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Susquehanna Bancshares, Inc. (SUSQ)

Q4 2008 Earnings Call

January 29, 2009 11:00 AM ET


Abe Koser - Vice President and 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


Matthew Clark - KBW

David Darst - FTN Midwest Securities

Mac Hodgson - SunTrust Robinson Humphrey

Stephen Moss - Janney Montgomery Scott LLC

Thomas Alonso - Fox-Pitt Kelton

Collyn Bement Gilbert - Stifel Nicolaus & Company

Gerard Cassidy - RBC Capital Markets

David West - Davenport and Company



Please standby. Good morning and welcome to the Susquehanna Bancshares Forth Quarter and Full Year 2008 Earnings Conference Call. Today's call is being recorded. At this time 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]. Thank you.

Mr. Koser, you may begin your conference call.

Abe Koser

Thank you. Good morning and welcome. I am Abe Koser, Vice President, Investor Relations at Susquehanna Bancshares. By now, you should have all received a copy of the press release about our fourth quarter and year-end 2008 financial results 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 website at

Certain statements made during this conference call may be considered to be forward-looking statements. In particular, certain statements made on this call may include forward-looking statements relating to our ability to manage credit quality, our forecast regarding pre-tax income for our auto leasing subsidiary, our financial goals for 2009, and our strategic focus for 2009. 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, 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 automobile industry, adverse changes in the economy generally and in particular adverse changes related 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 risk involved in the foregoing.

Forward-looking statements may 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 overview of fourth quarter and year-end results for 2008.

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.

I'd like to begin with a look at the financial results we released yesterday.

Net income available to common shareholders for 2008 was $81.8 million or $0.95 per diluted share compared to 69.1 million or $1.23 per diluted share earned in 2007. Net income available to common shareholders for the fourth quarter of 2008 was 18.2 million or $0.21 per diluted share compared to 18.7 million or $0.27 per diluted share in the fourth quarter of 2007. Net loans and leases grew 10% from December 31st, 2007. In particular, we saw a strong growth in commercial loans, which were up 22%. Commercial real estate loans increased 8% and residential real state loans were up 7%.

I'd like to provide a little more detail about our mortgage lending activity in 2008. At a time when a number of mortgage lenders have been exited the market or are reporting a drop in volume, our mortgage division actually showed strong results.

With the addition of Community Banks' mortgage operation, which we acquired in November 2007, we had more than 1800 loans settled in 2008. This translated into lending of more than 335 million, up 68% from the prior year, which did not include Community Banks volume.

In reviewing our 2008 mortgage loans, 33% were due to refinancing and 67% were due to purchase and new construction. Of our mortgage volume last year, we retained 40% in our portfolio and sold 60% in the secondary market.

Fourth quarter mortgage lending volume was still strong, with 445 settlements for a total of more than 84 million during that period. In the fourth quarter, 26% of loans were refinances, compared to 74% for purchase or new construction.

We believe these results illustrate the resilience of many of the geographical markets where we operate, even in these challenging economic times.

Our deposit results reflect a competitive market and pricing pressures that all banks are facing. Total deposits increased 1.4% from December 31st, 2007, while non-interest bearing demand deposits decreased 7%.

Net interest margin for the year decreased 5 basis points to 3.62%. For the fourth quarter, net interest margin decreased 17 basis points to 3.52%, compared to 3.69% for the fourth quarter of 2007.

The deterioration in economic condition has impacted our credit quality, as reflected by our results reported yesterday. Net charge-offs as a percent of average loans and leases for 2008 were 42 basis points, compared to 25 basis points for 2007.

For the fourth quarter, net charge-offs were 60 basis points, compared to 26 basis points during the same period in 2007. Non-performing assets, as a percent of loans, leases and other real estate owned were 1.22% for 2008, compared to 81 basis points for 2007 and up 7 basis points from the third quarter.

Given the pressures facing our customers and loan portfolio, we increased our provision for loan and lease losses to 63.8 million for the year, compared to 21.8 million for 2007. The credit quality will continue to be a primary focus of Susquehanna in 2009.

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