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Susquehanna Bancshares, Inc. Announces Third Quarter 2012 Results

Susquehanna Bancshares, Inc. (Susquehanna) (NASDAQ: SUSQ) today announced that it earned net income for the third quarter ended September 30, 2012 of $36.7 million, or $0.20 per diluted share, compared to net income of $15.0 million for the third quarter of 2011, or $0.12 per diluted share. Net income for the first nine months of 2012 was $98.0 million, or $0.54 per diluted share, compared with $35.8 million, or $0.28 per diluted share for the first nine months of 2011.

"Our focus on executing our strategic objectives is evident in these strong third quarter results," said William J. Reuter, Chairman and Chief Executive Officer. "Loan and deposit growth and credit quality continue to trend in the right direction, and we are seeing positive momentum in revenue activity across all business lines, all leading to improved core profitability and shareholder return.”

Linked Quarter Results (Third Quarter 2012 vs. Second Quarter 2012)

  • Loans and leases increased $89.7 million, or 0.7%, from June 30, 2012 to $12.7 billion at September 30, 2012, as significant growth in commercial loans, consumer loans and leases was offset by decreases in real estate construction and commercial real estate loans.
    • Excluding real estate construction loans, loans and leases increased by $122.4 million, or 1.1%.
    • Commercial loans increased 3.2%.
    • Real estate – construction loans decreased 3.5%.
    • Real estate secured – residential loans increased 2.0%.
    • Real estate secured – commercial loans decreased 2.1%.
    • Consumer loans increased 3.0%.
    • Leases increased 5.4%.
  • Total deposits remained generally flat, growing $34.9 million to $12.7 billion as of September 30, 2012, as a 3.4% increase in core deposits was offset by a decrease in time deposits.
    • Non-interest bearing demand deposits decreased 0.6%.
    • Interest-bearing demand deposits increased 5.4 %.
    • Savings deposits were generally flat.
    • Time deposits decreased 5.8%.
  • Non-core items for the third quarter of 2012 were merger related expenses and loss on extinguishment of debt, totaling $4.5 million, after tax. During the third quarter, Susquehanna completed the redemption of $175 million in certain trust preferred securities, funded with available cash and proceeds from a $150 million offering of senior notes also completed during the quarter. In connection with the redemptions, Susquehanna incurred losses on the extinguishment of debt due to the write-off of capitalized debt issuance costs.
  • Net interest margin decreased 18 basis points to 3.92% compared to 4.10% for the second quarter of 2012, resulting principally from the impact of purchase accounting in connection with the acquisition of Tower Bancorp, Inc. (“Tower”).
  • Non-interest income increased to $43.7 million for the third quarter of 2012. The $3.9 million increase was driven by an 18% increase in mortgage banking revenue and increased gains from the sale of SBA loans, as well as a gain on the sale of other real estate owned of $2.0 million and an increase in deposit service fees.
  • Non-interest expense for the third quarter of 2012 increased to $122.9 million, including pre-tax merger related expenses of $1.5 million and loss on extinguishment of debt of $5.5 million.

Linked Quarter Results (Third Quarter 2012 vs. Second Quarter 2012) ( Continued)

  • The efficiency ratio for the third quarter of 2012 improved to 58.98% from 60.21% for the second quarter of 2012, in each case calculated after excluding pre-tax merger related expenses and loss on extinguishment of debt.
  • Net charge-offs as a percentage of average loans and leases for the quarter ended September 30, 2012 was 0.62% compared to 0.65% for the second quarter of 2012. Non-performing assets as a percentage of loans, leases and foreclosed real estate owned decreased 10 basis points from June 30, 2012 to 1.16% at September 30, 2012. The provision for loan and lease losses for the quarter ended September 30, 2012 was $16.0 million, unchanged from the quarter ended June 30, 2012. The allowance for loan and lease losses was $186.9 million at September 30, 2012, representing 1.47% of total loans and leases and 158% of nonaccrual loans and leases, compared to $190.6 million at June 30, 2012, representing 1.51% of total loans and leases and 150% of nonaccrual loans and leases.

Third Quarter Results (Third Quarter 2012 vs. Third Quarter 2011)

  • Loans and leases increased 30.6% from September 30, 2011 to $12.7 billion at September 30, 2012.
    • Growth in loans and leases consisted of:
      • $630.3 million acquired through the acquisition of Abington Bancorp, Inc. (“Abington”);
      • $2.0 billion acquired through the acquisition of Tower; and
      • $367.6 million of internally-generated net loan growth, resulting in internal growth in loans and leases of 3.8% for the trailing four quarters.
    • Commercial loans increased 19.8%.
    • Real estate - construction loans increased 17.2%.
    • Real estate secured - residential loans increased 48.3%.
    • Real estate secured - commercial loans increased 31.0%.
    • Consumer loans increased 18.7%.
    • Leases increased 14.6%.

Third Quarter Results (Third Quarter 2012 vs. Third Quarter 2011) ( Continued)

  • Total deposits increased 33.1% from September 30, 2011 to $12.7 billion at September 30, 2012.
    • Growth in total deposits consisted of:
      • $857.3 million of deposits assumed in the Abington acquisition;
      • $2.1 billion of deposits assumed in the Tower acquisition; and
      • $235.5 million in organic deposit growth, resulting in organic deposit growth of 2.5% for the trailing four quarters.
    • Non-interest-bearing demand deposits increased 37.4%.
    • Interest-bearing demand deposits increased 44.2%.
    • Savings deposits increased 28.1%.
    • Time deposits increased 19.6%.
  • Net interest margin increased 34 basis points to 3.92% compared to 3.58% for the third quarter of 2011, driven primarily by the balance sheet restructuring in the fourth quarter of 2011 and purchase accounting in connection with the Tower acquisition.
  • The efficiency ratio for the third quarter of 2012 improved to 58.98% from 67.44% in the third quarter of 2011, in each case calculated after excluding pre-tax merger related expenses and loss on extinguishment of debt.
  • Net charge-offs as a percentage of average loans and leases for the quarter ended September 30, 2012 was 0.62% compared to 0.96% for the third quarter of 2011. Non-performing assets as a percentage of loans, leases and foreclosed real estate was 1.16% at September 30, 2012 compared to 1.95% at September 30, 2011. The provision for loan and lease losses for the quarter ended September 30, 2012 was $16.0 million, compared to $25.0 million for the quarter ended September 30, 2011. The allowance for loan and lease losses was $186.9 million at September 30, 2012, representing 1.47% of total loans and leases and 158% of nonaccrual loans and leases, compared to $191.0 million at September 30, 2011, representing 1.97% of total loans and leases and 119% of nonaccrual loans and leases.
  • Return on average assets and average tangible shareholders’ equity (1) for the third quarter ended September 30, 2012 finished at 0.81% and 12.41%, respectively. This compared to results of 0.42% and 6.66% for the same measurements, respectively, for the third quarter of 2011.
  • Return on average assets and average tangible shareholders’ equity (1) for the first nine months of 2012 finished at 0.75% and 11.33%, respectively. This compared to results of 0.34% and 5.61% for the same measurements, respectively, for the first nine months of 2011.

(1) Return on average tangible shareholders’ equity is a non-GAAP based financial measure. Please refer to the calculations and management’s reasons for using this measure in the accompanying financial schedules.

Third Quarter Results (Third Quarter 2012 vs. Third Quarter 2011)( Continued)

  • Susquehanna’s capital ratios continue to exceed management’s minimum targets, which are generally maintained at 100 basis points over proposed Basel III minimums, including the conservation buffers. The company’s tangible common ratio (2) and Tier 1 common to risk-weighted assets ratio were 7.84% and 10.07%, respectively, at September 30, 2012.

(2) The tangible common ratio is a non-GAAP based financial measure. Please refer to the calculations and management’s reasons for using this measure in the accompanying financial schedules.

Additional Events

  • On October 15, 2012, Susquehanna redeemed $21.0 million in 9.0% subordinated notes originally issued by Tower Bancorp, Inc., at 100% of the principal amount plus accrued and unpaid interest.
  • On October 17, 2012, Susquehanna’s board of directors declared a fourth quarter dividend of $0.07 per common share, payable November 20, 2012 to shareholders of record as of October 30, 2012. This represents a $0.01 increase from the third quarter dividend of $0.06 per share and marks the 5 th increase since the first quarter of 2011.

Susquehanna will broadcast its third quarter 2012 results conference call over the Internet on October 25, 2012 at 11:00 a.m. Eastern time. The conference call will include management’s discussion of third quarter 2012 results. The discussion may also include forward-looking information and financial goals, including updates of previously disclosed 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 third 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.

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