OLNEY, MARYLAND, January 23, 2024 — Sandy Spring Bancorp, Inc. (Nasdaq-SASR), the parent company of Sandy Spring Bank, reported net income of $26.1 million ($0.58 per diluted common share) for the quarter ended December 31, 2023, compared to net income of $20.7 million ($0.46 per diluted common share) for the third quarter of 2023 and $34.0 million ($0.76 per diluted common share) for the fourth quarter of 2022. The increase in the current quarter's net income compared to the linked quarter was a product of a lower provision for credit losses coupled with lower non-interest expense, partially offset by lower net interest income and non-interest income.
Current quarter's core earnings were $27.1 million ($0.60 per diluted common share), compared to $27.8 million ($0.62 per diluted common share) for the quarter ended September 30, 2023 and $35.3 million ($0.79 per diluted common share) for the quarter ended December 31, 2022. Core earnings exclude the after-tax impact of amortization of intangibles, investment securities gains or losses and other non-recurring or extraordinary items. The current quarter’s core earnings were positively affected by a lower provision for credit losses, which was offset by lower revenues and an increase in non-interest expense, after excluding the pension settlement expense from the prior quarter.
“Over the past year, we successfully grew core funding, improved liquidity and expanded our client base," said Daniel J. Schrider, Chairman, President and CEO of Sandy Spring Bank. "We also launched improved digital banking and online account opening platforms that give our clients more control in how they bank with us."
“While it was a challenging year given the rate environment and economic uncertainty, we are focused on building on this positive momentum in 2024 and continuing to stay close to our clients,” Schrider added.
Fourth Quarter Highlights
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Total assets at December 31, 2023 decreased by 1% to $14.0 billion compared to $14.1 billion at September 30, 2023.
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Total loans increased by $66.7 million or 1% to $11.4 billion at December 31, 2023 compared to $11.3 billion at September 30, 2023. During the current quarter, the Company reduced its concentration in the investor commercial real estate segment by $33.3 million, while AD&C and commercial business loans and lines increased $50.3 million and $50.2 million, respectively. The total mortgage loan portfolio remained relatively unchanged during this period.
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Deposits decreased $154.5 million or 1% to $11.0 billion at December 31, 2023 compared to $11.2 billion at September 30, 2023, as noninterest-bearing and interest-bearing deposits declined $99.7 million and $54.7 million, respectively. Decline within noninterest-bearing deposit categories was driven by lower balances in small business and title company commercial checking accounts. The decrease in interest-bearing deposits was due to a $253.1 million reduction in brokered time deposits, as the Company continued to reduce its reliance on wholesale funding sources, in addition to the $111.9 million decrease in money market accounts. These declines were partially offset by the $265.9 million growth in savings accounts.
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The ratio of non-performing loans to total loans was 0.81% at December 31, 2023 compared to 0.46% at September 30, 2023 and 0.35% at December 31, 2022. The current quarter's increase in non-performing loans was related to two large investor commercial real estate relationships within the custodial care and multifamily residential property industries. Net charge-off activity during the current quarter was insignificant.
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Total borrowings were unchanged across all categories at December 31, 2023 compared to the previous quarter.
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Net interest income for the fourth quarter of 2023 declined $3.4 million or 4% compared to the previous quarter and $24.9 million or 23% compared to the fourth quarter of 2022. During the recent quarter, the $3.2 million growth in interest income was more than offset by the $6.6 million increase in interest expense, a result of the competitive rates offered on deposits.
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The net interest margin was 2.45% for the fourth quarter of 2023 compared to 2.55% for the third quarter of 2023 and 3.26% for the fourth quarter of 2022. This decline in the net interest margin was the result of higher rates paid on interest-bearing liabilities, driven by higher market rates, competition for deposits, and customers' movement of excess funds out of noninterest-bearing into interest-bearing accounts, which outpaced the increase in the yield on interest-earning assets. Compared to the linked quarter, the rate paid on interest-bearing liabilities rose 25 basis points, while the yield on interest-earning assets increased 9 basis points, resulting in the quarterly margin compression of 10 basis points.
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Provision for credit losses directly attributable to the funded loan portfolio for the current quarter was a credit of $2.6 million compared to a charge of $3.2 million in the previous quarter and $7.9 million in the prior year quarter. The reduction in the provision during the current quarter was attributable to a change in the composition of the loan portfolio, a decline in the probability of an economic recession and updates to other qualitative adjustments used within the reserve calculation. These factors were partially offset by an individual reserve established on an investor commercial real estate loan designated as non-accrual during the current quarter coupled with a slight deterioration in other relevant economic factors in the most recent economic forecast. In addition, during the current quarter the Company reduced its reserve for unfunded commitments by $0.9 million, a result of higher utilization rates on lines of credit.
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Non-interest income for the fourth quarter of 2023 decreased by 5% or $0.8 million compared to the linked quarter and grew by 16% or $2.3 million compared to the prior year quarter. The quarter-over-quarter decrease was mainly driven by lower income from mortgage banking activities, due to lower sales volume, partially offset by greater BOLI income.
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Non-interest expense for the fourth quarter of 2023 decreased $5.3 million or 7% compared to the third quarter of 2023 and $2.8 million or 4% compared to the prior year quarter. The previous quarter included an $8.2 million in pension settlement expense related to the termination of the Company's pension plan. Excluding this item from the previous quarter, total non-interest expense increased by $2.8 million or 4% due to higher professional and consulting fees, marketing expense and other operating expenses.
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Return on average assets (“ROA”) for the quarter ended December 31, 2023 was 0.73% and return on average tangible common equity (“ROTCE”) was 9.26% compared to 0.58% and 7.42%, respectively, for the third quarter of 2023 and 0.98% and 12.91%, respectively, for the fourth quarter of 2022. On a non-GAAP basis, the current quarter's core ROA was 0.76% and core ROTCE was 9.26% compared to 0.78% and 9.51%, respectively, for the previous quarter and 1.02% and 13.02%, respectively, for the fourth quarter of 2022.
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The GAAP efficiency ratio was 68.33% for the fourth quarter of 2023, compared to 70.72% for the third quarter of 2023 and 53.23% for the fourth quarter of 2022. The non-GAAP efficiency ratio was 66.16% for the fourth quarter of 2023 compared to 60.91% for the third quarter of 2023 and 51.46% for the prior year quarter. The increase in non-GAAP efficiency ratio (reflecting a decrease in efficiency) in the current quarter compared to the previous quarter and the fourth quarter of the prior year was the result of declines in net revenue from the prior periods coupled with the growth in non-interest expense.
Balance Sheet and Credit Quality
Total assets were $14.0 billion at December 31, 2023, as compared to $14.1 billion at September 30, 2023. At December 31, 2023 total loans increased by $66.7 million or 1% to $11.4 billion compared to $11.3 billion at September 30, 2023. Commercial real estate and business loans increased $62.0 million quarter-over-quarter due to the $50.3 million and $50.2 million growth in the AD&C and commercial business loan and lines portfolios, respectively, partially offset by a $33.3 million decline in the investor commercial real estate loan portfolio. Quarter-over-quarter the total mortgage loan portfolio remained relatively unchanged.
Deposits decreased $154.5 million or 1% to $11.0 billion at December 31, 2023 compared to $11.2 billion at September 30, 2023. During this period noninterest-bearing and interest-bearing deposits declined $99.7 million and $54.7 million, respectively. The decline within noninterest-bearing deposit categories was primarily driven by $64.7 million and $54.4 million decrease in small business and title company commercial checking accounts, respectively. The decrease in interest-bearing deposits was due to a $253.1 million reduction in brokered time deposits, as the Company continued to reduce its reliance on wholesale funding sources during the current quarter, in addition to the $111.9 million decrease in money market accounts. These declines were partially offset by $265.9 million growth in savings accounts. Total deposits, excluding brokered deposits, increased by $85.5 million or 1% quarter-over-quarter and represented 92% of the total deposits as of December 31, 2023 compared to 90% at September 30, 2023, reflecting continued stability of the core deposit base. Due to the deposit decline experienced during the current quarter the loan to deposit ratio increased to 103% at December 31, 2023 from 101% at September 30, 2023. Total uninsured deposits at December 31, 2023 were approximately 34% of the total deposits.
At December 31, 2023, contingent liquidity, which consists of available FHLB borrowings, fed funds, funds through the Federal Reserve Bank's discount window and the Bank Term Funding Program, as well as excess cash and unpledged investment securities totaled $6.0 billion or 162% of uninsured deposits.
The tangible common equity ratio increased to 8.77% of tangible assets at December 31, 2023, compared to 8.42% at September 30, 2023. This increase reflected the impact of higher tangible common equity, a product of $10.8 million increase in net retained earnings and a $38.2 million decrease in unrealized losses on available-for-sale investment securities during the current quarter, while tangible assets decreased by $119.2 million.
At December 31, 2023, the Company had a total risk-based capital ratio of 14.92%, a common equity tier 1 risk-based capital ratio of 10.90%, a tier 1 risk-based capital ratio of 10.90%, and a tier 1 leverage ratio of 9.51%. All of these ratios remain well in excess of the mandated minimum regulatory requirements.
Non-performing loans include non-accrual loans and accruing loans 90 days or more past due. At December 31, 2023, non-performing loans totaled $91.8 million, compared to $51.8 million at September 30, 2023 and $39.4 million at December 31, 2022. Non-performing loans to total loans was 0.81% compared to 0.46%. These levels of non-performing loans compare to 0.35% at December 31, 2022. The current quarter's increase in non-performing loans was related to two large investor commercial real estate relationships within the custodial care and multifamily residential property industries. These two relationships accounted for $42.4 million of the total $47.9 million of loans placed on non-accrual during the quarter. Only the custodial care relationship required an individual reserve during the current quarter. An individual reserve was recorded earlier in the year on the multifamily residential property relationship. Total net recoveries for the current quarter amounted to $0.1 million compared to net charge-offs of $0.1 million for the third quarter of 2023 and $0.1 million of net recoveries for the fourth quarter of 2022.
At December 31, 2023, the allowance for credit losses was $120.9 million or 1.06% of outstanding loans and 132% of non-performing loans, compared to $123.4 million or 1.09% of outstanding loans and 238% of non-performing loans at the end of the previous quarter and $136.2 million or 1.20% of outstanding loans and 346% of non-performing loans at the end of the fourth quarter of 2022. The decrease in the allowance for the current quarter compared to the previous quarter mainly reflects a change in the composition of the loan portfolio, a decline in the probability of an economic recession and updates to other qualitative adjustments, partially offset by an individual reserve established on the previously discussed investor commercial real estate loan designated as non-accrual during the current quarter coupled with a slight deterioration in other relevant economic factors in the most recent economic forecast.
Income Statement Review
Quarterly Results
Net income was $26.1 million ($0.58 per diluted common share) for the three months ended December 31, 2023 compared to $20.7 million ($0.46 per diluted common share) for the three months ended September 30, 2023 and $34.0 million ($0.76 per diluted common share) for the prior year quarter. The current quarter's core earnings were $27.1 million ($0.60 per diluted common share), compared to $27.8 million ($0.62 per diluted common share) for the previous quarter and $35.3 million ($0.79 per diluted common share) for the quarter ended December 31, 2022. The increase in the current quarter's net income compared to the previous quarter, which included a one-time pension settlement expense of $8.2 million, was a result of lower provision for credit losses partially offset by declines in both net interest income and non-interest income.
Net interest income for the fourth quarter of 2023 decreased $3.4 million or 4% compared to the previous quarter and $24.9 million or 23% compared to the fourth quarter of 2022. Both quarterly and year-over-year decreases in net interest income were driven by higher interest expense, a result of higher funding costs, which outpaced growth in interest income. The rising interest rate environment was primarily responsible for a $20.3 million year-over-year increase in interest income. This growth in interest income was more than offset by the $45.3 million year-over-year growth in interest expense as funding costs have also risen in response to the rising rate environment and significant competition for deposits. Interest income growth occurred in all categories of commercial loans and, to a lesser degree, in residential mortgage loans, and consumer loans.
The net interest margin was 2.45% for the fourth quarter of 2023 compared to 2.55% for the third quarter of 2023 and 3.26% for the fourth quarter of 2022. The contraction of the net interest margin for the current quarter reflects the higher rate paid on interest-bearing liabilities, which outpaced the increase in the yield on interest-earning assets. The overall rate and yield increases were driven by the multiple federal funds rate increases that occurred over the preceding twelve months, competition for deposits in the market, and customer movement of excess funds out of noninterest-bearing accounts into higher yielding products. As compared to the prior year quarter, the yield on interest-earning assets increased 49 basis points while the rate paid on interest-bearing liabilities rose 169 basis points, resulting in net interest margin compression of 81 basis points.
The total provision for credit losses was a credit of $3.4 million for the fourth quarter of 2023 compared to a charge of $2.4 million for the previous quarter and $10.8 million for the fourth quarter of 2022. The provision for credit losses directly attributable to the funded loan portfolio was a credit of $2.6 million for the current quarter compared to a charge of $3.2 million for the third quarter of 2023 and the prior year quarter’s provision of $7.9 million. The current quarter's provision is mainly a reflection of change in the composition of the loan portfolio, a decline in the probability of an economic recession and updates to other qualitative adjustments, partially offset by an increase in individual reserves driven by one large investor commercial real estate relationship along with a slight deterioration in other relevant economic factors.
Non-interest income for the fourth quarter of 2023 decreased by 5% or $0.8 million compared to the linked quarter and grew by 16% or $2.3 million compared to the prior year quarter. The current quarter's decrease in non-interest income as compared to the previous quarter was mainly driven by lower income from mortgage banking activities, due to lower sales volume, partially offset by an increase in BOLI income.
Non-interest expense for the fourth quarter of 2023 decreased $5.3 million or 7% compared to the third quarter of 2023 and increased $2.8 million or 4% compared to the fourth quarter of 2022. The previous quarter included $8.2 million of pension settlement expense related to the termination of the Company's pension plan. Excluding this item from the previous quarter, total non-interest expense increased by $2.8 million or 4% driven by a cumulative effect of higher professional and consulting fees, marketing expense and other operating expenses, partially offset by lower salaries and employee benefits.
For the fourth quarter of 2023, the GAAP efficiency ratio was 68.33% compared to 70.72% for the third quarter of 2023 and 53.23% for the fourth quarter of 2022. The GAAP efficiency ratio rose from the prior year quarter primarily as a result of the 19% decrease in GAAP revenue in combination with the 4% increase in GAAP non-interest expense. The non-GAAP efficiency ratio was 66.16% for the current quarter as compared to 60.91% for the third quarter of 2023 and 51.46% for the fourth quarter of 2022. The increase in the non-GAAP efficiency ratio (reflecting a decrease in efficiency) from the fourth quarter of the prior year to the current year quarter was primarily the result of the 19% decline in non-GAAP revenue, while non-GAAP expenses increased 4%.
ROA for the quarter ended December 31, 2023 was 0.73% and ROTCE was 9.26% compared to 0.58% and 7.42%, respectively, for the third quarter of 2023 and 0.98% and 12.91%, respectively, for the fourth quarter of 2022. On a non-GAAP basis, the current quarter's core ROA was 0.76% and core ROTCE was 9.26% compared to 0.78% and 9.51% for the third quarter of 2023 and 1.02% and 13.02%, respectively, for the fourth quarter of 2022.
Year-to-Date Results
The Company recorded net income of $122.8 million for the year ended December 31, 2023 compared to net income of $166.3 million for the same period in the prior year. Core earnings were $134.3 million for the year ended December 31, 2023 compared to $160.3 million for the same period in the prior year. Year-to-date net income declined as a result of the gain recognized on the sale of the Company's insurance segment during the prior year in combination with the decrease in net interest income and higher non-interest expense, partially offset by lower provision for credit losses.
For the year ended December 31, 2023, net interest income decreased $72.5 million compared to the prior year as a result of the $214.3 million increase in interest expense, partially offset by the $141.9 million increase in interest income. The increase in interest expense was driven by the interest expense on deposits, primarily associated with money market and time deposit accounts and, to a lesser degree, FHLB and Federal Reserve Bank borrowings. The net interest margin declined to 2.67% for the year ended December 31, 2023, compared to 3.44% for the prior year, primarily as a result of higher funding costs due to the rising interest rate environment and market competition for deposits during the period.
The provision for credit losses for the year ended December 31, 2023 amounted to a credit of $17.6 million as compared to a charge of $34.4 million for 2022. The credit to the provision for the year ended December 31, 2023 was a reflection of the improving regional forecasted unemployment rate, observed during the first half of the current year, and the declining probability of economic recession, partially offset by higher individual reserves on our non-accrual loans during the year.
For the year ended December 31, 2023, non-interest income decreased 23% to $67.1 million compared to $87.0 million for 2022. During the prior year, the Company realized a $16.5 million gain on the sale of its insurance segment. Excluding the gain, non-interest income decreased 5% or $3.4 million, driven by a $2.9 million decrease in insurance commissions, a $2.6 million decrease in bank card fees and a $0.6 million decrease in income from mortgage banking activities. Insurance commission income declined due to the disposition of the Company's insurance business during the second quarter of the prior year. Fees from bank cards declined as a result of regulatory restrictions on transaction fees effective in the second half of the prior year. The decline in income from mortgage banking activities is the result of the rising interest rate environment, which continues to dampen home sales and refinancing activity. These decreases in non-interest income year-over-year were partially offset by a $1.1 million increase in BOLI mortality-related income and the $0.9 million increase in wealth management income.
Non-interest expense increased 7% to $275.1 million for the year ended December 31, 2023, compared to $257.3 million for 2022. Current year expense included pension settlement expense of $8.2 million and severance expense of $1.9 million, while the prior year included contingent earn-out expense associated with the 2020 acquisition of Rembert Pendleton Jackson of $1.2 million and merger, acquisition and disposal expense of $1.1 million. Excluding these items, non-interest expense increased by $10.0 million or 4% in the current year over the prior year. The drivers of the increase in non-interest expense were a $8.8 million increase in professional fees, a $4.7 million increase in FDIC expense, and a $1.7 million increase in software amortization expense. Excluding the pension settlement expense, total salaries and benefits expense declined by $6.5 million from the prior year period, predominantly due to a reduction in performance-based compensation. Year-over-year increases in both professional fees and software amortization expense were mainly associated with the Company's investments in technology and software projects. The increase in FDIC insurance expense was a result of an increase in the assessment rate for all banks that became effective in 2023.
For the year ended December 31, 2023, the GAAP efficiency ratio was 65.24% compared to 50.05% for the same period in 2022. The non-GAAP efficiency ratio for the current year was 60.99% compared to the 49.66% for the prior year. The growth in the current year’s GAAP and non-GAAP efficiency ratios compared to the prior year, indicating a decline in efficiency, was the result of the declines in GAAP and non-GAAP revenues combined with the growth in GAAP and non-GAAP non-interest expenses.
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:
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Tangible common equity and related measures are non-GAAP measures that exclude the impact of goodwill and other intangible assets.
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The non-GAAP efficiency ratio excludes amortization of intangible assets, investment securities gains/(losses), merger, acquisition and disposal expense, gain on disposal of assets, pension settlement expense, severance expense and contingent payment expense, and includes tax-equivalent income.
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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 amortization of intangible assets, pension settlement expense, investment securities gains/(losses) and other non-recurring or extraordinary items, on a net of tax basis.
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Pre-tax pre-provision net income excludes income tax expense and the provision (credit) for credit losses.
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. Participants may call 833.470.1428. Please use the following access code: 125369. 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 February 6, 2024. A replay of the teleconference will be available through the same time period by calling 866.813.9403 under conference call number 801362.
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, Chair, 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
Senior Vice President
301.570.8331
jschell@sandyspringbank.com
Forward-Looking Statements
Sandy Spring Bancorp’s forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These risks and uncertainties include, but are not limited to, the risks identified in our quarterly and annual reports and the following: changes in general business and economic conditions nationally or in the markets that we serve; changes in consumer and business confidence, investor sentiment, or consumer spending or savings behavior; changes in the level of inflation; changes in the demand for loans, deposits and other financial services that we provide; the possibility that future credit losses may be higher than currently expected; the impact of the interest rate environment on our business, financial condition and results of operations; the impact of compliance with changes in laws, regulations and regulatory interpretations, including changes in income taxes; changes in credit ratings assigned to us or our subsidiaries; the ability to realize benefits and cost savings from, and limit any unexpected liabilities associated with, any business combinations; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; our ability to maintain the security of our data processing and information technology systems; the impact of changes in accounting policies, including the introduction of new accounting standards; the impact of judicial or regulatory proceedings; the impact of fiscal and governmental policies of the United States federal government; the impact of health emergencies, epidemics or pandemics; the effects of climate change; and the impact of natural disasters, extreme weather events, military conflict, terrorism or other geopolitical events. Sandy Spring Bancorp provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2022 and its Form 10-Q for the quarter ended September 30, 2023, including in the Risk Factors section of those reports, 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.