875)
------------ ----------- -----------
Net cash provided by (used in)
investing activities (26,854,516) (1,039,077) 19,889,539
------------ ----------- -----------
(Continued)
A-5
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended March 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Net decrease in savings accounts $ (3,212,701) (6,778,612) (12,914,811)
Proceeds from advances from Federal
Home Loan Bank of Atlanta 59,350,000 11,500,000 18,928,000
Repayment of advances from Federal
Home Loan Bank of Atlanta (38,350,000) (8,900,000) (30,000,000)
Net increase (decrease) in drafts payable (399,872) 713,296 (428,975)
Net increase (decrease) in mortgage
escrow accounts 457,989 (622,811) (383,570)
Proceeds from issuance of common stock 825,818 317,701 21,752
Dividends paid on common stock (505,793) (481,925) (421,483)
------------ ---------- -----------
Net cash provided by (used in)
financing activities 18,165,441 (4,252,351) (25,199,087)
------------ ----------
Increase (decrease) in cash and cash equivalents (5,694,884) (4,828,446) 2,103,023
Cash and cash equivalents at beginning
of year 12,267,008 17,095,454 14,992,431
------------ ---------- -----------
Cash and cash equivalents at end of year $ 6,572,124 12,267,008 17,095,454
============ ========== ===========
Supplemental information:
Interest paid on savings accounts and
borrowed funds $ 10,463,558 10,034,945 11,828,374
Incomes taxes paid 1,187,010 917,010 1,393,091
============ ========== ===========
Noncash investing activities:
Foreclosure of mortgage loan collateral $ 1,149,000 609,000 1,177,000
============ ========== ===========
Loans to facilitate sale of investments in
real estate $ 154,000 796,000 -
============ ========== ===========
See accompanying notes to consolidated financial statements.
A-6
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of presentation
----------------------
The consolidated financial statements include the accounts of Atlanfed
Bancorp, Inc. and its wholly-owned subsidiaries, including Atlantic
Federal Savings Bank (the "Bank") and its wholly-owned subsidiaries.
Atlanfed Bancorp, Inc. and its subsidiaries are collectively referred
to as the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statements of
financial condition and income and expenses for the period. Actual
results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan
losses and the valuation of investments in real estate. In connection
with these determinations, management obtains independent appraisals
for significant properties and prepares fair value analyses as
appropriate.
Management believes that the allowances for losses on loans and
investments in real estate are adequate. While management uses
available information to recognize losses on loans and investments in
real estate, future additions to the allowance may be necessary based
on changes in economic conditions, particularly in the state of
Maryland. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowances for losses on loans and investments in real estate. Such
agencies may require the Company to recognize additions to the
allowances based on their judgments about information available to
them at the time of their examination.
(b) Loan fees
---------
Origination and commitment fees and direct origination costs on loans
held for investment are deferred and amortized to income over the
contractual lives of the related loans using the interest method.
Under certain circumstances, commitment fees are recognized over the
commitment period or upon expiration of the commitment. Unamortized
loan fees are recognized in income when the related loans are sold or
prepaid.
Origination and commitment fees and direct origination costs on loans
originated for sale are deferred and recognized as a component of gain
or loss at the time of sale.
A-7
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(c) Sales of mortgage loans
-----------------------
Loans originated for sale are carried at the lower of aggregate cost
or market value. Market value is determined based on outstanding
investor commitments or, in the absence of such commitments, based on
current investor yield requirements. Gains and losses on loan sales
are determined using the specific identification method.
(d) Investment securities and mortgage-backed securities
----------------------------------------------------
Prior to April 1, 1994, investments in non-equity securities and
mortgage-backed securities were carried at cost adjusted for
amortization of premium and accretion of discount. The lower of cost
or market was not used since it was management's intention to hold
these securities to maturity. Gain or loss on sale was reflected in
income at the time of sale using the specific identification method.
Investments in equity securities were carried at the lower of
aggregate cost or market value.
As of April 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS No. 115), which addresses the
accounting and reporting for certain investments in debt and equity
securities. SFAS No. 115 requires classification of such securities
into three categories. Debt securities that an entity has the positive
intent and ability to hold to maturity are classified as held to
maturity and recorded at amortized cost. Debt and equity securities
are classified as trading securities if bought and held principally
for the purpose of selling them in the near term. Trading securities
are reported at fair value, with unrealized gains and losses included
in earnings. Debt securities not classified as held to maturity and
debt and equity securities not classified as trading securities are
considered available for sale and are reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of tax effects.
If a decline in value of an individual security classified as held to
maturity or available for sale is judged to be other than temporary,
the cost basis of that security is reduced to its fair value and the
amount of the write-down is reflected in earnings. Fair value is
determined based on bid prices published in financial newspapers or
bid quotations received from securities dealers. For purposes of
computing realized gains or losses on the sales of investments, cost
is determined using the specific identification method. Premiums and
discounts on investment and mortgage-backed securities are amortized
over the term of the security using methods that approximate the
interest method.
Management reviewed the Company's investment and mortgage-backed
securities portfolios as of April 1, 1994 and classified all nonequity
investment securities and all mortgage-backed securities as held to
maturity. As required by SFAS No. 115, the
A-8
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(d) Investment securities and mortgage-backed securities, continued
---------------------------------------------------------------
Company's investments in equity securities were classified as
available for sale. The effect on financial condition and results of
operations of the Company of the initial adoption of SFAS No. 115 was
not material.
At March 31, 1995, the investment and mortgage-backed securities
portfolios are classified as discussed in the preceding paragraph.
(e) Property and equipment
----------------------
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
accumulated using straight-line and accelerated methods over the
estimated useful lives of the assets. Additions and betterments are
capitalized and charges for repairs and maintenance are expensed when
incurred. The cost and accumulated depreciation or amortization are
eliminated from the accounts when an asset is sold or retired and the
resultant gain or loss is credited or charged to income.
(f) Investments in real estate
--------------------------
Investments in real estate consists of real estate acquired in
settlement of loans which is initially recorded at the lower of cost
or estimated fair value. The carrying values are subject to subsequent
adjustment to the extent they exceed estimated fair value less
estimated costs of disposal. Costs relating to property improvements
are capitalized and costs relating to holding properties are charged
to expense.
(g) Intangible assets acquired
--------------------------
Intangible assets acquired in connection with the acquisition of
Atlantic Home Mortgage Corporation and certain branch acquisitions are
amortized using the straight-line method over the estimated useful
lives of the assets which range from five to twenty years.
(h) Provision for loan losses
-------------------------
The provision for losses on loans is determined based on management's
review of the loan portfolio and analysis of the borrowers' ability to
repay, past collection experience, risk characteristics of individual
loans or groups of similar loans and underlying collateral, current
and prospective economic conditions and status of nonperforming loans.
Loans or portions thereof are charged-off when considered, in the
opinion of management, uncollectible.
A-9
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(h) Provisions for loan losses, continued
-------------------------------------
The accrual of interest on potential problem loans is suspended when,
in the opinion of management, the full collection of principal or
interest is in doubt, or payment of principal or interest has become
90 days past due. Amounts collected on such loans are recorded as a
reduction of principal, as interest income or a combination thereof
depending on management's evaluation of the recoverability of the loan
principal.
In October 1994, the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" was amended by Statement 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (collectively referred to as SFAS No. 114). SFAS No. 114
is effective for fiscal years beginning after December 15, 1994. SFAS
No. 114 addresses the accounting by creditors for impairment of
certain loans. It is generally applicable for all loans except large
groups of smaller-balance homogenous loans, including residential
mortgage loans and consumer installment loans that are collectively
evaluated for impairment. It also applies to all loans that are
restructured in a troubled debt restructuring involving a modification
of terms. However, if a loan that was restructured in a troubled debt
restructuring involving a modification of terms before the effective
date of SFAS No. 114 is not impaired based on the terms specified by
the restructuring agreement, a creditor may continue to account for
the loan in accordance with the provisions of SFAS No. 15, "Accounting
for Troubled Debt Restructurings" prior to its amendment by SFAS No.
114.
SFAS No. 114 requires that impaired loans be measured on the present
value of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. A loan is
considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. The Company
adopted the provisions of SFAS No. 114 as of April 1, 1995. Adoption
of SFAS No. 114 did not have a material impact on the Company's
financial statements.
(i) Income taxes
------------
Deferred income taxes are recognized, with certain exceptions, for
temporary differences between the financial reporting basis and income
tax basis of assets and liabilities based on enacted tax rates
expected to be in effect when such amounts are realized or settled.
Deferred tax assets are recognized only to the extent that it is more
likely than not that such amounts will be realized based on
consideration of available evidence, including tax planning strategies
and other factors. The effects of changes in tax laws or rates on
deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
A-10
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(i) Income taxes, continued
-----------------------
As provided in SFAS No. 109 "Accounting for Income Taxes" the Bank has
not established a deferred tax liability on qualifying bad debt
reserves for tax purposes that arose in fiscal years beginning before
December 31, 1987. Such bad debt reserve for the Bank amounted to
approximately $4,670,000 with an income tax effect of $1,803,000 at
March 31, 1995. This bad debt reserve would become taxable if the Bank
does not maintain certain qualified assets as defined for federal
income tax purposes, equal to 60% of total assets, if the reserve is
charged for other than bad debt losses or if the Bank does not
maintain its thrift charter.
(j) Statements of cash flows
------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with maturities at date of
purchase of three months or less to be cash equivalents.
(k) Reclassifications
-----------------
Certain amounts for 1994 and 1993 have been reclassified to conform to
the presentation for 1995.
(2) Insurance of Savings Accounts and Related Matters
-------------------------------------------------
The Federal Deposit Insurance Corporation (FDIC), through the Savings
Association Insurance Fund, insures deposits of accountholders up to
$100,000. The Bank pays an annual premium to provide for this insurance.
The Bank is a member of the Federal Home Loan Bank System and is required
to maintain an investment in the stock of the Federal Home Loan Bank (FHLB)
of Atlanta equal to at least 1% of the unpaid principal balances of its
residential mortgage loans, .3% of its total assets or 5% of its
outstanding advances from the bank, whichever is greater. Purchases and
sales of stock are made directly with the bank at par value.
In connection with the insurance of their deposits, thrift institutions are
required to maintain certain minimum levels of regulatory capital. The
regulatory capital regulations require minimum levels of tangible and core
capital of 1.5% and 3%, respectively, of adjusted total assets and risk-
based capital of 8.0% of risk-weighted assets. For risk-based capital
purposes, the Bank is permitted to include its general valuation loss
allowance subject to a limitation of 1.25% of risk weighted assets. At
March 31, 1995, the Bank was in compliance with the current and fully
phased-in regulatory capital requirements, with
A-11
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Insurance of Savings Accounts and Related Matters, Continued
------------------------------------------------------------
tangible, core and risk-based capital ratios of approximately 7.47%, 7.47%
and 15.27%, respectively. The Bank's capital under generally accepted
accounting principles (GAAP) and its regulatory capital position are
summarized as follows at March 31, 1995.
(Unaudited)
Regulatory Capital
-------------------------------------
GAAP
Capital Tangible Core Risk-based
------- -------- ---- ----------
Stockholder's equity of Bank $19,159,688 19,159,688 19,159,688 19,159,688
===========
Unrealized losses on securities
available for sale, net 29,000 29,000 29,000
General valuation allowances - - 955,127
Intangible assets acquired, net (241,452) (241,452) (241,452)
Other non-includable assets - - (72,000)
---------- ---------- ----------
Total 18,947,236 18,947,236 19,830,363
---------- ---------- ----------
Required minimum 3,804,135 7,608,270 10,391,360
---------- ---------- ----------
Excess 15,143,101 11,338,966 9,439,003
========== ========== ==========
In August 1993, the OTS adopted a final rule for calculating an interest
rate risk (IRR) component of risk-based capital. The new rule became
effective January 1, 1994; however, the IRR capital deduction discussed
below has been waived until the OTS publishes guidelines under which
institutions may appeal such a deduction. The OTS began calculating the IRR
component quarterly for each institution starting in 1994.
To estimate IRR, the OTS computes each institution's net portfolio value
(NPV) in the present interest rate environment versus NPVs derived after
applying parallel rate shifts of plus and minus 200 basis points. If there
is a measured decline in NPV greater than 2% of the estimated market value
of the institution's assets at each of the three most recent quarter ends,
then an institution will be required to deduct an IRR component in
calculating its risk-based capital. This component is equal to one-half of
the difference between its measured IRR and 2%, multiplied by the market
value of its assets.
Based upon the latest available quarterly proforma computations of NPV by
the OTS the Bank's measured IRR was less than 2% of the estimated market
value of its assets at December 31, 1994. As such, the Bank would not be
required to deduct an IRR Component in calculating its risk-based capital.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
included prompt corrective action provisions and provided for significant
changes to the legal and regulatory environment for insured depository
institutions, including reduction in insurance coverage for certain kinds
of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting, and operations.
A-12
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Insurance of Savings Accounts and Related Matters, Continued
------------------------------------------------------------
The prompt corrective action regulations of FDICIA define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions, including
the requirement to file a capital plan with its primary federal regulator,
prohibitions on the payment of dividends and management fees, restrictions
on executive compensation, and increased supervisory monitoring, among
other things.
To be considered "well capitalized," an institution must generally have a
leverage capital ratio of at least 5%, a tier one risk-based capital ratio
of at least 6% and a total risk-based capital ratio of at least 10%. At
March 31, 1995, the Bank met the criteria required to be considered "well
capitalized" under this regulation.
Dividends may not be paid if doing so would cause the Bank to fail to meet
the minimum levels of regulatory capital. See also note 11 for additional
restrictions on the payment of dividends.
(3) Investment Securities
---------------------
Investment securities are summarized as follows at March 31:
1995
--------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
Nonequity, held to maturity:
U.S. Government and agency
obligations due:
Within 12 months $1,000,000 3,130 - 1,003,130
Beyond 12 months
but within 5 years 7,500,490 - (279,595) 7,220,895
Beyond 5 years but
within 10 years 6,000,000 - (548,640) 5,451,360
---------- ----- ------- ----------
14,500,490 3,130 (828,235) 13,675,385
---------- ----- ------- ----------
Equity, available for sale:
Asset management funds 5,000,000 - - 5,000,000
Less - Gross unrealized losses (47,000) - - (47,000)
---------- ----- ------- ----------
4,953,000 - - 4,953,000
---------- ----- ------- ----------
$19,453,490 3,130 (828,235) 18,628,385
========== ===== ======= ==========
(Continued)
A-13
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Investment Securities, Continued
--------------------------------
1994
----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
Nonequity:
U.S. Government and agency
obligations due:
Within 12 months $ 2,500,000 9,536 - 2,509,536
Beyond 12 months
but within 5 years 5,000,000 40,630 (135,540) 4,905,090
Beyond 5 years but
within 10 years 6,000,000 - (247,720) 5,752,280
----------- ------ ------- ----------
13,500,000 50,166 (383,260) 13,166,906
----------- ------ ------- ----------
Equity - Asset management
funds 5,000,000 27,059 (15,030) 5,012,029
----------- ------ -------- ----------
$18,500,000 77,225 (398,290) 18,178,935
=========== ====== ======== ==========
(4) Loans Receivable
----------------
Substantially all of the Bank's loans receivable are mortgage loans secured
by residential and commercial real estate properties located in the state
of Maryland. Loans are extended only after evaluation by management of
customers' creditworthiness and other relevant factors on a case-by-case
basis. The Bank generally does not lend more than 90% of the appraised
value of a property and requires private mortgage insurance on residential
mortgages with loan-to-value ratios in excess of 80%. In addition, the Bank
generally obtains personal guarantees of repayment from borrowers and/or
others for construction, commercial and multi-family residential loans and
disburses the proceeds of construction and similar loans only as work
progresses on the related projects.
Residential lending is generally considered to involve less risk than other
forms of lending, although payment experience on these loans is dependent
to some extent on economic and market conditions in the Bank's primary
lending area. Commercial and construction loan repayments are generally
dependent on the operations of the related properties or the financial
condition of its borrower or guarantor. Accordingly, repayment of such
loans can be more susceptible to adverse conditions in the real estate
market and the regional economy.
A-14
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loans Receivable, Continued
---------------------------
Loans receivable and accrued interest thereon are summarized as follows at
March 31:
1995 1994
------------ -----------
Loans secured by first mortgages on real estate:
Residential $140,506,669 111,923,796
Commercial 5,559,332 6,026,017
Partially guaranteed by VA or insured by FHA 2,787,396 3,307,132
Construction 44,779,167 39,009,198
------------ -----------
193,632,564 160,266,143
Loans secured by second mortgages on real estate 6,962,601 6,217,409
Consumer loans 1,446,762 1,207,741
Commercial loans 1,736,813 1,849,015
Loans secured by savings accounts 692,022 601,362
Other loans 20,589 28,266
Accrued interest receivable 1,109,788 887,961
------------ -----------
205,601,139 171,057,897
------------ -----------
Less:
Undisbursed portion of loans in process 18,145,847 17,538,548
Unearned loan fees, net 731,279 837,944
Unearned loan discounts 52,320 68,570
Allowance for losses 1,095,127 1,040,967
------------ -----------
20,024,573 19,486,029
------------ -----------
$185,576,566 151,571,868
============ ===========
Loans serviced for others, which are not included in the Company's assets,
were approximately $10,187,000, $11,499,000 and $20,606,000 at March 31,
1995, 1994 and 1993, respectively. A fee is charged for such servicing
based on the unpaid principal balances.
Nonaccrual loans amounted to approximately $1,924,000 and $1,417,000 at
March 31, 1995 and 1994, respectively. During 1995 and 1994, the amount of
interest income that would have been recorded on loans in nonaccrual status
at March 31, 1995 and 1994 had such loans performed in accordance with
their contractual terms, was approximately $164,000 and $113,000,
respectively. The actual interest income recorded on these loans during
1995 and 1994 was approximately $151,000 and $85,000 , respectively.
The Company, through its normal asset review process, has classified
certain loans which management believes involve a degree of risk warranting
additional attention. These classifications are special mention,
substandard, doubtful and loss and, at March 31,1995 included loans
totaling $2,640,000, $474,000, $0 and $100,000, respectively, excluding
nonaccrual loans. These are loans which while generally current in required
payments, have exhibited some potential weaknesses that, if not corrected,
could result in future losses.
A-15
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loans Receivable, Continued
---------------------------
Changes in the allowance for losses on loans are summarized as follows:
1995 1994 1993
----------- ---------- ---------
Balance at beginning of year $1,040,967 923,877 734,509
Provisions charged to expense 164,000 169,000 304,000
Charge-offs, net of recoveries (109,840) (51,910) (114,632)
---------- --------- --------
Balance at end of year $1,095,127 1,040,967 923,877
========== ========= ========
Commitments to extend credit are agreements to lend to customers, provided
that terms and conditions established in the related contracts are met. At
March 31, 1995, the Company had commitments to originate first mortgage
loans on real estate, exclusive of undisbursed loan funds, of approximately
$3,850,000. Approximately $2,652,000 of these commitments carry a fixed
rate based on the market rate at the date of commitment.
The Company also had commitments to loan funds under unused home-equity
lines of credit aggregating approximately $5,388,000 and unused commercial
lines of credit aggregating approximately $1,080,000. Such commitments
carry a floating rate of interest.
Commitments for mortgage loans generally expire within sixty days and are
generally funded from loan principal repayments, excess liquidity, savings
deposits and borrowed funds. Since certain of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Substantially all of the Company's outstanding commitments at March 31,
1995 are for loans which would be secured by real estate with appraised
values in excess of the commitment amounts. The Company's exposure to
credit loss under these contracts in the event of non-performance by the
other parties, assuming that the collateral proves to be of no value, is
represented by the commitment amounts.
A-16
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Mortgage-backed Securities
--------------------------
Mortgage-backed securities are summarized as follows at March 31:
1995
------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
Federal Home Loan
Mortgage Corporation
certificates $ 6,491,501 33,769 (311,646) 6,213,624
Federal National Mortgage
Association certificates 22,864,100 9,109 (1,610,422) 21,262,787
Government National
Mortgage Association
certificates 812,228 46,591 (11,028) 847,791
Accrued interest 154,700 - - 154,700
----------- -------- ---------- ----------
$30,322,529 89,469 (1,933,096) 28,478,902
=========== ======== ========== ==========
1994
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized faired
cost gains losses value
---- ----- ------ -----
Federal Home Loan
Mortgage Corporation
certificates $ 7,717,935 88,897 (262,321) 7,544,511
Federal National Mortgage
Association certificates 27,777,367 84,628 (1,310,024) 26,551,971
Government National
Mortgage Association
certificates 929,805 65,669 (3,466) 992,008
Accrued interest 189,253 - - 189,253
----------- -------- ---------- ----------
$36,614,360 239,194 (1,575,811) 35,277,743
=========== ======== ========== ==========
(6) Investments in Real Estate
--------------------------
A summary of expense incurred in operation of investments in real estate is
as follows for the years ended March 31:
1995 1994 1993
---- ---- ----
Expenses of holding real estate
acquired through foreclosure $ 38,253 16,290 10,746
Provision for losses on real estate
acquired through foreclosure 146,000 236,000 100,000
-------- ------- -------
$184,253 252,290 110,746
======== ======= =======
A-17
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Investments in Real Estate
--- --------------------------
A summary of activity in the allowance for losses on investments in real
estate is as follows for the years ended March 31:
1995 1994 1993
---- ---- ----
Balance at beginning of year $ 364,735 190,000 90,000
Provision for losses 146,000 236,000 100,000
Recoveries (charge-offs), net 1,752 (61,265) -
------- ------- -------
Balance at end of year $ 512,487 364,735 190,000
======= ======= =======
(7) Property and Equipment
----------------------
Property and equipment are summarized as follows at March 31:
Estimated
1995 1994 useful lives
---- ---- ------------
Land $ 145,335 145,335 -
Buildings and improvements 431,216 396,392 10-35 years
Leasehold improvements 1,335,811 1,269,712 10-15 years
Furniture, fixtures and equipment 2,028,956 1,989,963 5-10 years
Automobiles 23,569 23,569 3 years
---------- --------- ============
Total at cost 3,964,887 3,824,971
Less accumulated depreciation and
amortization 2,747,796 2,371,539
---------- ---------
$1,217,091 1,453,432
========== =========
The Company is obligated under noncancelable long-term operating leases for
certain branch offices and its administrative offices. These leases expire
at various dates through 2004, subject to renewal options. Future minimum
rental payments required under the leases are as follows:
Years ending March 31:
1996 $ 755,000
1997 732,000
1998 704,000
1999 638,000
2000 420,000
Subsequent to 2000 300,000
----------
$3,549,000
==========
Rent expense for the years ended March 31, 1995, 1994 and 1993 was
approximately $788,000, $793,000 and $745,000, respectively.
A-18
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Property and Equipment, Continued
---------------------------------
During 1989, the Company sold its former administrative office building and
leased back a portion of the building from the buyer for continued use as a
branch location. The sale resulted in a gain of approximately $324,000, of
which approximately $230,000 was deferred at the time of sale. The deferred
gain is being amortized using the straight-line method over the term of the
lease (15 years) and the unamortized balance at March 31, 1995 and 1994 was
approximately $136,000 and $151,000, respectively.
(8) Savings Accounts
----------------
Savings accounts are summarized as follows at March 31:
1995 1994
---------------------------- -------------------------
Weighted Weighted
average average
Amount effective rate Amount effective rate
------ -------------- ------ --------------
Noncertificate:
Passbook and other $ 29,533,401 3.13% $29,778,350 2.54%
Checking accounts 12,799,374 1.09 12,868,553 1.18
Money fund accounts 34,384,577 3.60 41,101,759 2.84
----------- -----------
76,717,352 83,748,662
----------- -----------
Certificates:
Original maturities:
Under 12 months 8,357,260 4.58 11,001,023 3.11
12 to 120 months 66,881,534 6.02 56,831,978 5.70
IRA and KEOGH 23,912,574 6.46 27,499,758 7.04
----------- ====== ----------- ======
99,151,368 95,332,759
----------- -----------
Accrued interest payable 360,547 695,258
----------- -----------
$176,229,267 $179,776,679
=========== ===========
Scheduled certificate maturities: % of total % of total
---------- ----------
Under 6 months $ 24,185,565 24.39% $ 29,733,488 31.19%
6 months to 12 months 23,226,949 23.43 15,585,013 16.35
12 months to 24 months 14,293,508 14.42 14,331,696 15.03
24 months to 36 months 12,404,162 12.51 11,690,520 12.26
36 months to 48 months 15,366,359 15.50 11,288,963 11.85
48 months to 60 months 7,706,799 7.77 10,803,049 11.33
Over 60 months 1,968,026 1.98 1,900,030 1.99
----------- ------- ----------- -------
$ 99,151,368 100.00% $ 95,332,759 100.00%
=========== ======= =========== =======
A-19
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Savings Accounts, Continued
---------------------------
Interest expense on savings accounts is summarized as follows for the years
ended March 31:
1995 1994 1993
---- ---- ----
Certificates $ 5,216,165 6,044,650 7,004,417
Checking and money fund accounts 1,442,330 1,366,167 1,275,563
Passbook and other 854,766 741,293 912,295
---------- --------- ---------
$ 7,513,261 8,152,110 9,192,275
========== ========= =========
Certificates of deposit of $100,000 or more totaled approximately
$8,393,000 and $7,677,000 at March 31, 1995 and 1994, respectively.
(9) Borrowed Funds
--------------
Borrowed funds are summarized as follows at March 31:
1995 1994
------------------------- -------------------------
Weighted Weighted
average average
Amount effective rate Amount effective rate
------ -------------- ------ --------------
Advances from FHLB of Atlanta
due in years ending March 31:
1995 $ - - % 9,650,000 6.44%
1996 25,800,000 6.45 6,800,000 5.48
1997 9,300,000 7.05 1,300,000 5.84
1998 6,578,000 7.00 2,228,000 5.79
1999 4,100,000 5.49 4,800,000 5.47
2000 1,300,000 5.84 1,300,000 5.84
2001 1,300,000 6.84 1,300,000 5.84
2002 800,000 5.91 800,000 5.91
2003 800,000 5.91 800,000 5.91
2004 400,000 5.98 400,000 5.98
---------- ==== ---------- ====
$ 50,378,000 $ 29,378,000
========== ==========
Under a blanket floating lien security agreement with the FHLB of Atlanta,
the Bank is required to maintain as collateral for all borrowings
qualifying first mortgage loans in an amount equal to 133% of the advances.
In addition, all of the Bank's stock in the FHLB of Atlanta is pledged as
collateral for such advances. At March 31, 1995, the Bank's existing credit
limit with the FHLB of Atlanta is $60 million.
A-20
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Borrowed Funds
--------------
Information relating to short-term borrowings is as follows for the years
ended March 31:
1995 1994 1993
---- ---- ----
Maximum amount outstanding at any
month-end $30,350,000 12,350,000 19,000,000
Approximate average month-end amounts
outstanding 22,014,108 8,650,139 15,173,431
Approximate weighted average rate paid
(calculated based on average
month-end amounts) 5.59% 7.65% 7.68%
Interest expense on borrowed funds is summarized as follows for the years
ended March 31:
1995 1994 1993
---- ---- ----
Short-term borrowings $ 1,230,363 662,148 1,165,014
Long-term borrowings 1,374,967 986,914 1,102,413
Mortgage escrow accounts 7,568 13,064 15,525
--------- --------- ---------
$ 2,612,898 1,662,126 2,282,952
========= ========= =========
(10) Income Taxes
------------
The income tax provision consists of the following for the years ended
March 31:
1995 1994 1993
---- ---- ----
Current:
Federal $ 793,000 820,000 1,045,000
State 172,000 179,000 209,000
--------- --------- ---------
965,000 999,000 1,254,000
Deferred, primarily federal 40,000 27,000 (15,000)
--------- --------- ---------
$ 1,005,000 1,026,000 1,239,000
========= ========= =========
A-21
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Income Taxes, Continued
-----------------------
The income tax provision is reconciled to the amount computed by applying
the federal corporate tax rate of 34% to income before taxes as follows for
the years ended March 31:
1995 1994 1993
---- ---- ----
Income tax provision at federal
corporate rate $ 626,996 866,731 1,059,611
State income taxes, net of federal
income tax benefit 118,140 121,440 137,940
Amortization of cost of intangible assets 36,767 41,266 41,732
Nondeductible acquisition costs 202,508 - -
Other, net 20,589 (3,437) (283)
---------- --------- ---------
$ 1,005,000 1,026,000 1,239,000
========== ========= =========
Effective tax rate 54.5% 40.3 39.8
========== ========= =========
The net deferred tax asset consists of the following at March 31:
1995 1994 1993
---- ---- ----
Total deferred tax assets $1,118,000 1,165,000 1,054,000
Total deferred tax liabilities (934,000) (941,000) (803,000)
--------- --------- ---------
$ 184,000 224,000 251,000
========= ========= =========
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities that are included in
the net deferred tax asset relate to the following at March 31:
1995 1994 1993
---- ---- ----
Interest and fees on loans $ 212,000 359,000 419,000
Federal Home Loan Bank stock dividends (470,000) (494,000) (398,000)
Allowance for losses on loans and
investments in real estate 664,000 611,000 473,000
Increase in tax bad debt reserve over
"base-year" amount (461,000) (445,000) (399,000)
Deferred gain on sale of office building 52,000 61,000 64,000
Deferred compensation 88,000 86,000 66,000
Depreciation and amortization 64,000 46,000 26,000
Other 35,000 - -
--------- -------- --------
$ 184,000 224,000 251,000
========= ======== ========
A-22
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Common Stock
------------
In May 1986, the Bank converted from a mutual to a stock form of ownership.
Federal regulations require that, upon conversion from mutual to stock form
of ownership, a "liquidation account" be established by restricting a
portion of net capital for the benefit of eligible savings account holders
who maintain their savings accounts with the Bank after conversion. In the
event of complete liquidation (and only in such event), each savings
account holder who continues to maintain a savings account will be entitled
to receive a distribution from the liquidation account after payment to all
creditors, but before any liquidation distribution with respect to capital
stock. This account is proportionately reduced for any decreases in the
eligible holders' savings accounts.
Under federal regulations, the Bank may not declare or pay a cash dividend
on its common stock if the dividend would cause the Bank's capital to be
reduced below the amount required for the liquidation account or the
capital requirements imposed by FIRREA and the OTS.
Since the Bank currently meets the fully phased-in capital requirements
under FIRREA, it may pay a cash dividend on its capital stock up to the
higher of (i) 100% of its net income to date during the calendar year plus
an amount not to exceed 50% of its surplus capital ratio at the beginning
of the calendar year or (ii) 75% of its net income over the most recent
four quarter period. Based upon this calculation, the amount available for
payment of a dividend was approximately $4.7 million at March 31, 1995. In
addition, income appropriated to bad debt reserves and deducted for federal
income tax purposes cannot be used to pay cash dividends without the
payment of federal income taxes at the then current tax rate on the amount
withdrawn from such reserves.
Net income per share of common stock for 1995, 1994 and 1993 is computed by
dividing net income by 1,453,325, 1,432,047 and 1,400,675 respectively, the
weighted average number of fully diluted shares of common stock outstanding
for each year, after giving effect to a 25% stock dividend issued on June
25, 1993 and a 15% stock dividend issued on June 22, 1992.
The Company has a stock option plan which provides for the grant of stock
options to key employees, including officers and directors, at prices at
least equal to the market value of the stock at the date of grant. The plan
also allows for the granting of discounted stock options to directors who
forego their director fees. Discounts are equal to the fees forfeited. In
addition, the plan provides for the granting of stock appreciation rights,
although none were outstanding at March 31,1995.
A-23
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Common Stock, Continued
-----------------------
A summary of changes in the outstanding options under the plan is as follows
for the years ended March 31:
1995 1994 1993
--------- -------- --------
Balance at beginning of year 102,426 111,420 97,006
Options vested - 6,456 19,633
Options exercised or canceled (102,426) (15,450) (5,219)
-------- ------- -------
Balance at end of year - 102,426 111,420
======== ======= =======
(12) Retirement Plan
---------------
The Company has a noncontributory defined contribution retirement plan. The
Company makes annual contributions to the plan based upon the annual
compensation of eligible employees. All full-time employees who are at
least 21 years of age and have completed one year of service with the
Company are eligible to participate. The amount set aside for each
participant is 20% vested after three years and fully vested after seven
years in accordance with a vesting schedule. Eligible participants may
receive funds credited to their accounts at retirement, subject to the
vesting schedule. Pension expense was approximately $195,000, $163,000 and
$153,000 for the years ended March 31, 1995, 1994 and 1993, respectively.
(13) Acquisition by Susquehanna Bancshares, Inc.
-------------------------------------------
On March 31, 1995, the Company merged with Susquehanna Bancshares, Inc.
(Susquehanna), a Bank Holding Company located in Lititz, Pennsylvania. The
transaction was consummated subsequent to the close of business on March
31, 1995. Pursuant to the terms of the merger, shareholders of the Company
received .802 shares of Susquehanna common stock for each outstanding share
of the Company's stock. As a result of the transaction, Atlanfed Bancorp,
Inc. was dissolved.
(14) Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), requires all entities
to disclose the estimated fair value of certain on- and off-balance sheet
financial instruments.
In many instances, the assumptions used in estimating fair values were
based upon subjective assessments of market conditions and perceived risks
of the financial instruments at a certain point in time. The fair value
estimates can be subject to significant variability with changes in
assumptions. Furthermore, these fair value estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument. In
addition, the tax ramifications related to the realization of unrealized
gains and losses are not permitted to be considered in the estimation of
fair value.
A-24
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value of Financial Instruments, Continued
----------------------------------------------
Fair value estimates are based solely on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Examples would include portfolios
of loans services for others, net fee income from the Company's
subsidiaries, core deposit intangibles, mortgage banking operations, and
deferred tax assets. Fair value estimates, methods and assumptions are set
forth below for the Company's financial instruments.
(a) Investments, Mortgage-Backed Securities, and Other Interest Earning
-------------------------------------------------------------------
Assets
------
The carrying amounts for interest-bearing deposits approximate fair
value as they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of longer-term
investments such as U.S. Government and Agency obligations, equity
securities and mortgage-backed securities is estimated based on bid
prices published in financial newspapers or bid quotations received
from securities dealers. The fair value of ground rents owned is
estimated by discounting its cash flows using the current 30 year
treasury bond rate. The fair value of FHLB of Atlanta stock is
estimated to be equal to its carrying amount given it is not a
publicly traded equity security, it has an adjustable dividend rate,
and all transactions in the stock are executed at the stated par
value.
The following table represents the carrying amount and estimated fair
value of investment securities, mortgage-backed securities, and other
interest-earning assets at March 31:
1995 1994
------------------- -------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------------------
(In thousands)
Interest-bearing deposits $ 4,522 4,522 10,934 10,934
Investment securities 19,453 18,628 18,500 18,179
Mortgage-backed securities 30,323 28,479 36,614 35,278
Ground rents 955 788 970 792
FHLB of Atlanta stock 4,720 4,720 4,720 4,720
(b) Loans
-----
Fair values are estimated for portfolios of loans with similar
financial characteristics. Mortgage loans are segregated by type,
including but not limited to residential, commercial, and
construction. Consumer and other loans are segregated by type,
including but not limited to automobile loans, home equity lines of
credit and commercial. Each loan category may be segmented, as
appropriate, into fixed and adjustable interest rate terms, ranges of
interest rates, performing and nonperforming, and repricing frequency.
A-25
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value of Financial Instruments, Continued
----------------------------------------------
(b) Loans, Continued
----------------
The fair value of each loan portfolio is calculated by discounting
both scheduled and unscheduled cash flows through the remaining
contractual maturity using the origination rate that the Company would
charge under current conditions to originate similar financial
instruments. Unscheduled cash flows take the form of estimated
prepayments and are generally based upon anticipated experience
derived from current and prospective economic and interest rate
environments. For certain types of loans, anticipated prepayment
experience exists in published tables from securities dealers.
The fair value of significant classified mortgage loans is based on
recent external appraisals. Where appraisals are not available,
estimated cash flows are discounted using a rate commensurate with the
credit risk associated with those cash flows. Assumptions regarding
credit risk, cash flows and discount rates are judgmentally determined
using available market information and specific borrower information.
The fair value of nonperforming consumer loans is based on the
Company's historical experience with such loans.
The following table represents the carrying value and estimated fair
value of loans receivable at March 31:
1995 1994
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------- ---------- --------- ----------
(In Thousands)
Mortgage loans $151,639 148,101 126,926 127,265
Construction loans 26,633 26,483 21,471 21,286
Consumer and other loans 10,859 10,658 9,904 9,705
-------- ------- ------- -------
189,131 185,242 158,301 158,256
Allowance for losses (1,095) - (1,041) -
-------- ------- ------- -------
$188,036 185,242 157,260 158,256
======== ======= ======= =======
(c) Savings accounts and Borrowings
-------------------------------
The fair value of deposits with no stated maturity, such as interest-
bearing or non-interest-bearing checking accounts, passbook and
statement savings accounts, money market accounts and mortgage escrow
accounts, is equal to the amount payable upon demand as of March 31.
The fair value of certificates of deposit is based on the lower of
redemption (net of penalty) or discounted value of contractual cash
flows. Discount rates for certificates of deposit are estimated using
the rates currently offered by the Company for deposits of similar
remaining maturities.
A-26
ATLANFED BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value of Financial Instruments, Continued
----------------------------------------------
(c) Savings accounts and Borrowings, Continued
------------------------------------------
The fair value of FHLB of Atlanta advances is based on the discounted
value of contractual cash flows. Discount rates are estimated using
the rates currently offered for advances with both similar contractual
terms and remaining maturities.
The following table represents the carrying amount and the estimated
fair value of mortgage escrow accounts, savings accounts and
borrowings at March 31:
1995 1994
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
Mortgage escrow accounts
and savings accounts with
no stated maturity $79,912 79,912 86,486 86,486
Certificates of deposit 99,151 100,010 95,333 99,115
FHLB of Atlanta advances 50,378 49,467 29,378 28,269
(d) Unrecognized Financial Instruments
----------------------------------
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreement, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counter parties. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
The fair value of commitments to extend credit is estimated to equal
the carrying value. See note 4 to the consolidated financial
statements for the carrying amounts of such instruments.
A-27
Appendix B
----------
PRO FORMA CONDENSED FINANCIAL INFORMATION
(Unaudited)
The following unaudited Pro Forma Condensed Financial Information and
explanatory notes are presented to show the impact on the historical financial
position and results of operations of Susquehanna Bancshares, Inc. (SBI) of the
combination with Atlanfed Bancorp, Inc. (ABI).
Pursuant to the merger agreement, each share of ABI Common Stock
outstanding at the close of business on March 31, 1995 was converted into .802
shares of SBI Common Stock effective April 1, 1995 plus cash in lieu of
fractional shares. The unaudited Pro Forma Condensed Financial Information
reflects the merger using the pooling of interests method of accounting.
The unaudited Pro Forma Condensed Balance Sheet assumes that the merger was
consummated on March 31, 1995. The unaudited Pro Forma Condensed Statements of
Income reflect the consolidation of the results of operations of SBI and ABI for
the quarter ended March 31, 1995 and the years ended December 31, 1994, 1993 and
1992. Years ended December 31, 1994, 1993 and 1992 include results of ABI's
operations for fiscal years ended March 31, 1995, 1994 and 1993, respectively.
The unaudited Pro Forma Condensed Financial Information should be read in
conjunction with the historical financial statements and notes thereto of SBI
and ABI. The pro forma earnings, which reflect elimination of non-recurring
merger related expenses but do not reflect any direct costs or potential savings
which may result from the consolidation of operations of SBI and ABI, are not
indicative of the results of future operations.
In addition, the following unaudited Pro Forma Condensed Financial
Information and explanatory notes are also presented to show the impact on the
historical financial position and results of operations of Susquehanna
Bancshares, Inc. (SBI) of the combination with ABI and Reisterstown Holdings,
Inc. (RHI).
Pursuant to the merger agreement, SBI paid $28,640,000 in cash for all the
outstanding shares of RHI Common Stock on April 21, 1995. The unaudited Pro
Forma Condensed Financial Information reflects the merger using the purchase
method of accounting. The cash consideration was funded by SBI through the
issuance of $50 million of 9% subordinated debt in February 1995.
The unaudited Pro Forma Condensed Balance Sheet assumes that the merger was
consummated on March 31, 1995. The unaudited Pro Forma Condensed Statements of
Income reflect the consolidation of the results of operations of SBI, ABI and
RHI for the quarter end March 31, 1995 and the year ended December 31, 1994.
Quarter ended March 31, 1995 includes results of RHI's operations for the
quarter ended December 31, 1995 while the year ended December 31, 1994 includes
results of RHI's operations for the fiscal year ended September 30, 1994.
The unaudited Pro Forma Condensed Financial Information should be read in
conjunction with the historical financial statements and notes thereto of SBI,
ABI and RHI. The pro forma earnings, which do not reflect any direct costs or
potential savings which may result from the consolidation of operations of SBI,
ABI and RHI, are not indicative of the results of future operations.
SBI/ABI
PRO FORMA BALANCE SHEET
MARCH 31, 1995
(Dollars in thousands)
ABI
-------------------------
SBI As Pro forma
ASSETS As Reported Reported Adjustments Combined
------------- ------------------------- -----------
Cash and due from banks $72,471 $2,050 ($8) [a] $74,513
Short-term investments 47,966 4,522 52,488
Investment securities-AFS 343,180 4,953 348,133
Investment securities-HTM 175,017 44,823 219,840
Loans and leases 1,298,123 189,131 1,487,254
Allowance for loan and lease losses 22,707 1,095 23,802
------------ ---------------------- ------------
Net loans and leases 1,275,416 188,036 1,463,452
Other assets 87,302 10,739 98,041
------------ ---------------------- ------------
Total Assets $2,001,352 $255,123 ($8) $2,256,467
============ ====================== ============
LIABILITIES
Noninterest-bearing deposits $233,433 $5,877 $239,310
Interest-bearing deposits 1,442,403 170,352 1,612,755
------------ ---------------------- ------------
Total deposits 1,675,836 176,229 1,852,065
Short-term borrowings 33,798 19,000 52,798
Long-term debt 67,676 31,378 99,054
Other liabilities 23,441 5,936 29,377
------------ ---------------------- ------------
Total liabilities 1,800,751 232,543 2,033,294
EQUITY
Common stock 20,967 1,496 903 [b] 23,366
Surplus 33,436 10,386 (911)[c] 42,911
Retained earnings 150,345 10,727 161,072
Unrealized gain / (loss) on securities
available-for-sale, net of tax (3,774) (29) (3,803)
Less:Treasury stock 373 373
Total equity ------------ ---------------------- ------------
200,601 22,580 (8) 223,173
------------ ---------------------- ------------
Total Liabilities & Equity $2,001,352 $255,123 ($8) $2,256,467
============ ====================== ============
See notes to the unaudited pro forma condensed financial information.
B-1
SBI/ABI
PRO FORMA INCOME STATEMENT
FIRST QUARTER 1995
(In thousands, except per share data) ABI
------------------------
SBI As Pro forma
As Reported Reported Adjustments Combined
------------- ---------------------------- -----------
INTEREST INCOME
Interest on loans and leasess $28,574 $4,056 $32,630
Interest on investments 7,608 764 8,372
Interest on short-term investments 529 137 666
------------ ------------------------ -----------
Total interest income 36,711 4,957 41,668
INTEREST EXPENSE:
Interest on deposits 12,797 1,944 14,741
Interest on short-term borrowings 596 324 920
Interest on long-term debt 967 479 1,446
------------ ------------------------ -----------
Total interest expense 14,360 2,747 17,107
------------ ------------------------ -----------
Net interest income 22,351 2,210 24,561
Provision for loan and lease losses 1,461 39 1,500
------------ ------------------------ -----------
Net interest income after provision 20,890 2,171 23,061
OTHER INCOME:
Investment gains(losses) (88) (88)
Other income 2,941 403 3,344
------------ ------------------------ ----------
Total other income 2,853 403 3,256
OTHER EXPENSE:
Salaries and benefits 9,124 875 9,999
Other expense 8,165 1,017 (65) [d] 9,117
------------ ----------------------- ----------
Total other expense 17,289 1,892 (65) 19,116
------------ ----------------------- ----------
Income before taxes 6,454 682 65 7,201
Taxes 1,616 302 1,918
----------- ----------------------- ----------
Net income from operations $4,838 $380 $65 $5,283
=========== ======================= ==========
Earnings per share $0.46 $0.26 $0.45
Average shares outstanding 10,435 1,465 (266) [e] 11,634
See notes to the unaudited pro forma condensed financial information.
B-2
SBI/ABI
PRO FORMA INCOME STATEMENT
YEAR 1994
(In thousands, except per share data)
ABI
-------------------------
SBI As Pro forma
As Reported Reported Adjustments Combined
------------- ------------------------- -----------
INTEREST INCOME:
Interest on loans and leases $102,025 $15,048 $117,073
Interest on investments 28,462 3,148 31,610
Interest on short-term investments 1,457 493 1,950
------------- --------------------- -----------
Total interest income 131,944 18,689 150,633
INTEREST EXPENSE:
Interest on deposits 43,701 7,513 51,214
Interest on short-term borrowings 1,450 807 2,257
Interest on long-term debt 1,211 1,806 3,017
------------- --------------------- -----------
Total interest expense 46,362 10,126 56,488
------------- --------------------- -----------
Net interest income 85,582 8,563 94,145
Provision for loan and lease losses 3,823 164 3,987
------------- --------------------- -----------
Net interest income after provision 81,759 8,399 90,158
OTHER INCOME:
Investment gains 999 999
Other income 12,059 2,040 14,099
------------- --------------------- -----------
Total other income 13,058 2,040 15,098
OTHER EXPENSE:
Salaries and benefits 32,383 3,844 36,227
Other expense 31,732 4,751 (1,010) [d] 35,473
-------------- --------------------- -----------
Total other expense 64,115 8,595 (1,010) 71,700
-------------- --------------------- -----------
Income before taxes 30,702 1,844 1,010 33,556
Taxes 8,713 1,005 9,718
-------------- --------------------- -----------
Net income from operations $21,989 $839 $1,010 $23,838
============== ===================== ===========
Earnings per share $2.11 $0.58 $2.05
Average shares outstanding 10,435 1,453 (254) [e] 11,634
See notes to the unaudited pro forma condensed financial information.
B-3
SBI/ABI
PRO FORMA INCOME STATEMENT
YEAR 1993
(In thousands, except per share data)
ABI
---------------------
SBI As Pro forma
As Reported Reported Adjustments Combined
------------ ---------------------- ----------
INTEREST INCOME:
Interest on loans and leases $96,282 $14,835 $111,117
Interest on investments 27,903 1,987 29,890
Interest on short-term investments 1,298 715 2,013
------------ ---------------------- ----------
Total interest income 125,483 17,537 143,020
INTEREST EXPENSE:
Interest on deposits 43,607 8,152 51,759
Interest on short-term borrowings 459 13 472
Interest on long-term debt 2,113 1,649 3,762
------------ ---------------------- ----------
Total interest expense 46,179 9,814 55,993
------------ ---------------------- ----------
Net interest income 79,304 7,723 87,027
Provision for loan and lease losses 4,961 169 5,130
------------ ---------------------- ----------
Net interest income after provision 74,343 7,554 81,897
OTHER INCOME:
Investment gains 134 96 230
Other income 12,302 3,284 15,586
------------ ---------------------- ----------
Total other income 12,436 3,380 15,816
OTHER EXPENSE:
Salaries and benefits 29,648 4,122 33,770
Other expense 27,971 4,263 32,234
------------ ---------------------- ----------
Total other expense 57,619 8,385 66,004
------------ ---------------------- ----------
Income before taxes 29,160 2,549 31,709
Taxes 8,501 1,026 9,527
------------ ---------------------- ----------
Net income from operations $20,659 $1,523 $22,182
============ ====================== ==========
Earnings per share $2.04 $1.06 $1.96
Average shares outstanding 10,132 1,432 (233) [e] 11,331
See notes to the unaudited pro forma condensed financial information.
B-4
SBI/ABI
PRO FORMA INCOME STATEMENT
YEAR 1992
(In thousands, except per share data)
ABI
-------------------------
SBI As Pro forma
As Reported Reported Adjustments Combined
------------- ------------------------- ----------
INTEREST INCOME:
Interest on loans and leases $101,587 $17,584 $119,171
Interest on investments 30,704 1,711 32,415
Interest on short-term investments 1,401 583 1,984
------------- -------------------- ----------
Total interest income 133,692 19,878 153,570
INTEREST EXPENSE:
Interest on deposits 55,614 9,192 64,806
Interest on short-term borrowings 738 116 854
Interest on long-term debt 1,982 2,167 4,149
------------- -------------------- ----------
Total interest expense 58,334 11,475 69,809
------------- -------------------- ----------
Net interest income 75,358 8,403 83,761
Provision for loan and lease losses 4,417 304 4,721
------------- -------------------- ----------
Net interest income after provision 70,941 8,099 79,040
OTHER INCOME:
Investment gains 1,177 1,177
Other income 11,010 3,097 14,107
------------- -------------------- ----------
Total other income 12,187 3,097 15,284
OTHER EXPENSE:
Salaries and benefits 28,015 3,961 31,976
Other expense 27,517 4,118 31,635
------------- -------------------- ----------
Total other expense 55,532 8,079 63,611
------------- -------------------- ----------
Income before taxes 27,596 3,117 30,713
Taxes 7,302 1,239 8,541
------------- -------------------- ----------
Net income from operations $20,294 $1,878 $22,172
============= ==================== ==========
Earnings per share $2.04 $1.34 $1.99
Average shares outstanding 9,969 1,401 (202) [e] 11,168
See notes to the unaudited pro forma condensed financial information.
B-5
SBI/RHI/ABI
PRO FORMA BALANCE SHEET
MARCH 31, 1995
(Dollars in thousands)
RHI ABI
------------------------- ---------------------------
ASSETS SBI As As Pro forma
As Reported Reported Adjustments Reported Adjustments Combined
------------- ------------------------- --------------------------- -----------
Cash and due from banks $72,471 $4,150 $2,050 ($8)[a] $78,663
Short-term investments 47,966 8,374 (1,249)[A] 4,522 30,973
(28,640)[E]
Investment securities-AFS 343,180 4,953 348,133
Investment securities-HTM 175,017 25,362 (272)[I] 44,823 244,930
Loans and leases 1,298,123 201,842 189,131 1,689,096
Allowance for loan and lease losses 22,707 3,323 1,095 27,125
------------- ---------------------- ------------------------ -----------
Net loans and leases 1,275,416 198,519 188,036 1,661,971
Other assets 87,302 10,530 (2,875)[B] 10,739 119,858
(550)[F]
351 [J]
393 [K]
2,400 [L]
(1,057)[M]
12,625 [N]
------------- ---------------------- ------------------------ -----------
Total Assets $2,001,352 $246,935 ($18,874) $255,123 ($8) $2,484,528
============= ====================== ======================== ===========
LIABILITIES
Noninterest-bearing deposits $233,433 $4,444 $5,877 $243,754
Interest-bearing deposits 1,442,403 204,888 170,352 1,817,643
------------- ---------------------- ------------------------ -----------
Total deposits 1,675,836 209,332 176,229 2,061,397
Short-term borrowings 33,798 410 19,000 53,208
Long-term debt 67,676 8,000 31,378 107,054
Other liabilities 23,441 10,119 200 [O] 5,936 39,696
------------- ---------------------- ------------------------ -----------
Total liabilities 1,800,751 227,861 200 232,543 2,261,355
EQUITY
Common stock 20,967 1,496 903 [b] 23,366
Surplus 33,436 13,989 (2,875)[C] 10,386 (911)[c] 42,911
(11,114)[G]
Retained earnings 150,345 5,085 (1,249)[D] 10,727 161,072
(3,836)[H]
Unrealized gain / (loss) on securities
available-for-sale, net of tax (3,774) (29) (3,803)
Less: Treasury stock 373 373
------------- ---------------------- ------------------------ -----------
Total equity 200,601 19,074 (19,074) 22,580 (8) 223,173
------------- ---------------------- ------------------------ -----------
Total Liabilities & Equity $2,001,352 $246,935 ($18,874) $255,123 (8) $2,484,528
============= ====================== ======================== ===========
See notes to the unaudited pro forma condensed financial information.
B-6
SBI/RHI/ABI
PRO FORMA INCOME STATEMENT
FIRST QUARTER 1995
(In thousands, except per share data) RHI ABI
------------------------- ---------------------------
SBI As As Pro forma
As Reported Reported Adjustments Reported Adjustments Combined
------------- ------------------------- --------------------------- -----------
INTEREST INCOME:
Interest on loans and leases $28,574 $5,357 $4,056 $37,987
Interest on investments 7,608 472 26 [T] 764 8,870
Interest on short-term investments 529 64 (235)[P] 137 477
(18)[Q]
------------- ---------------------- ------------------------ -----------
Total interest income 36,711 5,893 (227) 4,957 47,334
INTEREST EXPENSE:
Interest on deposits 12,797 2,525 1,944 17,266
Interest on short-term borrowings 596 80 324 1,000
Interest on long-term debt 967 215 286 [S] 479 1,947
------------- ---------------------- ------------------------ -----------
Total interest expense 14,360 2,820 286 2,747 20,213
Net interest income 22,351 3,073 (513) 2,210 27,121
Provision for loan and lease losses 1,461 39 1,500
------------- ---------------------- ------------------------ -----------
Net interest income after provision 20,890 3,073 (513) 2,171 25,621
OTHER INCOME:
Investment gains / (losses) (88) (88)
Other income 2,941 445 403 3,789
------------- ---------------------- ------------------------ -----------
Total other income 2,853 445 403 3,701
OTHER EXPENSE:
Salaries and benefits 9,124 916 875 10,915
Other expense 8,165 1,015 3 [U] 1,017 (65)[d] 10,254
8 [V]
99 [W]
(50)[Y]
(148)[R]
210 [X]
------------- ---------------------- ------------------------ -----------
Total other expense 17,289 1,931 122 1,892 (65) 21,169
------------- ---------------------- ------------------------ -----------
Income before taxes 6,454 1,587 (635) 682 65 8,153
Taxes 1,616 688 (202)[Z] 302 2,404
------------- ---------------------- ------------------------ -----------
Net income from operations $4,838 $899 ($433) $380 $65 $5,749
============= ====================== ======================== ===========
Earnings per share $0.46 N/A $0.26 $0.49
Average shares outstanding 10,435 N/A 1,465 (266)[e] 11,634
See notes to the unaudited pro forma condensed financial information.
B-7
SBI/RHI/ABI
PRO FORMA INCOME STATEMENT
YEAR 1994
(In thousands, except per share data) RHI ABI
------------------------- ---------------------------
SBI As As Pro forma
As Reported Reported Adjustments Reported Adjustments Combined
------------- ------------------------- --------------------------- -----------
INTEREST INCOME:
Interest on loans and leases $102,025 $20,389 $15,048 $137,462
Interest on investments 28,462 1,664 102 [T] 3,148 33,376
Interest on short-term investments 1,457 446 (75)[Q] 493 2,321
------------- ---------------------- ------------------------ -----------
Total interest income 131,944 22,499 27 18,689 173,159
INTEREST EXPENSE:
Interest on deposits 43,701 10,580 7,513 61,794
Interest on short-term borrowings 1,450 43 807 2,300
Interest on long-term debt 1,211 769 2,578 [S] 1,806 6,364
------------- ---------------------- ------------------------ -----------
Total interest expense 46,362 11,392 2,578 10,126 70,458
------------- ---------------------- ------------------------ -----------
Net interest income 85,582 11,107 (2,551) 8,563 102,701
Provision for loan and lease losses 3,823 127 164 4,114
------------- ---------------------- ------------------------ -----------
Net interest income after provision 81,759 10,980 (2,551) 8,399 98,587
OTHER INCOME:
Investment gains 999 141 1,140
Other income 12,059 3,374 2,040 17,473
------------- ---------------------- ------------------------ -----------
Total other income 13,058 3,515 2,040 18,613
OTHER EXPENSE:
Salaries and benefits 32,383 3,237 3,844 39,464
Other expense 31,732 3,288 12 [U] 4,751 (1,010)[d] 39,252
33 [V]
395 [W]
(200)[Y]
(591)[R]
842 [X]
------------- ---------------------- ------------------------ -----------
Total other expense 64,115 6,525 491 8,595 (1,010) 78,716
------------- ---------------------- ------------------------ -----------
Income before taxes 30,702 7,970 (3,042) 1,844 1,010 38,484
Taxes 8,713 3,385 (983)[Z] 1,005 12,120
------------- ---------------------- ------------------------ -----------
Net income from operations $21,989 $4,585 ($2,059) $839 $1,010 $26,364
============= ====================== ======================== ===========
Earnings per share $2.11 N/A $0.58 $2.27
Average shares outstanding 10,435 N/A 1,453 (254)[e] 11,634
See notes to the unaudited pro forma condensed financial information.
B-8
NOTES TO THE UNAUDITED PRO FORMA
--------------------------------
CONDENSED FINANCIAL INFORMATION
-------------------------------
(DOLLARS IN THOUSANDS)
----------------------
The unaudited Pro Forma Condensed Financial Information is based upon the
following adjustments:
NOTE 1: To reduce RHI's tangible net worth to $14,950 at closing per the
-------
merger agreement -
Short-term investments $(1,249)(A)
Goodwill (2,875)(B)
Surplus (2,875)(C)
Retained earnings (1,249)(D)
NOTE 2: The purchase account adjustments to record the acquisition of RHI -
-------
Purchase price per agreement $(28,640)(E)
Capitalized merger costs (550)(F)
-----
Total purchase price (29,190)
Historical equity acquired - surplus (11,114)(G)
Historical equity acquired - retained earnings (3,836)(H)
-------
Total historical equity acquired (14,950)
Premium to allocate $14,240
======
Adjustments to fair value of net assets acquired -
Investment securities - HTM $(272)(I)
Fixed assets 351 (J)
Favorable operating leases 393 (K)
Mortgage servicing rights 2,400 (L)
Deferred tax asset (1,057)(M)
Goodwill 12,625 (N)
Other liabilities 200 (O)
---
$14,240
=======
NOTE 3: Reduction of interest income in the first quarter of 1995 regarding
-------
purchase price of $28,640 at 6% for 50 days -
Interest on short-term investments $(235)(P)
B-9
NOTE 4: Reduction of interest income regarding Note 1 closing adjustment
-------
($1,249 at 6%) -
1ST Q 1995 YEAR 1994
---------- ---------
Interest on short-term investments $(18) (Q) $(75) (Q)
NOTE 5: Reduction of goodwill amortization regarding Note 1 closing adjustment
-------
-
1ST Q 1995 YEAR 1994
---------- ---------
Goodwill amortization $(148) (R) $(591) (R)
NOTE 6: Increase in interest expense regarding 9% borrowings of $28,640
-------
purchase price for 40 days in the first quarter of 1995 and all of
1994 -
1ST Q 1995 YEAR 1994
---------- ---------
Interest on long-term debt $286 (S) $2,578 (S)
NOTE 7: Amortization of fair value purchase accounting adjustments in Note 2 -
-------
1ST Q 1995 YEAR 1994
---------- ---------
Interest on investments $26 (T) $102 (T)
Fixed assets 3 (U) 12 (U)
Favorable operating leases 8 (V) 33 (V)
Mortgage servicing rights 99 (W) 395 (W)
Goodwill 210 (X) 842 (X)
Other liabilities (50) (Y) (200)(Y)
NOTE 8: Tax effect on Notes 3, 4, 5, 6 and 7 -
-------
1ST Q 1995 YEAR 1994
---------- ---------
Taxes $(202)(Z) $(983)(Z)
NOTE 9: To reclass $2 par value of shares issued (1,199,663 shares less 329
-------
fractional shares paid in cash) by SBI for the acquisition of ABI -
Cash $(8) (a)
Common stock 903 (b)
Surplus (911) (c)
B-10
NOTE 10: To eliminate non-recurring merger related expenses -
--------
1ST Q 1995 YEAR 1994
---------- ---------
$(65) (d) $(1,010)(d)
NOTE 11: To adjust average shares outstanding for shares issued by
--------
SBI in the ABI merger -
1ST Q 1995 YEAR 1994
---------- ---------
(266) (e) (254) (e)
YEAR 1993 YEAR 1992
--------- ---------
(233) (e) (202) (e)
B-11