Company Achieves 10% Year over Year Organic Growth
Sandy Spring Bancorp, Inc. (Nasdaq-SASR), the parent company of Sandy Spring Bank, reported net income of $33.6 million ($0.75 per diluted common share) for the quarter ended September 30, 2022, compared to net income of $57.0 million ($1.20 per diluted common share) for the third quarter of 2021 and $54.8 million ($1.21 per diluted common share) for the second quarter of 2022.
Current quarter core earnings were $35.7 million ($0.80 per diluted common share), compared to $58.2 million ($1.23 per diluted common share) for the quarter ended September 30, 2021 and $44.2 million ($0.98 per diluted common share) for the quarter ended June 30, 2022. Core earnings are determined by excluding the after-tax impact of merger, acquisition and disposal expense, the loss on FHLB redemptions, amortization of intangibles, gain or loss on disposal of assets, contingent payment expense and investment securities gains. Core earnings for the current period when compared to the prior year quarter were reduced primarily as a result of the activity associated with provisioning for credit losses, a decline in mortgage banking income, and declines in insurance commission and bankcard income. The provision for credit losses for the current quarter was a charge of $18.9 million compared to a credit of $8.2 million for the third quarter of 2021 and a charge of $3.0 million for the second quarter of 2022. The provision for credit losses was comprised of a provision for credit losses of $14.1 million directly attributable to funded loans and an adjustment to the provision of $4.8 million associated with unfunded loan commitments.
“We once again demonstrated our ability to grow new client relationships while maintaining exceptional credit quality,” said Daniel J. Schrider, President and Chief Executive Officer. “We continue to work through this challenging economic environment and are focused on generating core client funding from both our retail and commercial lines of business.”
Third Quarter Highlights:
- At September 30, 2022, total assets were $13.8 billion, a 6% increase compared to $13.0 billion at September 30, 2021. Excluding PPP loans, the total assets increased 10% during the same period.
- Total loans, excluding PPP loans, increased 21% to $11.2 billion at September 30, 2022 compared to $9.3 billion at September 30, 2021. Excluding PPP loans, total commercial loans grew by $1.6 billion or 21% during the previous twelve months. During this period, the Company generated new commercial gross loan production of $4.6 billion, of which $3.0 billion was funded, more than offsetting $1.4 billion in non-PPP commercial loan run-off. Funded commercial loan production increased 43% to $762.3 million during the third quarter of the current year compared to $532.7 million for the same quarter of the prior year. Total mortgage loans grew $354.5 million, primarily in conventional 1-4 family mortgage loans, during the twelve months ended September 30, 2022.
- Net interest income for the third quarter of 2022 grew $6.4 million or 6% compared to the third quarter of 2021. Excluding PPP interest and fees, net interest income increased $17.5 million or 18% for the current quarter compared to the prior year quarter driven by the growth of the commercial loan portfolio.
- For the third quarter of 2022, the net interest margin was 3.53% compared to 3.52% for the third quarter of 2021, and 3.49% for the second quarter of 2022. Excluding the amortization of the fair value marks derived from previous acquisitions and interest and fees from PPP loans, the current quarter’s net interest margin was 3.50% compared to 3.32% for third quarter of 2021, and 3.45% for the second quarter of 2022.
- The provision for credit losses directly attributable to the funded loan portfolio was $14.1 million for the current quarter compared to the prior year quarter’s credit to the provision for credit losses of $8.2 million. In addition, to the current quarter's provision for credit losses mainly driven by loan growth, the quarterly provision expense contained an adjustment of $4.8 million associated with unfunded loan commitments. Excluding the provision for unfunded commitments, the provision for the current quarter is a reflection of the growth in the loan portfolio and an increase in the qualitative reserve to consider the potential impact of future recessionary pressures and other qualitative considerations.
- Non-interest income for the current quarter decreased by 31% or $7.5 million compared to the prior year quarter. The decrease represents the cumulative result of the impact of the economic environment on mortgage banking activities and wealth management income, the decline in insurance commission income as a result of the previous quarter's disposition of the Company's insurance business and lower bankcard income due to regulatory restrictions on fee recognition.
- Non-interest expense for the current quarter increased $2.6 million or 4% compared to the prior year quarter driven by the increases of $1.5 million in compensation expense and $1.4 million in other non-interest expense. The primary cause of the increase in other non-interest expense was the result of a $1.2 million accrual towards the contingent earn-out associated with the 2020 acquisition of Rembert Pendleton Jackson. Excluding this accrual, non-interest expense increased 2% in the current quarter compared to the prior year quarter.
- Return on average assets (“ROA”) for the quarter ended September 30, 2022 was 0.99% and return on average tangible common equity (“ROTCE”) was 12.10% compared to 1.75% and 19.56%, respectively, for the third quarter of 2021. On a non-GAAP basis, the current quarter's core ROA was 1.05% and core ROTCE was 12.86% compared to core ROA of 1.79% and core ROTCE of 19.96% for the third quarter of 2021.
- For the third quarter of 2022, the GAAP efficiency ratio was 50.66% compared to 48.23% for the third quarter of 2021, and 46.03% for the second quarter of 2022. The non-GAAP efficiency ratio for the third quarter of 2022 was 48.18% compared to 46.67% for the prior year quarter, and 49.79% for the second quarter of 2022.
Balance Sheet and Credit Quality
Total assets grew 6% to $13.8 billion at September 30, 2022, as compared to $13.0 billion at September 30, 2021. During this period, total loans grew by 15% to $11.2 billion at September 30, 2022, compared to $9.7 billion at September 30, 2021. At September 30, 2022, excluding PPP loans, total assets grew 10% and total loans grew 21% compared to September 30, 2021. Total commercial loans, excluding PPP loans, grew by $1.6 billion or 21% during the past twelve months. During this period, the Company generated commercial gross loan production of $4.6 billion, of which $3.0 billion was funded, offsetting $1.4 billion in commercial loan payment activity. During the third quarter of 2022, funded commercial loan production was $762.3 million, an increase of 43% compared to $532.7 million for the same quarter of the prior year. The growth in the commercial portfolio, excluding PPP loans, occurred in all commercial portfolios led by the $1.3 billion or 35% growth in the investor owned commercial portfolio. Year-over-year the total mortgage loan portfolio grew 32%, as a greater number of conventional 1-4 family mortgages were retained to grow the portfolio. During the past twelve months, deposits decreased 2%. Noninterest-bearing deposits remained stable, while interest-bearing deposits declined 3%. During the period, time deposits increased 12% and money market accounts decreased 12%, while savings increased 9% and interest-bearing demand declined 3%. Borrowings increased by $1.1 billion during the period to provide funding for the loan growth.
The tangible common equity ratio decreased to 7.98% of tangible assets at September 30, 2022, compared to 9.10% at September 30, 2021 as a result of the $132.3 million repurchase of common shares during the previous twelve months and the $141.9 million increase in the accumulated other comprehensive loss in the investment portfolio due to the impact of the rising rate environment on the value of securities coupled with the increase in tangible assets during the past year. At September 30, 2022, the Company had a total risk-based capital ratio of 14.15%, a common equity tier 1 risk-based capital ratio of 10.18%, a tier 1 risk-based capital ratio of 10.18%, and a tier 1 leverage ratio of 9.33%. During the current quarter risk-based capital ratios declined from sequential quarters as a result of an adjustment to risk-weighted assets for unfunded commitments.
Non-performing loans include non-accrual loans, accruing loans 90 days or more past due and restructured loans. Credit quality improved at September 30, 2022 compared to September 30, 2021, as the level of non-performing loans to total loans declined to 0.40% compared to 0.80%. These levels of non-performing loans compare to 0.40% for the prior quarter and indicate stable credit quality during a period of significant loan growth. At September 30, 2022, non-performing loans totaled $44.5 million, compared to $78.2 million at September 30, 2021, and $43.5 million at June 30, 2022. Loans placed on non-accrual during the current quarter amounted to $4.2 million compared to $5.7 million for the prior year quarter and $0.9 million for the second quarter of 2022. The Company realized net recoveries of $0.5 million for the third quarter of 2022, as compared to net charge-offs of $7.8 million for the third quarter of 2021 and insignificant recoveries for the second quarter of 2022.
At September 30, 2022, the allowance for credit losses was $128.3 million or 1.14% of outstanding loans and 289% of non-performing loans, compared to $113.7 million or 1.05% of outstanding loans and 261% of non-performing loans at the end of the previous quarter. The increase in the allowance during the current quarter compared to the previous quarter resulted from the growth in the loan portfolio, the impact of forecasted economic factors and, to a lesser degree, adjustments to certain other qualitative metrics.
Income Statement Review
Quarterly Results
Net income for the three months ended September 30, 2022 was $33.6 million compared to net income of $57.0 million for the prior year quarter. The decline in earnings was primarily the result of the current quarter's charge to provision for credit losses compared to the prior year's credit to provision for credit losses and the decrease in non-interest income, which were partially offset by the increase in net interest income. Non-interest income decreased as a result of the combination of lower mortgage banking income, the impact of the sale of the Company's insurance business, which reduced commission income and lower bankcard fees resulting from the implementation of applicable regulations. Non-interest expense increased 4% primarily as a result of the rise in compensation costs and other expenses in the current quarter compared to the prior year quarter. Current quarter core earnings were $35.7 million ($0.80 per diluted common share), compared to $58.2 million ($1.23 per diluted common share) for the quarter ended September 30, 2021 and $44.2 million ($0.98 per diluted common share) for the quarter ended June 30, 2022.
Net interest income for the third quarter of 2022 increased $6.4 million or 6% compared to the third quarter of 2021, as a result of the $19.3 million growth in interest income, which was partially offset by growth of $12.9 million in interest expense. During the period, interest and fees on PPP loans declined by $11.2 million. Excluding this decline, net interest income grew 18% in the current year quarter compared to the prior year quarter, driven predominantly by interest income growth in all categories of commercial loans and, to a lesser degree, increases in residential mortgage loans and investment securities income. The increase in interest expense was the result of the increased cost of interest-bearing deposits, primarily time and money market deposits, and the increased volume and cost of borrowings in the current year period compared to the same period of the prior year. The net interest margin for the third quarter of 2022 was 3.53% as compared to 3.52% for the same quarter of the prior year, as the yield on interest-earning assets, which rose 40 basis points, was offset by the 63 basis point rise in the rate paid on interest-bearing liabilities.
The total provision for credit losses was a charge of $18.9 million for the third quarter of 2022 compared to a credit of $8.2 million for the third quarter of 2021. The provision for credit losses directly attributable to loan portfolio was $14.1 million for the current quarter compared to the prior year quarter’s credit to the provision for credit losses of $8.2 million. The provision for credit losses for the second quarter of 2022 was a charge of $3.0 million. The quarterly provision expense also contained an adjustment of $4.8 million associated with unfunded loan commitments. The provision for credit losses attributable to the loan portfolio for the current quarter reflects the growth in the loan portfolio during the quarter, the assessment of the forecasted impact of an economic recession and consideration of various qualitative factors.
Non-interest income decreased $7.5 million or 31% for the third quarter of 2022, compared to the prior year quarter. This decline is the cumulative result of the decrease in income from mortgage banking activities reflecting the impact of the economic environment, lower wealth management income driven by market performance, the decline in insurance commission income as a result of the previous quarter's disposition of the Company's insurance business, and reduced bankcard income due to regulatory restrictions on fee recognition.
Non-interest expense increased $2.6 million or 4% for the third quarter of 2022, compared to the prior year quarter, as a result of the rise in compensation costs and other expenses. The rise in compensation costs during the comparative period was the result of increases in salaries and incentive payments, partially mitigated by a decline in commission expense resulting from the disposition of the Company's insurance business. The primary cause of the increase in other non-interest expense was the accrual of $1.2 million for contingent earn-out compensation based on the performance of the 2020 acquisition of Rembert Pendleton Jackson. Excluding this accrual, non-interest expense increased 2% in the current quarter compared to the prior year quarter.
For the third quarter of 2022, the GAAP efficiency ratio was 50.66% compared to 48.23% for the third quarter of 2021, and 46.03% for the second quarter of 2022. The increase in the GAAP efficiency ratio was primarily the result of the 4% increase in GAAP non-interest expense compared to the 1% increase in GAAP revenue during the comparative period. The non-GAAP efficiency ratio was 48.18% for the current quarter as compared to 46.67% for the third quarter of 2021, and 49.79% for the second quarter of 2022. The increase in the non-GAAP efficiency ratio (reflecting a decrease in efficiency) from the third quarter of the prior year to the current year quarter was primarily the result of the 1% decline in non-GAAP revenue, driven chiefly by the decrease in non-GAAP non-interest income, while non-GAAP expenses rose 3%. ROA for the third quarter ended September 30, 2022 was 0.99% and ROTCE was 12.10% compared to 1.69% and 20.42%, respectively, for the second quarter of 2022. On a non-GAAP basis, the current quarter's core ROA was 1.05% and core ROTCE was 12.86% compared to core ROA of 1.37% and core ROTCE of 16.49% for the second quarter of 2022.
Year-to-Date Results
The Company recorded net income of $132.3 million for the nine months ended September 30, 2022 compared to net income of $189.7 million for the same period of the prior year. Year-to-date earnings declined as a result the activity in the provision for loan losses, which shifted from the significant credit in the prior year to the charge for the current year, the decline in non-interest income from isolated events that occurred in 2021 and the reduction in insurance agency commissions subsequent to the sale of the insurance business by the Company and the flattening of net interest income as the growth in interest expense offset the increase in interest income. Core earnings were $125.0 million for the nine months ended September 30, 2022 compared to $200.1 million for the prior year. Core earnings for the current period compared to the prior year period were reduced primarily as a result of the activity associated with the provision for credit losses in addition to the decline in mortgage banking income and lower other non-interest income.
For the nine months ended September 30, 2022, net interest income increased $1.1 million compared to the prior year as a result of the $10.2 million increase in interest income, despite the $30.9 million reduction in PPP interest and fees, which was offset by the $9.0 million increase in interest expense. Excluding the impact of interest and fees on PPP loans, tax-equivalent interest and fees on loans, driven by commercial loans, increased 13% compared to the prior year period. The increase in interest expense was primarily the result of additional interest expense associated with subordinated debt issued in March 2022, and, to a lesser degree, increased interest expense on money market accounts and other borrowings. The net interest margin declined to 3.50% for the nine months ended September 30, 2022, compared to 3.57% for the prior year.
The provision for credit losses for the nine months ended September 30, 2022 amounted to a charge of $23.6 million as compared to a credit of $47.1 million for 2021. For the nine months ended September 30, 2022, the provision for credit losses was a reflection of the growth in the loan portfolio, coupled with the management's consideration of the potential impact of recessionary pressures and other portfolio qualitative metrics. The prior year's credit to the provision for credit losses was a reflection of the net impact of forecasted economic metrics and other factors applied in the determination of the allowance.
For the nine months ended September 30, 2022, non-interest income, which included a $16.7 million gain on the disposal of assets, decreased 9% to $72.7 million compared to $79.5 million for 2021. Excluding the gain, non-interest income decreased 29% driven by a 74% decline in income from mortgage banking activities, a 49% decline in insurance commission income, reduced bank card income of 23% and a 42% decline in other income. The decline in income from mortgage banking activities is the result of the rising interest rate environment, which has continued to dampen mortgage origination and refinancing activity. Other income declined from the prior year, which included the full payoff of a purchased credit deteriorated loan and activity-based vendor incentives. Insurance commission income declined due to the corresponding disposition of the Company's insurance business. Fess from bank cards diminished as a result of regulatory restrictions on fee recognition effective in the second quarter of the current year. Wealth management income remained stable, despite the erosion of assets under management due to the marketplace volatility, as a result of increased asset management fees. Service charge income grew as a result of increased customer activity.
Non-interest expense decreased 1% to $192.9 million for the nine months ended September 30, 2022, compared to $194.3 million for 2021. Excluding merger, acquisition and disposal expense from the current and prior year periods, the previously mentioned earn-out accrual and the $9.1 million in prepayment penalties on FHLB borrowings that occurred in the prior year, non-interest expense increased 3% year-over-year. The drivers of the increase in non-interest expense were a 4% increase in salaries and benefits and a 14% increase in other expense, excluding the FHLB prepayment penalties and the earn-out expense. The year-over-year increase in salaries and benefits was the result of staffing increases, salary adjustments and increased benefit costs. The rise in other expense was driven by increased costs in other various categories of operating expenses. Marketing and outside data services costs increased 6% and 9% as a result of specific initiatives and transaction volumes, respectively, while professional fee and service costs decreased 17% for the period due to a reduction in the utilization of consultant services.
For the nine months ended September 30, 2022, the GAAP efficiency ratio was 49.08% compared to 48.73% for the same period in 2021. The non-GAAP efficiency ratio the current year was 49.09% compared to 44.88% for to prior year. The growth in the current year’s non-GAAP efficiency ratio compared to the prior year, indicating a decline in efficiency, was the result of the 5% decrease in non-GAAP revenue combined with the 3% growth in non-GAAP non-interest expense.
Explanation of Non-GAAP Financial Measures
This news release contains financial information and performance measures determined by methods other than in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and, therefore, such information is useful to investors. Non-GAAP measures used in this release consist of the following:
- Tangible common equity and related measures are non-GAAP measures that exclude the impact of goodwill and other intangible assets.
- The non-GAAP efficiency ratio excludes amortization of intangible assets, loss on FHLB redemption, gain on disposal of assets, contingent payment expense, merger, acquisition and disposal expense and investment securities gains and includes tax-equivalent income.
- Core earnings and the related measures of core earnings per diluted common share, core return on average assets and core return on average tangible common equity reflect net income exclusive of merger, acquisition and disposal expense, amortization of intangible assets, loss on FHLB redemption, contingent payment expense, gain on disposal of assets and investment securities gains, on a net of tax basis.
These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Please refer to the non-GAAP Reconciliation tables included with this release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
Conference Call
The Company’s management will host a conference call to discuss its third quarter results today at 2:00 p.m. (ET). A live Webcast of the conference call is available through the Investor Relations section of the Sandy Spring Website at www.sandyspringbank.com. Participants may call 1.844.200.6205. Please use the following access code: 142064. Visitors to the Website are advised to log on 10 minutes ahead of the scheduled start of the call. An internet-based replay will be available on the website until November 3, 2022. A replay of the teleconference will be available through the same time period by calling 866.813.9403 under conference call number 479150.
About Sandy Spring Bancorp, Inc.
Sandy Spring Bancorp, Inc., headquartered in Olney, Maryland, is the holding company for Sandy Spring Bank, a premier community bank in the Greater Washington, D.C. region. With over 50 locations, the bank offers a broad range of commercial and retail banking, mortgage, private banking, and trust services throughout Maryland, Virginia, and Washington, D.C. Through its subsidiaries, Rembert Pendleton Jackson, and West Financial Services, Inc., Sandy Spring Bank also offers a comprehensive menu of wealth management services.
Category: Webcast
Source: Sandy Spring Bancorp, Inc.
Code: SASR-E
For additional information or questions, please contact:
Daniel J. Schrider, President & Chief Executive Officer, or
Philip J. Mantua, E.V.P. & Chief Financial Officer
Sandy Spring Bancorp
17801 Georgia Avenue
Olney, Maryland 20832
800.399.5919
Email:
DSchrider@sandyspringbank.com
PMantua@sandyspringbank.com
Website: www.sandyspringbank.com
Media Contact:
Jen Schell
301.570.8331
jschell@sandyspringbank.com
Forward-Looking Statements
Sandy Spring Bancorp’s forward-looking statements are subject to the following principal risks and uncertainties: risks, uncertainties and other factors relating to the COVID-19 pandemic, including the effect of the pandemic on our borrowers and their ability to make payments on their obligations, the effectiveness of vaccination programs, and the effect of remedial actions and stimulus measures adopted by federal, state and local governments; general economic conditions and trends, either nationally or locally; conditions in the securities markets; changes in interest rates; changes in deposit flows, and in the demand for deposit, loan, and investment products and other financial services; changes in real estate values; changes in the quality or composition of the Company’s loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; the Company’s ability to retain key members of management; changes in legislation, regulations, and policies; the possibility that any of the anticipated benefits of acquisitions will not be realized or will not be realized within the expected time period; and a variety of other matters which, by their nature, are subject to significant uncertainties. Sandy Spring Bancorp provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2021, including in the Risk Factors section of that report, and in its other SEC reports. Sandy Spring Bancorp’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC’s Web site at www.sec.gov.