SUSQ

Susquehanna Bancshares, Inc. (SUSQ)

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Susquehanna Bancshares, Inc. (SUSQ)

Q2 2009 Earnings Call

July 23, 2009 11:00 AM ET

Executives

Abram G. Koser - Vice President

William J. Reuter - Chairman & 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

Matthew Clark - KBW

Thomas Alonso - Foxx-Pitt Kelton

Stephen Moss - Janney Montgomery Scott LLC

Mac Hodgson - SunTrust Robinson Humphrey

Robert Lewis - UBS

Presentation

Operator

Good morning and welcome to the Susquehanna Bancshares Third Quarter 2008 Earnings Conference Call. Today's call is being recorded. And 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.

And I would now like to turn the call over to Mr. Koser. Mr. Koser, you may begin your conference.

Abram G. Koser

Thank you. Good morning and welcome. I'm Abe Koser, Vice President, Investor Relations at Susquehanna Bancshares. By now, you should've all received a copy of the press release about our second 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 credit quality and projected loan losses, projected cost savings, capital sufficiency, net interest margins and financial goals 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 and applicable laws and regulations, competition from other financial institutions in originating loans and attracting deposits. The ability to hedge certain risks, economically, adverse changes in the economy generally and in particular, adverse changes 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 statement to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of 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. I'd like to welcome everyone, who has joined us this morning to learn more about our second 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 noted in our press release earlier this month, the unprecedented economic environment has had a significant impact on our performance in recent quarters. In the midst of this downturn however, we believe the fundamentals of our core banking operations remain strong. During the first portion of this call, I will review the financial results that we announced yesterday and discuss the economic forces that impacted them.

Following Drew's additional financial review, I will discuss how such Susquehanna is positioned to withstand the current weak economic environment and emerge as a strong player as the economy recovers. For the second quarter of 2009, we reported a net loss applicable to common shareholders of 11.9 million or $0.14 per diluted share compared to net income 29.2 million or $0.34 per diluted share for the second quarter of 2008.

Looking at the first six months of 2009, we had a net loss of $10.1 million or $0.12 per diluted share compared to net income of 57.2 million or $0.67 per share for the first half of 2008.

The first significant factor affecting these results is the impact that the rescission has had on our customers. We increased our provision for loan loses to 50 million compared to 13.8 million in the second quarter of 2008. To build a stronger reserve position and to cover charge offs of the quarter.

We increased our reserves to loan ratios to 1.59% from 1.35% in the first quarter of 2009 and 1.04% in the second quarter 2008.

The state of the economy continues to impact our credit quality ratios, net charge offs as a percent of average loans and leases for the second quarter of 2009 were 1.01% compared to 70 basis points in the first quarter 2009 and 48 basis points for the second quarter of 2008.

For the most recent quarter, charge offs totaled 24.6 million, of the charge offs 54% were construction loans, 23% were in commercial and industrial area and 11% were in commercial real estate.

Focusing in on the construction loan charge offs, 92% of these charge offs are represented by six credits. Non performing assets as a percent of loans, leases and other real estate owned were 2.57% at June 30th, 2009 compared to 1.73% at March 31st, 2009 and 99 basis points at June 30th, 2008.

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