Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
June 24, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Proposed Rule: Form 8-K Disclosure of Certain Management Transactions, Release No. 33-8090; 34-45742, File No. S7-09-02
Susquehanna Bancshares, Inc. ("Susquehanna") appreciates the opportunity to comment on the recent proposed rule (the "Proposed Rule") issued by the Securities and Exchange Commission regarding Form 8-K disclosure of certain management transactions. In particular, Susquehanna desires that the Commission consider Susquehanna's concerns with respect to particular aspects of the Proposed Rule, namely, the Proposed Rule's disclosure requirements pertaining to loans of money to a director or executive officer made or guaranteed by the company or an affiliate of the company.
Susquehanna is a multi-state financial holding company. Susquehanna's common stock is traded on the Nasdaq National Market. Susquehanna's subsidiaries include, among others, nine banks, of which two are state member banks, for which the Board of Governors of the Federal Reserve System is the primary federal regulator, and the remainder are state non-member banks, for which the Federal Deposit Insurance Corporation is the primary federal regulator. These banks routinely make loans and extend lines of credit to Susquehanna's directors and executive officers. However, we believe that, given the regulatory environment pertaining to lending by banks, the rationale for the accelerated Form 8-K disclosures articulated in the proposing release (i.e., that the disclosure pertaining to loans made to directors and executive officers may have significant informational value, and such loans might constitute de facto additional compensation to the directors and executive officers) is not applicable in this context.
Specifically, pursuant to 12 C.F.R §215.4 and §337.3, Susquehanna's bank subsidiaries are prohibited, subject to limited exceptions, from extending credit to any insider of the bank or of its affiliates, unless the extension of credit (i) is made on substantially the same terms (including interest rates and collateral) as, and follows credit underwriting criteria that are not less stringent than, those prevailing at the time for comparable transactions by the bank with other persons that are not covered by Part 215 and who are not employed by the bank; and (ii) does not involve more than the normal risk of repayment or present other unfavorable features.
We do not believe there is significant informational value to disclosure of, nor any element of compensation involved in, ordinary course of business loans to officers and directors that are not provided on terms more favorable to, and are subject to application of the same credit underwriting criteria as would apply to, any bank customer. Indeed, the Commission has previously recognized that disclosure accommodations relating to ordinary course bank loans are appropriate. Item 404(c) of Regulation S-K requires detailed disclosures regarding loans in excess of $60,000 to certain designated persons, including a director or executive officer of the registrant. However, instruction 3 to Item 404(c) states:
If the lender is a bank . . . and the Loans are not disclosed as nonaccrual, past due, restructured or potential problems . . . disclosure may consist of a statement, if such is the case, that the loans to such persons: (A) were made in the ordinary course of business, (B) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (C) did not involve more than the normal risk of collectability or present other unfavorable features.
We believe that the same considerations that implicitly underlie the accommodation contained in instruction 3 to Item 404(c) of Regulation S-K should apply here. Accordingly, where loans are made to executive officers and directors by a bank in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk with collectability or present other comparatively unfavorable features, the concerns that prompted the disclosure requirements of the Proposed Rule, namely, that insiders would receive some sort of compensatory benefit through loans made by a company or its subsidiaries that, absent the proposed disclosure requirements, investors would not be timely made aware of, do not apply. Given the applicable regulatory requirements, Susquehanna's bank subsidiaries are precluded from providing loans with compensatory features to any of Susquehanna's directors or executive officers. Moreover, given the ordinary course nature of the bank loans to executive officers and directors, these types of loans are not unusual events, and the process of tracking loans and lines of credit made by the bank subsidiaries, which are located in several states, would be difficult, particularly in the case of draw-downs on lines of credit.
We are not advocating that the disclosure requirements of the Proposed Rule are not appropriate for banks and similar financial institutions under any circumstances. Loans to executive officers and directors that are not ordinary course or that are not comparable to loans to other persons should be subject to the proposed disclosure requirement. In addition, foreclosure involving Susquehanna stock owned by any director or executive officer, even if addressed in a manner similar to foreclosures by other persons, should be disclosed since the reduction in shareholdings by the affected executive officer or director is useful information for an investor (although the same considerations would not apply to ordinary course foreclosure on other collateral, and in that circumstance, disclosure should not be required). In addition, we believe that forgiveness of a loan to a director or executive officer should also be disclosed. In these instances, shareholder concerns arguably justify disclosure. But such concerns simply do not exist where a bank provides ordinary course loans which, in compliance with applicable regulation, do not provide advantageous treatment to executive officers and directors. In that context, the burdens imposed on Susquehanna far outweigh any benefits that may be derived by investors from disclosure.
In conclusion, for the reasons discussed above, Susquehanna requests that the Commission revise the Proposed Rule by providing an exception to the proposed disclosure requirements set forth in paragraphs 10(c)(1) and (2) of Item 10 of Form 8-K, consistent with the considerations discussed in this letter. If the Commission has any questions with respect to the foregoing, please do not hesitate to contact the undersigned at 717.625.6453.
/s/ Lisa M. Cavage
Lisa M. Cavage
Vice President, Secretary and Counsel