EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Form S-8 of Susquehanna Bancshares, Inc. of our report dated April 12, 1995, on
our audits of the consolidated financial statements of Reisterstown Holdings,
Inc. as of March 31, 1995 and September 30, 1994, and for the six months ended
March 31, 1995 and each of the two years in the period ended September 30, 1994,
which report is included in this Form 8-K/A-1.
/s/ Coopers and Lybrand, L.L.P.
Harrisburg, Pennsylvania
May 16, 1995
APPENDIX A
----------
REISTERSTOWN HOLDINGS, INC.
AND SUBSIDIARIES
-------
REPORT OF INDEPENDENT ACCOUNTANTS ON
CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATING INFORMATION
for the period October 1, 1994 to March 31, 1995 and for
for the years ended September 30, 1994 and 1993
[LETTERHEAD OF COOPERS & COOPERS & LYBRAND L.L.P.
LYBRAND GOES HERE]
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
-------
To the Board of Directors
Reisterstown Holdings, Inc.
We have audited the accompanying consolidated statements of financial
condition of Reisterstown Holdings, Inc. and subsidiaries (the "Company") as of
March 31, 1995 and September 30, 1994, and the related consolidated statements
of operations, stockholders' equity and cash flows for the six months ended
March 31, 1995 and for each of the two years in the period ended September 30,
1994. 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 Reisterstown
Holdings, Inc. and subsidiaries as of March 31, 1995 and September 30, 1994, and
the results of their operations and their cash flows for the six months ended
March 31, 1995 and for each of the two years in the period ended September 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 and Note 12 to the Consolidated Financial
Statements, the Company changed its method of accounting for certain investments
in debt and equity securities beginning in fiscal 1995, and its method of
accounting for income taxes beginning in fiscal year 1993.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
April 12, 1995
A-1
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
as of March 31, 1995 and September 30, 1994
----
March 31, September 30,
ASSETS 1995 1994
---- ----
Cash
On hand and in banks $ 4,150,167 $ 3,714,120
Interest-bearing deposits 7,619,136
Federal funds sold 754,888 1,696,531
Investment securities held-to-maturity, estimated market value
$13,932,680 in 1995 and $21,358,030 in 1994 13,991,381 21,474,825
Mortgage-backed securities held-to-maturity, estimated market value
$11,157,421 in 1995 and $13,962,044 in 1994 11,370,682 14,266,705
Loans receivable, net. 198,518,766 201,664,767
Property and equipment, net 2,003,649 2,092,335
Investment in Federal Home Loan Bank of Atlanta
stock, at cost 2,015,400 2,015,400
Accrued interest receivable:
Loans 1,656,417 1,476,121
Investments 196,172 285,534
Prepaid expenses and other assets 4,657,942 4,327,573
------------- -------------
Total assets $246,934,600 $253,013,911
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 209,331,580 210,429,131
Borrowings 8,410,200 17,661,700
Drafts payable 474,260 545,813
Advance payments by borrowers for taxes
and insurance 2,083,754 754,442
Accrued interest payable on deposits 491,582 629,217
Accrued expenses and other liabilities 7,192,824 3,945,392
Federal and state income taxes:
Currently payable (123,010) (92,131)
------------- -------------
Total liabilities 227,861,190 233,873,564
------------- -------------
Commitments (Note 16)
Stockholders' equity:
Redeemable common stock, $.01 par value
per share; 23 shares
issued and outstanding (at redemption
value) at September 30, 1994 391,577
Common stock, $.01 par value per share;
3,000 shares authorized; 1,392 and 1,369 shares issued and
outstanding at March 31, 1995 and September 30, 1994, respectively 14 14
Additional paid-in capital 13,988,884 13,597,307
Retained Earnings 5,084,512 5,151,449
------------- -------------
Total stockholders' equity 19,073,410 19,140,347
------------- -------------
Total liabilities and stockholders' equity $246,934,600 $253,013,911
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-2
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended March 31, 1995 and for the years ended
September 30, 1994 and 1993
----
March 31, September 30,
1995 1994 1993
---- ---- ----
Interest income:
Loans receivable $10,624,758 $20,388,562 $19,992,553
Mortgage-backed securities 408,392 963,500 1,328,097
Investments 500,142 700,924 393,956
Other 166,651 446,300 416,223
------------ ------------ ------------
Total interest income 11,699,943 22,499,286 22,130,829
------------ ------------ ------------
Interest expense:
Deposits 5,075,635 10,567,915 10,845,975
Borrowed funds and other 548,683 824,797 809,755
------------ ------------ ------------
Total interest expense 5,624,318 11,392,712 11,655,730
------------ ------------ ------------
Net interest income 6,075,625 11,106,574 10,475,099
Provision for loan losses 52,498 127,106
------------ ------------ ------------
Net interest income after
provision for loan losses 6,023,127 10,979,468 10,475,099
------------ ------------ ------------
Noninterest income:
Gain on sales of loans and mortgage-
backed securities, net 99,674 1,178,041 2,880,343
Loan fees and service
charges 719,697 2,096,889 2,221,882
Other 48,719 240,547 90,121
------------ ------------ ------------
Total noninterest income 868,090 3,515,477 5,192,346
------------ ------------ ------------
Noninterest expenses:
Salaries and employee benefits 2,324,238 3,237,314 3,276,579
Net occupancy 125,834 255,907 208,858
Data processing 117,451 223,661 213,545
FDIC insurance premiums 281,748 558,646 503,037
Other 1,620,935 2,249,864 2,484,856
------------ ------------ ------------
Total noninterest expense 4,470,206 6,525,392 6,686,875
------------ ------------ ------------
Income before income tax
provision and cumulative
effect of an accounting change 2,421,011 7,969,553 8,980,570
Income tax provision 1,095,948 3,384,669 3,802,229
------------ ------------ ------------
Income before cumulative
effect of an accounting change 1,325,063 4,584,884 5,178,341
Cumulative effect of change
in accounting for income tax 1,102,910
------------ ------------ ------------
Net income $ 1,325,063 $ 4,584,884 $ 6,281,251
============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-3
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the six months ended March 31, 1995 and for the years ended
September 30, 1994 and 1993
----
Redeemable
Common Retained
Stock (at Additional Earnings
Redemption Par Paid-in (Accumulated
Value) Value Capital Deficit) Total
---------- ----- ------------- ------------ -------------
Balance at
October 1,
1992 $ 505,476 $14 $13,661,085 $ 3,238,034 $17,404,609
Increase in
redemption
value 33,849 (33,849)
Stock redemption (177,677) (177,677)
Cash dividends (1,424,880) (1,424,880)
Net income 6,281,251 6,281,251
---------- ----- ------------- ------------ -------------
Balance at
September 30,
1993 361,648 14 13,627,236 8,094,405 22,083,303
Increase in
redemption
value 29,929 (29,929)
Stock redemption
Cash dividends (7,527,840) (7,527,840)
Net income 4,584,884 4,584,884
---------- ----- ------------- ------------ -------------
Balance at
September 30,
1994 391,577 14 13,597,307 5,151,449 19,140,347
Increase in
redemption
value 7,482 (7,482)
Forfeited rights (399,059) 399,059
Cash dividends (1,392,000) (1,392,000)
Net income 1,325,063 1,325,063
---------- ----- ------------- ------------ -------------
Balance at
March 31,
1995 $ - $14 $13,988,884 $ 5,084,512 $19,073,410
========== ===== ============= ============ =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-4
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended March 31, 1995 and for the years ended
September 30, 1994 and 1993
----
March 31, September 30,
1995 1994 1993
---- ---- ----
Operating Activities:
Net Income $ 1,325,063 $ 4,584,884 $ 6,281,251
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 52,498 127,106
Gain on sale of mortgage loans (99,674) (1,036,786) (1,327,408)
Gain on sale of mortgage-backed
securities (141,255) (1,552,935)
Amortization of:
Deferred loan fees (1,318,625) (2,325,973) (1,916,047)
Premiums and discounts on
investments (19,368) 35,337 34,461
Deferred servicing fees 52,169 228,830 202,324
Depreciation and amortization 103,784 209,097 767,853
Stock dividend received on FHLB stock (49,700) (111,100)
Deferred income taxes 62,548 588,836 (651,458)
Changes in assets and liabilities:
(Increase) decrease in accrued
interest receivable (90,934) (249,245) 129,704
Increase (decrease) in income taxes
currently payable (30,879) (446,717) 152,875
Decrease in accrued interest
payable on deposits
(Increase) decrease in prepaid expenses (137,635) (251,693) (340,867)
and other assets (445,086) 298,382 (427,166)
Increase (decrease) in accrued
expenses and other liabilities 3,247,432 (227,528) 568,186
----------- ----------- -----------
Net cash provided by operating
activities 2,701,293 1,343,575 1,809,673
----------- ----------- -----------
Cash flows from investing activities:
Loan originations (74,363,840) (318,001,510) (290,926,481)
Loan fees deferred, net of capitalized
origination costs 1,006,798 2,565,429 2,138,332
Increase (decrease) in loans in process (5,926,428) 19,939,446 19,318,423
----------- ----------- -----------
Net cash flows from loan
originations (79,283,470) (295,496,635) (269,469,726)
Principal repayments on loans 74,541,798 179,780,005 158,013,720
Purchases of loans and participations in loans (1,187,500)
Sales of loans and participations in loans 9,253,474 100,777,178 68,051,750
Maturities of investment securities held-to-maturity 9,510,000 10,000,000 8,000,000
Purchases of investment securities held-to-maturity (2,007,188) (20,504,165) (11,039,843)
Purchases of mortgage-backed securities held-to-maturity (4,988,727) (2,387,034)
Sales of mortgage-backed securities 11,147,936 36,046,194
Repayments of mortgage-backed securities held-to-maturity 2,896,023 5,895,373 4,640,858
Investments in and advances to real estate joint ventures 1,133,240 307,006
Purchase of property and equipment (15,098) (216,940) (306,119)
----------- ----------- -----------
Net cash provided by (used in) investing activities 14,895,539 (12,472,735) (9,330,694)
----------- ----------- -----------
Continued
A-5
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended March 31, 1995 and for the years ended September 30,
1994 and 1993
March 31, September 30,
1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Net increase (decrease) in money market, NOW
and passbook accounts $ (5,221,978) $ 1,577,405 $ 5,697,865
Proceeds from the sale of certificate accounts 12,461,122 19,357,053 20,334,600
Payments for maturities of certificate accounts (8,336,695) (20,631,012) (17,995,367)
Proceeds from borrowed funds 20,849,275 23,339,000 16,675,000
Principal repayments on borrowed funds (30,100,775) (15,452,300) (16,750,000)
Net increase (decrease) in drafts payable (71,553) (397,565) 220,233
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 1,329,312 (50,313) (322,571)
Stock redemption (177,677)
Cash dividends paid (1,392,000) (7,527,840) (1,424,880)
------------ ------------ ------------
Net cash provided by (used in)
financing activities (10,483,292) 214,428 6,257,203
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 7,113,540 (10,914,732) (1,263,818)
Cash and cash equivalents at beginning of period 5,410,651 16,325,383 17,589,201
------------ ------------ ------------
Cash and cash equivalents at end of period 12,524,191 $ 5,410,651 $ 16,325,383
============ ============ ============
Supplemental schedules
Supplemental disclosures of cash flow information:
Cash paid for interest $ 5,731,687 $ 11,370,834 $ 12,030,700
Cash paid for taxes 1,063,279 3,242,550 3,587,000
Schedule of noncash activities:
Securitization of mortgage loans $ 11,006,681 $ 32,915,274
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-6
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
1. Organization and Acquisition:
----------------------------
Reisterstown Holdings, Inc. (the "Company"), incorporated July 24, 1989,
was organized to acquire Reisterstown Federal Savings Bank (the "Bank") and
Subsidiaries: Reisterstown Service Corporation (RSC), American Title, Inc.
(AT), and Time Financial Services, Inc. (TFS).
On January 3, 1990, the Company acquired all the outstanding shares of the
Bank for $27,913,000. The acquisition was accounted for as a purchase and,
accordingly, the purchase price was allocated to assets and liabilities
acquired based upon their fair values at the date of acquisition. The
excess of the purchase price over the fair value of net assets acquired was
allocated to the following intangible assets:
Amortization
Amount Period
---------- ----------------
Core Deposits $5,779,233 10 years
Favorable Lease 200,000 15 years
The total excess of cost over the fair value of net assets acquired net of
amortization, which is included in prepaid expenses and other assets, was
$2,875,157 and $3,170,783, respectively, at March 31, 1995 and September
30, 1994.
Immediately subsequent to the acquisition, the Bank distributed its shares
in AT and TFS to the Company.
Under the terms of a management agreement, the Company paid $156,000,
$208,000 and $261,000 for the six months ended March 31, 1995 and the years
ended September 30, 1994 and 1993 respectively, to affiliates of a
stockholder.
2. Summary of Significant Accounting Policies:
-------------------------------------------
Principles of Consolidation:
---------------------------
The consolidated financial statements include the accounts of Reisterstown
Holdings, Inc. and its wholly-owned subsidiaries: AT, TFS, and the Bank and
its subsidiary, RSC. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash Equivalents:
-----------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with maturities at the date of
purchase of three months or less to be cash equivalents. Cash equivalents
includes federal funds sold.
Continued
A-7
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------------------
Securities:
-----------
Securities (investment and mortgage-backed securities) consist of non-
equity securities which are carried at cost, adjusted for amortization of
premium or accretion of discount using the level yield method over the term
of the security. The Company has the positive ability and intent to hold
these securities to maturity. Gain or loss on sale is reflected in income
at the time of sale using the specific identification method.
The Bank adopted the provisions of statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity
-----------------------------------------------------
Securities effective October 1, 1994. Under this statement, the
----------
securities are Bank's investments in required to be classified among three
categories and accounted for as follows:
. Trading Securities. Securities held principally for the sale in the near
term are classified as trading securities and recorded at their fair
values. Unrealized gains and losses on trading securities are included in
other income.
. Securities held to maturity. Securities for which the Bank has the
positive intent and ability to hold to maturity are reported at cost,
adjusted for the amortization of premiums and accretion of discounts
which are recognized in interest income using the interest method over
the period to maturity.
. Securities Available for Sale. Securities available for sale consist of
securities not classified as trading securities or as securities to be
held to maturity. Unrealized gains and losses on available for sale
securities are included as a separate component of stockholders' equity,
net of taxes.
Declines in the fair value of individual held to maturity and available for
sale securities below their cost that are other than temporary will result
in write-downs of the individual securities to their fair value. The
related write-downs would be included in earnings as realized losses.
For the six months ended March 31, 1995, the Bank classified all of its
securities as held to maturity.
Continued
A-8
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------------------
Mortgage-Backed Securities Held for Sale:
----------------------------------------
Generally, mortgage-backed securities created through mortgage banking
operations of the Bank (through securitization of loans originated by the
Bank) are classified as held for sale and carried at the lower of aggregate
cost or market value. No such securities were outstanding at March 31, 1995
and September 30, 1994. When mortgage-backed securities are sold, gain or
loss on sale is reflected in income at the time of sale using the specific
identification method.
Interest on Loans:
-----------------
Accrual of interest and amortization of loan fees on potential problem
loans will be excluded from income when, in the opinion of management, such
exclusion is warranted. Generally, this occurs when scheduled principal and
interest payments are past due 90 days or more on any loan. Interest
ultimately collected will be credited to income in the period of recovery.
Loan Fees:
---------
Loan origination fees and direct origination costs are deferred and
recognized as adjustments to the interest yield on the related loans over
their contractual lives.
Gains on Sale of Loans:
----------------------
The Bank sells whole and participating interests in certain loans. Gain or
loss is recognized to the extent that the sales proceeds exceed or are less
than the book value of the loans sold.
Continued
A-9
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
-----------------------------------------------------
Gains on Sale of Loans, continued:
----------------------------------
In transactions that involve loans in which the Bank retains the servicing,
the present value of the difference between the interest rate charges to
the borrower and the interest rate paid to the investor over the estimated
lives of the loans, after deducting a normal servicing fee, is recorded as
excess servicing fee receivable and recorded as a gain or loss at the time
of the sale. This excess servicing fees receivable, which is included in
"prepaid expenses and other assets" in the consolidated statements of
financial condition, is amortized as an adjustment to servicing income
using the level yield method over the estimated remaining lives of the
loans. The Bank periodically reviews the prepayment experience on loans
serviced for investors, and the carrying value of the excess servicing fees
receivable is adjusted as appropriate. For the six months ended March 31,
1995 and for the years ended September 30, 1994 and 1993, amounts recorded
as a gain on the sale of all 30 year and 15 year fixed rate loans were
received as cash. For the years ended September 30, 1994 and 1993, amounts
recorded as a gain on all 10 year fixed rate loans securitized and sold as
Participation Certificates were segregated into both excess servicing fees
receivable and cash.
Allowance for Loan Losses:
--------------------------
The allowance for loan losses is maintained to absorb possible future
losses, net of recoveries, inherent in the existing loan portfolio. The
provision for estimated loan losses is the periodic cost of maintaining an
adequate allowance. In evaluating the adequacy of the allowance for loan
losses, management takes into consideration the following factors: the
condition of industries and geographic areas experiencing or expected to
experience particular economic adversities; historical charge-off and
recovery activity (noting any particular trend changes over recent
periods); trends in asset classifications, delinquencies, bankruptcies and
non-performing loans; trends of loan volume and size of credit risks
inherent in the composition of the loan portfolio; current and anticipated
economic conditions; credit evaluations; underwriting policies; and the
liquidity and volatility of the markets in which the Bank does business.
Continued
A-10
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------------------
Property and Equipment:
-----------------------
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation of property and equipment is provided for by the use of the
straight-line method over the estimated useful lives of the assets.
Additions and improvements will be capitalized, and charges for repairs and
maintenance will be expensed when incurred. The cost and accumulated
depreciation will be eliminated from the accounts when an asset is sold or
retired and the resultant gain or loss will be credited or charged to
income.
Foreclosed Real Estate:
-----------------------
Real estate properties acquired through loan foreclosure are initially
recorded at the lower of cost or fair value at the date of foreclosure.
Costs relating to development and improvement of property are capitalized,
whereas costs relating to the holding of property are expensed. Valuations
are periodically performed by management, and an allowance for losses is
established by a charge to income if the carrying value of a property
exceeds its estimated net realizable value. At March 31, 1995, foreclosed
real estate amounted to $698,000. No foreclosed real estate existed as of
September 30, 1994.
Income Taxes:
------------
Effective October 1, 1992, the Company adopted Statement of Financial
Standards No. 109 "Accounting for Income Taxes". The Company uses the
liability method to determine deferred tax amounts and related income tax
expenses or benefit. Deferred taxes are calculated by applying enacted
statutory tax rates to temporary differences consisting of items of income
and expenses that are accounted for in financial reporting periods which
differ from income tax reporting periods. The resultant deferred tax assets
and liabilities represent future taxes to be recovered or remitted when the
assets and liabilities are recovered or settled.
Impact of New Accounting Standards:
----------------------------------
Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan, was issued in May 1993, and is
effective for financial statements issued for fiscal years beginning after
December 15, 1994. This statement requires that impaired loans including
loans restructured in a troubled debt restructuring involving a
modification of terms, be evaluated based on the present value of expected
cash flows discounted at the loan's effective interest rate or, if the loan
is collateral dependent, based on the fair value of the collateral.
Continued
A-11
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------------------
Impact of New Accounting Standards, continued:
----------------------------------------------
This statement was amended by Statement of Financial Accounting Standards
No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures, issued in October 1994.
Reclassifications:
------------------
Certain prior year financial statement amounts have been reclassified to
conform with any significant changes in the current year financial
statement presentation.
3. Investment Securities Held-To-Maturity:
---------------------------------------
Investment securities are summarized as follows at March 31, 1995 and
September 30, 1994:
March 31, September 30,
------------------------- ------------------------
1995 1994
------------------------- ------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
U.S. Government and
agency obligations
due:
Within 12 months $ 8,992,214 $ 8,972,700 $17,484,982 $17,421,460
Beyond 12 months,
but within 5 years 4,999,167 4,959,980 3,989,843 3,936,570
----------- ----------- ----------- -----------
$13,991,381 $13,932,680 $21,474,825 $21,358,030
=========== =========== =========== ===========
Continued
A-12
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
3. Investment Securities Held-To-Maturity, continued:
--------------------------------------------------
At March 31, 1995, gross unrealized gains and losses on securities were
$12,705 and $71,406, respectively. Gross unrealized gains and losses on
securities were $7,066 and $123,861, respectively, at September 30, 1994.
There were no sales of investment securities during the six months ended
March 31, 1995 and the year ended September 30, 1994.
4. Mortgage-Backed Securities Held-To-Maturity:
--------------------------------------------
Mortgage-backed securities are summarized as follows at March 31, 1995 and
September 30, 1994:
March 31, 1995
-------------------------------------------------------------------
Principal Unamortized Unearned Carrying Estimated
Balance Premiums Discounts Value Market Value
----------- ----------- ---------- ----------- ------------
FHLMC $10,348,133 $39,948 $(38,967) $10,349,114 $10,140,598
FNMA 1,021,568 1,021,568 1,016,823
----------- ----------- ---------- ----------- -----------
$11,369,701 $39,948 $(38,967) $11,370,682 $11,157,421
=========== =========== ========== =========== ===========
September 30, 1994
-------------------------------------------------------------------
Principal Unamortized Unearned Carrying Estimated
Balance Premiums Discounts Value Market Value
----------- ----------- ---------- ----------- ------------
FHLM C $12,236,228 $47,828 $(45,976) $12,238,080 $11,929,992
FNMA 2,028,625 2,028,625 2,032,052
$14,264,853 $47,828 $(45,976) $14,266,705 $13,962,044
At March 31, 1995, gross unrealized gains and losses in the portfolio
totaled $34,544 and $247,805, respectively. At September 30, 1994, gross
unrealized gains and losses in the portfolio totaled $9,963 and $314,624,
respectively. Gross gains of $141,255 and $1,552,935 were realized on the
sale of mortgage-backed securities for the years ended September 30, 1994
and 1993, respectively. There were no sales of mortgage-backed securities
for the six months ended March 31, 1995.
At March 31, 1995 and September 30, 1994, the Company had no outstanding
commitments to purchase or sell securities.
Continued
A-13
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
5. Loan Receivable:
---------------
Loans receivable are summarized as follows at March 31, 1995 and September
30, 1994:
March 31, September 30,
1995 1994
------------ ------------
Loans collateralized by first
mortgages on real estate:
Conventional $ 95,629,551 $100,002,493
Partially guaranteed by VA 24,862 25,596
Construction and land loans 173,403,862 178,590,328
Participations purchased 1,702,801 1,602,245
Loans collateralized by deposits 964,078 838,451
Loans collateralized by second
mortgages on real estate: 50,000 50,000
------------ ------------
271,775,154 281,109,113
------------ ------------
Less:
Undisbursed portion of
construction loans in process 68,774,772 74,701,200
Net deferred loan fees 1,158,616 1,470,444
Allowance for loan losses 3,323,000 3,272,702
------------ ------------
73,256,388 79,444,346
------------ ------------
Loans receivable, net $198,518,766 $201,664,767
============ ============
Mortgage loans in arrears three months or more, including loans in process
of foreclosure, amounts to $3,523,036 and $1,558,714 at March 31, 1995 and
September 30, 1994, respectively. For the six months ended March 31, 1995
and the year ended September 30, 1994, the accrual of interest on these
loans in the amount of $100,342 and $86,122, respectively, has been
excluded from income.
Mortgage loans held for sale of approximately $430,450 and $566,600 at
March 31, 1995 and September 30, 1994, respectively, are included in "loans
receivable" in the consolidated statements of financial condition and are
carried at cost which approximates market.
Most of the Bank's loan customers are located within Carroll County and the
western portion of Baltimore County of the State of Maryland. Substantially
all loans are collateralized by real property.
Continued
A-14
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
5. Loans Receivable, continued:
----------------
Changes in the allowance for loan losses were as follows for the periods
ended:
March 31, September 30,
1995 1994 1993
---- ---- ----
Balance at beginning of
period $3,272,702 $3,194,712 $4,097,030
Provision charged to
expense 52,498 127,106
Charge-offs (2,200) (49,116) (975,000)
Recoveries 72,682
----------- ----------- -----------
Balance at end of
period $3,323,000 $3,272,702 $3,194,712
=========== =========== ===========
6. Loan Servicing:
---------------
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal
balance related to these loans amounted to $225,865,225 and $228,111,308 at
March 31, 1995 and September 30, 1994, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $4,762,614 and $1,418,000 at March 31, 1995
and September 30, 1994, respectively.
Following is an analysis of the changes in excess servicing fees receivable
balance for the periods ended:
March 31, September 30,
1995 1994 1993
---- ---- ----
Balance at beginning of
period $ 347,611 $ 548,584 $ 328,893
Additions 27,857 422,015
Amortization (40,857) (89,339) (48,324)
Valuation adjustment (11,312) (139,491) (154,000)
----------- ---------- ----------
Balance at end of period $ 295,442 $ 347,611 $ 548,584
=========== ========== ==========
Continued
A-15
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
6. Loan Servicing, continued:
--------------------------
The excess servicing fees receivable balance is included in "prepaid
expenses and other assets" in the consolidated statements of financial
condition.
7. Property and Equipment:
-----------------------
Property and equipment are summarized as follows at:
March 31, September 30, Estimated
1995 1994 Useful Lives
---- ---- --------------
Land $ 636,554 $ 636,554
Buildings and improvements 1,096,232 1,096,232 9 - 40 years
Furniture, fixtures and
equipment 898,942 883,844 3 - 10 years
Automobiles 46,375 46,375 3 years
---------- ----------
Total, at cost 2,678,103 2,663,005
Less accumulated
depreciation 674,454 570,670
---------- ----------
Property and equipment,
net $2,003,649 $2,092,335
========== ==========
The Company is obligated under four noncancelable long-term leases. These
leases cover the land on which the branch office building is located,
office space which houses residential loan origination and underwriting
administration, office space which houses construction loan origination and
underwriting administration and office space which houses American Title,
Inc, a subsidiary of the Company. Future minimum rental payments required
under the leases are as follows:
Years ending September 30:
1995 $ 45,838
1996 85,238
1997 55,781
1998 31,500
1999 31,500
Subsequent to 1999 31,500
--------
$281,357
========
Rent expense amounted to $45,780, $69,458 and $50,626 for the period ended
March 31, 1995 and the years ended September 30, 1994 and 1993,
respectively.
Continued
A-16
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
8. Investments in Federal Home Loan Bank Stock:
--------------------------------------------
The Bank is required to maintain an investment in the stock of the Federal
Home Loan Bank of Atlanta in an amount equal to at least 1% of the unpaid
principal balance of the Bank's residential mortgage loans, or 1/20th of
its outstanding advances from the Bank, whichever is greater. Purchases and
sales of stock are made directly with the Federal Home Loan Bank at par
value.
9. Deposits:
---------
Deposits are summarized as follows at March 31, 1995 and September 30,
1994:
Weighted
Type of Average Rate 1995 1994
------------ ------------------- ---------------------
Account 1995 1994 Amount % Amount %
------------ ------------ ------------------- ---------------------
Certificates 6.52 6.22 $135,639,337 64.8% $131,514,910 62.5%
Passbook 3.05 3.05 23,873,738 11.4 25,037,204 11.9
NOW 1.40 1.51 14,683,307 7.0 15,999,240 7.6
Super NOW 2.64 2.98 19,867 0.1 39,113 0.1
Money Market 3.58 3.18 35,115,331 16.7 37,838,664 17.9
------------ ------ ------------ ------
$209,331,580 100.0% $210,429,131 100.0%
============ ====== ============ =======
Certificate accounts mature as follows at March 31, 1995 and September
30, 1994:
1995 1994
-------------------- -------------------
Amount % Amount %
------------ ------ ------------ ------
Under 12 months $ 52,178,645 38.5% $ 56,949,087 43.3%
12 months to 24 months 15,320,813 11.3 20,015,985 15.2
24 months to 36 months 11,540,271 8.5 6,556,006 5.0
36 months to 48 months 15,547,234 11.5 18,830,657 14.3
48 months to 60 months 40,173,542 29.6 28,136,195 21.4
Over 60 months 878,832 0.6 1,026,980 0.8
------------ ------ ------------ ------
$135,639,337 100.0% $131,510,910 100.0%
============ ====== ============ ======
Continued
A-17
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
9. Deposits, continued:
--------
Interest expense on deposits is summarized as follows for the six months
ended March 31, 1995 and for the years ended September 30, 1994 and 1993:
1995 1994 1993
---- ---- ----
Certificates $3,871,650 $ 8,291,341 $ 8,806,534
NOW and money market
accounts 685,360 1,387,664 1,353,373
Passbook accounts 518,625 888,910 686,068
---------- ------------ ------------
$5,075,635 $10,567,915 $10,845,975
========== ============ ============
10. Borrowed Funds:
---------------
Borrowed funds are summarized as follows at March 31, 1995 and September
30, 1994:
1995 1994
--------------------- ------------------
Amount Rate Amount Rate
Term loan payable to commercial bank $8,000,000 10.50% $ 8,000,000 9.25%
Commercial bank revolving LOC 325,000 9.75
FHLB advance
daily rate credit advance (DRC) 9,000,000 5.95
FHLB advance
affordable housing program (AHP) 410,200 5.00 336,700 5.00
---------- ------ ----------- -----
$8,410,200 10.23% $17,661,700 7.50%
========== ====== =========== =====
The term loan payable to the commercial bank is collateralized by all
issued and outstanding stock of the Bank and bears interest at the lender's
prime rate (9.00% at March 31, 1995) plus 1.5%. The loan agreement places
various restrictions on the Company and its subsidiaries, including the
payment of dividends and the maintenance of minimum financial ratios.
The Company is dependent on receipt of cash dividends from the Bank to
service the term loan. Such dividends are subject to regulatory
limitations. The total amount of dividends that the Bank could have paid to
the Company, subject to approval from bank regulators, at March 31, 1995
was approximately $4,600,000. In addition, the loan agreement restricts the
payment of dividends by the Bank so that such payment may not cause the
Bank's tangible net worth, as defined, to be less than $16,000,000. At
March 31, 1995, the Bank's tangible net worth was $22,318,000.
Continued
A-18
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSIDATED FINANCIAL STATEMENTS, Continued
______
10. Borrowed Funds, continued:
--------------
Under the terms of the revolving line of credit, the Company may borrow up
to $2,000,000 to the extent it has prepaid principal on the term loan, at
the lender's prime rate plus 2%. There was no outstanding principal balance
relating to this agreement at March 31, 1995.
The Company may be required to pay a fee upon the full or partial
prepayment of the loan and at the scheduled final maturity. The fee is
calculated as a percentage (ranging from 5% at January 3, 1990 to 2.5% at
January 1, 1997 and thereafter) of the payment amount.
Principal maturities of the term loan are as follows:
January 1, 1996 1,600,000
1997 2,200,000
1998 2,850,000
July 1, 1998 1,350,000
----------
$8,000,000
==========
The Bank periodically enters into sales of securities with agreements to
repurchase. The securities underlying the agreements are generally book-
entry securities which are delivered by appropriate entry into the
counterparties' accounts maintained at the Federal Reserve Bank of New
York. At March 31, 1995 and September 30, 1994, there were no such
repurchase agreements outstanding.
Pursuant to a blanket floating lien security agreement with the Federal
Home Loan Bank of Atlanta (FHLB), the Bank can borrow against a daily rate
line of credit providing for maximum outstanding borrowings of no more than
$15,000,000. The Bank is required to maintain, as collateral for these
advances, qualifying first mortgage loans and its stock in the FHLB. There
were no FHLB daily rate credit advances outstanding as of March 31, 1995.
Also, pursuant to a blanket floating lien security agreement with the FHLB,
the Bank has entered into the Affordable Housing Program (AHP) offered by
the FHLB. The AHP provides advances with subsidized interest rates as well
as direct subsidies to borrowers for long-term financing of owner-occupied
and rental housing for very low, low and moderate income families. The Bank
is required to maintain, as collateral for its advances, qualifying first
mortgage loans and its stock in the FHLB. FHLB Affordable Housing Program
advances outstanding as of March 31, 1995 were $410,200.
Continued
A-19
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSIDATED FINANCIAL STATEMENTS, Continued
______
10. Borrowed Funds, continued:
--------------
Interest expense on borrowed funds is summarized as follows for the period
ended March 31, 1995 and for the years ended September 30, 1994 and 1993:
1995 1994 1993
-------- -------- --------
Repurchase agreements $ 54,924 $ 14,015 $ 8,260
Advances from FHLB 31,631 29,444 18,898
Long-term borrowings and LOC 454,623 768,489 770,778
Mortgage escrow accounts
and other 7,505 12,849 11,819
-------- -------- --------
$548,683 $824,797 $809,755
======== ======== ========
11. Income Taxes:
------------
As discussed in Note 1, Summary of Significant Accounting Policies, the
Bank changed its method of accounting for income taxes as of October 1,
1992. The cumulative effect of this change in accounting for income taxes
of $1,102,910 is reported separately in the consolidated statement of
operations for the year ended September 30, 1993.
The income tax provisions, before the cumulative effect of the FAS 109
accounting change, for the six months ended March 31, 1995 and the years
ended September 30, 1994 and 1993 are summarized as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $ 868,567 2,472,005 2,982,967
State 164,834 323,828 728,639
---------- ---------- ----------
1,033,401 2,795,833 3,711,606
---------- ---------- ----------
Deferred:
Federal 55,149 517,709 74,197
State 7,398 71,127 16,426
---------- ---------- ----------
62,547 588,836 90,623
---------- ---------- ----------
Provision for income taxes $1,095,948 $3,384,669 $3,802,229
========== ========== ==========
Continued
A-20
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
11. Income Taxes, continued:
------------
The valuation allowance for deferred tax assets as of October 1, 1992 was
$38,620. Significant components of the Bank's deferred tax assets and
liabilities as of March 31, 1995 and September 30, 1994 are as follows:
1995 1994
----- ----
Deferred tax assets:
Book bad debt reserves $1,179,182 $1,156,432
Excess of tax over book basis
of equity investments 38,620 38,620
Deferred Compensation 77,786 84,930
---------- ----------
1,295,588 1,279,982
Less valuation allowance 38,620 38,620
---------- ----------
Total deferred tax assets 1,256,968 1,241,362
---------- ----------
Deferred tax liabilities:
Tax bad debt reserves 754,149 683,670
Tax over book depreciation 53,428 51,497
Excess servicing gains 42,923 45,215
Excess of tax over book deferred fees 195,740 187,704
Stock dividends 97,322 97,322
---------- ----------
Total deferred tax liabilities 1,143,562 1,065,408
---------- ----------
Net deferred tax assets $ 113,406 $ 175,954
========== ==========
A reconciliation between the income tax provision and the amount
computed by multiplying income before income taxes by the statutory federal
income tax rate of 34% for the period ended March 31, 1995 and the years
ended September 30, 1994 and 1993, follows:
1995 1994 1993
---- ---- ----
Income tax provision at
statutory rate $ 823,070 $2,727,742 $3,053,394
Amortization and depreciation expense
not deductible for tax purposes 100,513 205,746 205,746
State income taxes, net of
federal income tax benefit 172,365 438,889 491,743
Other 12,292 51,346
---------- ---------- ----------
Income tax provision $1,095,948 $3,384,669 $3,802,229
========== ========== ==========
Continued
A-21
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
11. Income Taxes, continued
------------
The Bank has qualified under provisions of the Internal Revenue Code
("IRC") which permit it to deduct from taxable income a provision for bad
debts based on a percentage of taxable income before such deduction. The
deduction percentage, subject to certain minimum tax provisions and other
limitations, is 8%.
In connection with the adoption of SFAS 109, the Bank now recognizes a
deferred tax asset for its bad debt reserve for financial reporting
purposes and a deferred tax liability for increases over the base year
amount as defined by the Internal Revenue Code, in its bad debt reserve for
income tax purposes. Accordingly, beginning October 1, 1992, changes in
these reserves will no longer be considered permanent differences for
purposes of the provision for income taxes and will not create a
reconciling item between the income tax provision calculated at the federal
statutory rate and the effective tax rate on pre-tax accounting income.
The bad debt deductions permitted a thrift institution under the IRC which
have been provided for in the current and prior years for federal income
tax purposes aggregate approximately $5,900,000 at March 31, 1995. If any
portion of this amount, which is included in retained income, is used for
any purpose other than to absorb bad debt losses, the Bank will be required
to recognize additional taxable income at the then-current rates. In the
future, if the Bank does not meet the federal income tax requirements
necessary to permit it to deduct an allowance for bad debts, its effective
federal income tax rate could increase. Further, if the Bank does not
maintain qualified assets, as defined for federal income tax purposes,
equal to or in excess of 60% of total assets, the entire amount would
become taxable. It is management's intention to maintain sufficient
qualified assets.
Continued
A-22
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
12. Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")of
------------------------------------------------------------------------
1989:
----
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7,
1989. In addition to its capital requirements, FIRREA includes provisions
for changes in the Federal regulatory structure for institutions including
a new deposit insurance system, increased deposit insurance premiums, and
restricted investment activities with respect to non-investment grade
corporate debt and certain other investments. FIRREA also increases the
required ratio of housing-related assets in order to qualify as a savings
institution.
The regulations require institutions to have a minimum regulatory tangible
capital ratio (Bank's Regulatory Tangible Capital as a percent of total
assets) a minimum leverage capital ratio (Core Capital as a percent of
total assets) and a minimum risk-based capital ration (risk base capital as
a percent of total risk-adjusted assets) as defined by FIRREA. The Bank, at
March 31, 1995, meets these ratio requirements. The minimum required
rations and the Bank's actual ratios at March 31, 1995 are as follows:
Required Actual
at March 31, 1995 at March 31, 1995
------------------- -------------------
Tangible capital ratio 1.5% 9.2%
Leveraged capital ratio 3.0 9.2
Risk-based capital ratio 8.0 15.1
Under an agreement with the Office of Thrift Supervision (OTS), dated
January 3, 1990 and modified on April 15, 1991 the Bank may not pay
dividends in excess of the Bank's net income during the most recent
calendar year plus the amount that would reduce by one-half the Bank's
surplus capital ratio at the beginning of the calendar year.
Continued
A-23
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
13. Capital Stock Repurchase Commitment:
-----------------------------------
Under the terms of a Senior Management Employment and Compensation
Agreement, certain holders of 23 shares of common stock had the option to
require the Company to repurchase the 23 shares at $17,350 per share on
January 23, 1995. The holders of the stock did not exercise their option.
14. Pension Plan:
-------------
The Bank has a 401(k) profit sharing plan and a money purchase plan that
covers all employees with one year of service who are 21 years of age or
older.
Under the terms of the 401(k) plan, the Bank contributed 3% of each
eligible employee's compensation into the plan plus 5.7% of compensation
over $60,600. In addition the Bank matches, on a dollar-for-dollar basis,
an employee's voluntary contribution up to 5% of compensation.
The money purchase plan provides that the Bank contribute 5% of each
eligible employee's compensation into the plan. The combined 401(k) and
money purchase plans provide for vesting over a five-year period. The cost
of funding these plans was $208,494, $332,564 and $231,721 for the six
months ended March 31, 1995 and the years ended September 30, 1994 and
1993, respectively.
15. Commitments:
------------
In the ordinary course of business, the Bank has various outstanding
commitments that are not reflected in the accompanying consolidated
financial statements.
At March 31, 1995 and September 30, 1994, in addition to undisbursed
construction loans in process of $68,774,800 and $74,701,200, respectively,
the Bank had outstanding firm loan commitments for variable rate mortgage
loans of $18,017,250 and $28,057,235, respectively and fixed rate loans of
$1,277,800 and $1,638,050, respectively at current market rates.
These commitments involve elements of credit and interest rate risk in
excess of the amount recognized in the consolidated statements of financial
condition. The contract amounts of these commitments reflect the extent of
the Bank's involvement.
Continued
A-24
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
15. Commitments, continued:
-----------
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since some commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
The amount of collateral obtained (usually in the form of real estate
property) is based upon management's credit evaluation of the counterparty.
16. 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,
where practicable, to disclose the estimated fair value of recognized and
unrecognized financial instruments.
Much of the information used to determine fair value was based upon
subjective assessments of market conditions and perceived risks of the
financial instruments and, therefore, the reported fair values may not be
precise or represent actual potential transaction amounts. The subjective
factors include, among other things, estimated cash flows, risk
characteristics, credit quality and interest rates, all of which are
subject to change.
Certain financial instruments and all non-financial instruments are
excluded from the scope of SFAS No. 107; accordingly, the fair value
disclosures required by SFAS No. 107 provide only a partial view of the
value of the Bank's assets and liabilities. For example, the Company has
not included the fair value of its portfolio of loans serviced for others
and core deposit intangibles. The following methods and assumptions were
used to estimate the fair value of each class of financial instruments.
Investments and mortgage-backed securities
------------------------------------------
The fair value of U.S. Government and Agency obligations and mortgage-
backed securities are estimate based on bid quotations, received from
securities dealers. See Notes 3 and 4 for the carrying amounts and the
estimated fair values of investment securities and mortgage-backed
securities.
Continued
A-25
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
16. Fair Value of Financial Instruments, continued:
-----------------------------------
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. Mortgage loans are segregated by, but not limited to,
residential, commercial, construction and land and development. Each loan
category may be segmented, as appropriate, into fixed and adjustable
interest rate terms, ranges of interest rates, and repricing frequency.
The fair value of each loan portfolio is calculated by discounting the
estimated future cash flows to their present value using an assigned
discount rate. The discount rate approximated the origination rate that the
Company would charge under current conditions to the originate similar
financial instruments.
Deposits and borrowings
-----------------------
The fair value of demand deposits and savings accounts approximates the
carrying value. The fair value of certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining terms.
The fair value of drafts payable and long term debt approximated the
carrying value.
Commitments to Extend Credit
----------------------------
The Company has off-balance sheet financial instruments in the form of
commitments to extend credit and mandatory forward commitments to sell
loans. There are no material differences between the notional amounts and
fair values of these commitments.
The following table represents the estimated fair value of the Company's
financial instruments at March 31, 1995 and September 30, 1994:
1995 1994
---------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------ ------------ ------------
Assets:
Cash and due from banks $ 12,524,191 $ 12,524,191 $ 5,430,175 $ 5,430,175
Investment securities 13,991,381 13,932,680 21,474,825 21,358,030
Mortgage backed securities 11,370,682 11,157,421 14,266,705 13,962,044
Loans receivable, net of
allowance 198,518,766 198,529,612 201,664,767 199,860,869
Liabilities:
Deposits 209,331580 209,370,930 210,429,131 212,823,916
Short term borrowings 410,200 410,200 9,336,700 9,336,700
Long term borrowings 8,000,000 8,000,000 8,325,000 8,325,000
Continued
A-26
REISTERSTOWN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
17. Agreement and Plan of Affiliation:
----------------------------------
Pursuant to an Agreement and Plan of Affiliation dated April 8, 1994
between Susquehanna Bancshares, Inc. and the Company, Susquehanna will
acquire all of the outstanding stock of the Company for $28,000,000 in
cash, as long as the Company's consolidated total stockholders' equity
(reduced by goodwill) at the closing of the acquisition is not less than
$14,950,000.
Continued
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 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. 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 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.
Adjustments have been made using the purchase method of accounting. Some of
these adjustments relate to the fair value of certain assets, liabilities and
other items as more fully described in the Notes to the unaudited Pro Forma
Condensed Financial Information.
The unaudited Pro Forma Condensed Financial Information should be read in
conjunction with the historical financial statements and notes thereto of SBI
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
and RHI, 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 RHI and 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, RHI and
ABI for the quarter ended March 31, 1995 and the year ended December 31, 1994.
Year ended December 31, 1994 includes results of ABI's operations for fiscal
year ended March 31, 1995.
The unaudited Pro Forma Condensed Financial Information should be read in
conjunction with the historical financial statements and notes thereto of SBI,
RHI 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, RHI and ABI, are
not indicative of the results of future operations.
SBI/RHI
PRO FORMA BALANCE SHEET
MARCH 31, 1995
(Dollars in thousands)
RHI
-----------------------
SBI As Pro forma
ASSETS As Reported Reported Adjustments Combined
------------- ----------------------- -----------
Cash and due from banks $72,471 $4,150 $76,621
Short-term investments 47,966 8,374 (1,249)[A] 26,451
(28,640)[E]
Investment securities-AFS 343,180 0 343,180
Investment securities-HTM 175,017 25,362 (272)[I] 200,107
Loans and leases 1,298,123 201,842 1,499,965
Allowance for loan and lease losses 22,707 3,323 26,030
------------- -------------------- -----------
Net loans and leases 1,275,416 198,519 1,473,935
Other assets 87,302 10,530 (2,875)[B] 109,119
(550)[F]
351 [J]
393 [K]
2,400 [L]
(1,057)[M]
12,625 [N]
------------- -------------------- -----------
Total Assets $2,001,352 $246,935 ($18,874) $2,229,413
============= ==================== ===========
LIABILITIES
Noninterest-bearing deposits $233,433 $4,444 $237,877
Interest-bearing deposits 1,442,403 204,888 1,647,291
------------- -------------------- -----------
Total deposits 1,675,836 209,332 1,885,168
Short-term borrowings 33,798 410 34,208
Long-term debt 67,676 8,000 75,676
Other liabilities 23,441 10,119 200 [O] 33,760
------------- -------------------- -----------
Total liabilities 1,800,751 227,861 200 2,028,812
EQUITY
Common stock 20,967 0 20,967
Surplus 33,436 13,989 (2,875)[C] 33,436
(11,114)[G]
Retained earnings 150,345 5,085 (1,249)[D] 150,345
(3,836)[H]
Unrealized gain / (loss) on securities
available-for-sale, net of tax (3,774) 0 (3,774)
Treasury stock 373 0 373
------------- -------------------- -----------
Total equity 200,601 19,074 (19,074) 200,601
------------- -------------------- -----------
Total Liabilities & Equity $2,001,352 $246,935 ($18,874) $2,229,413
============= -------------------- ==========
See notes to the unaudited pro forma condensed financial information.
B-1
SBI/RHI
PRO FORMA INCOME STATEMENT
FIRST QUARTER 1995
(In thousands, except per share data)
RHI
------------------------
SBI As Pro forma
As Reported Reported Adjustments Combined
------------- ------------------------ -----------
INTEREST INCOME:
Interest on loans and leases $28,574 $5,357 $33,931
Interest on investments 7,608 472 26 [T] 8,106
Interest on short-term investments 529 64 (235)[P] 340
(18)[Q]
------------- --------------------- -----------
Total interest income 36,711 5,893 (227) 42,377
INTEREST EXPENSE:
Interest on deposits 12,797 2,525 15,322
Interest on short-term borrowings 596 80 676
Interest on long-term debt 967 215 286 [S] 1,468
------------- --------------------- -----------
Total interest expense 14,360 2,820 286 17,466
Net interest income 22,351 3,073 (513) 24,911
Provision for loan and lease losses 1,461 1,461
------------- --------------------- -----------
Net interest income after provision 20,890 3,073 (513) 23,450
OTHER INCOME:
Investment gains(losses) (88) (88)
Other income 2,941 445 3,386
------------- --------------------- -----------
Total other income 2,853 445 3,298
OTHER EXPENSE:
Salaries and benefits 9,124 916 10,040
Other expense 8,165 1,015 3 [U] 9,302
8 [V]
99 [W]
(50)[Y]
(148)[R]
210 [X]
------------- --------------------- -----------
Total other expense 17,289 1,931 122 19,342
------------- --------------------- -----------
Income before taxes 6,454 1,587 (635) 7,406
Taxes 1,616 688 (202)[Z] 2,102
------------- --------------------- -----------
Net income from operations $4,838 $899 ($433) $5,304
============= ===================== ===========
Earnings per share $0.46 N/A $0.51
Average shares outstanding 10,435 N/A 10,435
See notes to the unaudited pro forma condensed financial information.
B-2
SBI/RHI
PRO FORMA INCOME STATEMENT
YEAR 1994
(In thousands, except per share data)
RHI
-------------------------
SBI As Pro forma
As Reported Reported Adjustments Combined
------------- ------------------------- -----------
INTEREST INCOME:
------------- ------------------------- -----------
Interest on loans and leases $102,025 $20,389 $122,414
Interest on investments 28,462 1,664 102 [T] 30,228
Interest on short-term investments 1,457 446 (75)[Q] 1,828
------------- ---------------------- ------------
Total interest income 131,944 22,499 27 154,470
INTEREST EXPENSE:
Interest on deposits 43,701 10,580 54,281
Interest on short-term borrowings 1,450 43 1,493
Interest on long-term debt 1,211 769 2,578 [S] 4,558
------------- ---------------------- ------------
Total interest expense 46,362 11,392 2,578 60,332
------------- ---------------------- ------------
Net interest income 85,582 11,107 (2,551) 94,138
Provision for loan and lease losses 3,823 127 3,950
------------- ---------------------- ------------
Net interest income after provision 81,759 10,980 (2,551) 90,188
OTHER INCOME:
Investment gains 999 141 1,140
Other income 12,059 3,374 15,433
------------- ---------------------- ------------
Total other income 13,058 3,515 16,573
OTHER EXPENSE:
Salaries and benefits 32,383 3,237 35,620
Other expense 31,732 3,288 12 [U] 35,511
33 [V]
395 [W]
(200)[Y]
(591)[R]
842 [X]
------------- ---------------------- ------------
Total other expense 64,115 6,525 491 71,131
------------- ---------------------- ------------
Income before taxes 30,702 7,970 (3,042) 35,630
Taxes 8,713 3,385 (983)[Z] 11,115
------------- ---------------------- ------------
Net income from operations $21,989 $4,585 ($2,059) $24,515
============= ====================== ============
Earnings per share $2.11 N/A $2.35
Average shares outstanding 10,435 N/A 10,435
See notes to the unaudited pro forma condensed financial information.
B-3
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-4
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-5
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-6
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-7
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-8
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)
B-9