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Susquehanna Bancshares, Inc. Declares Dividend and Announces Fourth Quarter and Full Year 2014 Results

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The board of directors of Susquehanna Bancshares, Inc. (“Susquehanna”) (NASDAQ:SUSQ) has declared a first quarter dividend of $0.09 per common share, payable on February 20, 2015 to shareholders of record on February 2, 2015.

In addition, Susquehanna announced that it earned net income for the fourth quarter ended December 31, 2014 of $30.3 million, or $0.17 per diluted share, compared to $33.5 million, or $0.18 per diluted share, and $41.3 million, or $0.22 per diluted share, for the third quarter of 2014 and fourth quarter of 2013, respectively. Net income for the year ended 2014 was $144.4 million, or $0.78 per diluted share, compared with $173.7 million, or $0.92 per diluted share for the same period in 2013.

Linked Quarter Results (Fourth Quarter 2014 vs. Third Quarter 2014)

  • Loans and leases increased $92.2 million or 0.7% from September 30, 2014 to $13.5 billion at December 31, 2014. Changes for the quarter in each major loan category were as follows:
    • Commercial loans increased 2.9%.
    • Real estate – construction loans decreased 3.6%.
    • Real estate secured – residential loans increased 0.5%.
    • Real estate secured – commercial loans decreased 0.6%.
    • Consumer loans increased 3.1%.
    • Leases increased 2.6%.
  • Total deposits increased $133.3 million or 1.0% from September 30, 2014 to $13.7 billion at December 31, 2014. Changes for the quarter in each major deposit category were as follows:
    • Non-interest bearing checking increased 0.3%.
    • Interest-bearing checking increased 2.7%.
    • Money market deposits increased 6.4%.
    • Savings deposits increased 1.9%.
    • Time deposits decreased 4.5%.
  • Net interest margin decreased 4 basis points to 3.46% for the fourth quarter of 2014 compared to 3.50% for the third quarter of 2014. Net interest margin (excluding purchase accounting) (1) decreased 6 basis points to 3.31% for the fourth quarter of 2014 compared to 3.37% for the third quarter of 2014. The decrease in the net interest margin was driven by the reinvestment of cash from the prior quarter’s retail auto loan securitization and, to a lesser extent, an increase in funding costs.
  • Net interest income decreased to $135.4 million for the fourth quarter of 2014 compared to $136.5 million for the third quarter of 2014. The increase in average earning assets was more than offset by a decline in net interest margin resulting in a linked quarter decline in net interest income.
  • Non-interest income increased to $46.6 million for the fourth quarter of 2014 compared to $44.6 million for the third quarter of 2014. Solid performance in capital markets and seasonally-strong SBA loan sales contributed to the linked quarter increase.
  • Non-interest expense increased to $130.5 million for the fourth quarter of 2014 compared to $124.4 million for the third quarter of 2014. The primary driver of the increase was a stronger than anticipated fourth quarter results that resulted in additional incentive compensation expense.
  • The efficiency ratio (1) increased to 70.21% for the fourth quarter of 2014 compared to 67.32% for the third quarter of 2014.
  • Non-performing assets as a percentage of loans, leases and foreclosed real estate owned decreased to 0.79% at December 31, 2014 compared to 0.88% at September 30, 2014.
  • The provision for loan and lease losses for the fourth quarter of 2014 decreased to $7.2 million compared to $9.0 million for the third quarter of 2014. Net charge-offs for the fourth quarter of 2014 decreased to $7.5 million, or 0.22% of average loans and leases, compared to $16.6 million, or 0.49% of average loans and leases, for the third quarter of 2014. As a result, the allowance for loan and lease losses was $136.5 million at December 31, 2014, representing 1.01% of total loans and leases and 140% of nonaccrual loans and leases compared to $136.9 million at September 30, 2014, representing 1.02% of total loans and leases and 125% of nonaccrual loans and leases.

Full Year Results (2014 vs. 2013)

  • Loans and leases decreased $58.2 million or 0.4% from December 31, 2013 to $13.5 billion at December 31, 2014. In August 2014, Susquehanna and its wholly-owned subsidiary Susquehanna Bank sold approximately $255.8 million of retail auto loans in an off-balance sheet securitization that previously were included in the Consumer loans category. Changes for the twelve month period in each major loan category were as follows:
    • Commercial loans increased 1.5%.
    • Real estate – construction loans increased 7.1%.
    • Real estate secured – residential loans decreased 0.2%.
    • Real estate secured – commercial loans decreased 1.9%.
    • Consumer loans decreased 21.0%.
    • Leases increased 11.6%.
  • Total deposits increased $852.5 million or 6.6% from December 31, 2013 to $13.7 billion as of December 31, 2014. Changes for the twelve month period in each major deposit category were as follows:
    • Non-interest-bearing checking increased 2.7%.
    • Interest-bearing checking increased 8.9%.
    • Money market deposits increased 11.6%.
    • Savings deposits increased 6.1%.
    • Time deposits increased 2.9%.
  • Net interest margin decreased 24 basis points to 3.55% for 2014 compared to 3.79% for 2013.

    Net interest income decreased to $553.6 million for 2014 compared to $585.9 million for 2013. The sustained low rate environment pressured the net interest margin as existing loans repriced lower and new originations came on at lower rates than the existing loan portfolio.

  • Non-interest income decreased to $178.6 million for 2014 compared to $183.7 million for 2013. The decrease was attributed to the sustained low rate environment negatively impacting our rate sensitive businesses, such as mortgage banking.
  • Non-interest expense increased to $503.1 million for 2014 compared to $490.8 million for 2013. The increase was driven by an increase in salaries and employee benefits, partly due to the increase in FTEs as a result of increased regulatory and compliance requirements.
  • The efficiency ratio (1) increased to 67.21% for 2014 compared to 62.55% for 2013.
  • Non-performing assets as a percentage of loans, leases and foreclosed real estate decreased to 0.79% at December 31, 2014 compared to 0.86% at December 31, 2013.
  • The provision for loan and lease losses decreased to $25.2 million for 2014 compared to $31.0 million for 2013. Net charge-offs as a percentage of average loans and leases decreased to 0.33% for 2014 compared to 0.44% for 2013. The allowance for loan and lease losses was $136.5 million at December 31, 2014, representing 1.01% of total loans and leases and 140% of nonaccrual loans and leases, compared to $157.6 million at December 31, 2013, representing 1.16% of total loans and leases and 156% of nonaccrual loans and leases.
  • Return on average assets and average tangible equity (1) decreased to 0.78% and 10.34%, respectively for 2014 compared to 0.95% and 13.57%, respectively for 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 10.95%, Tier 1 capital ratio of 12.00%, Total risk-based capital ratio of 13.16% and a Leverage ratio of 9.60%, each as of December 31, 2014.
(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

  • On November 12, 2014, BB&T Corporation (“BB&T”) and Susquehanna announced the signing of a definitive agreement and plan of merger under which BB&T will acquire Susquehanna through the merger of Susquehanna with and into BB&T, with BB&T surviving the merger, in a cash and stock transaction for total consideration valued at approximately $2.5 billion.
  • Subject to the satisfaction or waiver of the closing conditions contained in the merger agreement, including the approval of the merger agreement by Susquehanna shareholders and the receipt of required regulatory approvals, BB&T and Susquehanna expect that the merger will be completed during the second half of 2015. However, it is possible that factors outside the control of both companies, including whether or when the required regulatory approvals will be received, could result in the merger being completed at a different time or not at all.

Susquehanna is a financial services holding company with total assets of approximately $18.7 billion. Headquartered in Lititz, Pa., Susquehanna provides banking and financial services at 245 branch locations in the mid-Atlantic region. Through Susquehanna Wealth Management, Susquehanna offers investment, fiduciary, brokerage, insurance, retirement planning, and private banking services, with approximately $7.9 billion in assets under management and administration. Susquehanna also operates an insurance brokerage and employee benefits company, a commercial finance company, a vehicle leasing company, a mortgage division, and a settlement services 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 materially from forward-looking statements or historical performance include, but are not limited to, the following: ineffectiveness of Susquehanna’s business strategy due to internal or external factors, including changes in current or future market conditions; the effects of competition, ability to obtain regulatory approvals and meet other closing conditions to the merger, including approval by Susquehanna shareholders on the expected terms and schedule; delay in closing the merger; difficulties and delays in integrating the Susquehanna business or fully realizing cost savings and other benefits; business disruption following the merger; changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of BB&T products and services; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; and the impact, extent and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board, and legislative and regulatory actions and reforms; and the other factors detailed in Susquehanna’s and BB&T’s filings with the Securities and Exchange Commission (“SEC”). 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.

Important Additional Information and Where to Find It

In connection with the proposed merger, BB&T has filed with the SEC a Registration Statement on Form S-4 that includes a Proxy Statement of Susquehanna and a Prospectus of BB&T, as well as other relevant documents concerning the proposed transaction. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. SHAREHOLDERS OF SUSQUEHANNA ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.

A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about BB&T and Susquehanna, may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from BB&T at www.bbt.com under the heading “About” and then under the heading “Investor Relations” and then under “BB&T Corporation SEC Filings” or from Susquehanna by accessing Susquehanna’s website at www.susquehanna.net under the heading “Investor Relations” and then under “SEC Filings”. Copies of the Proxy Statement/Prospectus can also be obtained, free of charge, by directing a request to BB&T Corporation, 150 South Stratford Road, Suite 300, Winston-Salem, North Carolina 27104, Attention: Shareholder Services, Telephone: (336) 733-3065 or to Susquehanna Bancshares, Inc., 26 North Cedar Street, Lititz, Pennsylvania 17543, Attention: Jason H. Weber, Senior Vice President and Director of Investor Relations, Telephone (717) 626-9801. In addition, Susquehanna uses its Investor Relations website and social media outlets as channels of distribution of material company information. Such information is accessible on Susquehanna’s Investor Relations website, as well as on Susquehanna’s Facebook page and through its Twitter account and LinkedIn account.

Susquehanna and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Susquehanna in connection with the proposed merger. Information about the directors and executive officers of Susquehanna and their ownership of Susquehanna common stock is set forth in the proxy statement for Susquehanna’s 2014 annual meeting of shareholders, as filed with the SEC on Schedule 14A on March 21, 2014. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

Susquehanna Bancshares, Inc.

26 North Cedar Street

Lititz, PA 17543

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
Twelve Months YTD
4Q14 3Q14 2Q14 1Q14 4Q13 2014 2013
Balance Sheet (EOP)
Investments $ 2,553,655 $ 2,325,734 $ 2,324,782 $ 2,445,322 $ 2,533,456 $ 2,553,655 $ 2,533,456
Loans and leases 13,517,882 13,425,721 13,667,153 13,575,295 13,576,086 13,517,882 13,576,086
Allowance for loan and lease losses (ALLL) 136,522 136,870 144,483 154,150 157,608 136,522 157,608
Total assets 18,661,390 18,583,327 18,506,626 18,439,682 18,473,489 18,661,390 18,473,489
Deposits 13,721,843 13,588,524 13,314,994 13,079,523 12,869,372 13,721,843 12,869,372
Other short-term borrowings 516,089 532,675 527,079 584,664 555,740 516,089 555,740
Federal Home Loan Bank borrowings 913,449 915,362 1,127,302 1,229,296 1,531,282 913,449 1,531,282
Other long-term debt 351,904 356,117 360,033 448,521 453,260 351,904 453,260
Shareholders’ equity 2,753,925 2,751,260 2,796,392 2,755,199 2,717,587 2,753,925 2,717,587
Average Balance Sheet
Investments $ 2,431,597 $ 2,293,302 $ 2,395,690 $ 2,505,937 $ 2,616,807 $ 2,406,117 $ 2,577,207
Loans and leases 13,438,494 13,499,686 13,589,533 13,574,526 13,421,474 13,525,116 13,189,499
Total earning assets 15,954,179 15,872,628 16,066,177 16,162,210 16,124,369 16,013,119 15,863,531
Total assets 18,628,209 18,411,529 18,378,127 18,411,873 18,437,954 18,468,693 18,201,159
Deposits 13,653,638 13,395,247 13,131,617 12,874,040 12,806,503 13,266,132 12,777,738
Other short-term borrowings 535,633 541,363 552,367 671,653 671,923 575,894 743,718
Federal Home Loan Bank borrowings 914,287 961,483 1,174,611 1,387,124 1,502,120 1,107,675 1,247,209
Other long-term debt 354,179 358,502 396,367 451,267 455,787 389,727 483,888
Shareholders’ equity 2,757,933 2,775,786 2,768,665 2,726,465 2,679,242 2,760,143 2,646,339
Income Statement
Net interest income $ 135,384 $ 136,465 $ 141,694 $ 140,064 $ 142,688 $ 553,607 $ 585,940
Provision for loan and lease losses 7,200 9,000 3,000 6,000 2,000 25,200 31,000
Noninterest income 46,588 44,617 45,349 42,089 50,666 178,643 183,729
Noninterest expense 130,470 124,411 125,225 123,032 135,672 503,138 490,840
Income before taxes 44,302 47,671 58,818 53,121 55,682 203,912 247,829
Provision for income taxes 13,978 14,203 15,324 15,959 14,341 59,464 74,150
Net income 30,324 33,468 43,494 37,162 41,341 144,448 173,679
Basic earnings per common share 0.17 0.18 0.23 0.20 0.22 0.78 0.93
Diluted earnings per common share 0.17 0.18 0.23 0.20 0.22 0.78 0.92
Cash dividends paid per common share 0.09 0.09 0.08 0.08 0.08 0.34 0.24
Asset Quality
Net charge-offs (NCOs) $ 7,548 $ 16,613 $ 11,431 $ 9,458 $ 11,132 $ 45,050 $ 57,412
Nonaccrual loans and leases $ 97,697 $ 109,506 $ 105,609 $ 108,408 $ 100,815 $ 97,697 $ 100,815
Foreclosed real estate 9,672 9,133 10,302 11,980 16,555 9,672 16,555
Total nonperforming assets (NPAs) $ 107,369 $ 118,639 $ 115,911 $ 120,388 $ 117,370 $ 107,369 $ 117,370
Restructured loans $ 46,856 $ 42,418 $ 40,938 $ 39,555 $ 72,133 $ 46,856 $ 72,133
Loans and leases 90 days past due 8,488 10,303 9,190 9,328 9,757 8,488 9,757
Credit Quality
NCOs / Average loans and leases 0.22% 0.49% 0.34% 0.28% 0.33% 0.33% 0.44%
NPAs / Loans and leases + foreclosed real estate 0.79% 0.88% 0.85% 0.89% 0.86% 0.79% 0.86%
ALLL / Nonaccrual loans and leases 139.74% 124.99% 136.81% 142.19% 156.33% 139.74% 156.33%
ALLL / Total loans and leases 1.01% 1.02% 1.06% 1.14% 1.16% 1.01% 1.16%
Profitability
Return on average assets 0.65% 0.72% 0.95% 0.82% 0.89% 0.78% 0.95%
Return on average equity 4.36% 4.78% 6.30% 5.53% 6.12% 5.23% 6.56%
Return on average tangible equity (1) 8.65% 9.41% 12.34% 11.08% 12.49% 10.34% 13.57%
Net interest margin 3.46% 3.50% 3.63% 3.61% 3.60% 3.55% 3.79%
Efficiency ratio (1) 70.21% 67.32% 65.63% 66.18% 68.84% 67.21% 62.55%
Per Share Data (EOP)
Closing share price $ 13.43 $ 10.00 $ 10.56 $ 11.37 $ 12.84 $ 13.43 $ 12.84
Stated book value per common share 15.13 15.17 14.90 14.69 14.50 15.13 14.50
Tangible book value per common share (1) 7.98 7.99 7.95 7.73 7.52 7.98 7.52
Price/Book Value 88.77% 65.90% 70.88% 77.41% 88.52% 88.77% 88.52%
Price/Tangible Book Value 168.30% 125.16% 132.83% 147.09% 170.74% 168.30% 170.74%
Number of outstanding shares (‘000) 182,039 181,310 187,706 187,590 187,363 182,039 187,363
Capital Ratios
Tangible common ratio (1) 8.56% 8.58% 8.88% 8.67% 8.44% 8.56% 8.44%
Tier 1 common ratio 10.95% 10.86% 11.03% 10.84% 10.60% 10.95% 10.60%
Leverage ratio 9.60% 9.61% 9.90% 9.72% 9.55% 9.60% 9.55%
Tier 1 capital ratio 12.00% 11.92% 12.07% 11.95% 11.71% 12.00% 11.71%
Total risk-based capital ratio 13.16% 13.08% 13.27% 13.23% 13.04% 13.16% 13.04%
(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)
December 31, September 30, June 30, March 31, December 31,

2014 2014 2014 2014 2013

Assets

Cash and due from banks $ 506,304 $ 772,677 $ 456,917 $ 389,793 $ 305,357
Unrestricted short-term investments 37,149 40,508 33,369 24,768 37,967
Cash and cash equivalents 543,453 813,185 490,286 414,561 343,324

Interest-bearing deposits held by consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities

1,439 2,211 1,554 1,689 2,347
Restricted short-term investments 42,949 36,943 43,926 42,993 42,913
Securities available for sale 2,438,085 2,192,615 2,183,093 2,299,235 2,375,224
Restricted investment in bank stocks 115,570 133,119 141,689 146,087 158,232
Loans and leases, net of deferred costs and fees 13,455,046 13,361,516 13,600,254 13,505,746 13,503,392

Loans held by consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities

62,836 64,205 66,899 69,549 72,694
Less: Allowance for loan and lease losses 136,522 136,870 144,483 154,150 157,608
Net loans and leases 13,381,360 13,288,851 13,522,670 13,421,145 13,418,478
Premises and equipment, net 167,048 168,466 169,975 170,349 173,542
Other real estate and foreclosed assets 10,099 9,898 11,102 12,943 17,573
Accrued interest receivable 39,249 39,899 38,878 41,594 41,690
Bank-owned life insurance 446,676 449,199 450,318 449,778 449,320
Goodwill 1,275,439 1,275,439 1,275,439 1,275,439 1,275,439
Intangible assets with finite lives 25,575 27,163 28,579 30,303 32,262
Deferred income tax assets 7,648 6,903 7,357 5,216 6,472
Other assets 166,800 139,436 141,760 128,350 136,673
Total assets $ 18,661,390 $ 18,583,327 $ 18,506,626 $ 18,439,682 $ 18,473,489
Liabilities and Shareholders’ Equity
Deposits $ 13,721,843 $ 13,588,524 $ 13,314,994 $ 13,079,523 $ 12,869,372
Federal Home Loan Bank short-term borrowings 850,000 850,000 1,050,000 1,150,000 1,450,000
Other short-term borrowings 516,089 532,675 527,079 584,664 555,740
Federal Home Loan Bank long-term borrowings 63,449 65,362 77,302 79,296 81,282
Other long-term debt 175,217 175,219 175,222 250,224 250,227
Junior subordinated debentures 146,117 146,059 146,002 155,022 155,002

Long-term debt of consolidated variable interest entities for which creditors do not have recourse to Susquehanna’s general credit

30,570 34,839 38,809 43,275 48,031
Accrued interest, taxes, and expenses payable 85,075 72,044 72,664 69,404 82,150
Deferred income tax liabilities 133,932 128,389 114,119 75,911 70,308
Other liabilities 185,173 238,956 194,043 197,164 193,790
Total liabilities 15,907,465 15,832,067 15,710,234 15,684,483 15,755,902
Shareholders’ equity:
Common stock 365,184 363,358 376,146 375,845 375,353
Treasury stock (5,571 ) (3,100 ) (3,075 ) (2,735 ) (2,531 )
Additional paid-in capital 1,609,663 1,605,671 1,657,699 1,654,357 1,652,116
Retained earnings 825,471 811,462 794,864 766,381 744,215
Accumulated other comprehensive loss (40,822 ) (26,131 ) (29,242 ) (38,649 ) (51,566 )
Total shareholders’ equity 2,753,925 2,751,260 2,796,392 2,755,199 2,717,587
Total liabilities and shareholders’ equity $ 18,661,390 $ 18,583,327 $ 18,506,626 $ 18,439,682 $ 18,473,489

Susquehanna Bancshares, Inc.

26 North Cedar Street

Lititz, PA 17543

Loans and Leases and Deposits
(in thousands)
Loans and Leases
12/31/14 09/30/14 06/30/14 03/31/14 12/31/13
Commercial, financial, and agricultural $ 2,430,532 $ 2,362,201 $ 2,422,931 $ 2,411,851 $ 2,394,847
Real estate – construction 788,261 817,492 748,181 714,291 735,877
Real estate secured – residential 4,194,738 4,172,943 4,178,842 4,178,505 4,204,430
Real estate secured – commercial 3,991,379 4,016,635 4,053,990 4,041,989 4,068,816
Consumer 752,975 730,687 962,618 955,577 953,000
Leases 1,359,997 1,325,763 1,300,591 1,273,082 1,219,116
Total loans and leases $ 13,517,882 $ 13,425,721 $ 13,667,153 $ 13,575,295 $ 13,576,086
Deposits
12/31/14 09/30/14 06/30/14 03/31/14 12/31/13
Noninterest-bearing checking $ 1,964,510 $ 1,958,308 $ 1,935,635 $ 1,880,284 $ 1,913,526
Interest-bearing checking 3,169,017 3,087,166 2,883,679 2,908,507 2,909,376
Money market 3,509,192 3,297,699 3,025,430 3,184,719 3,144,106
Savings 1,143,596 1,122,232 1,136,044 1,132,850 1,077,923
Core deposits 9,786,315 9,465,405 8,980,788 9,106,360 9,044,931
Time less than $100 2,179,647 2,265,787 2,266,815 2,166,207 2,113,209
Time of $100 or more 1,755,881 1,857,332 2,067,391 1,806,956 1,711,232
Total deposits $ 13,721,843 $ 13,588,524 $ 13,314,994 $ 13,079,523 $ 12,869,372
Supplemental Loan and Lease Data
(in thousands)
Nonaccrual Loans and Leases
12/31/14 09/30/14 06/30/14 03/31/14 12/31/13
Commercial, financial, and agricultural $ 23,393 $ 23,121 $ 18,792 $ 24,529 $ 16,827
Real estate – construction 6,832 7,225 7,428 11,695 13,230
Real estate secured – residential 21,858 23,653 24,740 23,189 23,365
Real estate secured – commercial 44,980 54,484 53,687 47,950 46,147
Consumer 37 40 43 46 47
Leases 597 983 919 999 1,199
Total nonaccrual loans and leases $ 97,697 $ 109,506 $ 105,609 $ 108,408 $ 100,815
Restructured Loans
12/31/14 09/30/14 06/30/14 03/31/14 12/31/13
Commercial, financial, and agricultural $ 4,816 $ 4,044 $ 4,228 $ 5,264 $ 6,885
Real estate – construction 315 319 322 325 615
Real estate secured – residential 20,534 20,231 18,414 16,168 31,623
Real estate secured – commercial 20,227 16,780 16,903 16,681 31,295
Consumer 964 1,044 1,071 1,117 1,715
Total restructured loans $ 46,856 $ 42,418 $ 40,938 $ 39,555 $ 72,133
Net Charge-offs (Recoveries)
4Q 2014 3Q 2014 2Q 2014 1Q 2014 4Q 2013
Commercial, financial, and agricultural $ 684 $ 8,069 $ 7,274 $ 3,182 $ (480 )
Real estate – construction (468 ) 776 (457 ) (91 ) (3,312 )
Real estate secured – residential 2,949 2,549 2,453 2,796 2,724
Real estate secured – commercial 3,245 3,827 730 2,134 11,060
Consumer 572 614 1,013 855 330
Leases 566 778 418 582 810
Total net charge-offs $ 7,548 $ 16,613 $ 11,431 $ 9,458 $ 11,132

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 Twelve Months Ended
December 31, September 30, June 30, March 31, December 31, December 31,
2014 2014 2014 2014 2013 2014 2013
Interest Income:
Loans and leases, including deferred costs and fees $ 147,157 $ 147,761 $ 148,002 $ 149,538 $ 151,907 $ 592,458 $ 627,833
Securities:
Taxable 9,302 8,459 9,104 9,648 10,406 36,513 40,990
Tax-exempt 3,339 3,383 3,439 3,501 3,511 13,662 14,193
Dividends 1,628 2,108 2,134 1,765 1,649 7,635 5,258
Short-term investments 23 24 23 19 21 89 108
Total interest income 161,449 161,735 162,702 164,471 167,494 650,357 688,382
Interest Expense:
Deposits:
Interest-bearing demand and savings 5,313 4,256 4,031 3,962 4,202 17,562 17,806
Time 10,699 10,803 10,246 9,628 9,597 41,376 42,712
Federal Home Loan Bank short-term borrowings 4,455 4,554 4,597 4,621 4,449 18,227 15,187
Other short-term borrowings 2,066 2,091 2,031 2,100 2,146 8,288 8,694
Federal Home Loan Bank long-term borrowings 210 247 243 245 254 945 1,142
Other long-term debt 3,322 3,319 (140 ) 3,851 4,158 10,352 16,901
Total interest expense 26,065 25,270 21,008 24,407 24,806 96,750 102,442
Net interest income 135,384 136,465 141,694 140,064 142,688 553,607 585,940
Provision for loan and lease losses 7,200 9,000 3,000 6,000 2,000 25,200 31,000
Net interest income, after provision for loan and lease losses 128,184 127,465 138,694 134,064 140,688 528,407 554,940
Noninterest Income:
Service charges on deposit accounts 9,260 9,561 9,294 9,000 9,456 37,115 36,989
Vehicle origination and servicing fees 1,886 1,691 2,915 2,968 3,057 9,460 11,725
Wealth management commissions and fees 13,163 13,199 12,669 12,719 13,048 51,750 51,333
Commissions on property and casualty insurance sales 3,676 3,992 4,214 5,666 4,023 17,548 16,797
Other commissions and fees 5,877 5,689 5,401 5,035 5,077 22,002 18,991
Income from bank-owned life insurance 1,537 1,634 1,672 1,637 1,492 6,480 6,013
Mortgage banking revenue 2,489 2,432 3,004 2,410 2,483 10,335 12,828
Capital markets revenue 2,437 1,593 877 1,240 3,216 6,147 7,485
Net realized gain (loss) on sales of securities 125 0 3,293 (8 ) (1,343 ) 3,410 (1,394 )
Realized gain on sale of branch properties 0 0 0 0 4,945 0 4,945
Other 6,138 4,826 2,010 1,422 5,212 14,396 18,017
Total noninterest income 46,588 44,617 45,349 42,089 50,666 178,643 183,729
Noninterest Expenses:
Salaries and employee benefits 74,806 68,042 68,325 65,581 70,837 276,754 262,638
Occupancy 12,262 12,089 11,914 13,847 11,727 50,112 45,448
Furniture and equipment 4,076 4,043 4,058 3,944 3,865 16,121 14,851
Professional and technology services 7,122 6,168 7,189 6,070 6,404 26,549 25,137
Advertising and marketing 3,459 3,784 3,567 3,576 3,618 14,386 12,054
FDIC insurance 4,833 5,038 4,925 5,121 6,118 19,917 19,878
Legal fees 1,918 1,699 1,656 1,527 1,968 6,800 7,422
Amortization of intangible assets 2,211 2,220 2,367 2,539 2,803 9,337 11,626
Vehicle lease disposal 2,282 2,222 2,215 2,251 1,216 8,970 5,012
Merger related 885 0 0 0 0 885 0
Branch consolidation costs 0 0 0 0 6,603 0 6,603
Other 16,616 19,106 19,009 18,576 20,513 73,307 80,171
Total noninterest expenses 130,470 124,411 125,225 123,032 135,672 503,138 490,840
Income before income taxes 44,302 47,671 58,818 53,121 55,682 203,912 247,829
Provision for income taxes 13,978 14,203 15,324 15,959 14,341 59,464 74,150
Net Income $ 30,324 $ 33,468 $ 43,494 $ 37,162 $ 41,341 $ 144,448 $ 173,679
Earnings per common share:
Basic $ 0.17 $ 0.18 $ 0.23 $ 0.20 $ 0.22 $ 0.78 $ 0.93
Diluted $ 0.17 $ 0.18 $ 0.23 $ 0.20 $ 0.22 $ 0.78 $ 0.92
Cash dividends per common share $ 0.09 $ 0.09 $ 0.08 $ 0.08 $ 0.08 $ 0.34 $ 0.24
Average common shares outstanding:
Basic 181,514 184,985 187,637 187,455 187,186 185,380 186,927
Diluted 182,387 185,724 188,295 188,378 188,078 186,258 187,835

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 Three Months Ended Three Months Ended Twelve Months Ended Twelve Months Ended
December 31, 2014 September 30, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Average Average Average Average Average
Balance Interest Rate (%) Balance Interest Rate (%) Balance Interest Rate (%) Balance Interest Rate (%) Balance Interest Rate (%)
Assets
Short-term investments $ 84,088 $ 23 0.11 $ 79,640 $ 24 0.12 $ 86,088 $ 20 0.09 $ 81,886 $ 89 0.11 $ 96,825 $ 108 0.11
Investment securities:
Taxable(1) 2,060,163 10,930 2.10 1,915,888 10,567 2.19 2,227,191 12,055 2.15 2,026,334 44,147 2.18 2,182,121 46,248 2.12
Tax-exempt(1)(2) 371,434 5,135 5.48 377,414 5,205 5.47 389,616 5,403 5.50 379,783 21,018 5.53 395,086 21,835 5.53
Total investment securities 2,431,597 16,065 2.62 2,293,302 15,772 2.73 2,616,807 17,458 2.65 2,406,117 65,165 2.71 2,577,207 68,083 2.64
Loans and leases, (net):
Taxable(3) 13,011,088 143,336 4.37 13,067,543 144,248 4.38 13,003,680 148,469 4.53 13,092,042 578,135 4.42 12,772,845 614,158 4.81
Tax-exempt(2)(3) 427,406 5,880 5.46 432,143 5,405 4.96 417,794 5,289 5.02 433,074 22,037 5.09 416,654 21,038 5.05
Total loans and leases 13,438,494 149,216 4.41 13,499,686 149,653 4.40 13,421,474 153,758 4.55 13,525,116 600,172 4.44 13,189,499 635,196 4.82
Total interest-earning assets 15,954,179 165,304 4.11 15,872,628 165,449 4.14 16,124,369 171,236 4.21 16,013,119 665,426 4.16 15,863,531 703,387 4.43
Allowance for loan and lease losses (137,293 ) (144,674 ) (165,298 ) (148,465 ) (176,782 )
Other non-earning assets 2,811,323 2,683,575 2,478,883 2,604,039 2,514,410
Total assets $ 18,628,209 $ 18,411,529 $ 18,437,954 $ 18,468,693 $ 18,201,159
Liabilities
Deposits:
Interest-bearing demand $ 6,558,482 5,025 0.30 $ 6,165,175 3,970 0.26 $ 6,058,107 3,915 0.26 $ 6,189,947 16,397 0.26 $ 5,968,726 16,661 0.28
Savings 1,134,827 288 0.10 1,131,551 286 0.10 1,075,598 286 0.11 1,125,299 1,166 0.10 1,070,248 1,144 0.11
Time 3,984,083 10,699 1.07 4,133,949 10,803 1.04 3,791,625 9,597 1.00 4,040,076 41,375 1.02 3,833,262 42,713 1.11
Other short-term borrowings 535,633 2,066 1.53 541,363 2,091 1.53 671,923 2,146 1.27 575,894 8,288 1.44 743,718 8,695 1.17
FHLB borrowings 914,287 4,666 2.02 961,483 4,801 1.98 1,502,120 4,704 1.24 1,107,675 19,173 1.73 1,247,209 16,329 1.31
Long-term debt(4) 354,179 3,321 3.72 358,502 3,319 3.67 455,787 4,158 3.62 389,727 10,351 2.66 483,888 16,900 3.49
Total interest-bearing liabilities 13,481,491 26,065 0.77 13,292,023 25,270 0.75 13,555,160 24,806 0.73 13,428,618 96,750 0.72 13,347,051 102,442 0.77
Demand deposits 1,976,246 1,964,572 1,881,173 1,910,810 1,905,502
Other liabilities 412,539 379,148 322,379 369,122 302,267
Total liabilities 15,870,276 15,635,743 15,758,712 15,708,550 15,554,820
Equity 2,757,933 2,775,786 2,679,242 2,760,143 2,646,339
Total liabilities & shareholders’ equity $ 18,628,209 $ 18,411,529 $ 18,437,954 $ 18,468,693 $ 18,201,159

Net interest income / yield on average earning assets

$ 139,239 3.46 $ 140,179 3.50 $ 146,430 3.60 $ 568,676 3.55 $ 600,945 3.79
Taxable equivalent adjustment (3,855 ) (3,714 ) (3,742 ) (15,069 ) (15,005 )
Net interest income – as reported $ 135,384 $ 136,465 $ 142,688 $ 553,607 $ 585,940

(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 Twelve Months Ended
(Dollars and share data in thousands) December
4Q14 3Q14 2Q14 1Q14 4Q13 2014 2013

Efficiency Ratio

Other expense $ 130,470 $ 124,411 $ 125,225 $ 123,032 $ 135,672 $ 503,138 $ 490,840
Less: Merger related expenses 0 0 0 0 0

(885

)

0
Noninterest operating expense (numerator) $ 130,470 $ 124,411 $ 125,225 $ 123,032 $ 135,672 $ 502,253 $ 490,840
Taxable-equivalent net interest income $ 139,239 $ 140,179 $ 145,447 $ 143,813 $ 146,430 568,676 $ 600,945
Other income 46,588 44,617 45,349 42,089 50,666 178,643 183,729
Noninterest operating income (denominator) $ 185,827 $ 184,796 $ 190,796 $ 185,902 $ 197,096 $ 747,319 $ 784,674
Efficiency ratio 70.21 % 67.32 % 65.63 % 66.18 % 68.84 % 67.21 % 62.55 %
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 $ 2,753,925 $ 2,751,260 $ 2,796,392 $ 2,755,199 $ 2,717,587 $ 2,753,925 $ 2,717,587
Goodwill and other intangible assets (1) (1,265,178 ) (1,265,598 ) (1,265,846 ) (1,266,403 ) (1,264,839 ) (1,265,178 ) (1,264,839 )
Tangible common equity (numerator) $ 1,488,747 $ 1,485,662 $ 1,530,546 $ 1,488,796 $ 1,452,748 $ 1,488,747 $ 1,452,748
Assets $ 18,661,390 $ 18,583,327 $ 18,506,626 $ 18,439,682 $ 18,473,489 $ 18,661,390 $ 18,473,489
Goodwill and other intangible assets (1) (1,265,178 ) (1,265,598 ) (1,265,846 ) (1,266,403 ) (1,264,839 ) (1,265,178 ) (1,264,839 )
Tangible assets (denominator) $ 17,396,212 $ 17,317,729 $ 17,240,780 $ 17,173,279 $ 17,208,650 $ 17,396,212 $ 17,208,650
Tangible common ratio 8.56 % 8.58 % 8.88 % 8.67 % 8.44 % 8.56 % 8.44 %
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

Return on Average Tangible Equity

Income statement data
Net income $ 30,324 $ 33,468 $ 43,494 $ 37,162 $ 41,341 $ 144,448 $ 173,679
Amortization of intangibles, net of taxes at 35% 1,437 1,443 1,539 1,650 1,822 6,069 7,557
Net tangible income (numerator) $ 31,761 $ 34,911 $ 45,033 $ 38,812 $ 43,163 $ 150,517 $ 181,236
Average balance sheet data
Shareholders’ equity $ 2,757,933 $ 2,775,786 $ 2,768,665 $ 2,726,465 $ 2,679,242 $ 2,760,143 $ 2,646,339
Goodwill and other intangible assets (1,301,750 ) (1,303,275 ) (1,304,736 ) (1,306,298 ) (1,308,690 ) (1,304,001 ) (1,310,928 )
Tangible common equity (denominator) $ 1,456,183 $ 1,472,511 $ 1,463,929 $ 1,420,167 $ 1,370,552 $ 1,456,142 $ 1,335,411
Return on equity (GAAP basis) 4.36 % 4.78 % 6.30 % 5.53 % 6.12 % 5.23 % 6.56 %
Effect of goodwill and other intangibles 4.29 % 4.63 % 6.04 % 5.55 % 6.37 % 5.11 % 7.01 %
Return on average tangible equity 8.65 % 9.41 % 12.34 % 11.08 % 12.49 % 10.34 % 13.57 %
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 $ 2,753,925 $ 2,751,260 $ 2,796,392 $ 2,755,199 $ 2,717,587 $ 2,753,925 $ 2,717,587
Goodwill and other intangible assets (1,301,014 ) (1,302,602 ) (1,304,018 ) (1,305,742 ) (1,307,701 ) (1,301,014 ) (1,307,701 )
Tangible common equity (numerator) $ 1,452,911 $ 1,448,658 $ 1,492,374 $ 1,449,457 $ 1,409,886 $ 1,452,911 $ 1,409,886
Common shares outstanding (denominator) 182,039 181,310 187,706 187,590 187,363 182,039 187,363
Tangible book value per common share $ 7.98 $ 7.99 $ 7.95 $ 7.73 $ 7.52 $ 7.98 $ 7.52
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
4Q14 3Q14 2Q14 1Q14 4Q13

Net Interest Margin (excluding purchase accounting)

Reported net interest margin (GAAP basis) 3.46 % 3.50 % 3.63 % 3.61 % 3.60 %
Adjustments for purchase accounting:
Loans and leases -0.12 % -0.10 % -0.12 % -0.17 % -0.11 %
Deposits -0.02 % -0.02 % -0.03 % -0.03 % -0.03 %
Borrowings -0.01 % -0.01 % -0.10 % -0.01 % -0.01 %

Net Interest Margin (excluding purchase accounting)

3.31 % 3.37 % 3.38 % 3.40 % 3.45 %
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.

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