SUSQ

Susquehanna Bancshares, Inc. (SUSQ)

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Susquehanna Bancshares, Inc. (SUSQ)

Q1 2009 Earnings Call

April 23, 2009 11:00 AM ET

Executives

Abram G. Koser - Vice President, Investor Relations

William J. Reuter - Chairman and Chief Executive Officer

Drew K. Hostetter - Executive Vice President and Chief Financial Officer

Michael M. Quick - Executive Vice President and Chief Corporate Credit Officer

Analysts

Avi Barak - Sandler O'Neill & Partners L.P.

David Darst - FTN Midwest Securities Corp.

John T. Boland - Maple Capital Management

Mac Hodgson - SunTrust Robinson Humphrey

Stephen Moss - Janney Montgomery Scott LLC

Thomas Alonso - Foxx-Pitt Kelton

Presentation

Operator

Good morning and welcome to the Susquehanna Bancshares' First Quarter 2009 Earnings Conference Call. Today's call is being recorded. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions).

At this time, I will turn it over to Mr. Koser. Please go ahead.

Abram G. Koser

Thank you. Good morning and welcome. I am Abe Koser, Vice President, Investor Relations at Susquehanna Bancshares. By now, you should all have received a copy of the press release about our first quarter 2009 financial results, which we made available yesterday.

If anyone still needs a copy, please call us at 717-625-6311 and we'll fax it to you. Our financial releases are also posted in the Investor Relations section of our website at www.susquehanna.net

Certain statements made during this conference call maybe considered to be forward-looking statements, in particular certain statements made on this call may include forward-looking statements, relating to our financial goals for 2009 and our goals with respect to changes in our quarterly dividend. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties.

The factors that may affect these statements and our financial performance include but are not limited to continued levels of our loan and lease quality and origination volume, and the adequacy of our loan loss reserves, changes in consumer confidence, spending and saving habits, continued relationships with major customers, compliance with applicable laws and regulations, competition from other financial institutions and originating loans and attracting deposits, the ability to hedge certain risk economically, adverse changes in the economy generally and in particular, adverse changes in relating to the risks set forth in our SEC filings, including our most recent Annual Report on Form 10-K and our success in managing the risks involved in the foregoing.

Forward-looking statements speak only as of the date they are made. We do not intend to update publicly any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of any unanticipated events, except as required by law.

I will now turn the meeting over to your host, William J. Reuter, Chairman and Chief Executive Officer.

William J. Reuter

Thank you, Abe and good morning everyone. Thank you for joining us for our review of first quarter results for 2009. Also participating in today's call will be Drew K. Hostetter, Executive Vice President and Chief Financial Officer and Michael M. Quick, Executive Vice President and Chief Corporate Credit Officer.

As we begin, I'd like to recap the financial results we released yesterday.

Net income available to common shareholders for the first quarter was $1.9 million or $0.02 per diluted share, compared to $28 million for the first quarter of 2008 or $0.33 per diluted share.

Our results were impacted by a number of factors that we will discuss this morning, including the industry wide increased FDIC insurance payments, a decrease in net interest margin and an increase in our provision for loan losses.

Net loans and leases were $9.8 billion, an increase of 10% when compared to March 31, 2008. This included increases across the board in our loan portfolio, including commercial loans, commercial real estate and residential real estate lending. Looking at just the first quarter of 2009, we saw a more modest pace of growth.

However, total net loans and leases grew 1% from December 31, 2008. Total deposits were 9.1 billion, an increase of 3% compared to March 31, 2008, with non-interest bearing demand deposits increasing 1% during the period.

In just the first quarter of 2009, total deposits increased 1%, from December 31, 2008. However, core deposits, such as demand, interest bearing demand and savings increased 3%, 10% and 5% respectively.

Higher cost time deposits and jumbo time deposits including brokered CDs decreased 2% 12% respectively. Net interest margin for the quarter was 3.4%, a decrease of 31 basis points from first quarter, 2008 and a 12 basis points from the fourth quarter of 2008.

In light of the current interest rate environment, we have initiated a focused effort to increase our net interest margin while enhancing key customer relationships. Where necessary, we're making use of lower cost borrowing options and maintaining funding levels for loan growth.

In addition, we have seen some increase in balances and traditional products such as money market accounts as customers seek safety and security while maintaining ready access to their funds.

Higher deposit pricing initiative helped us to generate a 12 basis point reduction in our cost of funds during the first quarter.

As the economic recession continue to place pressure on some of our customers, we saw deterioration in credit volume. Net charge offs, as a percent of average loans and leases for the first quarter, were 70 basis points compared to 25 basis points in the first quarter of 2008 and 60 basis points in the fourth quarter of 2008.

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