Susquehanna Bancshares, Inc. (SUSQ)

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Susquehanna Bancshares, Inc. (SUSQ)

Q1 2010 Earnings Call Transcript

April 29, 2010 11:00 am ET


Abram Koser – VP, IR

William Reuter – Chairman and CEO

Drew Hostetter – EVP and CFO

Mike Quick – EVP and Chief Corporate Credit Officer


Matthew Clark – KBW

Steven Alexopoulos – JP Morgan

Eric Piercely [ph] – Barclays Capital

Gerard Cassidy – RBC Capital Markets

Steve Moss – Janney Montgomery Scott

Tom Alonso – Macquarie

John Boland – Maple Capital Management



Good morning and welcome to the Susquehanna Bancshares first quarter 2010 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.

Mr Koser, you may begin your conference sir.

Abram Koser

Thank you. Good morning and welcome. I'm Abe Koser, Vice President, Investor Relations at Susquehanna Bancshares. By now, you should all have received a copy of the press release about our financial results for the first quarter of 2010, 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 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 the use of our proceeds from our capital raise, our redemption of the remaining preferred shares from the US Treasury, our deposit growth, and our financial goals for 2010.

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 includes but are not limited to continued levels of our loan and lease quality and origination volume, changes in consumer confidence, spending and savings habits, continued relationships with major customers, compliance with 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 statements 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 Reuter

Thank you Abe, good morning everyone. We appreciate you joining us as we review our financial results for the first quarter of 2010 as well as other recent news about Susquehanna. Joining me this morning is Drew K Hostetter, our Executive Vice President and Chief Financial Officer; and Michael M Quick, Executive Vice President and Chief Corporate Credit Officer.

I would like to begin with a review of the financial results for the first quarter, which we announced on Wednesday. Net income applicable to common shareholders for the quarter was $3.3 million or $0.04 per diluted common share compared to $1.9 million or $0.02 per diluted common share in the first quarter 2009. Our portfolio of loans and leases totaled $10 billion as of March 31, 2010, and showed an increase of 2% compared to March 31, 2009.

As we have discussed before, we are working to reduce the relative size of our construction loan portfolio, and first quarter numbers were consistent with that strategy. Real estate construction loans declined by 17% year over year, we saw significant gains in consumer loans, which were up 20% as well as residential real estate up 14%. Total deposits were $9.3 billion, an increase of 2% from first quarter 2009. Again in keeping with our strategy time deposits decreased 14%.

Core deposits, including demand deposits and savings increased by 16% from March 31, 2009. In particular, we saw a significant increase in interest bearing demand deposits, this category increasing by over 25% year over year. The pace of core deposit growth was still strong in the first quarter of 2010 with core deposits up 5% compared to December 31, 2009. By adjusting our mix of deposits, we are effectively reducing our cost of funds. This is reflected in our ongoing improvement in our net interest margin.

For the first quarter of 2010, our net interest margin was 3.8%, an increase of 40 basis points compared to first quarter 2009. Our margin was up 3 basis points from the fourth quarter 2009 when our margin was 3.7% that was among the highest of our peer group banks in Northeastern United States.

Net charge-offs, as a percent of average loans and leases for the first quarter were, 1.56% compared to 0.70% in the first quarter of 2009. Nonaccrual loans and leases and other real estate owned as a percentage of loans, leases and OREO were 2.69% for the most recent quarter compared to 1.71% for the same period last year.

I would like to go into a little more detail regarding how our credit risk policy applies to nonaccruing loans. Each calendar quarter we complete an evaluation for potential impairment using either a current appraisal that is less than one year old or current market information or similar collateral collected from a new appraisal or a third-party source. Our analysis determine the net realizable value based on a time span for liquidation of 24 months and the associated cost incurred to redeem the value of the collateral. If the analysis determines the collateral is not sufficient to cover the collection of our principal balance, a specific reserve is created for the deficiency immediately. Charge-off of the specific balance will occur when we determine that the loan is not collectable.

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