Susquehanna Bancshares, Inc. Announces Second Quarter Results

Susquehanna Bancshares, Inc., (Susquehanna) (Nasdaq:SUSQ) today announced net income for the second quarter of 2008 was $29.2 million, or $0.34 per diluted share, compared to $9.8 million, or $0.19 per diluted share, for the second quarter 2007. Net income for the first six months of 2008 was $57.2 million, or $0.67 per share, compared to $30.5 million, or $0.59 per share for the first half of 2007. Susquehanna’s second quarter 2007 earnings included a pre-tax charge of $11.8 million related to a restructuring of its bank investment portfolio.   Second Quarter Financial Highlights:   -- Net loans and leases, excluding the November 2007 acquisition of Community Banks, Inc., grew 19% from June 30, 2007. -- Commercial loans, excluding Community Banks, increased 42% from June 30, 2007. -- Real Estate Secured-Residential loans, excluding Community Banks, increased 8% from June 30, 2007. -- Real Estate Secured-Commercial loans, excluding Community Banks, increased 17% from June 30, 2007.   -- Total deposits, excluding Community Banks, increased 1% to $6.1 billion from June 30, 2007 -- Non-interest bearing demand deposits, excluding Community Banks, decreased 1% to $901 million from June 30, 2007.   -- Net interest margin for the second quarter decreased 1 basis point to 3.66% compared to 3.67% for the second quarter of 2007.   -- Net charge-offs as a percentage of average loans and leases for the quarter ended June 30, 2008 were 0.48% compared to 0.14% for the second quarter of 2007.   -- Wealth management assets under management and administration increased 30% to $6.8 billion at June 30, 2008 from $5.3 billion at June 30, 2007 reflecting the May 1, 2008 acquisition of Stratton Holding Company.   -- Wealth management fee income increased 37% to $11.1 million from $8.1 million in the second quarter of 2007. Commission income from property and casualty insurance sales increased 4% to $3.1 million from $2.9 million for the same period in 2007.   Equity capital was $1.7 billion at June 30, 2008 or $19.95 per share, compared to $945 million, or $18.11 per share at June 30, 2007. Return on average assets and average tangible equity(1) for the second quarter of 2008 finished at 0.89% and 18.48%, respectively. This compared to results of 0.48% and 6.96%, for the same measurements, respectively for the second quarter of 2007. (1)A non-GAAP-based financial measure. The most comparable GAAP-based measurement for return on average tangible equity is return on average equity. A reconciliation of the differences between non-GAAP-based and GAAP-based measurements can be found at the end of this release under the heading "Supplemental Reporting of Non-GAAP-Based Financial Measures."   Linked Quarter Highlights (Second Quarter 2008 vs. First Quarter 2008)   -- Net loans and leases grew 4% from March 31, 2008. -- Commercial loans increased 4% to $2.0 billion from March 31, 2008. -- Commercial Real Estate-Secured loans increased 6% to $2.8 billion from March 31, 2008.   -- Total deposits grew 1% to $9.0 billion from March 31, 2008. -- Non-interest bearing deposits increased 4% to $1.3 billion from March 31, 2008.   -- Net interest margin decreased 5 basis points to 3.66% compared to the first quarter of 2008.   -- Efficiency ratio for the second quarter improved to 61.55% from 63.95% in the first quarter of 2008. Historically, Susquehanna's efficiency ratio has been greater than 65%.   -- Net charge-offs as a percentage of average loans and leases increased 23 basis points to 0.48% compared to the first quarter of 2008. Consequently, Susquehanna's provision for loans and lease losses increased from $9.8 million in the first quarter of 2008 to $13.8 million in the second quarter.   Additional Activity:   -- In May, Susquehanna announced that it had completed the acquisition of Stratton Holding Company, which is now part of the Susquehanna Wealth Management family of companies. Stratton Holding is the parent company of Stratton Management Company, an investment management firm founded in 1972 and based in Plymouth Meeting, PA. The company provides management of assets for institutions, pensions, endowments and high net worth individuals. It also manages and advises the Stratton Mutual Funds, including the Stratton Small-Cap Value Fund and the Stratton Multi-Cap Fund. This acquisition brings additional investment expertise and diversity of product offerings to Susquehanna's Wealth Management business.   -- Since the beginning of the second quarter, Susquehanna has continued working to enhance customer service and visibility of its banks by opening a new branch in Collegeville, PA, and moving branches into new, upgraded facilities in Harrisburg, Halifax and Lancaster, PA.   "While current economic challenges have had an impact on our loan portfolio through increasing credit costs, we’ve been able to maintain stable operating earnings, supported by the strong geographical markets where we operate,” said William J. Reuter, Chairman and CEO of Susquehanna Bancshares. "During the quarter, we continued to realize strong growth in our loan portfolio, including record performance in terms of mortgage loan production. This is due to customers returning to community banks who can reliably fund and close home loans,” Reuter continued. "Another highlight of the quarter is the ongoing improvement in our efficiency ratio, which demonstrates a continued reduction in the proportion of non-interest expenses incurred to generate revenue.” Susquehanna will broadcast its second quarter 2008 results conference call over the Internet on July 24, 2007 at 11:00 a.m. Eastern time. The conference call will include management’s discussion of second quarter 2008 results. The discussion may also include forward-looking information and financial goals. Investors will have the opportunity to listen to the conference call through a live broadcast on Susquehanna’s Web site. The event may be accessed by selecting "Investor Relations" near the top right of the home page then "Overview” and clicking on the second quarter webcast link. To listen to the live call, please go to the Web site at least fifteen minutes prior to the scheduled start time to download and install any necessary audio software. For those who are unable to listen to the live broadcast, an archived replay and podcast will be available on the Web site shortly after the call concludes. Susquehanna Bancshares, Inc. is a financial services holding company with assets of approximately $13.5 billion. Headquartered in Lititz, Pa., the company provides financial services through its three commercial banks at more than 230 branch locations and 250 ATM locations in the mid-Atlantic region. Through Susquehanna Wealth Management, the company offers investment, fiduciary, brokerage, insurance, retirement planning, and private banking services, with approximately $6.8 billion in assets under management and administration. Susquehanna also operates an insurance brokerage and employee benefits company, a commercial finance company and a vehicle leasing company. Investor information may be requested on Susquehanna’s Web site at www.susquehanna.net. This press release contains certain financial information determined by methods other than in accordance with GAAP. Susquehanna’s management uses these non-GAAP measures in its analysis of the company’s performance. These non-GAAP financial measures require management to make judgments about the exclusion of certain items, and if different judgments were made, the amounts reported would be different. These measures typically exclude the effects of intangibles and related amortization and include the tax benefit associated with revenue items that are tax-exempt. Disclosures regarding these non-GAAP financial measures are included in the accompanying financial information. The presentation of these non-GAAP financial measures is intended to supplement investors’ understanding of Susquehanna’s core business activities. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. This press release contains "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995 that are based on Susquehanna’s current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business. These statements are not historical facts or guarantees of future performance, events or results. Such statements involve potential risks and uncertainties. Accordingly, actual results may differ materially. Susquehanna undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.   Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543           SUMMARY FINANCIAL INFORMATION (Dollars in thousands, except per share data)   Six Months 2Q08 2Q07 2008 2007 Balance Sheet (EOP) Investments $2,033,509 $1,411,229 $2,033,509 $1,411,229 Loans and leases 9,227,969 5,574,858 9,227,969 5,574,858 Allowance for loan & lease losses (ALLL) 96,033 61,871 96,033 61,871 Total assets 13,504,721 8,313,609 13,504,721 8,313,609 Deposits 8,988,461 5,979,281 8,988,461 5,979,281 Short-term borrowings 750,864 440,672 750,864 440,672 FHLB borrowings 1,382,769 460,034 1,382,769 460,034 Long-term debt 422,805 222,035 422,805 222,035 Shareholders' equity 1,716,456 945,140 1,716,456 945,140   Stated Book Value per Share 19.95 18.11 19.95 18.11 Tangible Book Value per Share 7.46 11.28 7.46 11.28   Average Balance Sheet Investments $2,081,232 $1,456,918 $2,060,201 $1,461,708 Loans and leases 9,038,623 5,470,859 8,911,345 5,484,373 Total earning assets 11,202,180 7,028,522 11,074,787 7,037,801 Total assets 13,216,574 8,202,823 13,083,104 8,198,518 Deposits 8,754,646 5,998,428 8,753,932 5,957,425 Short-term borrowings 664,190 363,651 603,311 352,302 FHLB borrowings 1,394,087 432,975 1,319,134 487,468 Long-term debt 422,404 222,090 420,501 222,159 Shareholders' equity 1,723,626 945,974 1,727,546 942,473   Income Statement Net interest income $99,058 $63,437 $197,239 $126,485 Provision for loan and lease losses 13,765 1,933 23,602 3,933 Noninterest income 44,685 19,151 87,587 53,431 Noninterest expense 90,304 67,342 182,264 132,190 Income before taxes 39,674 13,313 78,960 43,793 Income taxes 10,473 3,495 21,738 13,249 Net income 29,201 9,818 57,222 30,544 Basic earnings per share 0.34 0.19 0.67 0.59 Diluted earnings per share 0.34 0.19 0.67 0.59 Cash dividends paid per share 0.26 0.25 0.52 0.50   Asset Quality Net charge-offs (NCO) $10,727 $1,851 $16,138 $4,705 Nonaccrual loans & leases 78,424 30,309 78,424 30,309 Restructured loans 2,582 1,997 2,582 1,997 OREO 10,510 4,587 10,510 4,587 Total nonperforming assets (NPA) 91,516 36,893 91,516 36,893 Loans & leases 90 days past due 22,033 8,053 22,033 8,053     Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543         Six Months RATIO ANALYSIS 2Q08 2Q07 2008   2007   Credit Quality NCO / Average loans & leases 0.48 % 0.14 % 0.36 % 0.17 % NPA / Loans & leases & OREO 0.99 % 0.66 % 0.99 % 0.66 % ALLL / Nonperforming loans & leases 118.55 % 191.52 % 118.55 % 191.52 % ALLL / Total loans & leases 1.04 % 1.11 % 1.04 % 1.11 %   Capital Adequacy Equity / Assets 12.71 % 11.37 % 12.71 % 11.37 % Long-term debt / Equity 24.63 % 23.49 % 24.63 % 23.49 %   Profitability Return on average assets 0.89 % 0.48 % 0.88 % 0.75 % Return on average equity 6.81 % 4.16 % 6.66 % 6.54 % Return on average tangible equity (1) 18.48 % 6.96 % 17.37 % 10.79 % Net interest margin 3.66 % 3.67 % 3.69 % 3.67 % Efficiency ratio 61.55 % 80.75 % 62.73 % 72.83 %     (1) Supplemental Reporting of Non-GAAP-based Financial Measures   Return on average tangible equity is a non-GAAP-based financial measure calculated using non-GAAP-based amounts. The most directly comparable measure is return on average equity which is calculated using GAAP-based amounts. We calculate return on average tangible equity by excluding the balance of intangible assets and their related amortization expense from our calculation of return on average equity. Management uses the return on average tangible equity in order to review our core operating results. Management believes that this is a better measure of our performance. In addition, this is consistent with the treatment by bank regulatory agencies, which excludes goodwill and other intangible assets from the calculation of risk-based capital ratios. A reconciliation of return on average equity to return on average tangible equity is set forth below.         Six Months 2Q08 2Q07 2008   2007 Return on average equity (GAAP basis) 6.81 % 4.16 % 6.66 % 6.54 % Effect of excluding average intangible assets and related amortization 11.67 % 2.80 % 10.71 % 4.25 % Return on average tangible equity 18.48 % 6.96 % 17.37 % 10.79 %     Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543       CONSOLIDATED BALANCE SHEETS (UNAUDITED)   June 30, December 31, June 30, 2008 2007 2007 (in thousands, except share data) Assets Cash and due from banks $334,566 $326,965 $198,899 Unrestricted short-term investments 83,408   143,042   99,634   Cash and cash equivalents 417,974 470,007 298,533 Restricted short-term investments 238 242 214 Securities available for sale 2,024,264 2,059,160 1,406,342 Securities held to maturity (fair values approximate $9,245; $4,792 and $4,887) 9,245 4,792 4,887 Loans and leases, net of unearned income 9,227,969 8,751,590 5,574,858 Less: Allowance for loan and lease losses 96,033   88,569   61,871   Net loans and leases 9,131,936   8,663,021   5,512,987   Premises and equipment, net 179,342 179,740 107,334 Foreclosed assets 10,510 11,927 4,587 Accrued income receivable 41,357 46,765 32,075 Bank-owned life insurance 350,504 344,578 267,788 Goodwill 1,014,527 945,081 338,284 Intangible assets with finite lives 59,693 58,274 17,846 Investment in and receivables from unconsolidated entities 76,949 123,586 161,445 Other assets 188,182   170,821     161,287   Total assets $13,504,721   $13,077,994     $8,313,609     Liabilities and Shareholders' Equity Deposits: Demand $1,283,496 $1,292,791 $911,383 Interest-bearing demand 2,652,144 2,830,025 2,126,459 Savings 752,901 713,984 445,333 Time 2,681,089 2,750,867 1,592,165 Time of $100 or more 1,618,831   1,357,452   903,941   Total deposits 8,988,461 8,945,119 5,979,281 Short-term borrowings 750,864 568,412 440,672 Federal Home Loan Bank borrowings 1,382,769 1,145,759 460,034 Long-term debt 151,293 150,303 150,031 Junior subordinated debentures 271,512 266,682 72,004 Accrued interest, taxes, and expenses payable 50,917 60,869 36,394 Deferred taxes 117,696 136,076 146,485 Other liabilities 74,753   75,760   83,568   Total liabilities 11,788,265   11,348,980   7,368,469     Shareholders' equity: Common stock, $2.00 par value, 200,000,000 shares authorized; Issued: 86,044,328 at June 30, 2008; 85,935,315 at December 31, 2007; and 52,202,046 at June 30, 2007 172,089 171,810 104,343 Additional paid-in capital 1,043,595 1,038,894 348,897 Retained earnings 532,301 522,268 510,344 Accumulated other comprehensive loss, net of taxes of $16,977; $2,131 and $9,931, respectively (31,529 ) (3,958 ) (18,444 ) Total shareholders' equity 1,716,456   1,729,014   945,140   Total liabilities and shareholders' equity $13,504,721   $13,077,994   $8,313,609       Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543         CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share data) 2008 2007 2008 2007 Interest Income: Loans and leases, including fees $145,112 $102,795 $295,869 $205,240 Securities: Taxable 21,743 15,571 44,190 31,036 Tax-exempt 3,199 426 5,961 812 Dividends 1,494 985 2,999 2,092 Short-term investments 427 1,268   1,449 2,392   Total interest income 171,975 121,045   350,468 241,572     Interest Expense: Deposits: Interest-bearing demand 8,574 16,466 19,813 32,864 Savings 1,296 940 2,838 2,053 Time 39,250 28,947 82,858 56,686 Short-term borrowings 2,864 3,990 6,189 7,772 FHLB borrowings 13,229 3,960 25,985 9,129 Long-term debt 7,704 3,305   15,546 6,583   Total interest expense 72,917 57,608   153,229 115,087   Net interest income 99,058 63,437 197,239 126,485 Provision for loan and lease losses 13,765 1,933   23,602 3,933   Net interest income, after provision for loan and lease losses 85,293 61,504   173,637 122,552     Noninterest Income: Service charges on deposit accounts 11,767 7,181 22,855 13,656 Vehicle origination, servicing, and securitization fees 2,070 3,888 5,498 7,906 Asset management fees 6,911 4,792 11,756 9,403 Income from fiduciary-related activities 2,229 1,755 4,523 3,343 Commissions on brokerage, life insurance and annuity sales 2,000 1,567 3,689 2,678 Commissions on property and casualty insurance sales 3,055 2,941 6,968 7,033 Income from bank-owned life insurance 3,406 2,641 6,932 5,299 Net gain on sale of loans and leases 1,779 1,474 3,104 5,525 Net realized gain (loss) on securities 119 (11,801 ) 207 (11,740 ) Other 11,349 4,713   22,055 10,328   Total noninterest income 44,685 19,151   87,587 53,431     Noninterest Expenses: Salaries and employee benefits 47,073 34,840 93,118 69,116 Occupancy 8,855 5,703 18,310 11,774 Furniture and equipment 4,029 2,912 8,109 5,809 Advertising and marketing 3,010 2,808 7,186 4,633 Amortization of intangible assets 2,688 623 5,195 1,246 Vehicle lease disposal 3,331 2,834 5,525 6,179 Other 21,318 17,622   44,821 33,433   Total noninterest expenses 90,304 67,342   182,264 132,190   Income before income taxes 39,674 13,313 78,960 43,793 Provision for income taxes 10,473 3,495   21,738 13,249   Net Income $29,201 $9,818   $57,222 $30,544     Earnings per share: Basic $0.34 $0.19 $0.67 $0.59 Diluted $0.34 $0.19 $0.67 $0.59 Cash dividends paid $0.26 $0.25 $0.52 $0.50 Average shares outstanding: Basic 85,936 52,124 85,929 52,111 Diluted 85,970 52,197 85,968 52,198   Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543   DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY               Interest rates and interest differential-taxable equivalent basis   For the Three-month Period Ended For the Three-month Period Ended June 30, 2008 June 30, 2007 (Dollars in thousands) AverageBalance Interest Rate (%) AverageBalance Interest Rate (%) Assets Short-term investments $82,325 $427 2.09 $100,745 $1,268 5.05 Investment securities: Taxable 1,777,900 23,238 5.26 1,415,256 16,556 4.69 Tax-advantaged 303,332   4,921 6.52 41,662   655 6.31   Total investment securities 2,081,232   28,159 5.44 1,456,918   17,211 4.74 Loans and leases, (net): Taxable 8,843,985 142,775 6.49 5,381,069 101,715 7.58 Tax-advantaged 194,638   3,595 7.43 89,790   1,662 7.42   Total loans and leases 9,038,623   146,370 6.51 5,470,859   103,377 7.58   Total interest-earning assets 11,202,180 $174,956 6.28 7,028,522 121,856 6.95 Allowance for loan and lease losses (93,557 ) (62,688 ) Other non-earning assets 2,107,951   1,236,989     Total assets $13,216,574   $8,202,823     Liabilities Deposits: Interest-bearing demand $2,711,535 $8,574 1.27 $2,133,308 $16,466 3.10 Savings 740,925 1,296 0.70 457,442 940 0.82 Time 4,079,074 39,250 3.87 2,502,428 28,947 4.64 Short-term borrowings 664,190 2,864 1.73 363,651 3,990 4.40 FHLB borrowings 1,394,087 13,229 3.82 432,975 3,960 3.67 Long-term debt 422,404   7,704 7.34 222,090   3,305 5.97   Total interest-bearing liabilities 10,012,215 $72,917 2.93 6,111,894 $57,608 3.78 Demand deposits 1,223,112 905,250 Other liabilities 257,621   239,705     Total liabilities 11,492,948 7,256,849   Equity 1,723,626   945,974     Total liabilities & shareholders' equity $13,216,574   $8,202,823     Net interest income / yield on average earning assets $102,039 3.66 $64,248 3.67     1. Average loan balances include non accrual loans.   2. Tax-exempt income has been adjusted to a tax-equivalent basis using a marginal tax rate of 35%.   3. For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.       Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543   DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY     Interest rates and interest differential-taxable equivalent basis   For the Six-month Period Ended For the Six-month Period Ended June 30, 2008 June 30, 2007 (Dollars in thousands) AverageBalance Interest Rate (%) AverageBalance Interest Rate (%) Assets Short-term investments $103,241 $1,449 2.82 $91,720 $2,392 5.26 Investment securities: Taxable 1,774,857 47,190 5.35 1,421,976 33,128 4.70 Tax-advantaged 285,344   9,171 6.46 39,732   1,249 6.34   Total investment securities 2,060,201   56,361 5.50 1,461,708   34,377 4.74 Loans and leases, (net): Taxable 8,719,087 291,230 6.72 5,396,899 203,121 7.59 Tax-advantaged 192,258   7,137 7.47 87,474   3,260 7.52   Total loans and leases 8,911,345   298,367 6.73 5,484,373   206,381 7.59   Total interest-earning assets 11,074,787 $356,177 6.47 7,037,801 $243,150 6.97 Allowance for loan and lease losses (91,637 ) (62,690 ) Other non-earning assets 2,099,954   1,223,407     Total assets $13,083,104   $8,198,518     Liabilities Deposits: Interest-bearing demand $2,715,572 $19,813 1.47 $2,104,997 $32,864 3.15 Savings 727,042 2,838 0.78 464,889 2,053 0.89 Time 4,109,917 82,858 4.05 2,481,568 56,686 4.61 Short-term borrowings 603,311 6,189 2.06 352,302 7,772 4.45 FHLB borrowings 1,319,134 25,985 3.96 487,468 9,129 3.78 Long-term debt 420,501   15,546 7.43 222,159   6,583 5.98   Total interest-bearing liabilities 9,895,477 $153,229 3.11 6,113,383 $115,087 3.80 Demand deposits 1,201,401 905,971 Other liabilities 258,680   236,691     Total liabilities 11,355,558 7,256,045   Equity 1,727,546   942,473     Total liabilities & shareholders' equity $13,083,104   $8,198,518     Net interest income / yield on average earning assets $202,948 3.69 $128,063 3.67     1. Average loan balances include non accrual loans.   2. Tax-exempt income has been adjusted to a tax-equivalent basis using a marginal tax rate of 35%.   3. For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.   Susquehanna Bancshares, Inc. P.O. Box 1000 Lititz, PA 17543   LOANS AND LEASES       Loans and leases, net of unearned income, were as follows:   June 30, December 31, June 30, 2008 2007 2007 (in thousands) Commercial, financial, and agricultural $1,976,953 $1,781,981 $1,090,241 Real estate - construction 1,301,036 1,292,953 1,069,309 Real estate secured - residential 2,180,595 2,151,923 1,206,891 Real estate secured - commercial 2,770,889 2,661,841 1,559,283 Consumer 394,918 411,159 297,429 Leases 603,578 451,733 351,705 Total loans and leases $9,227,969 $8,751,590 $5,574,858