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8-K - 8-K - SUSQUEHANNA BANCSHARES INC | d672514d8k.htm |
Susquehanna Bancshares, Inc.
Investor Presentation
1
st
Quarter 2014
Exhibit 99.1 |
Forward-Looking Statements
During the course of this presentation, we may make forward-looking statements
regarding priorities and strategic objectives of
Susquehanna Bancshares, Inc., as well as capital ratios, efficiency ratios, net
income and earnings. Investors should understand that these
forward-looking statements are strategic objectives rather than projections of future performance. We
wish to caution you that actual results and trends could differ materially from
those set forth in such statements due to various risks, uncertainties and
other factors. 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 Susquehannas 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; other risks and
uncertainties; and our success at managing the risks involved in
the foregoing items. For a more detailed description of the
factors that may affect Susquehannas operating results, we refer you to our
filings with the Securities & Exchange Commission, including our annual
report on Form 10-K for the year ended December 31, 2012 and Form 10-Q for the quarter
ended September 30, 2013. Susquehanna assumes no obligation to update the
forward-looking statements made during this presentation.
For more information, please visit our Website at:
www.susquehanna.net
2 |
Why
Susquehanna? 3
Business Strategy
Regional bank with a customer-focused community bank
delivery model
Grow deposits
attractive markets with rich deposit base and favorable demographics
Commercial loan focus
ample small business opportunities within footprint
Enhance fee income activities
capital markets, cash management, mortgage and wealth
Invest to enhance customer experience , employee engagement and risk
management Management Team
Executive management team with 200+ years of combined banking experience
Deep knowledge of the markets Susquehanna serves
Interests aligned with stockholders through short-term incentives tied to
strategic goals and long- term incentives tied to relative total
shareholder return and return on tangible common equity (ROTCE)
Valuation
Trade at a discount to peers on an earnings and book value basis
Very attractive dividend yield at 3.0%
1
Long-Term Upside
Execution of strategy builds attractive deposit franchise and enhances the
long-term earnings power of Susquehanna
Potential P/E expansion due to higher earnings growth and lower cost of
equity Stronger balance sheet and fee income activities while
improving liquidity and interest rate
risk profile
1
Based on current annualized dividend of $0.32 per share and closing price on January
31, 2014. |
Table
of Contents 4
Susquehanna Overview
5
Financial Review: Fourth Quarter and Full Year 2013
10
Business Strategy: Regional Bank With a Customer-Focused
Community Bank
Delivery Model
15
Valuation and Long-Term Upside
28
Quarterly Financial Supplement
31 |
Susquehanna Overview
5 |
Susquehanna Overview
6
Corporate Overview
Regional bank headquartered in Lititz, PA
245 banking offices concentrated in Central PA,
Western MD, and Philadelphia and Baltimore
MSAs
38
th
largest U.S. commercial bank by assets
and 2
nd
largest headquartered in PA
Experienced management team with extensive
market knowledge
Franchise is a diversified mix of consumer and
business customers, products and revenue
sources
Non-bank affiliates offering products and
services in:
Wealth management
Insurance brokerage and
employee benefits
Commercial finance
Vehicle leasing
Assets:
$18.5 billion
Deposits:
$12.9 billion
Loans & Leases:
$13.6 billion
Assets under management
$7.6 billion
and administration:
Market cap
1
:
$2.0 billion
Average daily volume
2
:
>1 million shares
Institutional ownership:
>70%
Dividend yield
3
:
3.0%
NASDAQ:
SUSQ
1
Based on closing price on January 31, 2014.
2
Over the last 52 weeks.
3
Based on current annualized dividend of $0.32 per share and closing price on
January 31, 2014. Selected Data as of 12/31/2013
|
Uniquely Positioned
7
Source: SNL Financial.
Note: Regulatory branch and deposit data as of June 30, 2013; banks and thrifts with
deposits in counties SUSQ operates in PA/NJ/MD/WV; traditional and
in-store branches only, as defined by SNL. Counties
of
operation
are
listed
in
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation.
Proven ability to grow share and
rank in key markets of operation:
Top 3 market share in 11 of 40
counties
10%+ market share in
13 counties
Top 5 market share in half the
MSAs where we do business
Largest locally based community
bank in our market
Ample opportunity to grow
deposits with small market share
gains:
Increasing market share 30 bps to
4.9% would bring loan to deposit
ratio just below 100%, in-line with
our 2014 target
Deposit Market Share: Counties of Operation
Rank
Institution
Branch
Count
Total Deposits in
Market ($000)
Total Market
Share (%)
1
Wells Fargo
377
41,514,008
14.9%
2
PNC
393
28,419,912
10.2%
3
Bank of America
217
25,180,194
9.1%
4
M&T Bank
324
24,420,075
8.8%
5
Toronto-Dominion Bank
167
20,925,057
7.5%
6
Royal Bank of Scotland
217
18,654,030
6.7%
7
Susquehanna
245
12,790,628
4.6%
8
Fulton
191
9,513,532
3.4%
9
Banco Santander
178
9,222,815
3.3%
10
National Penn
120
5,945,401
2.1%
11
BB&T
68
4,327,798
1.6%
12
Beneficial
60
3,777,354
1.4%
13
Citi
13
2,811,745
1.0%
14
First Niagara
61
2,481,487
0.9%
15
Customers
12
2,270,071
0.8%
Total
(1-15)
2,665
212,254,107
76.4%
Total
(1-239)
4,146
277,747,024
100.0% |
Leading Competitive Position
8
Better positioned with a stronger market concentration than peers
Markets of operation are wealthier and faster growing than peers
Market presence in 14 of the 20 most affluent counties in PA by median household
income
Maryland market includes Baltimore and three of the nations 40
most-affluent counties including no. 3, Howard County Source:
SNL
Financial,
U.S.
Census.
Peer
data
reflects
median
of
peer
companies.
Identification
of
peer
companies
is
included
in
the
Quarterly
Financial
Supplement
at
the
conclusion
of
this
presentation.
Deposit
data
as
of
June
30,
2013
1
Reflects
weighted
average
by
deposits
at
the
county
level.
Household
income
as
of
2012.
2
Reflects
2012-2017
projected
population
growth.
SUSQ
Peers
% of Deposits in Counties
with #1 Rank
31%
21%
% of Deposits in Counties
with 25% Market Share
32%
15%
SUSQ
Peers
Median Household
Income
1
$56,915
$49,829
% of Deposits in Counties
with HHI Over $60,000
28%
12%
% of Deposits in Counties
with Population Growth
Over 2.5%
2
53%
36%
Attractive Market Demographics and Leading Competitive Position
|
Positioned for Further Growth
9
Pennsylvania Market
Delaware Valley Market
Maryland Market
115 branches
Foundation for growth with stable commercial
and retail banking base providing ample deposits
Home to distribution hubs for global retailers,
manufacturers and distributors serving Northeast
and Mid-Atlantic markets
69 branches
Growth opportunities fueled by world-leading
education, health care and research institutions
61 branches
Growth opportunities fueled by world-leading
education, health care and research institutions,
as well as major federal agencies and
contractors
Small Business Density Complements Branch Footprint
Source:
Bank
Intelligence.
Small
Business
defined
as
businesses
with
less
than
$10
million
in
annual
sales.
The
16
counties
comprising
the
companys
Pennsylvania
Market,
the
10
counties
comprising
the
companys
Delaware
Valley
Market
and
the
14
counties
comprising
the
companys
Maryland
Market
are
listed
in
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation. |
Financial Review: Fourth Quarter and Full Year 2013
10 |
Fourth Quarter 2013 Highlights
11
GAAP EPS of $0.22
Modestly lower than $0.24 in 3Q13 and $0.23 in 4Q12
Fee
Income
Activities
Showing
Strength
Capital
markets
revenue
up
$2.1
million
in
4Q13
Wealth management revenue grew to $13.0 million, up 3.5% linked quarter
Mortgage banking revenue rebounded from 3Q13, up 11.0%
Strong
Commercial
Loan
Growth
Commercial loans grew 5.3% linked quarter
Continued strength in loan originations, up 16.6% from 4Q12
Continued
Focus
on
Deposit Growth
Non-CD deposits increased by 1.7% linked quarter
Non interest bearing demand deposits grew 2.2% linked quarter
Focused
on
Returns
ROAA of 0.89% compared to 0.96% and 0.95% in 3Q13 and 4Q12, respectively
ROATE
1
of 12.49% compared to 13.67% and 14.01% in 3Q13 and 4Q12, respectively
Branch
Initiatives
Completed
Sale leaseback transaction resulted in $5.0 million pre-tax gain and $4.0
million income tax benefit
Consolidation of 14 branches resulted in one-time costs totaling $6.6 million,
pre-tax and ongoing expected annual cost savings of $5.0 million
Solid
Credit
Quality
Metrics
and
Capital
Ratios
NPAs improved to 0.86% of loans, leases and foreclosed real estate
Strong coverage ratio with allowance representing 156% of nonaccrual loans and
leases Tangible common ratio
1
of 8.44%; regulatory ratios exceed well capitalized
1
Non-GAAP
based
financial
measures;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculations. |
Fourth Quarter Purchase
Accounting Impact
12
Towers purchased credit impaired fair value marks are
amortized by pooling like asset classes while Abingtons marks
are amortized at the loan level
Non-purchased credit impaired fair value marks are amortized
at the loan level
Predicting future amortization is challenging due to
prepayment/refinancing, customer behavior and the overall
health of the economy
Total purchase accounting benefit was 15bps in 4Q13
compared to 18bps in 3Q13
Loan amortization was 11bps in 4Q13 compared to 13bps in
3Q13
Deposit and borrowing amortization was 4bps in 4Q13
compared to 5ps in 3Q13
Net interest margin, excluding purchase accounting,
1
declined
9bps from 3.54% in 3Q13 to 3.45% in 4Q13
Non purchase accounting roll forward
Note:
Additional
information
on
purchase
accounting
impact
is
included
in
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation.
1
Non-GAAP
based
financial
measures;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculations
. |
Full
Year 2013 Highlights 13
1
Non-GAAP
based
financial
measures;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculations.
Record Earnings
Record net income of $173.7 million, up 23% over 2012
Double-Digit Growth in Non-
Interest Income
Initiatives
to
grow
non-interest
income
delivered
solid
revenues
in
2013
up
10%
over
2012
Wealth management revenue up 8% to $51.3 million
Cash management revenue grew 15% to ~$10.0 million
Capital markets revenue up 66% to $5.0 million
Successful Lending Strategies
Commercial loans up 5.3% YOY, including planned exits from non-strategic
participations Successful originate-to-sell strategy in residential
mortgage: sold 56% of production and retained servicing on 68% of
loans Total originations up 33% from 2012
Deposit Growth
Non-CD deposits up 2.4% YOY
Growth muted by strategic exits from certain higher-priced
non-relationship customers Net Interest Margin
Net interest margin excluding purchase accounting of 3.53%
1
Improved Profitability
ROAA of 0.95% compared to 0.81% in 2012
ROATE
1
of 13.57% compared to 12.03% in 2012
Branch Initiatives Completed
Sale leaseback transaction resulted in $5.0 million pre-tax gain and $4.0
million tax benefit Branch consolidations resulted in one-time costs
totaling $6.6 million, pre-tax, and ongoing expected annual cost
savings of $5.0 million Solid Credit Quality Metrics
and Capital Ratios
NPAs declined 5.4% to $117.4 million, or 0.86% of loans, leases and foreclosed
real estate NCOs / average loans and leases decreased 11 bps to 0.44%
Tangible common ratio
1
of 8.44% increased 50 bps from 2012 |
2013
Performance vs. Peers 14
Susquehanna
Peer Median
5
ROAA
0.95%
0.86%
ROATE
1
13.57%
10.99%
Net Interest Margin
3.79%
3.41%
Loans % of Deposits
105%
85%
Loan Growth
5.3%
6.0%
Deposit Growth
2.3%
2.2%
Deposit Cost
0.47%
0.28%
C&I % of Total Loans
2
13.8%
24.9%
Checking Deposits %
of Total Deposits
2,3
22.2%
33.4%
Efficiency Ratio
1
62.55%
64.57%
Fee Income % of Operating Revenue
4
23.2%
29.2%
NPAs % of Loans and Leases and
Foreclosed Real Estate
0.86%
1.08%
NCOs % of Average Loans and Leases
0.44%
0.25%
Tier 1 Common Ratio
10.59%
10.55%
Source: SNL Financial and company filings
1
Non-GAAP
based
financial
measures;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculations.
2
Per
9/30/13
regulatory
filings.
3
Interest-bearing
and
non-interest
bearing
transaction
deposits
per
regulatory
filings.
4
As
reported
by
SNL.
Excludes
securities
gains
and
losses
and
other
non-recurring
items.
5
Please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
the
listing
of
the
peer
companies.
Solid profitability
Focus on improving loan to deposit ratio
Fee income activities in place to deepen
relationships and close the gap to peers
NCOs/Avg. loans and leases trending
towards peers while the Tier 1 common
ratio is in-line
Working to close the gap to peers by
growing checking deposits and commercial
loans in attractive markets
Comments |
Business Strategy: Regional Bank With a
Customer-Focused Community Bank
Delivery Model
15 |
Strategic Focus: Multi-Year Plan
16
OBJECTIVE: Transition to a Robust Relationship-Based Customer Model
1.
Shift in Model and
Focus
New investments
focused on:
Technology
Risk management
Employee engagement
Customer experience
Service delivery
Marketing
Pricing
Products
Evaluating new and existing relationships for relationship profitability
Piloting universal banker model in selective markets
2.
Hiring and Talent
Recruiting experienced leaders across the bank
Hiring individuals and teams
Employee engagement at all levels
Building capabilities to foster existing employee development
3.
Redesigned Incentive
Structure
New profitability model to drive bankers
incentives
Incentives promote cross selling, risk management and total portfolio
management |
Investing for Tomorrow
17
Investments Focused on What We Can Control
Aligning Infrastructure With Our
Growth into Top 50 Bank Rankings
Ensuring systems, processes and capabilities can accommodate growth
beyond the $18 billion institution Susquehanna is today
Focus on Scalable Investments
Software and technology
Fee income activities
Risk management
Customer experience
Service delivery
Investments for Business Demand
4 of the top 5 budgeted capital expenditures for 2014 are for business
demand:
ATMs
Branch relocation
Product software
Commercial Banking online upgrades
Investments today position Susquehanna for future growth and performance
Business demand drives
84% of budgeted spend
for top 5 capital
expenditures in 2014
Higher expenses in the
near-term |
Investing in Talent
18
Approximately 45% of Susquehannas top 60 leaders have joined within the last
two years, bringing new ideas and best
practices to bear
Aligning corporate and individual objectives with strategic plan
and stockholders
interests
Short-term incentives tied to strategic goals
Long-term incentive plan tied to relative total shareholder return and
ROTCE WILLIAM REUTER
Chairman and CEO
39 years banking experience,
including 23 years with Susquehanna
ANDREW SAMUEL
Bank President and CEO
29 years banking experience
2 years with Susquehanna
MIKE HARRINGTON
Chief Financial Officer
27 years banking experience
2 years with Susquehanna
MICHAEL QUICK
Chief Corporate
Credit Officer
42 years banking experience
23 years with Susquehanna
GREGORY DUNCAN
Chief Operating Officer
30 years banking experience
23 years with Susquehanna
CARL LUNDBLAD
Chief Legal &
Administrative Officer
16 years banking / legal
experience
2 years with Susquehanna
BEV WISE
Chief Human
Resources Officer
25 years banking experience
2 years with Susquehanna
KEVIN BURNS
Chief Risk Officer
15 years banking experience
<1 year with Susquehanna |
Business Strategy
19
Strategic Priorities for 2014
Focus on
Deposits
Helps achieve 2014 target loan to deposit ratio of <100%; longer
term below mid-90s
Significant opportunity in existing client base
Take share from larger competitors with community bank
delivery model
Complements strategy to grow commercial loans and success of Stellar Checking
retail campaign Optimize
Balance Sheet
Focus on growing commercial loans while limiting indirect auto and selling more
mortgage production
Dense population of small businesses in-market
Product offerings position us to compete with small and large banks
Small business relationships provide opportunities in wealth, capital markets and
cash management
Growing fee income reduces spread-reliance and promotes stable revenue
stream Customer
Experience
and Employee
Engagement
Delivering a differentiated customer experience with premier service and
simplified processes Fueling customer-centric culture through
investments in talent, technology, products and delivery Aligning
compensation around drivers of sustainable and profitable relationships
Incentives tied to full customer relationships, measured through
new profitability model
Enterprise
Risk
Management
Investments in people and processes to effectively manage risk commensurate with
our size, complexity, strategy and growth
More efficient pricing and capital allocation decisions
Enhanced governance and controls |
Focus: Deposits
20
Loan to Deposit Ratio %
Rationale
Ample opportunity to capture greater wallet share and profitability from existing
customers while improving liquidity and interest risk profile
Approximately 80% of small business loan customers have a deposit relationship
with Susquehanna, but aggregate small business deposits represent less than
40% of small business loan balances
Strategic
Initiatives
Enhanced profitability models to inform pricing and investment decisions
Focus on deposit-rich markets with ample small business opportunities
Investing in people and technology to streamline loan approval and closing and
deposit account opening process
Piloting universal banker model in selective markets
Sales training and development, emphasizing cross-sell
Increasing marketing spend
Trade-Off
Desire to lower loan to deposit ratio is a constraint on loan growth and earnings
in the short-term. Long-term benefits will be realized when
interest rates rise Source:
SNL
Financial.
Please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
the
listing
of
the
peer
companies. |
Strong Deposit Growth
21
Organic Non-CD
Deposit CAGR:
7.1%
Strong Deposit Growth Momentum
Positive
results
in
mobile
deposit
services
and
Stellar
Checking
account
Non-CD
deposits
now
account
for
70%
of
total
deposits
Non-CD
growth
of
2.4%
since
4Q12,
including
strategic
exit
from
certain
relationships
Cost
of
deposits
decreased
from
2.86%
in
4Q07
to
0.43%
in
4Q13
Total Deposits 12/31/2007
$8.9 Billion
Total Deposits 12/31/2013
$12.9 Billion
Demand deposits
Interest-bearing demand
Savings
Time of $100K or more
Time < $100K |
Deposit Initiatives
22
Innovative Deposit Strategies Driving Growth
Strategic
Building on 2.3% deposit growth in 2013 to drive loan to deposit
ratio below 100% in 2014
Exiting non-strategic relationships and limiting exception pricing
Lowered deposit cost by 10 bps in 2013
Streamlined
Focused on cross-sell opportunities and commercial deposits
Three retail checking accounts today vs. 10+ at the start of 2013
Customer-Centric
Stellar Checking launched in 2013
57,000 accounts in first 10 months
Half from new customers, with higher average balances
than converted accounts
Driving new fee income through increased debit
card usage
Digital channel in 2013
Mobile Deposit launched
Mobile banking users up 120%
E-statements up 107%
Total online banking users up 27% |
Disciplined Asset Allocation:
Focus on Commercial Loans
23
Organic Loan
CAGR: 3.8%
Slowing Loan Growth Momentum, Focus on Mix
Rotating assets to achieve more valuable mix
Commercial loan growth of 5.3% since 4Q12, including strategic exit from certain
relationships Limit indirect portfolio growth while selling more
residential production in secondary market Average commercial loan yield in
4Q13 was 4.81%, compared to 3.39% for indirect auto leases 12/31/2007
$8.8 Billion
12/31/2013
$13.6 Billion
Real estate
construction
Real estate secured
commercial
Real estate secured
residential
Consumer
Leases
Commercial, financial and agricultural |
Net
Interest Margin 24
Net interest margin of 3.60% in the quarter versus 3.72% in the prior quarter
Net interest margin, excluding purchase accounting, was down 9 bps, consistent with
expectations and most recent guidance, but remains in-line with peer
reported net interest margin The net interest margin decline is a function of
existing loans repricing at lower rates, a change in the mix of loans and
less benefit from the repricing of higher rate CDs
Deposit growth and strategic shift toward commercial lending expected to provide
more stability to the net interest margin going forward
Source:
SNL
Financial.
Please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
the
listing
of
the
peer
companies.
1
Non-GAAP
based
financial
measure;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculation.
Net Interest Margin
1 |
Focus on cross-sell as commercial loan and deposit relationships grow
Closing the gap to peers on fee income/operating revenue
Diversifying revenue and becoming less reliant on spread revenue
Momentum in wealth management, capital markets and cash management
Wealth management continues to expand
New wealth management business increased ~$400 million in 2013
Capital markets growing
Revenue up 66% in 2013
Cash management driving deposit growth and income
$90 million in new demand deposits in 2013
Revenue up 15% in 2013
Non-Interest Income
25
Non-interest
Income
($000)
-
Quarter
Ending
Dec.31, 2012
Sept. 30, 2013
Dec. 31, 2013
Service Charges on Deposit Accounts
$ 9,158
$ 9,514
$ 9,456
Vehicle Origination and Servicing Fees
3,746
2,907
3,057
Wealth Management Commissions and Fees
11,882
12,606
13,048
Commissions on Property and Casualty
Insurance Sales
3,749
3,872
4,023
Other Commissions and Fees
6,680
5,276
7,577
Mortgage Banking Revenue
4,835
2,237
2,483
Fee
Income
%
of
Operating
Revenue
1
1
As
reported
by
SNL
Financial.
Excludes
securities
gains
and
losses
and
other
non-recurring
items.
Please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
the
listing
of
the
peer
companies. |
Expense Management
26
Successfully lowered efficiency ratio from 66.83% for 2011 to 62.55% for 2013
Recent elevation in efficiency ratio reflects expenses associated with incentive
compensation, branch consolidation costs and investments to build out ERM,
compliance and other strategic initiatives
Targeted long-term efficiency ratio of 60%
Efficiency is a part of our culture; always looking for ways to improve expense
management Note:
Efficiency
ratio
excludes
net
realized
gain
on
acquisition,
merger
related
expenses
and
loss
on
extinguishment
of
debt
and
is
a
non-GAAP
based
financial
measure;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculations. |
1Q14
Outlook & Current Trends 27
Strategic Priorities Reflected in First Quarter 2014 Outlook
Net Interest Margin
More stability in the net interest margin expected
Change in mix consistent with our strategic plan to grow commercial loans
Existing loans repricing at lower rates appears to have stabilized
Average Earning
Assets
Growth will be limited given strategy to lower the loan to deposit ratio
Commercial loan growth is priority
Focus on rotating the balance sheet mix rather than on total loan growth
Securities portfolio expected to remain relatively flat
Credit
Recent strength in asset quality expected to continue, but may be volatile
quarter-over-quarter Provision is expected to trend in line with
recent annual amounts Expenses
Excluding 4Q13 branch optimization costs, expenses expected to decline linked
quarter as year-end incentive expenses are normalized
Measured investments in the franchise continue
Fee Income
Expected to increase slightly compared to 4Q13, excluding gain on sale of branch
properties Seasonal factors and continued success of fee income activities
should drive modest growth |
Valuation and Long Term Upside
28 |
Price / Tangible Book Value
Price
/
Forward
Earnings
(2014)
2
Dividend
Yield
1
Price / Book Value
Valuation
29
Execution of strategy could result in P/E expansion due to higher earnings growth
and lower cost of equity
Close the P/E discount to peers
Attractive dividend yield provides meaningful return in the near-term
Source:
SNL
Financial.
As
of
January
31,
2014.
Please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
the
listing
of
the
peer
companies.
1
Based
on
current
annualized
dividend
of
$0.32
per
share
and
closing
price
on
January
31,
2014.
2
Reflects
mean
IBES
estimate
for
2014.
1
2 |
At
December 31, 2013 Tangible
Common
Equity
1
Tier 1
Common /
RWA
Tier 1
Leverage
Tier 1
Risk-Based
Total
Risk-Based
Susquehanna
8.44%
10.59%
9.54%
11.70%
13.03%
Management Minimum
Target
7.50%
8.00%
6.00%
9.50%
11.50%
Solid Capital Generation
30
1
The
tangible
common
equity
ratio
is
a
non-GAAP
based
financial
measure;
please
refer
to
the
Quarterly
Financial
Supplement
slides
at
the
conclusion
of
this
presentation
for
calculation.
Do not expect Basel III to have a material impact to our risk-weighted
assets
We believe we would be fully compliant with revised capital requirements, including
the capital conservation buffer Capital generation has benefited from strong
profitability and approximately 35% dividend payout ratio Status quo until
stress test results are submitted and we receive feedback from regulators
If deemed to have capital beyond what is required by regulators and internal
capital targets, Susquehanna may look to distribute a portion of its excess
capital
All capital distribution strategies will be evaluated
|
Quarterly Financial Supplement
31 |
Susquehanna Bank Markets
Pennsylvania Market
Maryland Market
Delaware Valley Market
Adams, PA
Berks, PA
Centre, PA
Cumberland, PA
Dauphin, PA
Lancaster, PA
Lebanon, PA
Lehigh, PA
Luzerne, PA
Lycoming, PA
Northampton, PA
Northumberland, PA
Schuylkill, PA
Snyder, PA
Union, PA
York, PA
Allegany, MD
Anne Arundel, MD
Baltimore, MD
Baltimore City, MD
Bedford, PA
Berkley, WV
Carroll, MD
Franklin, PA
Fulton, PA
Garrett, MD
Harford, MD
Howard, MD
Washington, MD
Worcester, MD
Atlantic, NJ
Bucks, PA
Burlington, NJ
Camden, NJ
Chester, PA
Cumberland, NJ
Delaware, PA
Gloucester, NJ
Montgomery, PA
Philadelphia, PA
32 |
Peer
Companies Associated Banc-Corp
IBERIABANK Corp.
BancorpSouth Inc.
MB Financial Inc.
City National Corp.
People's United Financial
Commerce Bancshares
Prosperity Bancshares Inc.
Cullen/Frost Bankers Inc.
TCF Financial Corp.
F.N.B. Corp.
UMB Financial Corp.
First Horizon Natl Corp.
Valley National Bancorp
FirstMerit Corp.
Webster Financial Corp.
Fulton Financial Corp.
Wintrust Financial Corp.
Hancock Holding Co.
33 |
Loan
and Lease Originations Average Balance*
4Q12
1Q13
2Q13
3Q13
4Q13
($ in Millions)
Balance
Origina-
tions
Balance
Origina-
tions
Balance
Origina-
tions
Balance
Origina-
tions
Balance
Origina-
tions
Commercial
$ 1,898
$ 226
$ 1,996
$ 224
$ 2,005
$ 221
$ 1,997
$ 166
$ 1,997
$ 189
Real Estate
Const & Land
859
92
797
137
777
148
752
196
736
184
Real Estate
1-4 Family Res
2,274
72
2,266
57
2,262
67
2,258
90
2,276
66
Real Estate
Commercial
4,276
136
4,295
206
4,356
263
4,440
267
4,406
180
Real Estate
HELOC
1,209
89
1,235
113
1,285
154
1,358
160
1,450
130
Tax-Free
430
4
427
3
420
2
402
42
418
34
Consumer Loans
810
104
820
114
853
149
887
128
908
125
Commercial Leases
289
85
287
78
300
124
319
101
320
89
Consumer Leases
512
167
644
138
698
87
756
122
837
142
VIE
168
-
162
-
156
-
122
-
74
-
Total Loans
$ 12,725
$ 975
$ 12,929
$ 1,070
$ 13,112
$ 1,215
$ 13,291
$ 1,272
$13,422
$ 1,137
34
*By collateral type. |
Loan
Mix & Yield 35
*By collateral type.
Average Balance*
($ in Millions)
4Q12
1Q13
2Q13
3Q13
4Q13
INT % QTR
Commercial
$ 1,898
5.35%
$ 1,996
5.28%
$ 2,005
5.03%
$ 1,997
5.00%
$ 1,997
4.81%
Real Estate
Const & Land
859
5.90%
797
6.05%
777
6.69%
752
5.21%
736
5.37%
Real Estate
1-4 Family Res
2,274
4.97%
2,266
4.91%
2,262
4.82%
2,258
4.60%
2,276
4.69%
Real Estate
Commercial
4,276
5.51%
4,295
5.43%
4,356
5.22%
4,440
4.99%
4,406
4.65%
Real Estate
HELOC
1,209
3.74%
1,235
3.68%
1,285
3.64%
1,358
3.59%
1,450
3.53%
Tax-Free
430
5.47%
427
5.10%
420
5.09%
402
5.07%
418
5.02%
Consumer Loans
810
4.95%
820
4.77%
853
4.52%
887
4.33%
908
4.25%
Commercial Leases
289
7.50%
287
7.56%
300
7.15%
319
6.64%
320
6.46%
Consumer Leases
512
4.11%
644
3.88%
698
3.68%
756
3.51%
837
3.39%
VIE
168
4.39%
162
4.36%
156
4.34%
122
4.92%
74
4.88%
Total Loans
$ 12,725
5.18%
$ 12,929
5.03%
$ 13,112
4.95%
$ 13,291
4.70%
$ 13,422
4.55% |
CRE
and Construction Composition 36
4Q13 |
Asset
Quality 37
NPAs / Loans & leases +
Foreclosed Real Estate
Net Charge-Offs /
Average Loans & Leases
ALLL / Nonaccrual Loans and Leases
Source: SNL Financial |
TDRs
Asset Quality
($ in Millions)
38
Non Accruals
4Q12
1Q13
2Q13
3Q13
4Q13
NPL's Beginning of Period
$ 118.4
$ 97.8
$ 103.4
$ 105.1
$ 102.0
New Non Accruals
19.0
23.1
23.6
23.1
29.4
Cure/Exits/Other
(21.5)
0.4
(13.4)
(12.6)
(21.7)
Gross Charge-Offs
(15.4)
(15.5)
(5.0)
(8.9)
(5.3)
Transfer to OREO
(2.7)
(2.4)
(3.5)
(4.7)
(3.6)
NPL's End of Period
$ 97.8
$ 103.4
$ 105.1
$ 102.0
$ 100.8 |
Asset
Quality ($ in Millions)
39
Substandard
OAEM
Past Due 90 Days or More
Past Due 30-89 Days |
Investment Securities
40
EOP Balance
4Q12
1Q13
2Q13
3Q13
4Q13
($ in Millions)
QTR Yield
Total Investment Securities
$2,730
$2,553
$2,494
$2,644
$2,533
Duration (years)
3.6
3.6
4.3
4.1
3.5
Yield
2.59%
2.64%
2.61%
2.67%
2.65%
Unrealized Gain/(Loss)
$57.1
$50.6
($2.7)
$1.3
($12.0) |
Deposit Mix & Cost
41
Average Balance
4Q12
1Q13
2Q13
3Q13
4Q13
($ in Millions)
INT % QTR
Demand
$ 1,946
0.00%
$ 1,918
0.00%
$ 1,912
0.00%
$ 1,911
0.00%
$ 1,881
0.00%
Interest Bearing Demand
5,803
0.33%
5,895
0.32%
5,984
0.28%
5,937
0.26%
6,058
0.26%
Savings
1,019
0.11%
1,049
0.11%
1,080
0.11%
1,076
0.11%
1,076
0.11%
Certificates of Deposits
3,835
1.21%
3,778
1.21%
3,892
1.20%
3,871
1.05%
3,792
1.00%
Total Interest-Bearing Deposits
$ 10,657
0.62%
$ 10,722
0.61%
$ 10,956
0.59%
$ 10,884
0.53%
$ 10,926
0.50%
Non-CD Deposits/Total
69.6%
70.1%
69.8%
69.7%
70.4%
Loans(excluding VIE)/Deposits
99.6%
101.0%
100.7%
102.9%
104.2% |
Borrowing Mix & Cost
42
Average Balance
4Q12
1Q13
2Q13
3Q13
4Q13
($ in Millions)
INT % QTR
Short-Term Borrowings
$ 811
0.26%
$ 817
0.25%
$ 728
0.26%
$ 758
0.27%
$ 672
0.25%
FHLB Advances
1,167
0.36%
1,155
0.33%
1,042
0.36%
1,285
0.33%
1,502
0.32%
Long Term Debt
561
1.19%
509
3.28%
496
3.32%
476
3.45%
456
3.51%
Total Borrowings
$ 2,539
0.51%
$ 2,481
0.91%
$ 2,266
0.98%
$ 2,519
0.90%
$ 2,630
0.86%
Off Balance Sheet Swap Impact
675
0.71%
927
0.73%
927
0.82%
927
0.78%
1,100
0.80%
Total Borrowing Cost
1.22%
1.64%
1.80%
1.68%
1.66%
Total Borrowings / Total Assets
14.1%
13.8%
12.5%
13.8%
14.3% |
Non-GAAP Reconciliation
($ in thousands)
43
4Q13
3Q13
2Q13
1Q13
4Q12
2013
2012
Efficiency Ratio
Other expense
135,672
$
117,701
$
119,738
$
117,729
$
125,277
$
490,840
$
490,017
$
Less: Merger related expenses
0
0
0
0
(1,054)
0
(17,351)
Loss on extinguishment of debt
0
0
0
0
(409)
0
(5,860)
Noninterest operating expense (numerator)
135,672
$
117,701
$
119,738
$
117,729
$
123,814
$
490,840
$
466,806
$
Taxable-equivalent net interest income
146,430
$
149,683
$
151,916
$
153,021
$
159,332
$
600,945
606,530
$
Other income
50,666
41,343
49,076
42,644
43,772
183,729
166,759
Noninterest operating income (deminator)
197,096
$
191,026
$
200,992
$
195,665
$
203,104
$
784,674
$
773,289
$
Efficiency ratio
68.84%
61.62%
59.57%
60.17%
60.96%
62.55%
60.37%
Tangible
Common
Ratio
End of period balance sheet data
Shareholders' equity
2,717,587
$
2,679,348
$
2,644,940
$
2,639,489
$
2,595,909
$
2,717,587
$
2,595,909
$
Goodwill and other intangible assets
(1)
(1,264,839)
(1,263,928)
(1,265,016)
(1,266,610)
(1,263,563)
(1,264,839)
(1,263,563)
Tangible common equity (numerator)
1,452,748
$
1,415,420
$
1,379,924
$
1,372,879
$
1,332,346
$
1,452,748
$
1,332,346
$
Assets
18,473,489
$
18,481,150
$
18,083,039
$
17,967,174
$
18,037,667
$
18,473,489
$
18,037,667
$
Goodwill and other intangible assets
(1)
(1,264,839)
(1,263,928)
(1,265,016)
(1,266,610)
(1,263,563)
(1,264,839)
(1,263,563)
Tangible assets (denominator)
17,208,650
$
17,217,222
$
16,818,023
$
16,700,564
$
16,774,104
$
17,208,650
$
16,774,104
$
Tangible common ratio
8.44%
8.22%
8.21%
8.22%
7.94%
8.44%
7.94%
(1)
Net of applicable deferred income taxes
12 Months Ended
December 31,
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.
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
assts.
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. |
Non-GAAP Reconciliation
($ in thousands)
44
4Q13
3Q13
2Q13
1Q13
4Q12
2013
2012
Return on Average Tangible Equity
Income statement data
Net income
41,341
$
44,291
$
45,648
$
42,399
$
43,174
$
173,679
$
141,172
$
Amortization of intangibles, net of taxes at 35%
1,822
1,626
1,984
2,124
2,127
7,557
8,141
Net tangible income (numerator)
43,163
$
45,917
$
47,632
$
44,523
$
45,301
$
181,236
$
149,313
$
Average balance sheet data
Shareholders' equity
2,679,242
$
2,642,806
$
2,648,314
$
2,614,319
$
2,597,254
$
2,646,339
$
2,511,604
$
Goodwill and other intangible assets
(1,308,690)
(1,310,155)
(1,312,257)
(1,312,662)
(1,311,192)
(1,310,928)
(1,270,053)
Tangible common equity (denominator)
1,370,552
$
1,332,651
$
1,336,057
$
1,301,657
$
1,286,062
$
1,335,411
$
1,241,551
$
Return on equity (GAAP basis)
6.12%
6.65%
6.91%
6.58%
6.61%
6.56%
5.62%
Effect of goodwill and other intangibles
6.37%
7.02%
7.39%
7.29%
7.40%
7.01%
6.41%
Return on average tangible equity
12.49%
13.67%
14.30%
13.87%
14.01%
13.57%
12.03%
Tangible Book Value per Common Share
End of period balance sheet data
Shareholders' equity
2,717,587
$
2,679,348
$
2,644,940
$
2,639,489
$
2,595,909
$
2,717,587
$
2,595,909
$
Goodwill and other intangible assets
(1,307,701)
(1,309,105)
(1,311,176)
(1,313,648)
(1,311,691)
(1,307,701)
(1,311,691)
Tangible common equity (numerator)
1,409,886
$
1,370,243
$
1,333,764
$
1,325,841
$
1,284,218
$
1,409,886
$
1,284,218
$
Common shares outstanding (denominator)
187,363
187,225
187,023
186,800
186,554
187,363
186,554
Tangible book value per common share
7.52
$
7.32
$
7.13
$
7.10
$
6.88
$
7.52
$
6.88
$
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. 12 Months Ended
December 31,
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. |
Non-GAAP Reconciliation
45
4Q13
3Q13
2Q13
1Q13
4Q12
2013
2012
Net Interest Margin (excluding purchase
accounting)
Reported net interest margin (GAAP basis)
3.60%
3.72%
3.88%
3.97%
4.06%
3.79%
4.01%
Adjustments for purchase accounting:
Loans and leases
-0.11%
-0.13%
-0.27%
-0.27%
-0.23%
-0.20%
-0.17%
Deposits
-0.03%
-0.04%
-0.06%
-0.07%
-0.08%
-0.05%
-0.11%
Borrowings
-0.01%
-0.01%
-0.01%
-0.01%
-0.09%
-0.01%
-0.04%
Net Interest Margin (excluding
purchase accounting)
3.45%
3.54%
3.54%
3.62%
3.66%
3.53%
3.69%
Twelve Months Ended
December 31,
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. |