Company Generates 17% Year over Year Organic Loan Growth
Sandy Spring Bancorp, Inc. (Nasdaq-SASR), the parent company of Sandy Spring Bank, reported net income of $54.8 million ($1.21 per diluted common share) for the quarter ended June 30, 2022, compared to net income of $57.3 million ($1.19 per diluted common share) for the second quarter of 2021 and $43.9 million ($0.96 per diluted common share) for the first quarter of 2022.
Current quarter core earnings were $44.2 million ($0.98 per diluted common share), compared to $58.4 million ($1.23 per diluted common share) for the quarter ended June 30, 2021 and $45.1 million ($0.99 per diluted common share) for the quarter ended March 31, 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 on disposal of assets 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, lower other non-interest income from isolated events that occurred in 2021 and a decline in net interest income. The provision for credit losses for the current quarter was a charge of $3.0 million compared to a credit of $4.2 million for the second quarter of 2021 and a charge of $1.6 million for the first quarter of 2022.
“We have sustained robust commercial loan production for three consecutive quarters. Our teams are focused and strategic, our products and services are competitive, and we are maximizing our in-market presence to win new relationships,” said Daniel J. Schrider, President and CEO of Sandy Spring Bank. “Despite the economic concerns in the marketplace, the businesses we bank continue to grow and our pipeline remains strong. We are committed to supporting local businesses of all sizes and helping the Greater Washington region thrive.”
Second Quarter Highlights:
- At June 30, 2022, total assets were $13.3 billion, a 3% increase compared to $12.9 billion at June 30, 2021. During the previous twelve months, liquidity generated by PPP loan forgiveness was utilized to fund the growth in the loan and investment securities portfolios. Excluding the PPP balances, total assets grew 10% year-over-year.
- Total loans, excluding PPP loans, increased 17% to $10.8 billion at June 30, 2022 compared to $9.2 billion at June 30, 2021. Excluding PPP loans, total commercial loans grew by $1.3 billion or 17% during the previous twelve months. During this period, the Company generated new commercial gross loan production of $4.4 billion, of which $3.0 billion was funded, more than offsetting $1.6 billion in non-PPP commercial loan run-off. Funded commercial loan production increased 60% to $804.6 million during the second quarter of the current year compared to $502.5 million for the same quarter of the prior year. Total mortgage loans grew $249.7 million, primarily in conventional 1-4 family mortgage loans, during the same period.
- Net interest income for the second quarter of 2022 declined $2.1 million or 2% compared to the second quarter of 2021. Excluding PPP interest and fees, net interest income increased $9.9 million or 10% for the current quarter compared to the prior year quarter driven by the growth of the commercial loan portfolio.
- For the second quarter of 2022, the net interest margin was 3.49%, compared to 3.63% for the second quarter of 2021, and 3.49% for the first quarter of 2022. Excluding the amortization of the fair value marks derived from the previous acquisitions and interest and fees from PPP loans, the current quarter’s net interest margin was 3.45% compared to 3.49% for second quarter of 2021, and 3.41% for the first quarter of 2022.
- The provision for credit losses was a charge of $3.0 million for the current quarter compared to the prior year quarter’s credit to the provision of $4.2 million. 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. These factors were partially offset by the benefit to the provision derived from continuing improvement in forecasted macroeconomic indicators in the quantitative model.
- Non-interest income for the current quarter increased by 34% or $9.0 million compared to the prior year quarter as a result of the $16.7 million gain from the disposition of the Company's insurance business. Excluding the disposition gain, non-interest income declined 29% compared to the prior year quarter as a result of the $4.3 million decline in income from mortgage banking activities and the $3.4 million decline in other non-interest income compared to the second quarter of 2021.
- Non-interest expense for the current quarter increased $2.0 million or 3% compared to the prior year quarter with a significant component of the increase consisting of $1.1 million in merger, acquisition and disposal expense. Other non-interest expense increased $1.4 million driven by the combination of various operating expenses.
- Return on average assets (“ROA”) for the quarter ended June 30, 2022 was 1.69% and return on average tangible common equity (“ROTCE”) was 20.42% compared to 1.79% and 20.44%, respectively, for the second quarter of 2021. On a non-GAAP basis, the current quarter's core ROA was 1.37% and core ROTCE was 16.49% compared to core ROA of 1.83% and core ROTCE of 20.87% for the second quarter of 2021.
- For the second quarter of 2022, the GAAP efficiency ratio was 46.03% compared to 46.89% for the second quarter of 2021, and 50.92% for the first quarter of 2022. The non-GAAP efficiency ratio for the second quarter of 2022 was 49.79% compared to 45.36% for the prior year quarter, and 49.34% for the first quarter of 2022.
- During the quarter, the Company repurchased 625,710 shares of its common stock for $25.0 million at an average price of $39.93 per share. The repurchase plan that was authorized on March 30, 2022 permits the repurchase of up to $50.0 million in shares of common stock.
Balance Sheet and Credit Quality
Total assets grew 3% to $13.3 billion at June 30, 2022, as compared to $12.9 billion at June 30, 2021. During this period, total loans grew by 7% to $10.8 billion at June 30, 2022, compared to $10.1 billion at June 30, 2021. At June 30, 2022, excluding PPP loans, total assets grew 10% and total loans grew 17% compared to June 30, 2021. Total commercial loans, excluding PPP loan, grew by $1.3 billion or 17% during the past twelve months. During this period, the Company generated commercial gross loan production of $4.4 billion, of which $3.0 billion was funded, offsetting $1.6 billion in commercial loan run-off. During the second quarter of 2022, funded commercial loan production was $804.6 million, an increase of 60% compared to $502.5 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 $1.0 billion or 28% growth in the investor owned commercial portfolio. Year-over-year the total mortgage loan portfolio grew 22%, as a greater number of conventional 1-4 family mortgages were retained to grow the portfolio.
During the past twelve months, deposits increased 1%. Noninterest-bearing deposits grew 3% reflecting the impact of the PPP forgiveness and growth in transaction relationships, while interest-bearing deposits remained essentially unchanged. During the period, time deposits decreased 9% and money market accounts decreased 4%, while savings and interest bearing demand categories experienced year-over-year growth of 15% and 12%, respectively.
The tangible common equity ratio decreased to 8.45% of tangible assets at June 30, 2022, compared to 9.28% at June 30, 2021 as a result of the $132.3 million repurchase of common shares during the previous twelve months and the $88.9 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 June 30, 2022, the Company had a total risk-based capital ratio of 16.07%, a common equity tier 1 risk-based capital ratio of 11.58%, a tier 1 risk-based capital ratio of 11.58%, and a tier 1 leverage ratio of 9.53%.
Non-performing loans include non-accrual loans, accruing loans 90 days or more past due and restructured loans. At June 30, 2022, the level of non-performing loans to total loans was 0.40% compared to 0.93% at June 30, 2021, and 0.46% at March 31, 2022. At June 30, 2022, non-performing loans totaled $43.5 million, compared to $94.3 million at June 30, 2021, and $46.3 million at March 31, 2022. Loans placed on non-accrual during the current quarter amounted to $0.9 million compared to $1.5 million for the prior year quarter and $1.5 million for the first quarter of 2022.
The company realized an insignificant amount of net recoveries for the second quarter of 2022, as compared to net charge-offs of $2.2 million for the second quarter of 2021 and net charge-offs of $0.2 million for the first quarter of 2022.
At June 30, 2022, the allowance for credit losses was $113.7 million or 1.05% of outstanding loans and 261% of non-performing loans, compared to $110.6 million or 1.09% of outstanding loans and 239% 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 and the effect of management's consideration of the potential impact of recessionary pressures. The impact from these metrics applied in the determination of the allowance continue to be partially mitigated by forecasted improvement in certain economic metrics, notably the projected improvement in the unemployment rate in future periods.
Income Statement Review
Quarterly Results
Net income for the three months ended June 30, 2022 was $54.8 million compared to net income of $57.3 million for the prior year quarter. The decline in earnings was the result of lower net interest income, the current quarter's provision for credit losses compared to the prior year's credit to the allowance, and an increase in non-interest expense, which were partially offset by the increase in non-interest income. The decline in net interest income was the product of lower PPP fees and interest partially offset by interest income from loan growth, and an increase in interest expense. Non-interest income increased as a result of the sale of the Company's insurance business, offsetting lower mortgage banking income. Non-interest expense increased primarily as a result of the transaction costs associated with the asset sale and increases in various categories of operational costs in the current quarter compared to the prior year quarter. Current quarter core earnings were $44.2 million ($0.98 per diluted common share), compared to $58.4 million ($1.23 per diluted common share) for the quarter ended June 30, 2021 and $45.1 million ($0.99 per diluted common share) for the quarter ended March 31, 2022.
Net interest income for the second quarter of 2022 decreased $2.1 million or 2% compared to the second quarter of 2021, due to the combined impact of the $0.9 million reduction in interest income and the increase of $1.2 million in interest expense. The decline in interest income was driven by a $12.0 million decline in interest and fees on PPP loans, which was substantially offset by interest income from the remaining categories of commercial loans and, to a lesser degree, an increase in investment securities income. The increase in interest expense was primarily the result of the interest expense associated with issuance of subordinated debt late in the first quarter of the current year. The net interest margin for the second quarter of 2022 was 3.49% as compared to 3.63% for the same quarter of the prior year, as the yield on interest-earning assets declined eleven basis points and the rate paid on interest-bearing liabilities increased six basis points. Excluding the effects of amortization of the fair value marks derived from acquisitions and interest and fees from PPP loans, the net interest margin was 3.45% for the current quarter compared to 3.49% for second quarter of 2021.
The provision for credit losses was a charge of $3.0 million for the second quarter of 2022 compared to a credit of $4.2 million for the second quarter of 2021. The provision for credit losses for the first quarter of 2022 was a charge of $1.6 million. The provision for the current quarter reflects the growth in the loan portfolio during the quarter and management's consideration of the increased potential of an economic recession. These factors exceeded the impact derived from continuing improvement in forecasted macroeconomic indicators.
Non-interest income increased $9.0 million or 34% for the second quarter of 2022, compared to the prior year quarter as a direct result of the gain on the sale of the Company's insurance business. Excluding the disposal gain, non-interest income declined 29% compared to the prior year quarter. The gain was partially offset by a $4.3 million decline in income from mortgage banking activities and the $3.4 million decline in other non-interest income compared to the second quarter of 2021. Wealth management income remained stable and service charges on deposit accounts grew 25%. Other non-interest income declined 62% compared to the prior year, which included the full payoff of a purchased credit deteriorated loan and activity-based vendor incentives.
Non-interest expense increased $2.0 million or 3% for the second quarter of 2022, compared to the prior year quarter. The majority of the increase was the result of $1.1 million merger, acquisition and disposal expense associated with the sale of the Company's insurance business during the quarter. Other expenses increased $1.4 million as a result of the combination of the provision for lines of credit, franchise taxes and other operating costs. The remaining categories of non-interest expense experienced modest increases or decreases with professional fees declining $0.8 million during the current quarter compared to the prior year quarter as a result of lower consulting fees.
For the second quarter of 2022, the GAAP efficiency ratio was 46.03% compared to 46.89% for the second quarter of 2021, and 50.92% for the first quarter of 2022. The non-GAAP efficiency ratio was 49.79% for the current quarter as compared to 45.36% for the second quarter of 2021, and 49.34% for the first quarter of 2022. The increase in the non-GAAP efficiency ratio (reflecting a decrease in efficiency) from the second quarter of the prior year to the current year quarter was primarily the result of the 7% decline in non-GAAP revenue, driven chiefly by the decrease in the non-GAAP non-interest income. ROA for the second quarter ended June 30, 2022 was 1.69% and ROTCE was 20.42% compared to 1.42% and 16.04%, respectively, for the first quarter of 2022. On a non-GAAP basis, the current quarter's core ROA was 1.37% and core ROTCE was 16.49% compared to core ROA of 1.45% and core ROTCE of 16.45% for the first quarter of 2022.
Year-to-Date Results
The Company recorded net income of $98.7 million for the six months ended June 30, 2022 compared to net income of $132.7 million for the same period of the prior year. The decline in year-to-date earnings for the current year primarily reflects the impact of the decline in PPP fees and interest, partially offset by the impact on interest income from the growth in the commercial loan portfolio, and 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. Core earnings were $89.3 million for the six months ended June 30, 2022 compared to $142.0 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, a decline in mortgage banking income and lower other non-interest income from isolated events that occurred in 2021. Core earnings for the current period exclude the gain from the disposal of the Company's insurance business.
For the six months ended June 30, 2022, net interest income decreased 2% or $5.2 million compared to the prior year as a result of the $19.7 million reduction in PPP interest and fees, partially offset by the positive impact on interest income from the year-over-year loan growth and the decrease 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 5% compared to the prior year period. The decrease in interest expense was primarily the result of the decline in interest expense associated with money market and time deposits and total borrowings. The net interest margin declined to 3.49% for the six months ended June 30, 2022, compared to 3.60% for the prior year. Excluding the impact of the amortization of the fair value marks derived from acquisitions and PPP interest and fees, the net interest margin for the current year would have been 3.43% compared to 3.46% for the prior year.
The provision for credit losses for the six months ended June 30, 2022 amounted to a charge of $4.7 million as compared to a credit of $38.9 million for 2021. For the six months ended June 30, 2022, provision for credit losses is a reflection of the growth in the loan portfolio, coupled with the management's consideration of the potential impact of recessionary pressures, which exceeded the benefit to the provision derived from continuing improvement in forecasted macroeconomic indicators. 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 six months ended June 30, 2022, non-interest income which included a $16.7 million gain on the disposal of assets, increased 1% to $55.8 million compared to $55.1 million for 2021. Excluding the gain, non-interest income decreased 29% driven by a 76% decline in income from mortgage banking activities and a 55% decline in other income. The decline in income from mortgage banking activities is the result of the rising interest rate environment, which has dampened new mortgage 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. These declines exceeded the 3% growth in wealth management income, 25% growth in service charges on deposit accounts and 5% growth in bank card fees. Wealth management income grew, despite the erosion of assets under management due to the marketplace volatility, as a result of increased asset management fees. Service charge and bank card income growth occurred as a result of increased customer activity.
Non-interest expense decreased 3% to $127.1 million for the six months ended June 30, 2022, compared to $131.1 million for 2021. Excluding merger, acquisition and disposal expense from the current and prior year periods 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 20% increase other expense, excluding the FHLB prepayment penalties. The year-over-year increase in salaries and benefits was the result of staffing increases, salary adjustments and increased benefit costs. The principal component of the increase in other expense was the increase in the provision for credit losses provided on lines of credit compared to the prior year period. Marketing and outside data services costs increased 9% and 10%, respectively, while FDIC insurance premiums and professional fee and service costs decreased 30% and 10%, respectively, for the period.
For the six months ended June 30, 2022, the GAAP efficiency ratio was 48.30% compared to 48.98% for the same period in 2021. The non-GAAP efficiency ratio the current year was 49.57% compared to 44.01% 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 8% decrease in non-GAAP revenue combined with the 4% 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, 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, 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 second 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. Participants may call 844.200.6205. Please use the following access code: 532489. 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 August 4, 2022. A replay of the teleconference will be available through the same time period by calling 866.813.9403 under conference call number 378796.
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.
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
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.