Susquehanna Bancshares, Inc. Announces Second Quarter 2014 Results and Stock Repurchase Plan

By: Susquehanna Bancshares, Inc. via Business Wire News Releases

July 23, 2014 at 16:30 PM EDT

Susquehanna Bancshares, Inc. (Susquehanna) (NASDAQ: SUSQ) today announced that it earned net income for the second quarter ended June 30, 2014 of $43.5 million, or $0.23 per diluted share, compared to $37.2 million, or $0.20 per diluted share, for the first quarter of 2014 and $45.6 million, or $0.24 per diluted share, for the second quarter of 2013.

In addition, Susquehanna announced that its Board of Directors has authorized the repurchase of up to 3.5% of total outstanding common shares through December 31, 2014. As of June 30, 2014, Susquehanna had approximately 187.7 million shares of common stock outstanding. As permitted by securities laws and subject to market conditions and other factors, purchases may be made from time to time in the open market or through negotiated transactions. The repurchase program may be discontinued at any time.

“We continued to execute on our strategic plan by growing deposits, commercial loans and branch-based HELOCs while deemphasizing other loan categories, such as residential loans we portfolio,” said William J. Reuter, Susquehanna’s Chairman and Chief Executive Officer. “Also, during the last few years we have been accumulating capital. After careful consideration, we have concluded that our capital position is in excess of our need, and therefore, determined that we should begin returning this excess capital to our shareholders.”

Linked Quarter Results (Second Quarter 2014 vs. First Quarter 2014)

Loans and leases increased $91.9 million or 0.7% from March 31, 2014 to $13.7 billion at June 30, 2014. Changes for the quarter in each major loan category were as follows:
- Commercial loans increased 0.5%.
- Real estate – construction loans increased 4.7%.
- Real estate secured – residential loans were essentially flat.
- Real estate secured – commercial loans increased 0.3%.
- Consumer loans increased 0.7%.
- Leases increased 2.2%.

Total deposits increased $235.5 million or 1.8% from March 31, 2014 to $13.3 billion at June 30, 2014. Changes for the quarter in each major deposit category were as follows:
- Non-interest bearing checking increased 2.9%.
- Interest-bearing checking decreased 0.9%.
- Money market deposits decreased 5.0%.
- Savings deposits increased 0.3%.
- Time deposits increased 9.1%.

As a result of growth in the deposit portfolio, the loan to deposit ratio decreased to 102.6% for the second quarter of 2014 compared to 103.8% for the first quarter of 2014.
Net interest margin increased 2 basis points to 3.63% for the second quarter of 2014 compared to 3.61% for the first quarter of 2014. The second quarter of 2014 included a 9 basis point gain from the redemption of a trust preferred security. Net interest margin (excluding purchase accounting) (1) declined 2 basis points to 3.38% for the second quarter of 2014 compared to 3.40% for the first quarter of 2014.

In the third quarter of 2014, management expects the net interest margin (excluding purchase accounting) (1) to decline slightly, within a range of 3.32% to 3.36%.

Non-interest income increased to $45.3 million for the second quarter of 2014 compared to $42.1 million for the first quarter of 2014. The second quarter of 2014 included a net realized gain on sale of securities of $3.3 million.

Excluding the net realized gain on sale of securities in the second quarter of 2014, management expects noninterest income to increase in the third quarter of 2014 due to an anticipated increase in mortgage banking activity and SBA loan sales.

Non-interest expense increased to $125.2 million for the second quarter of 2014 compared to $123.0 million in the first quarter of 2014.

Management expects non-interest expenses to increase slightly in the third quarter of 2014.
The efficiency ratio (1) decreased to 65.63% for the second quarter of 2014 compared to 66.18% in the first quarter of 2014.

Non-performing assets as a percentage of loans, leases and foreclosed real estate owned decreased to 0.85% at June 30, 2014 compared to 0.89% at March 31, 2014.
The provision for loan and lease losses in the second quarter decreased to $3.0 million compared to $6.0 million in the first quarter of 2014. Net charge-offs for the second quarter increased to $11.4 million, or 0.34% of average loans and leases, compared to $9.5 million, or 0.28% of average loans and leases, for the first quarter of 2014. As a result, the allowance for loan and lease losses was $144.5 million at June 30, 2014, representing 1.06% of total loans and leases and 137% of nonaccrual loans and leases compared to $154.2 million at March 31, 2014, representing 1.14% of total loans and leases and 142% of nonaccrual loans and leases.

Second Quarter Results (Second Quarter 2014 vs. Second Quarter 2013)

Loans and leases increased $509.4 million or 3.9% from June 30, 2013 to $13.7 billion at June 30, 2014. Changes for the twelve month period in each major loan category were as follows:
- Commercial loans increased 5.8%.
- Real estate - construction loans decreased 2.8%.
- Real estate secured - residential loans increased 1.9%.
- Real estate secured - commercial loans increased 0.6%.
- Consumer loans increased 6.0%.
- Leases increased 22.4%.
Total deposits increased $550.8 million or 4.3% from June 30, 2013 to $13.3 billion as of June 30, 2014. Changes for the twelve month period in each major deposit category were as follows:
- Non-interest-bearing checking increased 0.2%.
- Interest-bearing checking increased 4.2%.
- Money market deposits decreased 2.5%.
- Savings deposits increased 4.6%.
- Time deposits increased 11.8%.
Loan to deposit ratio decreased to 102.6% for the second quarter of 2014 compared to 103.1% for the second quarter of 2013.
Net interest margin decreased 25 basis points to 3.63% compared to 3.88% for the second quarter of 2013. Net interest margin (excluding purchase accounting) (1) declined 16 basis points to 3.38% compared to 3.54% for the second quarter of 2013.
Non-interest income decreased to $45.3 million compared to $49.1 million in the second quarter of 2013.
Non-interest expense increased to $125.2 million compared to $119.7 million in the second quarter of 2013.
The efficiency ratio (1) increased to 65.63% compared to 59.57% in the second quarter of 2013.
Non-performing assets as a percentage of loans, leases and foreclosed real estate decreased to 0.85% compared to 0.94% at June 30, 2013.
The provision for loan and lease losses decreased to $3.0 million compared to $12.0 million for the second quarter of 2013. Net charge-offs as a percentage of average loans and leases increased to 0.34% compared to 0.30% for the second quarter of 2013. The allowance for loan and lease losses was $144.5 million, representing 1.06% of total loans and leases and 137% of nonaccrual loans and leases, compared to $178.6 million at June 30, 2013, representing 1.36% of total loans and leases and 170% of nonaccrual loans and leases.
Return on average assets and average tangible equity (1) decreased to 0.95% and 12.34%, respectively compared to 1.01% and 14.30%, respectively for the second quarter of 2013.
Susquehanna’s capital ratios continue to exceed internal capital targets and those required to be considered “well-capitalized” under the current regulatory requirements, with a Tier 1 common ratio of 10.99%, Tier 1 capital ratio of 12.02%, Total risk-based capital ratio of 13.22% and a Leverage ratio of 9.90%, each as of June 30, 2014. Based on a preliminary analysis of the new capital rules approved in July 2013, management believes that Susquehanna would be fully compliant with the revised capital ratio standards as of June 30, 2014 if they had been effective on that date.

(1) 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

At June 30, 2014, Susquehanna reclassified approximately $265 million of indirect auto loans from held for investment to held for sale. The loans were transferred to held for sale at their amortized cost basis on the date of transfer and will be measured at the lower of their amortized cost or fair value until the loans are sold or securitized. Amortized cost was lower than fair value as of June 30, 2014. Susquehanna expects to complete a securitization or other off balance sheet transaction involving substantially all of these loans during 2014.
On July 7, 2014, Standard & Poor’s Ratings Services raised its ratings on Susquehanna, including its long-term issuer credit rating to ‘BBB’ from ‘BBB-’.
On July 16, 2014, Susquehanna’s Board of Directors declared a second quarter dividend of $0.09 per common share, payable on August 20, 2014 to shareholders of record on August 1, 2014.

Susquehanna will broadcast its second quarter 2014 conference call over the Internet on July 24, 2014, at 11:00 a.m. Eastern time. The conference call will include management’s discussion of second quarter 2014 financial results and 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 website. The event may be accessed by selecting "Investor Relations" near the bottom of the home page and clicking on the second quarter webcast link. To listen to the live call, please go to the website at least 15 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 website shortly after the call concludes.

Susquehanna is a financial services holding company with assets of approximately $18.5 billion. Headquartered in Lititz, Pa., Susquehanna provides banking and financial services at 245 branch 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 $8.0 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 through Susquehanna’s Website 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 release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various risks, uncertainties and other factors. Forward-looking statements can be identified by words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may,” “plans,” “estimates,” and similar words or expressions. The risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: ineffectiveness of Susquehanna’s business strategy due to changes in current or future market conditions; the effects of competition, including industry consolidation and development of competing financial products and services; the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; interest rate movements; changes in credit quality; deteriorating economic conditions; market or other events adversely affecting our ability to conduct off-balance transactions; other risks and uncertainties; our success at managing the risks involved in the foregoing items; and the other factors detailed in Susquehanna’s filings with the Securities and Exchange Commission. Susquehanna encourages readers of this release to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Forward-looking statements speak only as of the date they are made. Susquehanna does 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.


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)

																Six Months YTD
	2Q14			1Q14			4Q13			3Q13			2Q13				2014			2013
Balance Sheet (EOP)
Investments	$	2,324,782		$	2,445,322		$	2,533,456		$	2,644,162		$	2,494,178		$	2,324,782		$	2,494,178
Loans and leases		13,667,153			13,575,295			13,576,086			13,376,454			13,157,762			13,667,153			13,157,762
Allowance for loan and lease losses		144,483			154,150			157,608			166,740			178,594			144,483			178,594
Total assets		18,506,626			18,439,682			18,473,489			18,481,150			18,083,039			18,506,626			18,083,039
Deposits		13,314,994			13,079,523			12,869,372			12,721,685			12,764,232			13,314,994			12,764,232
Other short-term borrowings		527,079			584,664			555,740			688,456			706,065			527,079			706,065
Federal Home Loan Bank borrowings		1,127,302			1,229,296			1,531,282			1,593,272			1,161,995			1,127,302			1,161,995
Other long-term debt		360,033			448,521			453,260			457,804			489,002			360,033			489,002
Shareholders' equity		2,796,392			2,755,199			2,717,587			2,679,348			2,644,940			2,796,392			2,644,940

Average Balance Sheet
Investments	$	2,395,690		$	2,505,937		$	2,616,807		$	2,584,212		$	2,503,991		$	2,450,509		$	2,553,518
Loans and leases		13,589,533			13,574,526			13,421,474			13,290,513			13,110,128			13,582,071			13,020,246
Total earning assets		16,066,177			16,162,210			16,124,369			15,960,228			15,720,859			16,114,489			15,681,801
Total assets		18,378,127			18,411,873			18,437,954			18,258,982			18,071,466			18,419,028			18,051,408
Deposits		13,131,617			12,874,040			12,806,503			12,794,022			12,867,874			13,003,540			12,754,840
Other short-term borrowings		552,367			671,653			671,923			758,079			728,497			611,681			772,910
Federal Home Loan Bank borrowings		1,174,611			1,387,124			1,502,120			1,285,276			1,041,577			1,280,280			1,098,292
Other long-term debt		396,367			451,267			455,787			475,655			496,240			423,666			502,356
Shareholders' equity		2,768,665			2,726,465			2,679,242			2,642,806			2,648,314			2,753,315			2,631,411

Income Statement
Net interest income	$	141,694		$	140,064		$	142,688		$	145,949		$	148,097		$	281,758		$	297,303
Provision for loan and lease losses		3,000			6,000			2,000			5,000			12,000			9,000			24,000
Noninterest income		45,349			42,089			50,666			41,343			49,076			87,438			91,720
Noninterest expense		125,225			123,032			135,672			117,701			119,738			248,257			237,467
Income before taxes		58,818			53,121			55,682			64,591			65,435			111,939			127,556
Provision for income taxes		15,324			15,959			14,341			20,300			19,787			31,283			39,509
Net income		43,494			37,162			41,341			44,291			45,648			80,656			88,047
Basic earnings per common share		0.23			0.20			0.22			0.24			0.24			0.43			0.47
Diluted earnings per common share		0.23			0.20			0.22			0.24			0.24			0.43			0.47
Cash dividends paid per common share		0.08			0.08			0.08			0.08			0.08			0.16			0.08

Asset Quality
Net charge-offs (NCOs)	$	11,431		$	9,458		$	11,132		$	16,854		$	9,784		$	20,889		$	29,427

Nonaccrual loans and leases	$	105,609		$	108,408		$	100,815		$	101,976		$	105,110		$	105,609		$	105,110
Foreclosed real estate		10,302			11,980			16,555			17,760			18,349			10,302			18,349
Total nonperforming assets (NPAs)	$	115,911		$	120,388		$	117,370		$	119,736		$	123,459		$	115,911		$	123,459

Restructured loans	$	40,938		$	39,555		$	72,133		$	69,975		$	63,822		$	40,938		$	63,822
Loans and leases 90 days past due		9,190			9,328			9,757			8,655			7,203			9,190			7,203

Credit Quality
NCOs / Average loans and leases		0.34	%		0.28	%		0.33	%		0.50	%		0.30	%		0.31	%		0.46	%
NPAs / Loans and leases + foreclosed real estate		0.85	%		0.89	%		0.86	%		0.89	%		0.94	%		0.85	%		0.94	%
ALLL / Nonaccrual loans and leases		136.81	%		142.19	%		156.33	%		163.51	%		169.91	%		136.81	%		169.91	%
ALLL / Total loans and leases		1.06	%		1.14	%		1.16	%		1.25	%		1.36	%		1.06	%		1.36	%

Profitability
Return on average assets		0.95	%		0.82	%		0.89	%		0.96	%		1.01	%		0.88	%		0.98	%
Return on average equity		6.30	%		5.53	%		6.12	%		6.65	%		6.91	%		5.91	%		6.75	%
Return on average tangible equity (1)		12.34	%		11.08	%		12.49	%		13.67	%		14.30	%		11.68	%		14.09	%
Net interest margin		3.63	%		3.61	%		3.60	%		3.72	%		3.88	%		3.62	%		3.92	%
Efficiency ratio (1)		65.63	%		66.18	%		68.84	%		61.62	%		59.57	%		65.90	%		59.87	%

Per Share Data (EOP)
Closing share price	$	10.56		$	11.37		$	12.84		$	12.53		$	12.85		$	10.56		$	12.85
Stated book value per common share		14.90			14.69			14.50			14.31			14.14			14.90			14.14
Tangible book value per common share (1)		7.95			7.73			7.52			7.32			7.13			7.95			7.13
Price/Book Value		70.88	%		77.41	%		88.52	%		87.56	%		90.86	%		70.88	%		90.86	%
Price/Tangible Book Value		132.83	%		147.09	%		170.74	%		171.17	%		180.22	%		132.83	%		180.22	%
Number of outstanding shares ('000)		187,706			187,590			187,363			187,225			187,023			187,706			187,023

Capital Ratios
Tangible common ratio (1)		8.88	%		8.67	%		8.44	%		8.22	%		8.21	%		8.88	%		8.21	%
Tier 1 common ratio		10.99	%		10.84	%		10.60	%		10.41	%		10.41	%		10.99	%		10.41	%
Leverage ratio		9.90	%		9.72	%		9.55	%		9.47	%		9.42	%		9.90	%		9.42	%
Tier 1 capital ratio		12.02	%		11.95	%		11.71	%		11.52	%		11.54	%		12.02	%		11.54	%
Total risk-based capital ratio		13.22	%		13.23	%		13.04	%		12.92	%		12.94	%		13.22	%		12.94	%

(1) Non-GAAP based financial measures. Please refer to the calculations and management's reasons for using these measures in Appendix A - GAAP to Non-GAAP Reconciliation


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)

	June 30,			March 31,			December 31,			September 30,			June 30,
	2014			2014			2013			2013			2013

Assets
Cash and due from banks	$	456,917		$	389,793		$	305,357		$	377,730		$	367,902
Unrestricted short-term investments		33,369			24,768			37,967			30,663			30,759
Cash and cash equivalents		490,286			414,561			343,324			408,393			398,661
Interest-bearing deposits held by consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities		1,554			1,689			2,347			2,138			5,356
Restricted short-term investments		43,926			42,993			42,913			44,928			45,341
Securities available for sale		2,183,093			2,299,235			2,375,224			2,483,375			2,343,429
Restricted investment in bank stocks		141,689			146,087			158,232			160,787			150,749
Loans and leases, net of deferred costs and fees		13,600,254			13,505,746			13,503,392			13,300,309			13,005,013
Loans held by consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities		66,899			69,549			72,694			76,145			152,749
Less: Allowance for loan and lease losses		144,483			154,150			157,608			166,740			178,594
Net loans and leases		13,522,670			13,421,145			13,418,478			13,209,714			12,979,168
Premises and equipment, net		169,975			170,349			173,542			189,096			187,826
Other real estate and foreclosed assets		11,102			12,943			17,573			18,729			19,319
Accrued interest receivable		38,878			41,594			41,690			41,715			42,665
Bank-owned life insurance		450,318			449,778			449,320			449,419			451,278
Goodwill		1,275,439			1,275,439			1,275,439			1,275,439			1,275,439
Intangible assets with finite lives		28,579			30,303			32,262			33,666			35,737
Deferred income tax assets		7,357			5,216			6,472			7,921			7,999
Other assets		141,760			128,350			136,673			155,830			140,072
Total assets	$	18,506,626		$	18,439,682		$	18,473,489		$	18,481,150		$	18,083,039
Liabilities and Shareholders' Equity
Deposits	$	13,314,994		$	13,079,523		$	12,869,372		$	12,721,685		$	12,764,232
Federal Home Loan Bank short-term borrowings		1,050,000			1,150,000			1,450,000			1,510,000			1,070,000
Other short-term borrowings		527,079			584,664			555,740			688,456			706,065
Federal Home Loan Bank long-term borrowings		77,302			79,296			81,282			83,272			91,995
Other long-term debt		175,222			250,224			250,227			250,229			250,231
Junior subordinated debentures		146,002			155,022			155,002			154,983			154,964
Long-term debt of consolidated variable interest entities for which creditors do not have recourse to Susquehanna's general credit		38,809			43,275			48,031			52,592			83,807
Accrued interest, taxes, and expenses payable		72,664			69,404			82,150			101,040			78,211
Deferred income tax liabilities		114,119			75,911			70,308			52,214			31,694
Other liabilities		194,043			197,164			193,790			187,331			206,900
Total liabilities		15,710,234			15,684,483			15,755,902			15,801,802			15,438,099
Shareholders' equity:
Common stock		376,146			375,845			375,353			374,982			374,566
Treasury stock		(3,075	)		(2,735	)		(2,531	)		(1,918	)		(1,875	)
Additional paid-in capital		1,657,699			1,654,357			1,652,116			1,651,382			1,649,636
Retained earnings		794,864			766,381			744,215			717,850			688,535
Accumulated other comprehensive loss		(29,242	)		(38,649	)		(51,566	)		(62,948	)		(65,922	)
Total shareholders' equity		2,796,392			2,755,199			2,717,587			2,679,348			2,644,940
Total liabilities and shareholders' equity	$	18,506,626		$	18,439,682		$	18,473,489		$	18,481,150		$	18,083,039


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543


Loans and Leases and Deposits
(in thousands)
	Loans and Leases
	06/30/14		03/31/14		12/31/13		09/30/13		06/30/13
Commercial, financial, and agricultural	$	2,422,931	$	2,411,851	$	2,394,847	$	2,273,735	$	2,289,159
Real estate - construction		748,181		714,291		735,877		765,246		769,722
Real estate secured - residential		4,178,842		4,178,505		4,204,430		4,145,522		4,098,938
Real estate secured - commercial		4,053,990		4,041,989		4,068,816		4,109,329		4,029,454
Consumer		962,618		955,577		953,000		935,117		908,328
Leases		1,300,591		1,273,082		1,219,116		1,147,505		1,062,161
Total loans and leases	$	13,667,153	$	13,575,295	$	13,576,086	$	13,376,454	$	13,157,762


	Deposits
	06/30/14		03/31/14		12/31/13		09/30/13		06/30/13
Non-interest bearing checking	$	1,935,635	$	1,880,284	$	1,913,526	$	1,871,461	$	1,931,874
Interest-bearing checking		2,883,679		2,908,507		2,909,376		2,895,027		2,766,831
Money market		3,025,430		3,184,719		3,144,106		3,062,955		3,101,559
Savings		1,136,044		1,132,850		1,077,923		1,065,699		1,086,184
Core deposits		8,980,788		9,106,360		9,044,931		8,895,142		8,886,448
Time less than $100		2,266,815		2,166,207		2,113,209		2,103,650		2,152,539
Time of $100 or more		2,067,391		1,806,956		1,711,232		1,722,893		1,725,245
Total deposits	$	13,314,994	$	13,079,523	$	12,869,372	$	12,721,685	$	12,764,232


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543


Supplemental Loan and Lease Data
(in thousands)
	Nonaccrual Loans and Leases
	06/30/14			03/31/14			12/31/13			09/30/13		06/30/13
Commercial, financial, and agricultural	$	18,792		$	24,529		$	16,827		$	10,048	$	10,810
Real estate - construction		7,428			11,695			13,230			16,497		13,243
Real estate secured - residential		24,740			23,189			23,365			27,878		31,945
Real estate secured - commercial		53,687			47,950			46,147			45,906		48,010
Consumer		43			46			47			177		40
Leases		919			999			1,199			1,470		1,062
Total nonaccrual loans and leases	$	105,609		$	108,408		$	100,815		$	101,976	$	105,110


	Restructured Loans
	06/30/14			03/31/14			12/31/13			09/30/13		06/30/13
Commercial, financial, and agricultural	$	4,228		$	5,264		$	6,885		$	9,609	$	9,200
Real estate - construction		322			325			615			331		334
Real estate secured - residential		18,414			16,168			31,623			26,848		23,207
Real estate secured - commercial		16,903			16,681			31,295			31,766		29,482
Consumer		1,071			1,117			1,715			1,421		1,599
Total restructured loans	$	40,938		$	39,555		$	72,133		$	69,975	$	63,822


	Net Charge-offs (Recoveries)
	2Q 2014			1Q 2014			4Q 2013			3Q 2013		2Q 2013
Commercial, financial, and agricultural	$	7,274		$	3,182		$	(480	)	$	3,731	$	8,790
Real estate - construction		(457	)		(91	)		(3,312	)		6,504		(555	)
Real estate secured - residential		2,453			2,796			2,724			3,524		2,006
Real estate secured - commercial		730			2,134			11,060			2,007		(1,241	)
Consumer		1,013			855			330			726		549
Leases		418			582			810			362		235
Total net charge-offs	$	11,431		$	9,458		$	11,132		$	16,854	$	9,784


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543


CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
	Three Months Ended														Six Months Ended
	June 30,			March 31,			December 31,			September 30,		June 30,			June 30,
	2014			2014			2013			2013		2013			2014		2013

Interest Income:
Loans and leases, including deferred costs and fees	$	148,002		$	149,538		$	151,907		$	155,596	$	159,986		$	297,540	$	320,330
Securities:
Taxable		9,104			9,648			10,406			10,641		9,683			18,752		19,943
Tax-exempt		3,439			3,501			3,511			3,527		3,561			6,940		7,155
Dividends		2,134			1,765			1,649			1,297		1,146			3,899		2,312
Short-term investments		23			19			21			16		35			42		71
Total interest income		162,702			164,471			167,494			171,077		174,411			327,173		349,811
Interest Expense:
Deposits:
Interest-bearing demand and savings		4,031			3,962			4,202			4,190		4,513			7,993		9,414
Time		10,246			9,628			9,597			10,229		11,654			19,874		22,886
Federal Home Loan Bank short-term borrowings		4,597			4,621			4,449			3,915		3,452			9,218		6,823
Other short-term borrowings		2,031			2,100			2,146			2,242		2,153			4,131		4,306
Federal Home Loan Bank long-term borrowings		243			245			254			284		303			488		604
Other long-term debt		(140	)		3,851			4,158			4,268		4,239			3,711		8,475
Total interest expense		21,008			24,407			24,806			25,128		26,314			45,415		52,508
Net interest income	$	141,694		$	140,064		$	142,688		$	145,949	$	148,097			281,758		297,303
Provision for loan and lease losses		3,000			6,000			2,000			5,000		12,000			9,000		24,000
Net interest income, after provision for loan and lease losses		138,694			134,064			140,688			140,949		136,097			272,758		273,303
Noninterest Income:
Service charges on deposit accounts		9,294			9,000			9,456			9,514		9,347			18,294		18,019
Vehicle origination and servicing fees		2,915			2,968			3,057			2,907		2,407			5,883		5,761
Wealth management commissions and fees		12,669			12,719			13,048			12,606		13,289			25,388		25,679
Commissions on property and casualty insurance sales		4,214			5,666			4,023			3,872		4,360			9,880		8,902
Other commissions and fees		5,401			5,035			5,077			4,885		4,727			10,436		9,055
Income from bank-owned life insurance		1,672			1,637			1,492			1,493		1,520			3,309		3,028
Mortgage banking revenue		3,004			2,410			2,483			2,237		3,998			5,414		8,108
Capital markets revenue		877			1,240			3,216			111		3,256			2,117		4,158
Net realized gain (loss) on sales of securities		3,293			(8	)		(1,343	)		2		(71	)		3,285		(53	)
Realized gain on sale of branch properties		0			0			4,945			0		0			0		0
Other		2,010			1,422			5,212			3,716		6,243			3,432		9,063
Total noninterest income		45,349			42,089			50,666			41,343		49,076			87,438		91,720
Noninterest Expenses:
Salaries and employee benefits		68,325			65,581			70,837			61,879		66,888			133,906		129,502
Occupancy		11,914			13,847			11,727			11,352		11,154			25,761		22,369
Furniture and equipment		4,058			3,944			3,865			3,661		3,747			8,002		7,325
Professional and technology services		7,189			6,070			6,404			7,173		5,831			13,259		11,560
Advertising and marketing		3,567			3,576			3,618			3,319		2,465			7,143		5,765
FDIC insurance		4,925			5,121			6,118			5,421		4,541			10,046		8,339
Legal fees		1,656			1,527			1,968			1,774		1,810			3,183		3,680
Amortization of intangible assets		2,367			2,539			2,803			2,502		3,053			4,906		6,321
Vehicle lease disposal		2,215			2,251			1,216			1,193		1,313			4,466		2,603
Branch consolidation costs		0			0			6,603			0		0			0		0
Other		19,009			18,576			20,513			19,427		18,936			37,585		40,003
Total noninterest expenses		125,225			123,032			135,672			117,701		119,738			248,257		237,467
Income before income taxes		58,818			53,121			55,682			64,591		65,435			111,939		127,556
Provision for income taxes		15,324			15,959			14,341			20,300		19,787			31,283		39,509
Net Income	$	43,494		$	37,162		$	41,341		$	44,291	$	45,648		$	80,656	$	88,047

Earnings per common share:
Basic	$	0.23		$	0.20		$	0.22		$	0.24	$	0.24		$	0.43	$	0.47
Diluted	$	0.23		$	0.20		$	0.22		$	0.24	$	0.24		$	0.43	$	0.47
Cash dividends per common share	$	0.08		$	0.08		$	0.08		$	0.08	$	0.08		$	0.16	$	0.08
Average common shares outstanding:
Basic		187,637			187,455			187,186			187,096		186,812			187,547		186,710
Diluted		188,295			188,378			188,078			188,109		187,723			188,296		187,612


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543


DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
(in thousands)
Interest rates and interest differential-taxable equivalent basis

	Three Months Ended June 30, 2014								Three Months Ended March 31, 2014							Three Months Ended June 30, 2013							Six Months Ended June 30, 2014							Six Months Ended June 30, 2013
	Average Balance			Interest			Rate (%)		Average Balance			Interest			Rate (%)	Average Balance			Interest			Rate (%)	Average Balance			Interest			Rate (%)	Average Balance			Interest			Rate (%)
Assets
Short-term investments	$	80,954		$	23		0.11		$	81,747		$	19		0.09	$	106,740		$	34		0.13	$	81,909		$	41		0.10	$	108,037		$	71		0.13
Investment securities:
Taxable(1)		2,013,166			11,238		2.24			2,117,969			11,413		2.19		2,107,031			10,830		2.06		2,065,278			22,651		2.21		2,154,321			22,256		2.08
Tax-exempt(1)(2)		382,524			5,291		5.55			387,968			5,388		5.63		396,960			5,478		5.54		385,231			10,677		5.59		399,197			11,008		5.56
Total investment securities		2,395,690			16,529		2.77			2,505,937			16,801		2.72		2,503,991			16,308		2.61		2,450,509			33,328		2.74		2,553,518			33,264		2.63
Loans and leases, (net):
Taxable(3)		13,154,917			144,471		4.40			13,136,268			146,080		4.51		12,690,334			156,561		4.95		13,145,644			290,552		4.46		12,596,683			313,413		5.02
Tax-exempt(2)(3)		434,616			5,432		5.01			438,258			5,320		4.92		419,794			5,326		5.09		436,427			10,752		4.97		423,563			10,697		5.09
Total loans and leases		13,589,533			149,903		4.42			13,574,526			151,400		4.52		13,110,128			161,887		4.95		13,582,071			301,304		4.47		13,020,246			324,110		5.02

Total interest-earning assets		16,066,177			166,455		4.16			16,162,210			168,220		4.22		15,720,859			178,229		4.55		16,114,489			334,673		4.19		15,681,801			357,445		4.60
Allowance for loan and lease losses		(154,710	)							(157,444	)						(179,273	)						(156,070	)						(182,075	)
Other non-earning assets		2,466,660								2,407,107							2,529,880							2,460,609							2,551,682

Total assets	$	18,378,127							$	18,411,873						$	18,071,466						$	18,419,028						$	18,051,408

Liabilities
Deposits:
Interest-bearing demand	$	5,998,086			3,726		0.25		$	6,032,537			3,674		0.25	$	5,983,543			4,219		0.28	$	6,015,217			7,400		0.25	$	5,939,576			8,842		0.30
Savings		1,134,421			305		0.11			1,099,944			287		0.11		1,080,427			294		0.11		1,117,278			592		0.11		1,064,741			572		0.11
Time		4,129,738			10,245		1.00			3,910,698			9,630		1.00		3,892,237			11,653		1.20		4,020,822			19,874		1.00		3,835,477			22,886		1.20
Other short-term borrowings		552,367			2,030		1.47			671,653			2,101		1.27		728,497			2,154		1.19		611,681			4,131		1.36		772,910			4,306		1.12
FHLB borrowings		1,174,611			4,840		1.65			1,387,124			4,866		1.42		1,041,577			3,754		1.45		1,280,280			9,706		1.53		1,098,292			7,427		1.36
Long-term debt(4)		396,367			(138	)	(0.14	)		451,267			3,849		3.46		496,240			4,239		3.43		423,666			3,712		1.77		502,356			8,475		3.40

Total interest-bearing liabilities		13,385,590			21,008		0.63			13,553,223			24,407		0.73		13,222,521			26,313		0.80		13,468,944			45,415		0.68		13,213,352			52,508		0.80
Demand deposits		1,869,372								1,830,861							1,911,667							1,850,223							1,915,046
Other liabilities		354,500								301,324							288,964							346,546							291,599

Total liabilities		15,609,462								15,685,408							15,423,152							15,665,713							15,419,997

Equity		2,768,665								2,726,465							2,648,314							2,753,315							2,631,411

Total liabilities & shareholders' equity	$	18,378,127							$	18,411,873						$	18,071,466						$	18,419,028						$	18,051,408

Net interest income / yield on average earning assets				$	145,447		3.63					$	143,813		3.61				$	151,916		3.88				$	289,258		3.62				$	304,937		3.92
Taxable equivalent adjustment					(3,753	)							(3,749	)						(3,819	)						(7,500	)						(7,634	)
Net interest income - as reported				$	141,694							$	140,064						$	148,097						$	281,758						$	297,303

(1)		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.
(2)		Tax-exempt income has been adjusted to a tax-equivalent basis using a marginal tax rate of 35%.
(3)		Average loan balances include non-accrual loans.
(4)		Includes $3.7 million purchase accounting adjustment on redemption of junior subordinated debt in second quarter of 2014.


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543

Appendix A - GAAP to Non-GAAP Reconciliation																Six Months Ended
(Dollars and share data in thousands)																June 30,
	2Q14			1Q14			4Q13			3Q13			2Q13				2014			2013
Efficiency Ratio
Other expense	$	125,225		$	123,032		$	135,672		$	117,701		$	119,738		$	248,257		$	237,467
Noninterest operating expense (numerator)	$	125,225		$	123,032		$	135,672		$	117,701		$	119,738		$	248,257		$	237,467

Taxable-equivalent net interest income	$	145,447		$	143,813		$	146,430		$	149,683		$	151,916			289,258		$	304,937
Other income		45,349			42,089			50,666			41,343			49,076			87,438			91,720
Noninterest operating income (denominator)	$	190,796		$	185,902		$	197,096		$	191,026		$	200,992		$	376,696		$	396,657
Efficiency ratio		65.63	%		66.18	%		68.84	%		61.62	%		59.57	%		65.90	%		59.87	%

The efficiency ratio is a non-GAAP based financial measure. Management excludes merger-related expenses and certain other selected items when calculating this ratio, which is used to measure the relationship of operating expenses to revenues.


Tangible Common Ratio
End of period balance sheet data
Shareholders' equity	$	2,796,392		$	2,755,199		$	2,717,587		$	2,679,348		$	2,644,940		$	2,796,392		$	2,644,940
Goodwill and other intangible assets (1)		(1,265,846	)		(1,266,403	)		(1,264,839	)		(1,263,928	)		(1,265,016	)		(1,265,846	)		(1,265,016	)
Tangible common equity (numerator)	$	1,530,546		$	1,488,796		$	1,452,748		$	1,415,420		$	1,379,924		$	1,530,546		$	1,379,924

Assets	$	18,506,626		$	18,439,682		$	18,473,489		$	18,481,150		$	18,083,039		$	18,506,626		$	18,083,039
Goodwill and other intangible assets (1)		(1,265,846	)		(1,266,403	)		(1,264,839	)		(1,263,928	)		(1,265,016	)		(1,265,846	)		(1,265,016	)
Tangible assets (denominator)	$	17,240,780		$	17,173,279		$	17,208,650		$	17,217,222		$	16,818,023		$	17,240,780		$	16,818,023
Tangible common ratio		8.88	%		8.67	%		8.44	%		8.22	%		8.21	%		8.88	%		8.21	%

The tangible common ratio is a non-GAAP based financial measure using non-GAAP based amounts. The most directly comparable GAAP-based measure is the ratio of common shareholders’ equity to total assets. In order to calculate tangible common shareholders equity and assets, our management subtracts the intangible assets from both the common shareholders’ equity and total assets. Tangible common equity is then divided by the tangible assets to arrive at the ratio. Management uses the ratio to assess the strength of our capital position.

(1) Net of applicable deferred income taxes




Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543

Appendix A - GAAP to Non-GAAP Reconciliation																Six Months Ended
(Dollars and share data in thousands)																June 30,
	2Q14			1Q14			4Q13			3Q13			2Q13				2014			2013
Return on Average Tangible Equity
Income statement data
Net income	$	43,494		$	37,162		$	41,341		$	44,291		$	45,648		$	80,656		$	88,047
Amortization of intangibles, net of taxes at 35%		1,539			1,650			1,822			1,626			1,984			3,189			4,109
Net tangible income (numerator)	$	45,033		$	38,812		$	43,163		$	45,917		$	47,632		$	83,845		$	92,156

Average balance sheet data
Shareholders' equity	$	2,768,665		$	2,726,465		$	2,679,242		$	2,642,806		$	2,648,314		$	2,753,315		$	2,631,411
Goodwill and other intangible assets		(1,304,736	)		(1,306,298	)		(1,308,690	)		(1,310,155	)		(1,312,257	)		(1,305,513	)		(1,312,458	)
Tangible common equity (denominator)	$	1,463,929		$	1,420,167		$	1,370,552		$	1,332,651		$	1,336,057		$	1,447,802		$	1,318,953

Return on equity (GAAP basis)		6.30	%		5.53	%		6.12	%		6.65	%		6.91	%		5.91	%		6.75	%
Effect of goodwill and other intangibles		6.04	%		5.55	%		6.37	%		7.02	%		7.39	%		5.77	%		7.34	%
Return on average tangible equity		12.34	%		11.08	%		12.49	%		13.67	%		14.30	%		11.68	%		14.09	%

Return on average tangible equity is a non-GAAP based financial measure calculated using non-GAAP based amounts. The most directly comparable GAAP-based measure is return on average equity. 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.


Tangible Book Value per Common Share
End of period balance sheet data
Shareholders' equity	$	2,796,392		$	2,755,199		$	2,717,587		$	2,679,348		$	2,644,940		$	2,796,392		$	2,644,940
Goodwill and other intangible assets		(1,304,018	)		(1,305,742	)		(1,307,701	)		(1,309,105	)		(1,311,176	)		(1,304,018	)		(1,311,176	)
Tangible common equity (numerator)	$	1,492,374		$	1,449,457		$	1,409,886		$	1,370,243		$	1,333,764		$	1,492,374		$	1,333,764

Common shares outstanding (denominator)		187,706			187,590			187,363			187,225			187,023			187,706			187,023

Tangible book value per common share	$	7.95		$	7.73		$	7.52		$	7.32		$	7.13		$	7.95		$	7.13

Tangible book value per share is a non-GAAP based financial measure calculated using non-GAAP based amounts. The most directly comparable GAAP based measure is book value per share. In order to calculate tangible book value per share, we divide tangible common equity, which is a non-GAAP based measure calculated as common shareholders’ equity less intangible assets, by the number of shares of common stock outstanding. In contrast, book value per share is calculated by dividing total common shareholders’ equity by the number of shares of common stock outstanding. Management uses tangible book value per share to assess our capital position and ratios.


Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543

Appendix A - GAAP to Non-GAAP Reconciliation

	2Q14		1Q14		4Q13		3Q13		2Q13
Net Interest Margin (excluding purchase accounting)
Reported net interest margin (GAAP basis)	3.63	%	3.61	%	3.60	%	3.72	%	3.88	%
Adjustments for purchase accounting:
Loans and leases	-0.12	%	-0.17	%	-0.11	%	-0.13	%	-0.27	%
Deposits	-0.03	%	-0.03	%	-0.03	%	-0.04	%	-0.06	%
Borrowings	-0.10	%	-0.01	%	-0.01	%	-0.01	%	-0.01	%
Net Interest Margin (excluding purchase accounting)	3.38	%	3.40	%	3.45	%	3.54	%	3.54	%

Net interest margin (excluding purchase accounting) is a non-GAAP based financial measure using non-GAAP based amounts. The most directly comparable GAAP based measure is net interest margin. In order to calculate net interest margin (excluding purchase accounting) we subtract the effects of amortizing/accreting purchase accounting valuation amounts from net interest income, and divide the remainder by average earning assets. Our management uses net interest margin (excluding purchase accounting) to measure and monitor the impact of the current economic environment on our net interest income and believes that this measure is more representative of our ongoing earnings power because it excludes the effect of valuation variables used to arrive at the acquisition fair value recorded on the acquisition date. We believe this non-GAAP measure, when taken together with the corresponding GAAP measure, provides meaningful supplemental information to investors regarding our performance. However, this non-GAAP measure should be considered in addition to, and not as a substitute for or preferable to, net interest margin prepared in accordance with GAAP.

Contacts:

Susquehanna Bancshares, Inc.
INVESTOR RELATIONS CONTACT:
Jason H. Weber, Director of Investor Relations
717-626-9801
or
MEDIA RELATIONS CONTACT:
Stephen Trapnell, Director of Corporate Communications
717-625-6548