DBRS Ratings for Susquehanna Unchanged after 1Q13 Results – Senior at BBB (high), Stable Trend

DBRS, Inc. (DBRS) has today commented that its ratings for Susquehanna Bancshares, Inc. (Susquehanna or the Company), including its BBB (high) Issuer & Senior Debt rating, are unchanged following the release of 1Q13 financial results. The trend on all ratings is Stable. For the quarter, Susquehanna reported net income of $42.4 million, down from $43.2 million for 4Q12, and up from $23.5 million for 1Q13.

The slight decline in earnings was mostly attributable to lower spread income driven by a narrower net interest margin (NIM) and a relatively stable level of interest earning assets. The Company’s QoQ earnings were also impacted by a higher provision for income taxes. Additionally, seasonally lower non-interest income and the timing of swap fees contributed to the linked-quarter drop in earnings. Offsetting, the Company did report lower non-interest expenses and provision expenses which balanced the lower revenues.

During 1Q13, the Company exhibited sound balance sheet fundamentals. Period-end loans reflected sustained growth and were up 0.8% sequentially. Higher loans were driven mostly by an increase in commercial and consumer loans and leases partially offset by a decrease in real estate construction loans. The Company is slightly behind their targeted loan growth of 5% for the year but remain comfortable with that increase given the current strong loan pipeline. Keeping pace with loan growth, deposits (period-end) increased 0.9% QoQ. Finally, Susquehanna’s asset quality remained relatively stable as non-performing assets (NPAs) were flat and net charge-offs (NCOs), although incrementally higher, remained manageable.

Lower linked-quarter total revenues were driven by a 3.9% decrease in net interest income and a 2.6% decrease in non-interest income. A 9 bp narrowing of the Company’s NIM to a still solid 3.97% and a stable level of average earning assets drove the lower spread income.

Meanwhile, the modest QoQ decrease in fee income was driven by declines in service charges on deposit accounts and lower mortgage banking revenue partially offset by higher wealth management and insurance commissions.

Noninterest expenses were $7.5 million or 6.0% lower sequentially. The decline in expenses was broad-based. Salaries and employee benefits declined $3.8 million, reflecting the previous quarter’s $4.0 million of additional bonus accruals. Lower expenses also reflected a $1.5 million decline in FDIC insurance premium and the non-recurrence of $1.5 million of merger related and non-core expenses.

Susquehanna’s asset quality remains sound and relatively stable. Specifically, NCOs increased to 0.62% of average loans for 1Q13, up from 0.50% for 4Q12. Meanwhile, the Company’s NPAs were stable at 0.97% of loans and leases at March 31, 2013, as compared to 0.96% at YE12. Finally, loan loss reserves remain adequate at 171% of non-accrual loans and leases, and 1.36% of loans.

DBRS views the Company’s funding profile as adequate, as deposits fund most of the loan portfolio although the company is reliant on wholesale borrowings to fund the rest of the balance sheet. The Company’s generally good quality securities portfolio, which represents approximately 13% of total assets, and access to the Federal Home Loan Bank and Federal Reserve round out its liquidity profile.

Susquehanna’s capital position remains sound and provides solid loss absorption capacity. All capital ratios were up QoQ, reflecting a stable balance sheet and positive earnings generation. At March 31, 2013, the Company’s tangible common equity ratio was 8.22%, up from 7.94%, at December 31, 2012 and its estimated Tier 1 common ratio was 10.24%, up from 9.94%, respectively.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on June 25, 2014 to remove unnecessary disclosures.]