Susquehanna Bancshares, Inc. Announces Fourth Quarter and Full Year 2008 Results

Susquehanna Bancshares, Inc. (Susquehanna) (NASDAQ:SUSQ) today announced net income available to common shareholders for the year ended December 31, 2008 was $81.8 million, or $0.95 per diluted share, compared to $69.1 million, or $1.23 per diluted share, earned in 2007. Net income available to common shareholders for the fourth quarter of 2008 was $18.2 million, or $0.21 per diluted share, compared to $18.7 million for the fourth quarter of 2007, or $0.27 per diluted share.

Full Year/Fourth Quarter Financial Highlights:

• Net loans and leases grew 10% from December 31, 2007.
  • Commercial loans increased 22% from December 31, 2007.
  • Real estate secured-commercial loans increased 8% from December 31, 2007.
  • Real estate secured-residential loans increased 7% from December 31, 2007.
• Total deposits increased 1% from December 31, 2007.
  • Non-interest bearing demand deposits decreased 7% from December 31, 2007.
• Net interest margin for the year decreased 5 basis points to 3.62% compared to 3.67% for 2007. For the fourth quarter 2008, net interest margin decreased 17 basis points to 3.52% compared to 3.69% for the fourth quarter of 2007.
• Net charge-offs as a percentage of average loans and leases for the year ended December 31, 2008 were 0.42% compared to 0.25% for 2007. Net charge-offs as a percentage of average loans and leases for the fourth quarter of 2008 were 0.60% compared to 0.26% for the fourth quarter of 2007. Non-performing assets as a percentage of loans, leases and other real estate owned were 1.22% for the year ended December 31, 2008 compared to 0.81% for 2007.
• Provision for loan and lease losses increased to $63.8 million for the year ended December 31, 2008 compared to $21.8 million for 2007. The increase was due primarily to a decline in loan quality as well as a continued deterioration in general economic conditions.

Equity capital was $1.9 billion at December 31, 2008, or $19.21 per common share, compared to $1.7 billion, or $20.12 per common share, at December 31, 2007.

Return on average assets and average tangible equity⁽¹⁾ for the year ended December 31, 2008 finished at 0.62% and 13.35%, respectively. This compared to results of 0.78% and 11.56% for the same measurements, respectively, for 2007.

⁽¹⁾A non-GAAP-based financial measure. The most comparable GAAP-based measurement for return on average tangible equity is return on average equity. A reconciliation of the differences between non-GAAP-based and GAAP-based measurements can be found at the end of this release under the heading "Supplemental Reporting of Non-GAAP-Based Financial Measures."

Linked Quarter Highlights (Fourth Quarter 2008 vs. Third Quarter 2008)

• Net loans and leases grew 2% from September 30, 2008.
  • Commercial loans increased 9% from September 30, 2008.
  • Real estate secured – residential loans increased 2% from September 30, 2008.
  • Leases increased 2% from September 30, 2008.

• Total deposits decreased 1% to $9.1 billion from September 30, 2008.
  • Non-interest bearing demand deposits decreased 2% from September 30, 2008.

• Net interest margin decreased 8 basis points to 3.52% compared to the third quarter of 2008.
• Net charge-offs as a percentage of average loans and leases increased 25 basis points to 0.60% compared to the third quarter of 2008. Non-performing assets as a percentage of loans, leases and other real estate owned increased 7 basis points to 1.22% for the fourth quarter of 2008.

Additional Activity:

On December 12, 2008, Susquehanna Bancshares completed its $300 million nonvoting senior preferred stock issuance to the U.S. Treasury under its TARP Capital Purchase Program. The issuance brought additional strength to Susquehanna’s already well-capitalized position during the quarter. At December 31, 2008, Susquehanna’s capital ratios were all above the minimum level required to be categorized as "well capitalized". Susquehanna's total risk-based capital, Tier I capital, and leverage capital were 13.52%, 11.17%, and 9.92%, respectively, at December 31, 2008.

"Participating in the Capital Purchase Program is in the best interests of our shareholders, customers and the communities we serve,” said William J. Reuter, Chairman and Chief Executive Officer of Susquehanna Bancshares. "This funding gives us a foundation to generate additional lending to our customers, and it also builds our capital reserves for additional security against the uncertain nature of the economy.”

"Our fourth-quarter and year-end results for 2008 reflect the challenging operating environment confronting banks. The market for deposit generation and pricing remains highly competitive. We were able to achieve strong loan growth, helping to fuel local economic development while maintaining credit quality ratios comparable to our peer group. However, we are still not satisfied with our results,” Reuter said. "With economic conditions still deteriorating, our focus in 2009 will be on successful execution of the basics: management of our loan portfolio, profitable deployment of deposits through sound lending, diligent management of capital, and superior customer service.”

Susquehanna will broadcast its fourth quarter and full year 2008 results conference call over the Internet on January 29, 2009 at 11:00 a.m. Eastern time. The conference call will include management’s discussion of fourth quarter and full year 2008 results. The discussion may also include forward-looking information and financial goals. Investors will have the opportunity to listen to the conference call through a live broadcast on Susquehanna’s Web site. The event may be accessed by selecting "Investor Relations" near the top right of the home page then "Overview” and clicking on the fourth quarter webcast link. To listen to the live call, please go to the Web site at least fifteen minutes prior to the scheduled start time to download and install any necessary audio software. For those who are unable to listen to the live broadcast, an archived replay and podcast will be available on the Web site shortly after the call concludes.

Susquehanna Bancshares, Inc. is a financial services holding company with assets of approximately $14 billion. Headquartered in Lititz, Pa., the company provides banking and financial services at more than 230 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 $5 billion in assets under management and administration. Susquehanna also operates an insurance brokerage and employee benefits company, a commercial finance company and a vehicle leasing company. Investor information may be requested on Susquehanna’s Web site at www.susquehanna.net.

This press release contains certain financial information determined by methods other than in accordance with GAAP. Susquehanna’s management uses these non-GAAP measures in its analysis of the company’s performance. These non-GAAP financial measures require management to make judgments about the exclusion of certain items, and if different judgments were made, the amounts reported would be different. These measures typically exclude the effects of intangibles and related amortization and include the tax benefit associated with revenue items that are tax-exempt. Disclosures regarding these non-GAAP financial measures are included in the accompanying financial information.

The presentation of these non-GAAP financial measures is intended to supplement investors’ understanding of Susquehanna’s core business activities. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

Return on average tangible equity is a non-GAAP-based financial measure calculated using non-GAAP-based amounts. The most directly comparable measure is return on average equity which is calculated using GAAP-based amounts. We calculate return on average tangible equity by excluding the balance of intangible assets and their related amortization expense from our calculation of return on average equity. Management uses the return on average tangible equity in order to review our core operating results. Management believes that this is a better measure of our performance. In addition, this is consistent with the treatment by bank regulatory agencies, which excludes goodwill and other intangible assets from the calculation of risk-based capital ratios. A reconciliation of return on average equity to return on average tangible equity is set forth below.

1. Average loan balances include non accrual loans.
2. Tax-exempt income has been adjusted to a tax-equivalent basis using a marginal tax rate of 35%.
3. For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

1. Average loan balances include non accrual loans.
2. Tax-exempt income has been adjusted to a tax-equivalent basis using a marginal tax rate of 35%.
3. For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.