Susquehanna Bancshares, Inc. (SUSQ)
Q3 2008 Earnings Call
October 23, 2008 11:00 am ET
William J. Reuter - Chairman and Chief Executive Officer
Drew K. Hostetter - Chief Financial Officer, Executive Vice President
Michael M. Quick - EVP and Chief Corporate Credit Officer
Abe Koser – Vice President, Investor Relations
Collyn Bement Gilbert - Stifel Nicolaus & Company, Inc.
David Darst - FTN Midwest Securities
Thomas Alonso - Fox-Pitt Kelton
Analyst - Keefe, Bruyette & Woods, Inc.
Previous Statements by SUSQ
» Susquehanna Bancshares Q2 2009 Earnings Call Transcript
» Susquehanna Bancshares Q1 2009 Earnings Call Transcript
» Susquehanna Bancshares Q4 2008 Earnings Call Transcript
Mr. Koser you may now begin your conference call.
Thank you, good morning and welcome everyone. I am Abe Koser, Vice President, Investor Relations of Susquehanna Bancshares. By now, you should have all received a copy of our third quarter 2008 earnings release which we made available yesterday. If anyone still needs a copy, please call us at 717-625-6311 and we will fax it to you. Our financial releases are also posted in the Investor Relations section of our web site at www.susquehanna.net.
Before we begin, I'd like to remind you that during the course of our call, management may make projections and other forward-looking statements regarding events or the future financial performance of Susquehanna. We do want to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties.
For a more detailed description of the factors that may affect Susquehanna's operating results we refer you to our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K for the year-ended December 31, 2007 and our quarterly report on Form 10-Q for the quarter-ended June 30, 2008. Susquehanna assumes no obligation to update the forward-looking statements made during the call.
Now I'll 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 the third quarter 2008 results. 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 you all know, this has been a period of unprecedented economic challenge and volatility in the financial service industry. Although Susquehanna did not engage in sub prime lending activity, it has hampered some bank’s performance. We have experienced some impact from the turmoil in the broader markets. This led to a number of charges that affected our third quarter results.
Net income for the third quarter was $6.4 million or $0.07 per share compared to $19.9 million or $0.38 per share for the third quarter last year. For the first nine months of 2008, that income was $63.6 million or $0.74 per share compared to $50.4 million or $0.97 per share during the same period in 2007. Results from the third quarter include the impact of four items which together reduced earnings by $0.22 per share. Excluding the impact of these charges, that income for the third quarter would have been $0.29 per share. We believe this shows the stability of our core operations especially in light of the currently highly competitive and volatile banking environment.
I would like to review the charges and impact to our third quarter results all of which were previously disclosed at SEC filings. First we took a $2.5 million dollar pre-tax charge for costs related to the consolidation of our three bank subsidiaries into a single charter. This consolidation occurred on October 10. It is expected to generate annual savings of approximately $20 million in 2009.
Second, we had a pre-tax loss of $6.5 million due to an interest rate swap loss. We had engaged in interest rate swap agreements in preparation for a planned securitization of the vehicle leases during the third quarter. However, when it became clear in the third quarter that there was no well-run market for this type of securitization, we terminated the planned sale and the related interest rate swap agreements. Due to declining interest rates, the fair value of the agreements was under water and we needed to reduce our pre-tax income accordingly. However, we expect that this loss would be more than offset by net interest income that will earn on 350 million of vehicle leases over the next two years.
Third, our Board of Directors committed up to $2.1 million to mitigate the potential losses of Valley Forge Asset and Management customers who helped position in the primary fund. As you know, Valley Forge Asset and Management is one of our wholly-owned wealth management subsidiaries. Some of their customers have holdings in the primary fund, a money market mutual fund managed by the reserve. The fund’s net asset value dropped below a $1.00 to $0.97 per share as of September 16, 2008. Valley Forge Asset Management initiated a redemption request for its clients’ assets invested in the fund. However, at this point, no redemption has occurred. It is our understanding that the primary fund will be liquidated with the proceeds paid to its shareholders.
Our best estimate at this time is that investors will be paid approximately $0.97 on a $1.00.Money market mutual funds have straightforwardly been considered very safe investment vehicles maintaining a consistent net asset value of a $1.00 per share. Given this history, our Board agreed that it would be appropriate to commit up to $2.1 million to mitigate the potential loss our customers could realize on their investment. We believe this will be, is in the best interest of our Company because it will help to reinforce the relationships and trusts we have built up with these customers over the years.