SUSQ

Susquehanna Bancshares, Inc. (SUSQ)

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Susquehanna Bancshares (SUSQ)

Q3 2012 Earnings Call

October 25, 2012 11:00 AM ET

Executives

Carl Lundblad - SVP & Director of Strategic Planning & IR

Bill Reuter - Chairman & CEO

Drew Hostetter - EVP & CFO

Mike Quick - EVP and CCO

Analysts

Casey Haire - Jefferies

Bob Ramsey - FBR

Frank Schiraldi - Sandler O’Neill

Preeti Dixit - JPMorgan

David Darst - Guggenheim Securities

Russell Gunther - Bank of America Merrill Lynch

Erin Brand - Stifel Nicolaus

Chris McGratty - Keefe, Bruyette & Woods

Blair Brantley - BB&T Capital Markets

Presentation

Operator

Good day and welcome to the Susquehanna Bancshares Third Quarter 2012 Earnings Conference Call. As a reminder, today’s conference 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. Lundblad. You may begin your conference.

Carl Lundblad

Thank you. Good morning, and welcome everyone. I am Carl Lundblad and I serve as Senior Vice President and Director of Strategic Planning and Investor Relations at Susquehanna Bancshares.

By now, you should all have received a copy of the press release about our financial results for the third quarter of 2012, which we made available yesterday. You can find this in our other financial releases in the Investor Relations section of our website 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 margin and financial goals for 2012. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties.

Factors that may cause actual results to differ materially from expectations are detailed in the press release and our SEC filings. We encourage you to refer to such filings including a Form 8-K filed yesterday containing our earnings release and our most recent Forms 10-K and 10-Q for a complete discussion of forward-looking statements.

Forward-looking statements speak only as of the date they are made. And 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 am pleased now to introduce the host for our call, Bill Reuter, Chairman and Chief Executive Officer.

Bill Reuter

Thank you, Carl, good morning everyone and thank you for joining us today. Also participating in this morning’s call will be Drew Hostetter, Executive Vice President and Chief Financial Officer and Mike Quick, Executive Vice President and Chief Credit Officer.

Our third quarter was highlighted by strong core performance and improved efficiency supported by continued steady growth in loans particularly in commercial and consumer portfolios and consistent improvement in credit quality. I'll begin by reviewing the financial results we announced yesterday and then provide detail about the execution of our primary objectives we've been tracking for 2012 that is continuing improvement in credit quality, growing loans deposits and revenues and increasing profitability in shareholder dividends.

First, as we announced yesterday for the third quarter we earned GAAP net income of 36.7 million or $0.20 per diluted share compared to net income of 15 million or $0.12 per diluted share in third quarter 2011.

There were a couple non-core items that affected this quarter’s results. In September, we redeemed $175 million in trust preferred securities, triggering a write-off of capitalized debt issuance cost. Now we also recognize certain merger related expenses in the quarter. The combined after tax impact of these two items was 4.5 million or about $0.02 per share. For the first nine months of the year we earned on a GAAP basis 98 million or $0.54 per diluted share compared to 35.8 million or $0.28 per diluted share during the same period last year.

Taking a look at our 2012 objectives, during the third quarter, credit quality continued the trend of steady consistent improvement with a reduction in both net charge-offs and non-performing assets. Net charge-offs were 19.7 million or 62 basis points of average loans and leases one of lowest levels since 2009. This represents a decline of 3 basis points from the second quarter and a 34 basis point decline from the third quarter of 2011.

Non-performing assets were 147 million down from 159 million in the prior quarter. The largest contributing factor to this improvement was a 7% decline in non-accruing loans and leases which decreased to $118 million. As a percent of loans, leases and foreclosed real estate, non-performing assets were 1.16%, an improvement of 10 basis points when compared to 1.26% in second quarter 2012.

Our provision for loan of lease losses was 16 million, the same as the prior quarter resulting in an allowance for loans and leases of 1.47% of total loans and leases and a very strong coverage ratio of 158% up from 150% at June 30.

While these credit quality metrics continue to move in the right direction, we’re mindful of the state of the economy and our relationship managers continue to work closely with our customers to maintain strong levels of credit quality. I

I’d like to turn now to the second of our objectives for the year growing loans deposits and revenues. It’s clear the economic concerns are continuing to constrain loan demand. Nevertheless we have made steady progress in organic loan growth. Loans and leases increased nearly 19 million from the second quarter to the third quarter. We saw good growth in commercial and consumer loans, both categories up 3% for the quarter as well as leases which were up 5.4% for the quarter. This growth was tempered by continued decline in our construction loans as well as declining commercial real estate loans.

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