DBRS: Susquehanna’s 4Q Earnings Dip on Higher Expenses

Summary:
• Susquehanna reported lower 4Q14 earnings of $30.3 million, down from $33.5 million for 3Q14, largely reflecting higher expenses including incentive compensation.
• Deposit growth outpacing loan growth helped to modestly improve the loan to deposit ratio.
• DBRS rates Susquehanna Bancshares’ Issuer & Senior Debt at BBB (high). All ratings are Under Review with Positive Implications following the November 2014 announcement of a definitive agreement for the Company to be acquired by BB&T Corporation.

DBRS, Inc. (DBRS) considers Susquehanna’s (Susquehanna or the Company) 4Q14 earnings as reflecting continued steady progress towards the Company’s goals of transitioning both its loan and funding mix more towards commercial loans and relationship-based deposit funding. Indeed, the Company maintained its previously met goal of achieving a loan to deposit ratio below 100%.

Overall, revenues were down quarter-on-quarter (QoQ). A modest increase in average earning assets was more than offset by a lower net interest margin (NIM), leading to a decline in net interest income. Noninterest income increased reflecting seasonally higher SBA loan sales and increase in capital markets revenue. However, expenses were up QoQ as stronger than expected quarterly results resulted in additional incentive compensation expense.

A QoQ decrease in the provision for loan and lease losses included a slight reserve release amid continued generally positive asset quality trends. At YE14, Susquehanna reported sound capital ratios that were largely in line with the linked quarter, including a modestly higher Tier 1 common ratio of 10.95%. During the previous quarter, the Company completed a common stock repurchase program and increased its common stock dividend.

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