SUSQ

Susquehanna Bancshares, Inc. (SUSQ)

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Call start: 11:00

Call End:

Susquehanna Bancshares, Inc (SUSQ)

Q2 2010 Earnings Call

July 29, 2010 11:00 am ET

Executives

Abram Koser - VP, IR

William Reuter - Chairman and CEO

Drew Hostetter - EVP and CFO

Michael Quick - EVP and Chief Corporate Credit Officer

Analysts

Matthew Clark - KBW

Steven Alexopoulos - JP Morgan

Gerard Cassidy - RBC Capital Markets

Andy Stapp - B. Riley & Co.

Matthew Schultheis - Boenning & Scattergood

Travis Lan - Stifel Nicolaus

Eric Beardsley - Barclays Capital

Steve Moss - Janney Montgomery Scott

David W Darst - Guggenheim Securities

Tom Alonso - Macquarie

Presentation

Operator

Welcome to the Susquehanna second quarter 2010 Earnings 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 second quarter of 2010, which we made available yesterday. You can find this and our other financial releases in the Investor Relations section of our Web site at www.susquehanna.net.

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 credit quality, the impact of recently enacted financial reform legislations and accompanying regulations and our financial goals for 2010.

Such statements are not guarantees of the future 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, compliance with applicable laws and regulations, competition from other financial institutions in originating loans and attracting deposits, 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, as well as our 10-Q report for the first quarter of 2010, 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 publicly update any forward-looking statements to reflect circumstances or events that occur after 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 thank you joining us this morning on our report for our financial results for the second quarter of 2010. 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 Credit Officer who all will also participate in the question-and-answer period at the end of this call.

I would like to begin with a review of the financial results for the second quarter, which we announced on Wednesday. Net income for the quarter was $5.4 million compared to net loss of $7.8 million during the second quarter of 2009.

For the first six months of 2010, net income was $12.9 million compared to a net loss of $1.8 million during the same period last year. We saw increases in both net interest income of 6% from second quarter 2009 and non-interest income which was up almost 10%.

We also did a good job of controlling costs with non-interest expense down about 7% compared to last years second quarter. After taking into account $6.7 million in preferred dividends and other costs related to our participation in US Treasure capital purchase programs, we reported a net loss applicable to common share holders of $1.4 million or $0.01 per diluted share. This compares to a net loss to common shareholders of $11.9 million or $0.14 per diluted share during last year's second quarter.

Net income applicable to common shareholders for the first six months of the year was $2 million or $0.02 per diluted share compared to net loss applicable to common shareholders of $10.1 million or $0.12 per diluted share during the first half of 2009.

As a reminder, second quarter earning this year was reduced $4.8 million due to the acceleration of the accretion of the remaining discount on the 200 million in preferred stock issued under the capital purchase program, which we redeemed in April. The US treasury continues to hold a 100 million in preferred stock for which we will pay $1.4 million quarterly dividend going forward.

Now, net loans and leases were $9.8 million, a decrease of 1% when compared to that portfolio on June 2009. We saw a significant decline in real estate construction loans, down 26% or $335 million, which was expected, given our strategy to reduce our exposure in this part of our portfolio. Among the loan categories where we saw growth was residential real estate, up 13%.

Overall, we continue to see a limited demand for loans, as both business and consumers remain cautious, given the slow and unsteady pace of the economic recovery.

Now, turning to the deposits, we achieved a 2% increase from June 30, 2009, to June 30, 2010. Total deposits were $9.2 billion. Following the strategy we outlined previously our higher cost time deposits decreased 14%, meanwhile interest bearing demand deposits were up 23%, and non interest bearing demand deposits increased by 5%, from the same period, last year.

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