##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 0-10674



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Susquehanna Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 23-2201716                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|26 North Cedar St., Lititz, Pennsylvania                       |  | 17543                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code (717) 626-4721



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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).    Yes  x    No ̈



Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date.



39,870,156 shares of common stock, par value $2.00 per share, as of April 30, 2004.



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##### Table of Contents

SUSQUEHANNA BANCSHARES, INC.



TABLE OF CONTENTS



|              |  |                                                                                                                           |  |   
|------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.       |  | FINANCIAL INFORMATION                                                                                                     |  |   
|              |  |                                                                                                                          
|Item 1        |  | Financial Statements                                                                                                      |  |   
|              |  |                                                                                                                          
|              |  | Consolidated Balance Sheets  as of March 31, 2004 and 2003 (unaudited), and December 31, 2003                            |  | 3 
|              |  |                                                                                                                          
|              |  | Consolidated Statements of Income  for the three months ended March 31, 2004 and 2003 (unaudited)                        |  | 4 
|              |  |                                                                                                                          
|              |  | Consolidated Statements of Cash Flows - for the three months ended March 31, 2004 and 2003 (unaudited)                    |  | 5 
|              |  |                                                                                                                          
|              |  | Consolidated Statements of Changes in Shareholders Equity for the three months ended March 31, 2004 and 2003 (unaudited) |  | 6 
|              |  |                                                                                                                          
|              |  | Notes to Consolidated Financial Statements (unaudited)                                                                    |  | 7 
|              |  |                                                                                                                          
|Item 2        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 12
|              |  |                                                                                                                          
|Item 3        |  | Quantitative and Qualitative Disclosures about Market Risk                                                                |  | 22
|              |  |                                                                                                                          
|Item 4        |  | Controls and Procedures                                                                                                   |  | 29
|              |  |                                                                                                                          
|PART II.      |  | OTHER INFORMATION                                                                                                         |  |   
|              |  |                                                                                                                          
|Item 6        |  | Exhibits and Reports on Form 8-K                                                                                          |  | 30
|              | 
|SIGNATURES    |  | 32                                                                                                                       
|              | 
|EXHIBIT INDEX |  | 33                                                                                                                       



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



Susquehanna Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | --------- | --------------- | - | --------- | ------------ |  | - | ---------
|                                                                                                                                                                      |  | March 312004                      |           | December 312003 |   |           | March 312003
|                                                                                                                                                                      |  | (in thousands, except share data)
|Assets                                                                                                                                                                |  |                                   |           |                 |   |           |              |  |   |          
|Cash and due from banks                                                                                                                                               |  | $                                 | 137,500   |                 | $ | 176,240   |              |  | $ | 176,199  
|Short-term investments:                                                                                                                                               |  |                                   |           |                 |   |           |              |  |   |          
|Restricted                                                                                                                                                            |  |                                   | 26,777    |                 |   | 44,817    |              |  |   | 35,843   
|Unrestricted                                                                                                                                                          |  |                                   | 122,721   |                 |   | 34,145    |              |  |   | 24,979   
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Total short-term investments                                                                                                                                          |  |                                   | 149,498   |                 |   | 78,962    |              |  |   | 60,822   
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Securities available for sale                                                                                                                                         |  |                                   | 1,056,929 |                 |   | 983,882   |              |  |   | 1,276,369
|Securities held to maturity (fair values approximate $4,533, $4,340 and $3,341)                                                                                       |  |                                   | 4,533     |                 |   | 4,340     |              |  |   | 3,341    
|Loans and leases, net of unearned income                                                                                                                              |  |                                   | 4,229,609 |                 |   | 4,263,272 |              |  |   | 3,832,706
|Less: Allowance for loan and lease losses                                                                                                                             |  |                                   | 42,946    |                 |   | 42,672    |              |  |   | 40,281   
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Net loans and leases                                                                                                                                                  |  |                                   | 4,186,663 |                 |   | 4,220,600 |              |  |   | 3,792,425
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Premises and equipment, net                                                                                                                                           |  |                                   | 63,605    |                 |   | 62,961    |              |  |   | 60,642   
|Foreclosed assets                                                                                                                                                     |  |                                   | 1,657     |                 |   | 2,893     |              |  |   | 3,104    
|Accrued income receivable                                                                                                                                             |  |                                   | 17,235    |                 |   | 17,494    |              |  |   | 19,994   
|Bank-owned life insurance                                                                                                                                             |  |                                   | 208,092   |                 |   | 200,555   |              |  |   | 126,437  
|Goodwill                                                                                                                                                              |  |                                   | 59,123    |                 |   | 59,123    |              |  |   | 54,897   
|Intangible assets with finite lives                                                                                                                                   |  |                                   | 4,215     |                 |   | 4,372     |              |  |   | 4,842    
|Other assets                                                                                                                                                          |  |                                   | 160,718   |                 |   | 141,685   |              |  |   | 143,648  
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|                                                                                                                                                                      |  | $                                 | 6,049,768 |                 | $ | 5,953,107 |              |  | $ | 5,722,720
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Liabilities and Shareholders Equity                                                                                                                                  |  |                                   |           |                 |   |           |              |  |   |          
|Deposits:                                                                                                                                                             |  |                                   |           |                 |   |           |              |  |   |          
|Demand                                                                                                                                                                |  | $                                 | 718,621   |                 | $ | 724,474   |              |  | $ | 641,096  
|Interest-bearing demand                                                                                                                                               |  |                                   | 1,453,987 |                 |   | 1,295,593 |              |  |   | 1,187,020
|Savings                                                                                                                                                               |  |                                   | 518,813   |                 |   | 508,889   |              |  |   | 490,592  
|Time                                                                                                                                                                  |  |                                   | 1,255,054 |                 |   | 1,251,058 |              |  |   | 1,289,449
|Time of $100 or more                                                                                                                                                  |  |                                   | 399,423   |                 |   | 354,453   |              |  |   | 331,182  
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Total deposits                                                                                                                                                        |  |                                   | 4,345,898 |                 |   | 4,134,467 |              |  |   | 3,939,339
|Short-term borrowings                                                                                                                                                 |  |                                   | 275,388   |                 |   | 355,553   |              |  |   | 317,730  
|FHLB borrowings                                                                                                                                                       |  |                                   | 492,794   |                 |   | 613,850   |              |  |   | 605,413  
|Long-term debt                                                                                                                                                        |  |                                   | 130,000   |                 |   | 130,000   |              |  |   | 145,000  
|Accrued interest, taxes, and expenses payable                                                                                                                         |  |                                   | 41,226    |                 |   | 35,791    |              |  |   | 37,838   
|Deferred taxes                                                                                                                                                        |  |                                   | 109,737   |                 |   | 104,281   |              |  |   | 93,690   
|Other liabilities                                                                                                                                                     |  |                                   | 95,129    |                 |   | 31,783    |              |  |   | 46,065   
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Total liabilities                                                                                                                                                     |  |                                   | 5,490,172 |                 |   | 5,405,725 |              |  |   | 5,185,075
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Shareholders equity:                                                                                                                                                 |  |                                   |           |                 |   |           |              |  |   |          
|Common stock, $2.00 par value, 100,000,000 shares authorized; Issued: 39,868,108 at March 31, 2004; 39,861,317 at December 31, 2003; and
39,675,183 at March 31, 2003 |  |                                   | 79,736    |                 |   | 79,723    |              |  |   | 79,350   
|Additional paid-in capital                                                                                                                                            |  |                                   | 66,365    |                 |   | 66,264    |              |  |   | 63,277   
|Retained earnings                                                                                                                                                     |  |                                   | 410,606   |                 |   | 403,450   |              |  |   | 382,990  
|Accumulated other comprehensive income (loss), net of taxes of $1,614, ($1,107), and $6,477                                                                           |  |                                   | 2,889     |                 |   | (2,055    | )            |  |   | 12,028   
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|Total shareholders equity                                                                                                                                            |  |                                   | 559,596   |                 |   | 547,382   |              |  |   | 537,645  
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          
|                                                                                                                                                                      |  | $                                 | 6,049,768 |                 | $ | 5,953,107 |              |  | $ | 5,722,720
|                                                                                                                                                                      |  |                                   |           |                 |   |           |              |  |   |          



The accompanying notes are an
integral part of these consolidated financial statements.



3



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME



|                                                               |  |                            |        |      |   |       
|-------------------------------------------------------------- |  | -------------------------- | ------ | ---- | - | ------
|                                                               |  | Three Months EndedMarch 31
|(Dollars in thousands, except per share data)                  |  | 2004                       |        | 2003
|Interest Income:                                               |  |                            |        |      |   |       
|Loans and leases, including fees                               |  | $                          | 61,134 |      | $ | 61,894
|Securities:                                                    |  |                            |        |      |   |       
|Taxable                                                        |  |                            | 7,713  |      |   | 11,329
|Tax-exempt                                                     |  |                            | 260    |      |   | 462   
|Dividends                                                      |  |                            | 283    |      |   | 340   
|Short-term investments                                         |  |                            | 197    |      |   | 164   
|                                                               |  |                            |        |      |   |       
|Total interest income                                          |  |                            | 69,587 |      |   | 74,189
|                                                               |  |                            |        |      |   |       
|Interest Expense:                                              |  |                            |        |      |   |       
|Deposits:                                                      |  |                            |        |      |   |       
|Interest-bearing demand                                        |  |                            | 2,655  |      |   | 2,677 
|Savings                                                        |  |                            | 386    |      |   | 610   
|Time                                                           |  |                            | 11,815 |      |   | 13,965
|Short-term borrowings                                          |  |                            | 590    |      |   | 838   
|FHLB borrowings                                                |  |                            | 5,120  |      |   | 6,038 
|Long-term debt                                                 |  |                            | 2,340  |      |   | 2,782 
|                                                               |  |                            |        |      |   |       
|Total interest expense                                         |  |                            | 22,906 |      |   | 26,910
|                                                               |  |                            |        |      |   |       
|Net interest income                                            |  |                            | 46,681 |      |   | 47,279
|Provision for loan and lease losses                            |  |                            | 1,700  |      |   | 2,705 
|                                                               |  |                            |        |      |   |       
|Net interest income, after provision for loan and lease losses |  |                            | 44,981 |      |   | 44,574
|                                                               |  |                            |        |      |   |       
|Noninterest Income:                                            |  |                            |        |      |   |       
|Service charges on deposit accounts                            |  |                            | 4,882  |      |   | 4,466 
|Vehicle origination and servicing fees                         |  |                            | 5,193  |      |   | 7,003 
|Asset management fees                                          |  |                            | 3,258  |      |   | 2,286 
|Income from fiduciary-related activities                       |  |                            | 1,468  |      |   | 1,522 
|Commissions on brokerage, life insurance, and annuity sales    |  |                            | 916    |      |   | 235   
|Commissions on property and casualty insurance sales           |  |                            | 2,420  |      |   | 2,380 
|Income from bank-owned life insurance                          |  |                            | 2,012  |      |   | 1,642 
|Net gain on sale of loans and leases                           |  |                            | 3,671  |      |   | 2,538 
|Net gain on securities                                         |  |                            | 563    |      |   | 90    
|Other                                                          |  |                            | 2,691  |      |   | 3,331 
|                                                               |  |                            |        |      |   |       
|Total noninterest income                                       |  |                            | 27,074 |      |   | 25,493
|                                                               |  |                            |        |      |   |       
|Noninterest Expenses:                                          |  |                            |        |      |   |       
|Salaries and employee benefits                                 |  |                            | 24,107 |      |   | 22,354
|Occupancy                                                      |  |                            | 3,786  |      |   | 3,521 
|Furniture and equipment                                        |  |                            | 2,094  |      |   | 2,200 
|Amortization of intangible assets                              |  |                            | 157    |      |   | 157   
|Vehicle residual value                                         |  |                            | 1,211  |      |   | 1,418 
|Vehicle delivery and preparation                               |  |                            | 3,393  |      |   | 2,894 
|Other                                                          |  |                            | 14,555 |      |   | 14,232
|                                                               |  |                            |        |      |   |       
|Total noninterest expenses                                     |  |                            | 49,303 |      |   | 46,776
|                                                               |  |                            |        |      |   |       
|Income before income taxes                                     |  |                            | 22,752 |      |   | 23,291
|Provision for income taxes                                     |  |                            | 6,826  |      |   | 7,220 
|                                                               |  |                            |        |      |   |       
|Net Income                                                     |  | $                          | 15,926 |      | $ | 16,071
|                                                               |  |                            |        |      |   |       
|Earnings per share:                                            |  |                            |        |      |   |       
|Basic                                                          |  | $                          | 0.40   |      | $ | 0.41  
|Diluted                                                        |  | $                          | 0.40   |      | $ | 0.40  
|Cash dividends                                                 |  | $                          | 0.22   |      | $ | 0.21  
|Average shares outstanding:                                    |  |                            |        |      |   |       
|Basic                                                          |  |                            | 39,866 |      |   | 39,656
|Diluted                                                        |  |                            | 40,182 |      |   | 39,891



The accompanying notes are an
integral part of these consolidated financial statements.



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



|                                                                                  |  |      |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|Three months ended March 31,                                                      |  | 2004 |          |   | 2003 |  
|Cash Flows from Operating Activities:                                             |  |      |          |   |      |   |          |  
|Net income                                                                        |  | $    | 15,926   |   |      | $ | 16,071   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |          |  
|Depreciation, amortization, and accretion                                         |  |      | 4,300    |   |      |   | 5,250    |  
|Provision for loan and lease losses                                               |  |      | 1,700    |   |      |   | 2,705    |  
|Realized gain on sales of available-for-sale securities, net                      |  |      | (563     | ) |      |   | (90      | )
|Deferred income taxes                                                             |  |      | 3,169    |   |      |   | 1,788    |  
|Gain on sale of loans and leases                                                  |  |      | (3,670   | ) |      |   | (2,538   | )
|Gain on sale of other real estate owned                                           |  |      | (174     | ) |      |   | (64      | )
|Mortgage loans originated for sale                                                |  |      | (24,372  | ) |      |   | (51,019  | )
|Proceeds from sale of mortgage loans originated for sale                          |  |      | 26,022   |   |      |   | 48,701   |  
|Leases acquired/originated for sale                                               |  |      | (128,184 | ) |      |   | (78,501  | )
|Sale of leases acquired/originated for sale                                       |  |      | 118,638  |   |      |   | 73,400   |  
|Increase in cash surrender value of bank-owned life insurance                     |  |      | (2,634   | ) |      |   | (1,642   | )
|Decrease in accrued interest receivable                                           |  |      | 259      |   |      |   | 585      |  
|Decrease in accrued interest payable                                              |  |      | (415     | ) |      |   | (3,518   | )
|Increase in accrued expenses and taxes payable                                    |  |      | 7,905    |   |      |   | 1,043    |  
|Other, net                                                                        |  |      | 55,700   |   |      |   | 33,596   |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |      | 73,607   |   |      |   | 45,767   |  
|                                                                                  |  |      |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                             |  |      |          |   |      |   |          |  
|Net (increase) decrease in restricted short-term investments                      |  |      | 18,040   |   |      |   | (5,232   | )
|Activity in available-for-sale securities:                                        |  |      |          |   |      |   |          |  
|Sales                                                                             |  |      | 90,222   |   |      |   | 13,333   |  
|Maturities, prepayments and calls                                                 |  |      | 40,713   |   |      |   | 273,638  |  
|Purchases                                                                         |  |      | (199,039 | ) |      |   | (448,435 | )
|Net (increase) decrease in loans and leases                                       |  |      | 32,400   |   |      |   | (1,032   | )
|Purchase of bank-owned life insurance                                             |  |      | (4,903   | ) |      |   | 0        |  
|Additions to premises and equipment                                               |  |      | (2,389   | ) |      |   | (2,346   | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used for investing activities                                            |  |      | (24,956  | ) |      |   | (170,074 | )
|                                                                                  |  |      |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                             |  |      |          |   |      |   |          |  
|Net increase in deposits                                                          |  |      | 211,431  |   |      |   | 108,024  |  
|Net increase (decrease) in short-term borrowings                                  |  |      | (80,165  | ) |      |   | 19,702   |  
|Net increase (decrease) in FHLB borrowings                                        |  |      | (121,425 | ) |      |   | 62,247   |  
|Repayment of long-term debt                                                       |  |      | 0        |   |      |   | (35,000  | )
|Proceeds from issuance of common stock                                            |  |      | 114      |   |      |   | 492      |  
|Cash dividends paid                                                               |  |      | (8,770   | ) |      |   | (8,325   | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash provided by financing activities                                         |  |      | 1,185    |   |      |   | 147,140  |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net change in cash and cash equivalents                                           |  |      | 49,836   |   |      |   | 22,833   |  
|Cash and cash equivalents at January 1                                            |  |      | 210,385  |   |      |   | 178,345  |  
|                                                                                  |  |      |          |   |      |   |          |  
|Cash and cash equivalents at March 31                                             |  | $    | 260,221  |   |      | $ | 201,178  |  
|                                                                                  |  |      |          |   |      |   |          |  
|Cash and cash equivalents:                                                        |  |      |          |   |      |   |          |  
|Cash and due from banks                                                           |  | $    | 137,500  |   |      | $ | 176,199  |  
|Unrestricted short-term investments                                               |  |      | 122,721  |   |      |   | 24,979   |  
|                                                                                  |  |      |          |   |      |   |          |  
|Cash and cash equivalents at March 31                                             |  | $    | 260,221  |   |      | $ | 201,178  |  
|                                                                                  |  |      |          |   |      |   |          |  



The accompanying notes are an
integral part of these consolidated financial statements.



Cash paid for interest on deposits, short-term borrowings, and long-term debt was $23,259 and $30,428 in 2004 and 2003, respectively. Income tax payments totaled $105 in 2004 and a refund of $2,608 was recorded in 2003. Amounts transferred
to other real estate owned were $313 in 2004 and $540 in 2003.



5



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(Dollars in thousands, except share data)



|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------------- |  | ----------- | ------ | ------------------------ | - | ---------------- |  | - | ------------------------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|Three months ended March 31                                                                                          |  | Shares ofCommonStock |  | CommonStock |        | AdditionalPaid-inCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |       
|Balance at January 1, 2003                                                                                           |  | 39,638,447           |  | $           | 79,277 |                          | $ | 62,858           |  | $ | 375,244                                    |   |  | $     | 16,476 |   |  | $ | 533,855 |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Comprehensive income:                                                                                                |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Net income                                                                                                           |  |                      |  |             |        |                          |   |                  |  |   | 16,071                                     |   |  |       |        |   |  |   | 16,071  |  
|Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       | (3,287 | ) |  |   | (3,287  | )
|Change in unrealized gain on recorded interest in securitized assets, net of taxes                                   |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       | (1,161 | ) |  |   | (1,161  | )
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive income                                                                                           |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   | 11,623  |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Common stock issued under employee benefit plans (includes related tax benefit of $154)                              |  | 36,736               |  |             | 73     |                          |   | 419              |  |   |                                            |   |  |       |        |   |  |   | 492     |  
|Cash dividends declared ($0.21 per share)                                                                            |  |                      |  |             |        |                          |   |                  |  |   | (8,325                                     | ) |  |       |        |   |  |   | (8,325  | )
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance at March 31, 2003                                                                                            |  | 39,675,183           |  | $           | 79,350 |                          | $ | 63,277           |  | $ | 382,990                                    |   |  | $     | 12,028 |   |  | $ | 537,645 |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance at January 1, 2004                                                                                           |  | 39,861,317           |  | $           | 79,723 |                          | $ | 66,264           |  | $ | 403,450                                    |   |  | $     | (2,055 | ) |  | $ | 547,382 |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Comprehensive income:                                                                                                |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Net income                                                                                                           |  |                      |  |             |        |                          |   |                  |  |   | 15,926                                     |   |  |       |        |   |  |   | 15,926  |  
|Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       | 4,248  |   |  |   | 4,248   |  
|Change in unrealized gain on recorded interest in securitized assets, net of tax effect                              |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       | 696    |   |  |   | 696     |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive income                                                                                           |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   | 20,870  |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Common stock issued under employee benefit plans (includes related tax benefit of $31)                               |  | 6,791                |  |             | 13     |                          |   | 101              |  |   |                                            |   |  |       |        |   |  |   | 114     |  
|Cash dividends declared ($0.22 per share)                                                                            |  |                      |  |             |        |                          |   |                  |  |   | (8,770                                     | ) |  |       |        |   |  |   | (8,770  | )
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance at March 31, 2004                                                                                            |  | 39,868,108           |  | $           | 79,736 |                          | $ | 66,365           |  | $ | 410,606                                    |   |  | $     | 2,889  |   |  | $ | 559,596 |  
|                                                                                                                     |  |                      |  |             |        |                          |   |                  |  |   |                                            |   |  |       |        |   |  |   |         |  



The accompanying notes are an
integral part of these consolidated financial statements.



6



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as noted and per share data)



NOTE 1. Accounting Policies



The information contained in this report is unaudited and is subject to year-end adjustments. Certain prior year amounts have been reclassified to conform
with current period classifications. The adjustments had no effect on gross revenues, gross expenses or net income. In the opinion of management, the information reflects all adjustments necessary for a fair statement of results for the periods
ended March 31, 2004 and 2003.



The accounting policies of
Susquehanna Bancshares, Inc. & Subsidiaries, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as presented on pages 58 through 66 of the Annual Report
on Form 10-K for the fiscal year ended December 31, 2003.



Recent
Accounting Pronouncements.



In December 2003, the
Financial Accounting Standards Board issued FAS No. 132 (revised 2003), Employers Disclosure about Pensions and Other Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106. This statement improves financial
statement disclosures for defined benefit plans by requiring additional disclosures to those in the original Statement No. 132 about assets, investment strategy, measurement dates, plan obligations, cash flows, and components of net periodic benefit
cost recognized during interim periods. With certain exceptions, this statement was effective for fiscal years ending after December 15, 2003. Susquehanna adopted this statement as of December 31, 2003, and the additional interim pension and other
postretirement benefit disclosures are included in Note 8 to these financial statements.



In addition, in December 2003, the Financial Accounting Standards Board reissued FIN 46 (FIN 46R) with certain modifications and clarifications. Application of this guidance was effective for interests in certain
VIEs, commonly referred to as special-purpose entities (SPEs) as of December 31, 2003. Application for all other types of entities was required for periods ending after March 15, 2004, unless previously applied. Considering these modifications and
clarifications, management has determined that consolidation of Susquehannas VIE was still not required.



NOTE 2. Subsequent Events



Patriot
Acquisition



On April 21, 2004, Susquehanna shareholders
and Patriot Bank Corp. shareholders approved the merger transaction under which Susquehanna will acquire Patriot. Pending the expiration of applicable regulatory waiting-periods and the completion of other customary closing conditions, the vote
enables the merger to proceed. Upon consummation of the merger, which is expected to occur on or about June 10, 2004, Susquehannas assets will total over $7,000,000. Patriot Bank Corp. is a $1,000,000 financial services company and is the
holding company for it banking subsidiary, Patriot Bank.



Upon
completion of the acquisition, Susquehanna will merge Patriot Bank into Equity Bank, one of its wholly owned subsidiaries, with Equity Bank as the resulting company. The combined bank will be named Susquehanna Patriot Bank and will operate in
eastern Pennsylvania and southern New Jersey.



Debt Offering



On May 3, 2004, Susquehanna completed the private placement of $75,000
aggregate principal amount of 4.75% fixed rate/floating rate subordinated notes due May 1, 2014. Susquehanna intends to use the net proceeds from the offering to fund the cash portion of the Patriot acquisition, and the remaining balance to increase
its liquidity and capital position in anticipation of future growth and for general corporate purposes. The notes are intended to qualify as Tier 2 Capital under the capital guidelines established by the Federal Reserve Board.



The notes bear interest at a fixed rate of 4.75% per annum through and
including May 1, 2009 and convert to a floating rate thereafter until maturity based on the US dollar three-month LIBOR plus 1.82%. Beginning May 1, 2009, Susquehanna, upon consultation with the Federal Reserve Board, has the right to redeem the
notes at a redemption price of 100% of the principal amount of the notes plus any accrued interest.



The notes were offered only to institutional buyers in accordance with Rule 144A of the Securities Act of 1935, as amended.



7



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands)



NOTE 3. Investment Securities



The amortized costs and fair values of securities were as follows:



|                            |  |                |           |                   |   |                |  |            |         |  |   |        
|--------------------------- |  | -------------- | --------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                            |  | March 31, 2004 |           | December 31, 2003
|                            |  | Amortized cost |           | Fair value        |   | Amortized cost |  | Fair value
|Available-for-sale:         |  |                |           |                   |   |                |  |            |         |  |   |        
|U.S. Treasury               |  | $              | 0         |                   | $ | 0              |  | $          | 200     |  | $ | 202    
|U.S. Government agencies    |  |                | 183,921   |                   |   | 184,431        |  |            | 84,352  |  |   | 84,679 
|State & municipal           |  |                | 14,693    |                   |   | 15,243         |  |            | 18,123  |  |   | 18,793 
|Mortgage-backed             |  |                | 806,908   |                   |   | 808,504        |  |            | 836,962 |  |   | 832,248
|Other debt securities       |  |                | 7,350     |                   |   | 7,538          |  |            | 7,342   |  |   | 7,409  
|Equities                    |  |                | 40,725    |                   |   | 41,213         |  |            | 40,151  |  |   | 40,551 
|                            |  |                |           |                   |   |                |  |            |         |  |   |        
|                            |  |                | 1,053,597 |                   |   | 1,056,929      |  |            | 987,130 |  |   | 983,882
|                            |  |                |           |                   |   |                |  |            |         |  |   |        
|Held-to-maturity:           |  |                |           |                   |   |                |  |            |         |  |   |        
|State & municipal           |  |                | 4,533     |                   |   | 4,533          |  |            | 4,340   |  |   | 4,340  
|                            |  |                |           |                   |   |                |  |            |         |  |   |        
|                            |  |                | 4,533     |                   |   | 4,533          |  |            | 4,340   |  |   | 4,340  
|                            |  |                |           |                   |   |                |  |            |         |  |   |        
|Total investment securities |  | $              | 1,058,130 |                   | $ | 1,061,462      |  | $          | 991,470 |  | $ | 988,222
|                            |  |                |           |                   |   |                |  |            |         |  |   |        



NOTE 4. Loans and Leases



Loans and leases, net of unearned income, were as follows:



|                                                                                          |  |               |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                          |  | March 31,2004 |           |   | December 31,2003 |  
|Commercial, financial, and agricultural                                                   |  | $             | 622,587   |   |                  | $ | 621,438   |  
|Real estate - construction                                                                |  |               | 557,526   |   |                  |   | 549,672   |  
|Real estate secured - residential                                                         |  |               | 1,302,497 |   |                  |   | 1,306,371 |  
|Real estate secured - commercial                                                          |  |               | 1,008,297 |   |                  |   | 1,016,360 |  
|Consumer                                                                                  |  |               | 337,276   |   |                  |   | 337,989   |  
|Leases                                                                                    |  |               | 401,426   |   |                  |   | 431,442   |  
|                                                                                          |  |               |           |   |                  |   |           |  
|Total loans and leases                                                                    |  | $             | 4,229,609 |   |                  | $ | 4,263,272 |  
|                                                                                          |  |               |           |   |                  |   |           |  
|The net investment in direct financing leases was as follows:                             |  |               |           |   |                  |   |           |  
|Minimum lease payments receivable                                                         |  | $             | 198,354   |   |                  | $ | 236,423   |  
|Estimated residual value of leases                                                        |  |               | 237,372   |   |                  |   | 235,828   |  
|Unearned income under lease contracts                                                     |  |               | (34,300   | ) |                  |   | (40,809   | )
|                                                                                          |  |               |           |   |                  |   |           |  
|Total leases                                                                              |  | $             | 401,426   |   |                  | $ | 431,442   |  
|                                                                                          |  |               |           |   |                  |   |           |  
|An analysis of impaired loans, as of March 31, 2004 and December 31, 2003, is as follows: |  |               |           |   |                  |   |           |  
|Impaired loans without a related reserve                                                  |  | $             | 838       |   |                  | $ | 2,232     |  
|Impaired loans with a reserve                                                             |  |               | 7,663     |   |                  |   | 7,423     |  
|                                                                                          |  |               |           |   |                  |   |           |  
|Total impaired loans                                                                      |  | $             | 8,501     |   |                  | $ | 9,655     |  
|                                                                                          |  |               |           |   |                  |   |           |  
|Reserve for impaired loans                                                                |  | $             | 1,556     |   |                  | $ | 1,657     |  
|                                                                                          |  |               |           |   |                  |   |           |  



An analysis of impaired loans, for the
three months ended March 31, 2004 and 2003, is as follows:



|                                               |  |                              |       |      |   |      
|---------------------------------------------- |  | ---------------------------- | ----- | ---- | - | -----
|                                               |  | Three Months ended March 31,
|                                               |  | 2004                         |       | 2003
|Average balance of impaired loans              |  | $                            | 8,528 |      | $ | 6,371
|Interest income on impaired loans (cash-basis) |  |                              | 28    |      |   | 17   



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands,
except per share data)



NOTE 5. Borrowings



|                                            |  |               |         |                  |   |        
|------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                            |  | March 31,2004 |         | December 31,2003
|Short-term borrowings were as follows:      |  |               |         |                  |   |        
|Securities sold under repurchase agreements |  | $             | 273,678 |                  | $ | 295,512
|Federal funds purchased                     |  |               | 0       |                  |   | 55,250 
|Treasury tax and loan notes                 |  |               | 1,710   |                  |   | 4,791  
|                                            |  |               |         |                  |   |        
|Total short-term borrowings                 |  | $             | 275,388 |                  | $ | 355,553
|                                            |  |               |         |                  |   |        
|Long-term debt was as follows:              |  |               |         |                  |   |        
|Subsidiaries:                               |  |               |         |                  |   |        
|Term notes due July, 2004                   |  | $             | 5,000   |                  | $ | 5,000  
|Parent:                                     |  |               |         |                  |   |        
|Subordinated notes due February, 2005       |  |               | 50,000  |                  |   | 50,000 
|Subordinated notes due November, 2012       |  |               | 75,000  |                  |   | 75,000 
|                                            |  |               |         |                  |   |        
|Total long-term debt                        |  | $             | 130,000 |                  | $ | 130,000
|                                            |  |               |         |                  |   |        



NOTE 6. Earnings per Share (shares
in thousands)



The following tables set forth the
calculation of basic and diluted earnings per share.



|                                                                |  |                                     |        |        |        |                 |   |        |  |        |        |                 |        |  |   |     
|--------------------------------------------------------------- |  | ----------------------------------- | ------ | ------ | ------ | --------------- | - | ------ |  | ------ | ------ | --------------- | ------ |  | - | ----
|                                                                |  | For the three months ended March 31
|                                                                |  | 2004                                |        | 2003  
|                                                                |  | Income                              |        | Shares |        | Per ShareAmount |   | Income |  | Shares |        | Per ShareAmount
|Basic Earnings per Share:                                       |  |                                     |        |        |        |                 |   |        |  |        |        |                 |        |  |   |     
|Income available to common shareholders                         |  | $                                   | 15,926 |        | 39,866 |                 | $ | 0.40   |  | $      | 16,071 |                 | 39,656 |  | $ | 0.41
|                                                                |  |                                     |        |        |        |                
|Effect of Diluted Securities:                                   |  |                                     |        |        |        |                 |   |        |  |        |        |                 |        |  |   |     
|Stock options outstanding                                       |  |                                     |        |        | 316    |                 |   |        |  |        |        |                 | 235    |  |   |     
|                                                                |  |                                     |        |        |        |                 |   |        |  |        |        |                 |        |  |   |     
|                                                                |  |                                     |        |        |        |                
|Diluted Earnings per Share:                                     |  |                                     |        |        |        |                 |   |        |  |        |        |                 |        |  |   |     
|Income available to common shareholders and assuming conversion |  | $                                   | 15,926 |        | 40,182 |                 | $ | 0.40   |  | $      | 16,071 |                 | 39,891 |  | $ | 0.40
|                                                                |  |                                     |        |        |        |                 |   |        |  |        |        |                 |        |  |   |     



For the three months
ended March 31, 2004, all options outstanding were included in the computation of diluted EPS. For the three months ended March 31, 2003, average options to purchase 467 shares were outstanding but were not included in the computation of diluted EPS
because the options exercise prices were greater than the average market price of the common shares; and the options were, therefore, antidilutive.



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)



NOTE 7. Stock-Based Compensation



Susquehannas stock-based compensation plan is accounted for using the
intrinsic value method set forth in Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees and related Interpretations. Under APB 25, no compensation expense is recognized, as the exercise price of
Susquehannas stock options is equal to the fair market value of its common stock on the date of grant.



Pursuant to FAS No. 123, Accounting for Stock-Based Compensation, as amended by FAS No. 148, Accounting for Stock-Based Compensation -
Transitions and Disclosure, disclosure requirements, pro forma net income, and earnings per share are presented in the following table as if compensation cost for stock options was determined under the fair value method and amortized to
expense over the options vesting periods. On January 21, 2004, 136 options were granted to employees and directors with an exercise price of $25.14 per share on the date of grant.



|                                                                                                                                            |  |                                     |        |      |   |       
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                                                                                            |  | For the three months ended March 31
|                                                                                                                                            |  | 2004                                |        | 2003
|Net income, as reported                                                                                                                     |  | $                                   | 15,926 |      | $ | 16,071
|                                                                                                                                            |  |                                    
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                     | 214    |      |   | 194   
|                                                                                                                                            |  |                                     |        |      |   |       
|Pro forma net income                                                                                                                        |  | $                                   | 15,712 |      | $ | 15,877
|                                                                                                                                            |  |                                     |        |      |   |       
|Earnings per share:                                                                                                                         |  |                                     |        |      |   |       
|Basic - as reported                                                                                                                         |  | $                                   | 0.40   |      | $ | 0.41  
|Basic - pro forma                                                                                                                           |  | $                                   | 0.39   |      | $ | 0.40  
|                                                                                                                                            |  |                                    
|Diluted - as reported                                                                                                                       |  | $                                   | 0.40   |      | $ | 0.40  
|Diluted - pro forma                                                                                                                         |  | $                                   | 0.39   |      | $ | 0.40  



NOTE 8. Benefit Plans



Components of Net Periodic Benefit Cost



|                                              |  |                             |        |   |                |   |      |      |  |   |      |   |  |   |     |  
|--------------------------------------------- |  | --------------------------- | ------ | - | -------------- | - | ---- | ---- |  | - | ---- | - |  | - | --- | -
|                                              |  | Three months ended March 31 |       
|                                              |  | Pension Benefits            |        |   | Other Benefits |  
|                                              |  | 2004                        |        |   | 2003           |   |      | 2004 |  |   | 2003 |  
|Service cost                                  |  | $                           | 670    |   |                | $ | 560  |      |  | $ | 54   |   |  | $ | 48  |  
|Interest cost                                 |  |                             | 956    |   |                |   | 837  |      |  |   | 70   |   |  |   | 64  |  
|Expected return on plan assets                |  |                             | (1,103 | ) |                |   | (978 | )    |  |   | 0    |   |  |   | 0   |  
|Amortization of prior service cost            |  |                             | (12    | ) |                |   | (59  | )    |  |   | 12   |   |  |   | 12  |  
|Amortization of transition obligation (asset) |  |                             | 0      |   |                |   | (17  | )    |  |   | 28   |   |  |   | 28  |  
|Amortization of net actuarial (gain) or loss  |  |                             | 113    |   |                |   | 135  |      |  |   | (8   | ) |  |   | (12 | )
|                                              |  |                             |        |   |                |   |      |      |  |   |      |   |  |   |     |  
|Net periodic benefit cost                     |  | $                           | 624    |   |                | $ | 478  |      |  | $ | 156  |   |  | $ | 140 |  
|                                              |  |                             |        |   |                |   |      |      |  |   |      |   |  |   |     |  



Employer Contributions



Susquehanna previously
disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $0 to its pension plans and $277 to its other postretirement benefit plan in 2004. As of March 31, 2004, $0 of contributions have been made to
its pension plans, and $60 of contributions have been made to its other postretirement benefit plan. Susquehanna does not anticipate any changes to its 2004 projections.



10



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands)



Note 9. Securitization Activity



Since 2001, Susquehanna has sold the beneficial interests in automobile
leases in securitization transactions. In all those securitizations, Susquehanna retained servicing responsibilities and subordinated interests. Susquehanna receives annual servicing fees approximating 1.0% of the outstanding balance and rights to
future cash flows arising after the investors have received the return for which they contracted. Susquehanna recognizes no servicing asset, as servicing income approximates servicing costs. We enter into securitization transactions primarily to
achieve low-cost funding for the growth of our auto portfolio, and not primarily to maximize our ongoing servicing fee revenue. Susquehanna monitors its servicing costs to ensure that future costs do not exceed servicing income. If servicing costs
were to exceed servicing income, Susquehanna would record the present value of that liability as an expense.



The investors and the securitization trusts have no recourse to Susquehannas other assets, except retained interests, for failure of debtors to pay
when due. Susquehannas retained interests are subordinate to investors interests. Their value is subject to credit, prepayment, and interest rate risks on the transferred financial assets.



Susquehanna has reimbursement obligations to a lender under a letter of
credit facility if the residual value guarantor breaches its obligations under the securitization transaction to purchase leased vehicles at the scheduled termination or expiration of the leases for the full stated residual value of the vehicles. At
March 31, 2004, Susquehanna would be obligated to make payments in an amount up to $20,500 under this letter of credit upon a breach by the residual value guarantor.



The following table presents quantitative information about delinquencies, net credit losses, and components of lease sales
serviced by Susquehanna, including securitization transactions.



|                                   |  |                   |           |                                     |   |                  |  |      |       |      |   |       |  |   |     |  |   |    
|---------------------------------- |  | ----------------- | --------- | ----------------------------------- | - | ---------------- |  | ---- | ----- | ---- | - | ----- |  | - | --- |  | - | ---
|                                   |  | As of March 31    |           | For the Three Months Ended March 31
|                                   |  | Principal Balance |           | Leases Past Due30 Days or More      |   | Net CreditLosses
|                                   |  | 2004              |           | 2003                                |   | 2004             |  | 2003 |       | 2004 |   | 2003 
|Total leases and loans serviced    |  | $                 | 1,589,492 |                                     | $ | 1,377,363        |  | $    | 3,182 |      | $ | 2,597 |  | $ | 114 |  | $ | 138
|Less:                              |  |                   |           |                                     |   |                  |  |      |       |      |   |       |  |   |     |  |   |    
|Leases securitized                 |  |                   | 391,509   |                                     |   | 310,822          |  |      | 200   |      |   | 116   |  |   | 33  |  |   | 16 
|Leases serviced for others (1)     |  |                   | 827,980   |                                     |   | 801,470          |  |      | 2,173 |      |   | 2,145 |  |   | 67  |  |   | 100
|                                   |  |                   |           |                                     |   |                  |  |      |       |      |   |       |  |   |     |  |   |    
|Leases and loans held in portfolio |  | $                 | 370,003   |                                     | $ | 265,071          |  | $    | 809   |      | $ | 336   |  | $ | 14  |  | $ | 22 
|                                   |  |                   |           |                                     |   |                  |  |      |       |      |   |       |  |   |     |  |   |    

---

|(1) | Amounts include the sale-leaseback transaction and agency arrangements.
|--- | -----------------------------------------------------------------------



Certain cash flows received from the structured entities associated with the lease securitizations described above are as follow:



|                                                |  |                            |         |      |   |       
|----------------------------------------------- |  | -------------------------- | ------- | ---- | - | ------
|                                                |  | Three Months EndedMarch 31
|                                                |  | 2004                       |         | 2003
|Proceeds from lease securitizations             |  | $                          | 118,638 |      | $ | 73,400
|Amounts derecognized                            |  |                            | 128,184 |      |   | 78,501
|Servicing fees received                         |  |                            | 1,223   |      |   | 1,040 
|Other cash flows received on retained interests |  |                            | 353     |      |   | 1,856 



Set forth below is a
summary of the fair values of the interest-only strips, key economic assumptions used to arrive at the fair values, and the sensitivity of the March 31, 2004 fair values to immediate 10% and 20% adverse changes in those assumptions. The
sensitivities are hypothetical and should be used with caution. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not
be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption: in reality, changes in one factor may result in changes in another (for example,
increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.



|                                            |  |            |       |                                 |    |                        |      |   |                                |      |   |                        |       |  
|------------------------------------------- |  | ---------- | ----- | ------------------------------- | -- | ---------------------- | ---- | - | ------------------------------ | ---- | - | ---------------------- | ----- | -
|As of March 31, 2004 Automobile
Leases      |  | Fair Value |       | Weighted-averageLife(in months) |    | MonthlyPrepaymentSpeed |      |   | ExpectedCumulativeCreditLosses |      |   | AnnualDiscountRate (1) |      
|Revolving transaction - Interest-Only Strip |  | $          | 4,985 |                                 | 38 |                        | 0.50 | % |                                | 0.10 | % |                        | 2.53  | %
|Decline in fair value of 10% adverse change |  |            |       |                                 |    |                        | 5    |   |                                | 5    |   |                        | 796   |  
|Decline in fair value of 20% adverse change |  |            |       |                                 |    |                        | 10   |   |                                | 10   |   |                        | 1,592 |  
|2003 transaction - Interest-Only Strip      |  |            | 7,928 |                                 | 22 |                        | 0.25 | % |                                | 0.10 | % |                        | 1.84  | %
|Decline in fair value of 10% adverse change |  |            |       |                                 |    |                        | 3    |   |                                | 3    |   |                        | 26    |  
|Decline in fair value of 20% adverse change |  |            |       |                                 |    |                        | 5    |   |                                | 5    |   |                        | 52    |  
|2001 transaction - Interest-Only Strip      |  |            | 11    |                                 | 1  |                        | 0.10 | % |                                | 0.10 | % |                        | N/M   |  
|Decline in fair value of 10% adverse change |  |            |       |                                 |    |                        | N/M  |   |                                | N/M  |   |                        | N/M   |  
|Decline in fair value of 20% adverse change |  |            |       |                                 |    |                        | N/M  |   |                                | N/M  |   |                        | N/M   |  

---

|(1) | The annual discount rate used is derived from the interpolated Treasury swap rate as of the reporting date.
|--- | -----------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 2



Managements Discussion and
Analysis of Financial Condition and Results of Operations



Managements discussion and analysis of the significant changes in the consolidated results of operations, financial condition, and cash flows of Susquehanna Bancshares, Inc. and its subsidiaries is set forth below for the periods
indicated. Susquehanna Bancshares, Inc. and its subsidiaries are collectively referred to as Susquehanna, we, us, and our.



Certain statements in this document may be considered to be forward-looking statements as that term is defined
in the U.S. Private Securities Litigation Reform Act of 1995, such as statements that include the words expect, estimate, project, anticipate, should, intend,
probability, risk, target, objective and similar expressions or variations on such expressions. In particular, this document includes forward-looking statements relating, but not limited, to
Susquehannas potential exposures to various types of market risks, such as interest rate risk; credit risk; whether Susquehannas allowance for loan and lease losses is adequate to meet probable loan and lease losses; the impact of a
breach by Auto Lenders on residual loss exposure; the likelihood of an occurrence of an Early Amortization Event; the impact on Susquehanna of its ability to maintain contingent vehicle liability insurance coverage in vicarious liability states; and
the anticipated acquisition of Patriot Bank Corp. Such statements are subject to certain risks and uncertainties. For example, certain of the market risk disclosures are dependent on choices about essential model characteristics and assumptions and
are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual income gains and losses could materially
differ from those that have been estimated. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to:



| |  | adverse changes in our loan and lease portfolios and the resulting credit risk-related losses and expenses;
| | - | -----------------------------------------------------------------------------------------------------------



| |  | interest rate fluctuations that could increase our cost of funds or decrease our yield on earning assets and therefore reduce our net interest income;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | continued levels of our loan and lease quality and origination volume;
| | - | ----------------------------------------------------------------------



| |  | the adequacy of the allowance for loan and lease losses;
| | - | --------------------------------------------------------



| |  | the loss of certain key officers, which could adversely impact our business;
| | - | ----------------------------------------------------------------------------



| |  | continued relationships with major customers;
| | - | ---------------------------------------------



| |  | our ability to complete the anticipated merger with Patriot Bank Corp. and the merger of Patriot Bank with and into Equity Bank within our anticipated time-frame, or at all,
including whether the merger agreement will be approved by applicable state and local regulatory authorities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | the inability to continue to grow our business internally and through acquisition and successful integration of bank and non-bank entities while controlling our costs;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | adverse national and regional economic and business conditions;
| | - | ---------------------------------------------------------------



| |  | compliance with laws and regulatory requirements of federal and state agencies;
| | - | -------------------------------------------------------------------------------



| |  | competition from other financial institutions in originating loans, attracting deposits and providing various financial services that may affect our profitability;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the inability to hedge certain risks economically;
| | - | --------------------------------------------------



| |  | our ability to effectively implement technology driven products and services;
| | - | -----------------------------------------------------------------------------



| |  | changes in consumer confidence, spending and savings habits relative to the bank and non-bank financial services we provide; and
| | - | --------------------------------------------------------------------------------------------------------------------------------



| |  | our success in managing the risks involved in the foregoing.
| | - | ------------------------------------------------------------



We encourage readers of this report 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. We do 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.



The following discussion and analysis, the purpose of which is to provide investors and others with information that we believe to be necessary for an understanding of Susquehannas financial condition, changes
in financial condition, and results of operations, should be read in conjunction with the financial statements, notes, and other information contained in this document.



The following information refers to the parent company and its wholly owned subsidiaries: Boston Service Company, Inc., (t/a
Hann Financial Service Corporation) (Hann), Conestoga Management Company, Farmers First Bank and subsidiaries (Farmers), Farmers & Merchants Bank and Trust and subsidiaries (F&M), First American Bank of
Pennsylvania (FAB), First Susquehanna Bank & Trust (First Susquehanna), WNB Bank (WNB), Citizens Bank of Southern Pennsylvania (Citizens), Susquehanna Bancshares East, Inc. and subsidiaries,
(East), Susquehanna Bancshares South, Inc. and subsidiaries (South), Susque-Bancshares Life Insurance Co. (SBLIC), Susquehanna Commercial Leasing, Inc., Valley Forge Asset Management Corporation
(VFAM), and The Addis Group, LLC (Addis).



13



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##### Table of Contents

Subsequent Events



Patriot Acquisition



On April 21, 2004, Susquehanna shareholders and Patriot Bank Corp. shareholders approved the merger transaction under which Susquehanna will acquire
Patriot. Pending the expiration of applicable regulatory waiting-periods and the completion of other customary closing conditions, the vote enables the merger to proceed. Upon consummation of the merger, which is expected to occur on or about June
10, 2004, our assets will total over $7.0 billion.



Patriot
Bank Corp. is a $1.0 billion financial services company and is the holding company for its banking subsidiary, Patriot Bank. The company operates 20 banking and lending offices in eastern Pennsylvania. The transaction is expected to enhance our
presence in Pennsylvania, particularly in the high-growth counties of Berks, Chester, Lehigh, Montgomery, and Northampton.



Upon completion of the acquisition, we will merge Patriot Bank into Equity Bank, one of our wholly owned subsidiaries, with Equity Bank as the resulting
company. The combined $2.2 billion bank will be named Susquehanna Patriot Bank and will operate 36 banking centers in eastern Pennsylvania and southern New Jersey.



Debt Offering



On May 3, 2004, we completed the private placement of $75.0 million aggregate principal amount of our 4.75% fixed rate/floating rate subordinated notes
due May 1, 2014. We intend to use the net proceeds from the offering to fund the cash portion of the Patriot acquisition, and the remaining balance to increase our liquidity and capital position in anticipation of future growth and for general
corporate purposes. The notes are intended to qualify as Tier 2 Capital under the capital guidelines established by the Federal Reserve Board.



The notes bear interest at a fixed rate of 4.75% per annum through and including May 1, 2009 and convert to a floating rate thereafter until maturity
based on the US dollar three-month LIBOR plus 1.82%. Beginning on May 1, 2009, we, upon consultation with the Federal Reserve Board, have the right to redeem the notes at a redemption price of 100% of the principal amount of the notes plus any
accrued interest.



The notes were offered only to
institutional buyers in accordance with Rule 144A of the Securities Act of 1935, as amended.



Availability of Information



Our website address is www.susqbanc.com. We make available free of charge, through the Investor Relations section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. We include our website address in this Quarterly Report on
Form 10-Q only as an inactive textual reference and do not intend it to be an active link to our website.



14



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##### Table of Contents

Results of Operations



Summary of 2004 Compared to 2003



Net income for the first quarter of 2004 was $15.9 million, a 0.9% decrease from net income of $16.1 million in the first quarter of 2003.



During the first quarter of 2004, our net interest income decreased by 1.3%,
to $46.7 million in 2004, from $47.3 million in 2003. Noninterest income continued to improve as it increased by 6.2%, to $27.1 million for the first quarter of 2004, from $25.5 million for the first quarter of 2003. Noninterest income represented
36.7% of total revenues for the first quarter of 2004 and 35.0% for the first quarter of 2003. Noninterest expenses increased 5.4%, to $49.3 million for the first quarter of 2004, from $46.8 million for the first quarter of 2003.



Additional information is as follows:



|                           |  |                             |       |   |      |   |       |  
|-------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                           |  | Three Months EndedMarch 31, |      
|                           |  | 2004                        |       |   | 2003 |  
|Diluted Earnings per Share |  | $                           | 0.40  |   |      | $ | 0.40  |  
|Return on Average Assets   |  |                             | 1.08  | % |      |   | 1.18  | %
|Return on Average Equity   |  |                             | 11.64 | % |      |   | 12.18 | %



The following
discussion details the factors that contributed to these results.



Net
Interest Income  Taxable Equivalent Basis



Our major
source of operating revenues is net interest income, which decreased to $46.7 million in the first quarter of 2004, from $47.3 million for the same period in 2003. Net interest income as a percentage of net interest income plus other income was
63.3% for the quarter ended March 31, 2004 and 65.0% for the quarter ended March 31, 2003.



Net interest income is the income that remains after deducting, from total income generated by earning assets, the interest expense attributable to the acquisition of the funds required to support those earning
assets. Income from earning assets includes income from loans and leases, income from investment securities, and income from short-term investments. The amount of interest income is dependent upon many factors, including the volume of earning
assets, the general level of interest rates, the dynamics of the change in interest rates, and levels of non-performing assets. The cost of funds varies with the amount of funds necessary to support earning assets, the rates paid to attract and hold
deposits, rates paid on borrowed funds, and the levels of non-interest bearing demand deposits and equity capital.



15



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##### Table of Contents

Table 1 presents average balances, taxable equivalent interest income, interest expenses, and yields
earned or paid on these assets and liabilities. For purposes of calculating taxable equivalent interest income, tax-exempt interest has been adjusted using a marginal tax rate of 35% in order to equate the yield to that of taxable interest rates.



Net interest income for the first quarter of 2004 decreased
$0.6 million over the first quarter of 2003. Average earning assets in the first quarter of 2004 increased $304.1 million over the same period in 2003, while average interest-bearing liabilities increased $257.1 million. Average loans and leases
rose by $453.1 million, average investment securities decreased $179.4 million, and lower yielding, short-term investments increased $30.5 million. Average interest-bearing deposits increased $279.9 million, and average debt decreased $22.8 million.



The decrease in net interest income is primarily the result of
average yields on earning assets declining more than the average cost of funds. The yield on average earning assets declined 83 basis points, while the average cost of funds declined only 53 basis points due to a declining interest rate environment.



Since we are an asset-sensitive institution, where assets
reprice more quickly than liabilities, the net interest margin experienced further compression as interest rates declined and decreased to 3.57% in the first quarter of 2004, from 3.88% in the first quarter of 2003. A mitigating factor in the
decrease in the net interest margin was the increase in average noninterest bearing deposits of $112.0 million from March 31, 2003 to March 31, 2004.



Variances do occur in the net interest margin, as an exact repricing of assets and liabilities is not possible. A further explanation of the impact of
asset and liability repricing is found in Item 3, Quantitative and Qualitative Disclosures about Market Risk.



16



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

TABLE 1 - Distribution of Assets, Liabilities and Shareholders Equity

(dollars in thousands)



Interest
rates and interest differential - taxable equivalent basis



|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|----------------------------------------------------- |  | ---------------------------------------------- | --------- | ---------------------------------------------- | -------- | - | -------- |  | -------------- |  | - | --------- | - | -------- | - | ------ |  | ----
|                                                      |  | For the Three Month Period EndedMarch 31, 2004 |           | For the Three Month Period EndedMarch 31, 2003
|                                                      |  | AverageBalance                                 |           |                                                | Interest |   | Rate (%) |  | AverageBalance |  |   | Interest  |   | Rate (%)
|Assets                                                |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Short - term investments                              |  | $                                              | 90,611    |                                                |          | $ | 197      |  | 0.87           |  | $ | 60,109    |   |          | $ | 164    |  | 1.11
|Investment securities:                                |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Taxable                                               |  |                                                | 943,815   |                                                |          |   | 7,996    |  | 3.41           |  |   | 1,103,362 |   |          |   | 11,670 |  | 4.29
|Tax - advantaged                                      |  |                                                | 20,632    |                                                |          |   | 400      |  | 7.80           |  |   | 40,527    |   |          |   | 711    |  | 7.12
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total investment securities                           |  |                                                | 964,447   |                                                |          |   | 8,396    |  | 3.50           |  |   | 1,143,889 |   |          |   | 12,381 |  | 4.39
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Loans and leases, (net):                              |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Taxable                                               |  |                                                | 4,189,597 |                                                |          |   | 60,441   |  | 5.80           |  |   | 3,749,330 |   |          |   | 61,136 |  | 6.61
|Tax - advantaged                                      |  |                                                | 67,731    |                                                |          |   | 1,066    |  | 6.33           |  |   | 54,924    |   |          |   | 1,165  |  | 8.60
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total loans and leases                                |  |                                                | 4,257,328 |                                                |          |   | 61,507   |  | 5.81           |  |   | 3,804,254 |   |          |   | 62,301 |  | 6.64
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total interest - earning assets                       |  |                                                | 5,312,386 |                                                |          | $ | 70,100   |  | 5.31           |  |   | 5,008,252 |   |          | $ | 74,846 |  | 6.06
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Allowance for loan and lease losses                   |  |                                                | (43,339   | )                                              |          |   |          |  |                |  |   | (40,037   | ) |          |   |        |  |     
|Other non - earning assets                            |  |                                                | 649,861   |                                                |          |   |          |  |                |  |   | 551,959   |   |          |   |        |  |     
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total assets                                          |  | $                                              | 5,918,908 |                                                |          |   |          |  |                |  | $ | 5,520,174 |   |          |   |        |  |     
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Liabilities                                           |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Deposits:                                             |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Interest - bearing demand                             |  | $                                              | 1,364,918 |                                                |          | $ | 2,655    |  | 0.78           |  | $ | 1,156,866 |   |          | $ | 2,677  |  | 0.94
|Savings                                               |  |                                                | 513,237   |                                                |          |   | 386      |  | 0.30           |  |   | 480,349   |   |          |   | 610    |  | 0.52
|Time                                                  |  |                                                | 1,651,567 |                                                |          |   | 11,815   |  | 2.88           |  |   | 1,612,614 |   |          |   | 13,965 |  | 3.51
|Short - term borrowings                               |  |                                                | 287,270   |                                                |          |   | 590      |  | 0.83           |  |   | 280,364   |   |          |   | 838    |  | 1.21
|FHLB borrowings                                       |  |                                                | 546,791   |                                                |          |   | 5,120    |  | 3.77           |  |   | 548,652   |   |          |   | 6,038  |  | 4.46
|Long - term debt                                      |  |                                                | 130,000   |                                                |          |   | 2,340    |  | 7.24           |  |   | 157,833   |   |          |   | 2,782  |  | 7.15
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total interest - bearing liabilities                  |  |                                                | 4,493,783 |                                                |          | $ | 22,906   |  | 2.05           |  |   | 4,236,678 |   |          | $ | 26,910 |  | 2.58
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Demand deposits                                       |  |                                                | 702,262   |                                                |          |   |          |  |                |  |   | 590,291   |   |          |   |        |  |     
|Other liabilities                                     |  |                                                | 172,337   |                                                |          |   |          |  |                |  |   | 158,190   |   |          |   |        |  |     
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total liabilities                                     |  |                                                | 5,368,382 |                                                |          |   |          |  |                |  |   | 4,985,159 |   |          |   |        |  |     
|Equity                                                |  |                                                | 550,526   |                                                |          |   |          |  |                |  |   | 535,015   |   |          |   |        |  |     
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Total liabilities & shareholders equity              |  | $                                              | 5,918,908 |                                                |          |   |          |  |                |  | $ | 5,520,174 |   |          |   |        |  |     
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     
|Net interest income / yield on average earning assets |  |                                                |           |                                                |          | $ | 47,194   |  | 3.57           |  |   |           |   |          | $ | 47,936 |  | 3.88
|                                                      |  |                                                |           |                                                |          |   |          |  |                |  |   |           |   |          |   |        |  |     

Additional Information

Average loan balances include non accrual loans.

Tax-exempt income has been adjusted to a tax-equivalent basis using a marginal rate of 35%.

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.



17



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##### Table of Contents

Provision and Allowance for Loan and Lease Losses



The provision for loan and lease losses is the expense necessary to maintain the allowance for loan and lease losses at a
level adequate to absorb managements estimate of probable losses in the loan and lease portfolio. Our provision for loan and lease losses is based upon managements quarterly review of the loan and lease portfolio. The purpose of the
review is to assess loan quality, identify impaired loans and leases, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets we serve.



As illustrated in Table 2, the provision was $1.7 million in the first
quarter of 2004, a decrease of $1.0 million from the same period in 2003. This decrease in the provision was due to our improved asset quality ratios and declining net charge-offs. Net charge-offs were $1.4 million for the three-month period ended
March 31, 2004 versus $2.1 million in the corresponding three-month period in 2003.



The allowance for loan and lease losses as a percentage of period-end loans and leases was 1.02% at March 31, 2004 and 1.05% at March 31, 2003.



Determining the level of the allowance for probable loan and lease losses at any given period is difficult, particularly
during uncertain economic periods. We must make estimates using information and assumptions that are often subjective and changing rapidly. The review of the loan and lease portfolios is a continuing event in light of a changing economy and the
dynamics of the banking and regulatory environment. In our opinion, the allowance for loan and leases losses is adequate to meet probable loan and lease losses at March 31, 2004. There can be no assurance, however, that we will not sustain losses in
future periods, which could be greater than the size of the allowance at March 31, 2004.



Noninterest Income



Noninterest income as a percentage of net interest income plus noninterest income was 36.7% for the quarter ended March 31, 2004 compared to 35.0% for the comparable period in 2003.



Noninterest income increased $1.6 million, or 6.2%, from $25.5 million in the
first quarter of 2003, to $27.1 million in the first quarter of 2004. This net increase is primarily the result of an increase of $1.1 million in gains on the sales of loans and leases; increased asset management fees of $1.0 million; increased
commissions on brokerage, life insurance and annuity sales of $0.7 million; and decreased vehicle origination and servicing fees of $1.8 million at Hann.



During the first quarter of 2004, Hann sold approximately $128.2 million in automobile leases and realized a net, pre-tax gain of $3.1 million. During the
comparable period of 2003, Hann sold approximately $78.5 million in automobile leases and realized a net, pre-tax gain of $1.5 million. Offsetting the increase in gains on sales of leases was a decrease in gains realized through the sale of mortgage
loans, from $1.0 million for the first quarter of 2003 to $0.5 million for the first quarter of 2004. This decrease is attributable to higher mortgage interest rates and the resultant slowdown in the refinance market.



18



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##### Table of Contents

As part of our strategy to increase other fee-based income, we continued to focus on enhancing the wealth
management part of our business. As a result, asset management fees increased to $3.3 million for the first quarter of 2004, from $2.3 million for the same period in 2003, and commissions on brokerage, life insurance and annuity sales increased from
$0.2 million for the first quarter of 2003 to $0.9 million for the first quarter of 2004. The increase in asset management fees is the result of a 52% increase in assets under management at VFAM, from $2.0 billion at March 31, 2003, to $3.1 billion
at March 31, 2004.



The decrease in vehicle origination and
servicing fees was primarily due to repricing on the sale-leaseback transaction in the latter half of 2003.



Noninterest Expenses



Total noninterest expenses increased $2.5 million, or 5.4%, from $46.8 million in the first quarter of 2003 to $49.3 million in the first quarter of 2004.



The quarter-to-quarter increase was primarily due to an increase in salaries and benefits expense of 7.8%, or $1.8 million,
as a result of normal annual salary increases, filling open positions, and higher benefit costs. Vehicle delivery and preparation expense increased by 17.2%, or $0.5 million, due to the increased volume of cars coming off lease.



Income Taxes



Susquehannas effective tax rate was 30.0% for the first quarter of 2004 and 31.0% for the first quarter of 2003. This
decrease is primarily due to our purchase of $50.0 million of tax-advantaged bank-owned life insurance in the third quarter of 2003.



Financial Condition



Summary of 2004 compared to 2003



Total assets at March 31, 2004 remained unchanged from $6.0 billion at December 31, 2003. Equity capital was $559.6 million at March 31, 2004, or $14.04
per share, and $547.4 million, or $13.73 per share, at December 31, 2003.



Total deposits increased $211.4 million from December 31, 2003 to March 31, 2004; while total loans decreased $33.7 million for the same timeframe.



The following discussion details the factors that contributed to these changes.



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##### Table of Contents

Investment Securities Available for Sale



Investment securities available for sale increased $73.0 million from December 31, 2003 to March 31, 2004. This increase is
primarily the result of funds being available for investment as deposit growth was greater than loan growth.



Loans and Leases



Loans and leases decreased $33.7 million from December 31, 2003 to March 31, 2004. This decrease was primarily due to leases at Hann, which fluctuate based upon timing related to its warehouse facilities.



Risk Assets



Table 3 shows a slight increase in non-accrual loans and leases, from $17.5 million at March 31, 2003 to $17.7 million at
March 31, 2004. Loans and leases past due 90 days or more and still accruing decreased from $7.8 million at March 31, 2003 to $6.7 million at March 31, 2004. The percentage of non-performing assets to period-end loans and leases plus other real
estate owned decreased from 0.71% at March 31, 2003 to 0.46% at March 31, 2004. The percentage of loan and lease loss reserve to non-performing loans and leases was 242% at March 31, 2004, compared with 166% at March 31, 2003.



At December 31, 2003, Susquehanna had a restructured loan totaling $5.8
million with a long-time borrower. However, in accordance with FAS No. 114, information about a restructured loan involving a modification of terms need not be included in disclosures in years after the restructuring if the restructuring agreement
has market terms, including a market rate of interest, and the restructured loan is current and is expected to perform in accordance with the modified terms. The removal of this restructured loan from nonperforming assets at March 31, 2004 was the
primary reason for the ratio changes noted in the above paragraph.



Deposits



Total deposits increased
$211.4 million from December 31, 2003 to March 31, 2004. This increase is a direct result of the continuing success of our bank subsidiaries in carrying out our retail and corporate sales initiatives.



Borrowings



Total borrowings decreased $201.2 million from December 31, 2003 to March 31, 2004. As deposit growth was greater than loan
growth, we used some of the available funds to reduce our Federal Home Loan Bank and short-term borrowings.



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##### Table of Contents

Susquehanna Bancshares, Inc. and Subsidiaries

(dollars in thousands)



TABLE 2 - Allowance for Loan and Lease Losses



|                                                                      |  |                              |           |   |      |   |           |  
|--------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                                                                      |  | Three Months Ended March 31, |          
|                                                                      |  | 2004                         |           |   | 2003 |  
|Balance - Beginning of period                                         |  | $                            | 42,672    |   |      | $ | 39,671    |  
|Additions charged to operating expenses                               |  |                              | 1,700     |   |      |   | 2,705     |  
|                                                                      |  |                              |           |   |      |   |           |  
|                                                                      |  |                              | 44,372    |   |      |   | 42,376    |  
|                                                                      |  |                              |           |   |      |   |           |  
|Charge-offs                                                           |  |                              | (2,166    | ) |      |   | (2,651    | )
|Recoveries                                                            |  |                              | 740       |   |      |   | 556       |  
|                                                                      |  |                              |           |   |      |   |           |  
|Net charge-offs                                                       |  |                              | (1,426    | ) |      |   | (2,095    | )
|                                                                      |  |                              |           |   |      |   |           |  
|Balance - Period end                                                  |  | $                            | 42,946    |   |      | $ | 40,281    |  
|                                                                      |  |                              |           |   |      |   |           |  
|Net charge-offs as a percent of average loans and leases (annualized) |  |                              | 0.13      | % |      |   | 0.22      | %
|Allowance as a percent of period-end loans and leases                 |  |                              | 1.02      | % |      |   | 1.05      | %
|                                                                      |  |                             
|Average loans and leases                                              |  | $                            | 4,257,328 |   |      | $ | 3,804,254 |  
|Period-end loans and leases                                           |  |                              | 4,229,609 |   |      |   | 3,832,706 |  



TABLE 3 - Risk Assets



|                                                                         |  |               |        |   |                  |   |        |               |  |   |        |  
|------------------------------------------------------------------------ |  | ------------- | ------ | - | ---------------- | - | ------ | ------------- |  | - | ------ | -
|                                                                         |  | March 31,2004 |        |   | December 31,2003 |   |        | March 31,2003 | 
|Nonperforming assets:                                                    |  |               |        |   |                  |   |        |               |  |   |        |  
|Nonaccrual loans and leases                                              |  | $             | 17,749 |   |                  | $ | 19,037 |               |  | $ | 17,474 |  
|Restructured accrual loans                                               |  |               | 0      |   |                  |   | 5,823  |               |  |   | 6,833  |  
|Other real estate owned                                                  |  |               | 1,657  |   |                  |   | 2,893  |               |  |   | 3,104  |  
|                                                                         |  |               |        |   |                  |   |        |               |  |   |        |  
|Total nonperforming assets                                               |  | $             | 19,406 |   |                  | $ | 27,753 |               |  | $ | 27,411 |  
|                                                                         |  |               |        |   |                  |   |        |               |  |   |        |  
|As a percent of period-end loans and leases plus other real estate owned |  |               | 0.46   | % |                  |   | 0.65   | %             |  |   | 0.71   | %
|Coverage ratio                                                           |  |               | 241.96 | % |                  |   | 172.00 | %             |  |   | 165.72 | %
|Loans and leases contractually past due 90 days and still accruing       |  | $             | 6,696  |   |                  | $ | 8,208  |               |  | $ | 7,770  |  



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Capital Resources



Capital elements for Susquehanna are segmented into two tiers. Tier 1 capital represents shareholders equity reduced by most intangible assets.
Tier 2 capital represents certain allowable long-term debt, the portion of the allowance for loan and lease losses limited to 1.25% of risk-adjusted assets, and 45% of the unrealized gain on equity securities. The sum of Tier 1 capital and Tier 2
capital is total risk-based capital.



The minimum
Tier 1 capital ratio is 4%; Susquehannas ratio at March 31, 2004 was 9.47%. The minimum total capital (Tier 1 and 2) ratio is 8%; Susquehannas ratio at March 31, 2004 was 11.73%. The minimum leverage ratio is 4%; Susquehannas
leverage ratio at March 31, 2004 was 8.44%. Susquehanna and each of its banking subsidiaries have leverage and risk-weighted ratios well in excess of regulatory minimums, and each entity is considered well-capitalized under regulatory
guidelines.



Item 3



Quantitative and Qualitative
Disclosures about Market Risk



The types of market risk
exposures generally faced by banking entities include interest rate risk, liquidity risk, equity market price risk, foreign currency risk, and commodity price risk. Due to the nature of our operations, foreign currency and commodity price risk are
not significant to us.



In addition to general banking risks,
we have other risks that are related to vehicle leasing, asset securitizations, and off-balance sheet financing that are discussed below.



Equity Market Price Risk



Equity market price risk is the risk related to market fluctuations of equity prices in the securities markets. While we do not have significant risk in
our investment portfolio, market price fluctuations may affect fee income generated through our asset management operations. Generally, our fee structure is based on the market value of assets being managed at specific time frames. If market values
decline, our fee income may also decline.



Liquidity Risk



The maintenance of adequate liquidity  the ability to meet the cash
requirements of our customers and other financial commitments  is a fundamental aspect of our asset/liability management strategy. Our policy of diversifying our funding sources  purchased funds, repurchase agreements, and deposit
accounts  enables us to avoid undue concentration in any single financial market and also to avoid heavy funding requirements within short periods of time. At March 31, 2004, our bank subsidiaries had approximately $451.4 million available to
them under collateralized lines of credit with various Federal Home Loan Banks; and approximately $195.3 million more was available provided that additional collateral would be pledged.



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Liquidity, however, is not entirely dependent on increasing our liability balances. Liquidity also can be
generated from maturing or readily marketable assets. The carrying value of debt securities maturing within one year totaled $34.3 million at March 31, 2004. These maturing investments represented 3.2% of total investment securities available for
sale. Unrestricted short-term investments amounted to $122.7 million and represent additional sources of liquidity. Consequently, our exposure to liquidity risk is not considered significant.



Interest Rate Risk



The management of interest rate risk focuses on controlling the risk to net interest income and the associated net interest
margin as the result of changing market rates and spreads. Interest rate sensitivity is the matching or mismatching of the repricing and rate structure of the interest-bearing assets and liabilities. Our goal is to control risk exposure to changing
rates within managements accepted guidelines to maintain an acceptable level of risk exposure in support of consistent earnings.



We employ a variety of methods to monitor interest rate risk. These methods include basic gap analysis, which points to directional exposure; routine rate
shocks simulation; and evaluation of the change in economic value of equity. By dividing the assets and liabilities into three groups; fixed rate, floating rates; and those that reprice at our discretion; we develop strategies to control the
exposure to interest rate fluctuations.



Our policy, as
approved by our Board of Directors, is to experience no more than a 15% decline in net interest income and no more than a 30% decline in the economic value of equity for a 300 basis point shock (immediate change) in interest rates. The assumptions
used for the interest rate shock analysis are reviewed and updated at least quarterly. Based upon the most recent interest rate shock analysis, we were within the Boards approved guidelines at a down 100 basis point shock and an up 300 basis
point shock. Any down rate shock scenario greater than 100 basis points is considered remote, as the current federal funds target rate is only 1.00%.



At March 31, 2004, we continue to be an asset-sensitive institution and should benefit from a rise in interest rates in the future, if that should occur.
If rates should fall further, we likely will experience additional compression in our net interest margin.



Vehicle Leasing Residual Value Risk



Our exposure to vehicle residual value risk results primarily from Hann, our vehicle-leasing subsidiary. In an effort to manage this risk, in the third quarter of 2000, Hann entered into a Servicing Agreement with
Auto Lenders Liquidation Center, Inc. (Auto Lenders) pursuant to which Hann effectively transferred to Auto Lenders all residual value risk of the managed auto lease portfolio originated by Hann, and all residual value risk on any new
leases originated over the term of the agreement. Auto Lenders, which was formed in 1990, is a used vehicle



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remarketer with three retail locations in New Jersey and has access to various wholesale facilities throughout the
country. Under this Servicing Agreement, Auto Lenders agrees to purchase the beneficial interest in all vehicles returned by the obligors at the scheduled expiration of the related leases for a purchase price equal to the stated residual value of
such vehicles. Further, Hann agrees to set its stated residual values of new leases in accordance with the standards approved in advance by Auto Lenders. Hann also agrees to make monthly guaranty payments to Auto Lenders based upon a negotiated
schedule covering a three-year period. At the end of each year, the Servicing Agreement may be renewed by the mutual agreement of the parties for an additional one-year term, beyond the current three-year term, subject to negotiation of the payments
for the additional year. During the renewal process, Hann periodically obtains competitive quotes from third parties to determine the best remarketing alternative for Hann.



Securitizations and Off-Balance Sheet Vehicle Lease Financings



As of March 31, 2004 and December 31, 2003, Hanns off-balance sheet, managed portfolio was funded in the following
manner:



|                                    |  |                      |               |                         |   |              
|----------------------------------- |  | -------------------- | ------------- | ----------------------- | - | -------------
|                                    |  | As of March 31, 2004 |               | As of December 31, 2003
|Securitization Transactions         |  | $                    | 391.5 million |                         | $ | 313.5 million
|Agency Arrangements and Lease Sales |  | $                    | 702.9 million |                         | $ | 730.6 million
|Sale-Leaseback Transaction          |  | $                    | 125.0 million |                         | $ | 125.6 million



In comparison, as of
March 31, 2004 and December 31, 2003, our on-balance sheet, managed portfolio totaled $370.0 million and $397.7 million, respectively. All of Hanns securitizations and off-balance sheet financings primarily are done to fund the assets
originated by the Origination Trust and in some cases, to enable Susquehanna to more efficiently utilize its required regulatory capital.



Securitization Transactions



As of March 31, 2004, the aggregate fair value of all recorded PV Receivables in connection with Hann securitizations was $12.9 million. For a description
of the accounting policies for measuring the PV Receivables, the characteristics of the securitization transactions, including the gain or loss from sale, and the key assumptions used in measuring the fair value of the PV Receivables, see Note
1 - Summary of Significant Accounting Policies under the captions Asset Securitizations and Recorded Interests in Securitized Assets in our Annual Report on Form 10-K for the year ended December 31, 2003 and Note
9 - Securitization Activity in this Form 10-Q.



Summary of Prior Years Securitization Transactions



In July 2003, Hann entered into a term securitization transaction (the 2003 transaction). In this transaction, Hann sold and contributed the beneficial interest in $239.5 million in automobile



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leases and related leased vehicles to a wholly owned qualifying special purpose entity (the QSPE or the
Issuer). The Issuer financed the purchase of the beneficial interest primarily by issuing $233.0 million of asset backed notes. The initial recorded PV Receivable for the 2003 transaction was $12.0 million, and the fair value of this PV
Receivable at March 31, 2004 was $7.9 million.



During the
third quarter of 2002, Hann entered into a revolving securitization transaction. In connection with this transaction, Hann sells and contributes beneficial interests in automobile leases and related vehicles to a wholly owned QSPE. From time to
time, the QSPE may purchase the beneficial interests in additional automobile leases and related vehicles from Hann. Transfers to the QSPE are accounted for as sales under the guidelines of FAS No. 140. The QSPE finances the purchases by borrowing
funds in an amount up to $200.0 million from a non-related, asset-backed commercial paper issuer (a lender); however, the lender is not committed to make loans to the QSPE. During the first quarter of 2004, Hann transferred to the QSPE
the beneficial interest in $128.2 million in automobile leases and related vehicles. Neither Hann nor Susquehanna provides recourse for credit losses. However, the QSPEs obligation to pay Hann the servicing fee each month is subordinate to the
QSPEs obligation to pay interest, principal and fees due on the loans. Therefore, if the QSPE suffers credit losses on its assets, it may have insufficient funds to pay the servicing fee to Hann. Additionally, if an early amortization event
occurs under the QSPEs loan agreement, Hann, as servicer, will not receive payments of the servicing fee until all interest, principal and fees due on the loans have been paid (although the servicing fee will continue to accrue).



The debt issued in the revolving securitization transaction bears a
floating rate of interest. In this transaction, the QSPE is required to obtain an interest rate hedge agreement if the weighted average fixed interest rate of its assets is less than a targeted portfolio yield calculated monthly. Neither Hann nor
Susquehanna has any obligation to obtain such a hedge agreement for the QSPE, but the failure of the QSPE to obtain a required hedge agreement would be an event of default under its loan documents.



The transaction documents for the revolving transaction contain several
requirements, obligations, liabilities, provisions and consequences, including events of default, which become applicable upon, among other conditions, the failure of the sold portfolio to meet certain performance tests. That transaction also
provides that any assets that fail to meet the eligibility requirements set forth in that transaction must be repurchased by Hann and reallocated to Hanns beneficial interest in the Origination Trust.



In 2001, Hann entered into one asset securitization transaction. The value of
the associated recorded interest is subject to credit, prepayment, and interest rate risks. At March 31, 2004, the fair value of this PV Receivable was $0.01 million.



Agency Agreements and Lease Sales



Agency arrangements and lease sales generally occur on economic terms similar to vehicle lease terms and generally result in
no accounting gains or losses to Hann and no retention of



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credit, residual value, or interest rate risk with respect to the sold assets. Agency arrangements involve the
origination and servicing by Hann of automobile leases for other financial institutions, and lease sales involve the sale of previously originated leases (with servicing retained) to other financial institutions. Hann generally is entitled to
receive all of the administrative fees collected from obligors, a servicing fee and, in the case of agency arrangements, an origination fee per lease. Lease sales are generally accounted for as sales under FAS 140.



During the second quarter of 2002, Hann entered into an agency arrangement.
In connection with that arrangement, we entered into an agreement under which we guarantee Auto Lenders performance of its obligations to the new agency client (the Residual Interest Agreement). Auto Lenders has agreed to purchase
leased vehicles in the agency clients portfolio at the termination of the leases for the full residual value of those vehicles. In the event the agency client incurs any losses, costs or expenses as a result of any failure of Auto Lenders to
perform this purchase obligation, we will compensate the agency client for any final liquidation losses with respect to such leased vehicle. However, our liability is limited to 12% of the maximum aggregate residual value of all leases purchased by
the agency client. At March 31, 2004, the total residual value of the vehicles in the portfolio for this transaction was $57.6 million, and our maximum obligation under the Residual Interest Agreement at March 31, 2004, was $6.9 million.



Sale-leaseback Transaction



In December 2000, Hann sold and contributed the beneficial interest in $190
million of automobiles and related auto leases owned by the Origination Trust to a wholly owned special purpose subsidiary (the Lessee). The Lessee sold such beneficial interests to a lessor (the Lessor), and the Lessor in
turn leased the beneficial interests in the automobiles and auto leases back to the Lessee under a Master Lease Agreement that has an eight-year term. For accounting purposes, the sale-leaseback transaction between the Lessee and the Lessor is
treated as a sale and an operating lease and qualifies as a sale and leaseback under FAS No. 13. The Lessor held the beneficial interest in vehicles and auto leases with a remaining balance of approximately $125.0 million at March 31, 2004. To
support its obligations under the Master Lease Agreement, at closing the Lessee pledged the beneficial interest in an additional $43.0 million of automobile leases and related vehicles, which were also sold or contributed to the Lessee. At March 31,
2004, the beneficial interest in additional automobile leases and related vehicles pledged by the Lessee was $49.2 million.



Servicing Fees under the Securitization Transactions, the Sale-Leaseback Transaction, Agency Agreements, and Lease Sales



Servicing assets are recognized as separate assets when rights are acquired
through the sale of financial assets. The servicing fees paid to Hann under the securitization transactions, the sale-leaseback transaction, agency agreements, and lease sales approximate current market value and Hanns servicing costs.
Consequently, Hann records no servicing asset or liability with regard to those transactions because its expected servicing costs are approximately equal to its expected servicing income. We enter into securitization transactions primarily to
achieve low-cost funding



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for the growth of our auto lease portfolio, and not primarily to maximize our ongoing servicing fee revenue. In the
future, if servicing costs were to exceed servicing income, Hann would record the present value of that liability as an expense; if servicing income were to exceed servicing costs, Hann would record the present value of that asset as income.



Our policy regarding the impairment of servicing assets is to
evaluate the assets based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics which affect their current value, such as interest rates and terms. Fair value
is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the
extent that fair value is less than the capitalized amount for the stratum. For the reasons discussed above, we presently have no recorded servicing rights, and therefore, no associated impairment allowance.



Summary of Susquehannas Potential Exposure under Off-Balance
Sheet Vehicle Lease Financings as of March 31, 2004.



Securitization Transactions



Under the 2001
transaction, we have reimbursement obligations to a lender under a letter of credit facility if Auto Lenders breaches its obligations under the securitization transaction to purchase leased vehicles at the scheduled termination or expiration of the
leases for the full stated residual value of the vehicles. At March 31, 2004, we would be obligated to make payments in an amount up to $20.5 million under this letter of credit upon a breach by Auto Lenders.



Sale-Leaseback Transaction



Under the existing sale-leaseback transaction, we guarantee certain
obligations of the Lessee, which is a wholly owned special purpose subsidiary of Hann. If we fail to maintain our investment-grade senior unsecured long-term debt ratings, then we must obtain a $35.0 million letter of credit from an eligible
financial institution for the benefit of the equity participants in the transaction to secure our obligations under the guarantee. We also have obtained from a third party an $8.0 million letter of credit for the benefit of an equity participant if
we fail to make payments under the guarantee.



Additionally,
the transaction documents contain several requirements, obligations, liabilities, provisions, and consequences that become applicable upon the occurrence of an Early Amortization Event. The precise amount of any termination and other related
payments is subject to a great deal of variability and depends significantly on future interest rates, the sales proceeds for the respective vehicles, the termination dates at which consumer leases terminate, and the length of the remaining term of
the Master Lease Agreement at the time of the Early Amortization Event. It is virtually impossible to calculate the amount of any termination payments. Even if an Early Amortization Event were to occur, we would expect that the present value of
these payments would not exceed the present value of the rent avoided and tax benefits gained by a material amount. We believe that the occurrence of any Early Amortization Event is remote.



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At the end of the lease term under the Master Lease Agreement, the Lessee has agreed to act as a
remarketing agent for the Lessor if the Lessor decides to sell the beneficial interest in the leases and related vehicles. The Lessee has agreed that if the aggregate net proceeds of such sale are less then the Lease End Value of the beneficial
interest in the leases and related vehicles at that time, the Lessee will pay to the Lessor the excess, if any, of the Lease End Value over the aggregate net proceeds of such sale. If the leases and related vehicles were to be worthless at such
time, the maximum exposure to Susquehanna and its subsidiaries under these provisions would be $38 million.



Agency Agreement and Lease Sales



With regard to the agency arrangement, our maximum obligation under the Residual Interest Agreement at March 31, 2004 was $6.9 million.



Miscellaneous



Additionally, we are required to maintain contingent vehicle liability
insurance coverage with regard to most of these transactions. This same coverage is also maintained on vehicles within our own portfolio. Because vehicles are leased in the State of New York, a vicarious liability state, the ability to maintain our
coverage or the premium cost could potentially have a negative impact on us. The basic coverage policy is renewable annually and expires in the first quarter of 2005.



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Item 4



Controls and Procedures



An evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this report was carried out by us under the supervision and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that
the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. A control system, no
matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.



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PART II. OTHER INFORMATION



Item 6



Exhibits and Reports on Form 8-K



|   |   |  |                                                                     |  |                                                                                                                                                                                                                                                                                                                                                        
|-- | - |  | ------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  
|(a | ) |  | Exhibits. The Exhibits filed as part of this report are as follows:
|   |   | 
|   |   |  | 2.1                                                                 |  | Amended and Restated Agreement and Plan of Merger between Susquehanna Bancshares, Inc. and Patriot Bank Corp., dated as of March 15, 2004, incorporated by reference to Exhibit 2.1 to the
registrants Registration Statement on Form S-4/A, Registration No. 333-112368.                                                                             
|   |   | 
|   |   |  | 2.2                                                                 |  | Amended and Restated Agreement and Plan of Merger, dated May 1, 2004, between Equity Bank and Patriot Bank.                                                                                                                                                                                                                                            
|   |   | 
|   |   |  | 10.1                                                                |  | Employment Agreement dated November 4, 2003, but effective January 1, 2004, between Susquehanna Bancshares, Inc., Valley Forge Asset Management Corporation and Bernard A. Francis,
Jr.                                                                                                                                                                
|   |   | 
|   |   |  | 10.2                                                                |  | Renewal of Employment Agreement between William J. Reuter and Susquehanna Bancshares, Inc., dated as of February 28, 2004.                                                                                                                                                                                                                             
|   |   | 
|   |   |  | 10.3                                                                |  | Renewal of Employment Agreement between Gregory A. Duncan and Susquehanna Bancshares, Inc., dated as of February 28, 2004.                                                                                                                                                                                                                             
|   |   | 
|   |   |  | 10.4                                                                |  | Renewal of Employment Agreement between Drew K. Hostetter and Susquehanna Bancshares, Inc., dated as of February 28, 2004.                                                                                                                                                                                                                             
|   |   | 
|   |   |  | 10.5                                                                |  | Susquehanna Bancshares, Inc. Supplemental Executive Retirement Plan Amendment 2004-1, dated January 21, 2004.                                                                                                                                                                                                                                          
|   |   | 
|   |   |  | 10.6                                                                |  | Third Amendment to the 2002 Amended Servicing Agreement dated as of April 1, 2003 by and between Boston Service Company, Inc. and Auto Lenders Liquidation Center, Inc. and Fourth Amendment to
the 2002 Amended Servicing Agreement dated as of February 2, 2004 by and between Boston Service Company, Inc. and Auto Lenders Liquidation Center, Inc.
|   |   | 
|   |   |  | 31.1                                                                |  | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer                                                                                                                                                                                                                                                                                      
|   |   | 
|   |   |  | 31.2                                                                |  | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer                                                                                                                                                                                                                                                                                      
|   |   | 
|   |   |  | 32.                                                                 |  | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                            



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|   |   |  |                      |  |                                                                                                                                                                                                          
|-- | - |  | -------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  
|(b | ) |  | Reports on Form 8-K.
|   |   | 
|   |   |  | (i)                  |  | On January 28, 2004, the registrant furnished a report on Form 8-K regarding its issuance of a press release announcing financial results for its fourth quarter and fiscal year ended December
31, 2003.
|   |   | 
|   |   |  | (ii)                 |  | On January 30, 2004, the registrant filed a report on Form 8-K regarding certain excerpts from its press release dated January 27, 2004.                                                                 



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|             |  |  |  |                                                      |  |  |  | 
|------------ |  |  |  | ---------------------------------------------------- |  |  |  | 
|             |  |  |  | SUSQUEHANNA BANCSHARES, INC.                        
|             |  | 
|May 10, 2004 |  |  |  | /s/ William J. Reuter                               
|             |  |  |  | William J. Reuter                                   
|             |  |  |  | Chairman, President and Chief Executive Officer     
|             |  | 
|May 10, 2004 |  |  |  | /s/ Drew K. Hostetter                               
|             |  |  |  | Drew K. Hostetter                                   
|             |  |  |  | Executive Vice President and Chief Financial Officer





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EXHIBIT INDEX



|                |  |                                                                                                                                                                                                                                                                                                                                                        
|--------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Numbers |  | Description and Method of Filing                                                                                                                                                                                                                                                                                                                       
|2.1             |  | Amended and Restated Agreement and Plan of Merger between Susquehanna Bancshares, Inc. and Patriot Bank Corp., dated as of March 15, 2004, incorporated by reference to Exhibit 2.1 to the
registrants Registration Statement on Form S-4/A, Registration No. 333-112368.                                                                             
|                | 
|2.2             |  | Amended and Restated Agreement and Plan of Merger, dated May 1, 2004, between Equity Bank and Patriot Bank.                                                                                                                                                                                                                                            
|                | 
|10.1            |  | Employment Agreement dated November 4, 2003, but effective January 1, 2004, between Susquehanna Bancshares, Inc., Valley Forge Asset Management Corporation and Bernard A. Francis,
Jr.                                                                                                                                                                
|                | 
|10.2            |  | Renewal of Employment Agreement between William J. Reuter and Susquehanna Bancshares, Inc., dated as of February 28, 2004.                                                                                                                                                                                                                             
|                | 
|10.3            |  | Renewal of Employment Agreement between Gregory A. Duncan and Susquehanna Bancshares, Inc., dated as of February 28, 2004.                                                                                                                                                                                                                             
|                | 
|10.4            |  | Renewal of Employment Agreement between Drew K. Hostetter and Susquehanna Bancshares, Inc., dated as of February 28, 2004.                                                                                                                                                                                                                             
|                | 
|10.5            |  | Susquehanna Bancshares, Inc. Supplemental Executive Retirement Plan Amendment 2004-1, dated January 21, 2004.                                                                                                                                                                                                                                          
|                | 
|10.6            |  | Third Amendment to the 2002 Amended Servicing Agreement dated as of April 1, 2003 by and between Boston Service Company, Inc. and Auto Lenders Liquidation Center, Inc. and Fourth Amendment to
the 2002 Amended Servicing Agreement dated as of February 2, 2004 by and between Boston Service Company, Inc. and Auto Lenders Liquidation Center, Inc.
|                | 
|31.1            |  | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer                                                                                                                                                                                                                                                                                      
|                | 
|31.2            |  | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer                                                                                                                                                                                                                                                                                      
|                | 
|32.             |  | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                            



33