On February 17, 2012, Susquehanna acquired all of the outstanding common stock of Tower Bancorp, Inc. (“Tower”), headquartered in Harrisburg, Pennsylvania, through the merger of Tower with and into Susquehanna. The results of operations acquired in the Tower transaction have been included in Susquehanna's financial results since the acquisition date, February 17, 2012. Tower shareholders received, at their election, either 3.4696 shares of Susquehanna common stock, or $28.00 in cash, or some combination of shares and cash, for each share of Tower common stock held immediately prior to the effective time of the Tower merger, with $88.0 million of the aggregate merger consideration being paid in cash. A total of 30.8 million shares of Susquehanna common stock were issued in connection with the Tower merger.

The Tower transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration transferred were recorded at estimated fair value on the acquisition date. Assets acquired totaled $2,388,122, including $1,975,488 of loans and leases (including $854,993 of commercial real estate loans, $136,979 of commercial loans and leases, and $758,803 of residential real estate loans). Liabilities assumed aggregated $2,255,413, including $2,074,372 of deposits. The transaction added $302,112 to the Susquehanna shareholders' equity. Goodwill of $257,408, was recorded as a result of the transaction, including an adjustment of $10,547 for provisional amounts included in the previously estimated purchase price allocation.

The consideration transferred for Tower's common equity and the amounts of acquired identifiable assets and liabilities assumed as of the acquisition date were as follows:

			February 17,
			2012
Purchase price:
	Value of:
	Common shares issued and options assumed		$	302,112
	Cash			88,005
		Total purchase price		390,117
Identifiable assets:
	Cash and due from banks			85,518
	Unrestricted short-term investments			9,171
	Securities available for sale			137,254
	Loans and leases			1,975,488
	Intangible assets			27,334
	Other assets			153,357
		Total identifiable assets		2,388,122
Identifiable liabilities:
	Deposits			2,074,372
	Short-term borrowings			10,228
	Long-term borrowings			103,923
	Other liabilities			66,890
		Total liabilities		2,255,413
Net goodwill resulting from acquisition			$	257,408

In many cases, determining the fair value of the purchased assets and assumed liabilities required Susquehanna to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of these determinations related to the valuation of purchased loans.

The following is a summary of the loans purchased in the Tower transaction:

			Purchased		Purchased
			Credit		Non-		Total
			Impaired		Impaired		Purchased
			Loans		Loans		Loans
	Contractually required principal and interest at
		acquisition	$	348,889	$	2,376,071	$	2,724,960
	Contractual cash flows not expected to be collected			(127,318)		(135,736)		(263,054)
	Expected cash flows at acquisition			221,571		2,240,335		2,461,906
	Interest component of expected cash flows			(54,418)		(432,000)		(486,418)
	Basis in acquired loans at acquisition - estimated fair
		value	$	167,153	$	1,808,335	$	1,975,488

The core deposit intangible of $24,005 is being amortized using an accelerated method over a period of 10 years based upon the estimated economic benefits received.

The fair value of checking, savings and money market deposit accounts acquired from Tower was assumed to be approximately the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued as the present value of the certificates' expected contractual payments discounted at market rates for similar certificates.

In connection with the Tower acquisition, Susquehanna incurred merger-related expenses related to personnel, occupancy and equipment, and other costs of integrating and conforming acquired operations with and into Susquehanna. Those expenses consisted largely of costs related to professional services, conversion of systems and/or integration of operations, and termination of existing contractual arrangements of Tower to purchase various services; initial marketing and promotion expenses designed to introduce Susquehanna to its new customers; travel costs; and printing, postage, supplies, and other costs of completing the transaction and commencing operations in new markets and offices. A summary of merger-related expenses included in the consolidated statement of income follows:

	There were no merger-related expenses incurred during the three and six month periods ending June 30, 2013.

		Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
		Abington		Tower		Total		Abington		Tower		Total
Salaries and employee benefits		$	0	$	1,705	$	1,705	$	0	$	3,055	$	3,055
Consulting			0		194		194		66		4,143		4,209
Legal			142		586		728		179		1,319		1,498
Branch writeoffs			0		0		0		0		1,371		1,371
Net occupancy and equipment			0		31		31		0		2,840		2,840
All other			635		25		660		635		1,189		1,824
		$	777	$	2,541	$	3,318	$	880	$	13,917	$	14,797

If the Tower acquisition had been completed on January 1, 2012, total revenue, net of interest expense, would have been approximately $381.0 million for the six months ended June 30, 2012, and net income from continuing operations would have been approximately $61.4 million for the same period.

Pro forma results of operations do not include the impact of conforming certain acquiree accounting policies to Susquehanna's policies. The pro forma financial information does not indicate the impact of possible business model changes nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.