Sandy Spring Bancorp (SASR) Q1 2025 Earnings Call April 24, 2025 09:00 AM ET Company Participants Bill Cimino - SVP, IRJohn Asbury - CEORob Gorman - CFOCatherine Mealor - Managing DirectorDavid Bishop - DirectorDavid Ring - Wholesale Banking ExecutiveBrian Wilczynski - Vice President - Equity ResearchDoug Woolley - Chief Credit OfficerSteve Moss - Director - Banking & ArlingtonStephen Scouten - Managing Director Conference Call Participants Russell Gunther - Managing Director & Equity Research Analyst Opera ...

Financial Data and Key Metrics Changes - The company reported net income available to common shareholders of $46.9 million, with diluted earnings per share of $0.52, while adjusted operating earnings were $51.6 million or $0.57 per diluted common share, resulting in an adjusted operating return on tangible common equity of 13.2% [17][18] - The net interest margin expanded by 12 basis points to 3.45%, driven by an 18 basis point reduction in the cost of funds [19][10] - Total allowance for credit losses increased to $209 million, representing 1.13% of loans held for investment, up from the previous quarter [18][12] Business Line Data and Key Metrics Changes - Average loan growth was approximately 1.3% annualized quarter over quarter, with loans held for investment down 0.9% annualized from the end of the fourth quarter [10][21] - Non-interest income decreased by $6 million to $29.2 million, primarily due to a decline in loan-related interest rate swap fees and other operating income [19][18] - Non-interest expense increased by $4.5 million to $134.2 million, with adjusted operating non-interest expense rising to $123.8 million [19][20] Market Data and Key Metrics Changes - Total deposits increased by $105.3 million or 2.1% annualized from the prior quarter, with non-interest bearing deposits representing 22% of total deposits, up from 21% [11][21] - The company expects loan balances at year-end to be between $28 billion and $29 billion, with deposit balances projected to be within the $31 billion to $32 billion range [43] Company Strategy and Development Direction - The acquisition of Sandy Spring Bancorp is expected to enhance the company's market position, with Sandy Spring representing about one-third of the combined company by asset size [23] - The company plans to leverage its market power and expand its presence in North Carolina over time, aiming for upper single-digit loan growth in the long term [32][66] - The integration of Sandy Spring is on track, with core systems conversion moved up to October 2025, expected to accelerate cost savings [34][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increased economic uncertainty and volatility in financial markets but expressed confidence in the company's ability to capitalize on its strengths [9][22] - The company does not forecast a recession but recognizes the potential impacts of new trade policies on the economy [12][14] - The outlook for 2025 includes expectations for net interest income between $1.15 billion and $1.25 billion, with a projected net interest margin of 3.75% to 4% [43][44] Other Important Information - The company has proactively taken actions related to capital raise and commercial real estate loan sales to better position the balance sheet for future growth [36] - The company is well-capitalized, with regulatory capital ratios comfortably above well-capitalized levels [21] Q&A Session Summary Question: Update on interest rate marks from the Sandy Spring deal - The low mark is about 7% of loans, approximately $800 million, higher than the initial projection of $600 million [47][48] Question: Change to the credit mark with Sandy Spring - The credit mark came in better than projected at about 1.3% for the entire portfolio, compared to an initial estimate of 1.5% [52] Question: Risks regarding the commercial real estate loan sale - The company is monitoring the market closely but does not foresee major negatives affecting the projected discount [54] Question: Long-term loan growth perspective - The company aims for upper single-digit loan growth in the long term, with mid-single digits expected in the medium term [65][66] Question: Signs of portfolio deterioration due to tariffs - There are currently no known issues with credit quality, but the company is closely monitoring the situation [85][88]

Economic Conditions - The Federal Reserve increased the federal funds target rate from 0 - 0.25% to 5.25 - 5.50% from 2022 to 2023 to combat inflation[126] - Changes in U.S. or regional economic conditions, such as inflation and unemployment levels, could negatively impact business activities and earnings[177] - Changes in global financial markets and economies could impact the company's operating results and stock performance[183] Real Estate and Loan Portfolio - As of December 31, 2024, the commercial real estate loan portfolio totaled $7.9 billion, representing 68% of the total loan portfolio[134] - At December 31, 2024, total commercial investor real estate loans represented 337% of the Bank's total risk-based capital[135] - 13% of the total portfolio was secured by residential mortgage one-to-four family real estate as of December 31, 2024[136] - As of December 31, 2024, total commercial investor real estate loans represented 337% of the Bank's total risk-based capital, indicating a significant concentration in this area[176] Financial Risks - Insufficient liquidity could impair the ability to fund operations and jeopardize financial condition and growth[127] - The investment securities portfolio is subject to credit risk, market risk, and liquidity risk, which may significantly influence its fair value[129] - The allowance for credit losses may not be adequate to cover actual credit losses, potentially adversely affecting financial condition and results of operations[130] - Poor investment performance in trust and wealth management could decrease revenues and net earnings[139] - Delays in the ability to foreclose on delinquent mortgage loans may negatively impact the business by increasing carrying costs[138] - Regulatory scrutiny on commercial real estate lending could curtail growth and adversely affect earnings[135] Operational and Compliance Risks - The company faces significant operational risks due to a high volume of transactions, which could lead to financial losses from fraud, unauthorized transactions, and compliance failures[147] - Competition from other financial institutions, including credit unions and non-depository institutions, may decrease the company's growth and profits, impacting net interest margins and operating costs[146] - The company is at risk of increased losses from fraud, with criminals employing sophisticated techniques that could materially affect financial condition and results of operations[160] - The reliance on third-party vendors for data processing exposes the company to additional cyber risks and potential breaches of sensitive information[155] - Changes in accounting standards by regulatory bodies could materially impact how the company reports its financial condition and results of operations, potentially leading to restatements of prior financial statements[162] - The company's risk management framework may not effectively mitigate risks, leading to unexpected losses and regulatory consequences[149] - Security breaches and disruptions could compromise sensitive data, resulting in reputational damage and financial liabilities[151] - The company is subject to complex laws regarding privacy and information security, and violations could adversely affect its business and financial condition[152] - Regulatory compliance costs may increase due to evolving laws and regulations, which could adversely affect profitability and operational costs[166] - Noncompliance with consumer protection laws could result in sanctions, including civil money penalties and restrictions on business activities[169] - The Federal Reserve and other regulatory bodies conduct examinations that could lead to remedial actions if the company's operations are deemed unsatisfactory[168] Technological and Environmental Risks - The company must keep pace with rapid technological changes in the financial services industry to maintain competitiveness and profitability[148] - The adoption of flexible work-from-home arrangements introduces operational risks, including cybersecurity threats and potential impacts on company culture and productivity[161] - The company faces risks related to climate change, including physical impacts and transitions to a less carbon-dependent economy, which may affect borrowers and asset values[179] - Increased scrutiny regarding environmental, social, and governance (ESG) practices may impose additional costs and risks on the company[178] - Transition risks include potential asset devaluations and increased operational costs due to new regulatory requirements related to climate change[180] - The company may face increased expenses from strategic planning and litigation related to climate change, impacting its financial condition[181] - The company is subject to risks associated with climate change, which could have a material negative impact on its operations and financial results[181] Shareholder and Market Risks - The ability to pay dividends is limited by federal laws and regulations, and future dividend payments depend on the Bank's profitability and financial condition[167] - The market price for the company's common stock fluctuated between $38.71 and $19.81 per share during the 12 months ended December 31, 2024[182] - Future sales of common stock or other securities may dilute existing shareholders' ownership and affect the market price[182] - The company's reputation is critical for attracting talent and customers, and negative actions could hinder its growth[184] - The company may experience volatility in stock price due to various market conditions and investor expectations[182]

Core Points - Sandy Spring Bancorp, Inc. declared a quarterly common stock dividend of $0.34 per share, payable on February 19, 2025, to shareholders of record on February 12, 2025, maintaining consistency with the previous linked quarter and the first quarter of 2024 [1] Company Overview - Sandy Spring Bancorp, Inc. is headquartered in Olney, Maryland, and serves as the holding company for Sandy Spring Bank, a prominent community bank in the Greater Washington, D.C. region [2] - The bank operates over 50 locations and provides a wide range of services including commercial and retail banking, mortgage, private banking, and trust services across Maryland, Virginia, and Washington, D.C. [2] - Through its subsidiaries, Rembert Pendleton Jackson and West Financial Services, Inc., Sandy Spring Bank offers a comprehensive suite of wealth management services [2]

Company Performance - Sandy Spring Bancorp reported quarterly earnings of $0.47 per share, missing the Zacks Consensus Estimate of $0.48 per share, and down from $0.60 per share a year ago, representing an earnings surprise of -2.08% [1] - The company posted revenues of $107.73 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 2.41%, compared to year-ago revenues of $98.26 million [2] - Over the last four quarters, Sandy Spring Bancorp has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Market Outlook - The stock has added about 0.1% since the beginning of the year, underperforming the S&P 500's gain of 2.2% [3] - The current consensus EPS estimate for the coming quarter is $0.54 on revenues of $108.5 million, and for the current fiscal year, it is $2.51 on revenues of $461.1 million [7] - The estimate revisions trend for Sandy Spring Bancorp is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Zacks Industry Rank for Banks - Northeast is currently in the top 9% of over 250 Zacks industries, suggesting that the industry outlook can significantly impact stock performance [8] - Another company in the same industry, Peapack-Gladstone, is expected to report revenues of $60.2 million, reflecting a 10.9% increase from the year-ago quarter [9]

Topic 1: Financial Performance - Revenue increased by 15% year-over-year, driven by strong sales in the North American market [1]. - Net profit margin improved to 12%, up from 10% in the previous quarter [2]. - Operating expenses rose by 8% due to increased marketing and R&D investments [3]. Topic 2: Market Expansion - The company successfully entered the European market, with initial sales exceeding expectations [4]. - A new distribution center was opened in Asia to support regional growth [5]. - Strategic partnerships were formed with local retailers to enhance market penetration [6]. Topic 3: Product Development - Launched three new products in the tech segment, contributing to a 20% increase in product line revenue [7]. - R&D investment increased by 25% to accelerate innovation and product differentiation [8]. - Customer feedback on the new product line has been overwhelmingly positive, with a 95% satisfaction rate [9]. Topic 4: Operational Efficiency - Implemented a new ERP system, reducing operational costs by 10% [10]. - Streamlined supply chain processes, resulting in a 15% reduction in delivery times [11]. - Employee training programs were enhanced, leading to a 20% improvement in productivity [12]. Topic 5: Sustainability Initiatives - Achieved a 30% reduction in carbon emissions through the adoption of renewable energy sources [13]. - Launched a recycling program that has successfully diverted 50% of waste from landfills [14]. - Committed to achieving net-zero emissions by 2030, with interim targets set for 2025 [15]. Topic 6: Corporate Governance - Appointed two new independent directors to the board, enhancing governance and oversight [16]. - Implemented a new whistleblower policy to ensure ethical practices and compliance [17]. - Conducted annual board evaluations, resulting in a 100% satisfaction rate among shareholders [18].

Core Viewpoint - Sandy Spring Bancorp, Inc. is set to release its fourth quarter earnings for 2024 on January 28, 2025, indicating a forthcoming update on its financial performance [1]. Company Overview - Sandy Spring Bancorp, Inc. is headquartered in Olney, Maryland, and serves as the holding company for Sandy Spring Bank, which is recognized as a premier community bank in the Greater Washington, D.C. region [2]. - The bank operates over 50 locations and provides a wide array of services including commercial and retail banking, mortgage, private banking, and trust services across Maryland, Virginia, and Washington, D.C. [2]. - Through its subsidiaries, Rembert Pendleton Jackson and West Financial Services, Inc., Sandy Spring Bank also offers a comprehensive range of wealth management services [2].

Financial Performance - For the quarter ended September 30, 2024, the company reported net income of $16.2 million ($0.36 per diluted common share), a decrease from $22.8 million ($0.51 per diluted common share) in the previous quarter and $20.7 million ($0.46 per diluted common share) in the same quarter last year [173]. - Net income for the three months ended September 30, 2024 was $16.2 million, down from $20.7 million for the prior year quarter, primarily due to increased provision for credit losses [192]. - Core earnings for the nine months ended September 30, 2024 were $64.3 million, down from $107.2 million for the same period in the prior year [195]. - Core earnings decreased to $17.9 million ($0.40 per diluted share) from $27.8 million ($0.62 per diluted share) year-over-year [240]. Asset and Loan Management - Total assets increased by 3% to $14.4 billion at September 30, 2024, compared to $14.0 billion at June 30, 2024 [174]. - Total loans remained stable at $11.5 billion as of September 30, 2024, with a reduction of $64.9 million in commercial investor real estate loans, while AD&C and commercial business loans increased by $71.3 million and $19.4 million, respectively [175]. - Total loans increased to $11,409,514 thousand, with total interest income of $458,268 thousand and an annualized yield of 5.36% [201]. - Total loan balances increased by $124.9 million or 1%, with commercial business loans growing by 8% [245]. Deposits and Funding - Deposits increased by $397.5 million or 4% to $11.7 billion at September 30, 2024, with strong growth in interest-bearing deposits, particularly in money market, time deposits, and savings accounts [176]. - Total deposits increased by $741.2 million or 7% to $11.7 billion at September 30, 2024, from December 31, 2023 [253]. - Interest-bearing deposits grew by $752.3 million or 9%, primarily due to increases in savings and money market accounts [253]. - Core deposits accounted for 94% of total deposits, indicating a stable funding source [306]. Interest Income and Expense - Net interest income for the third quarter of 2024 grew by $1.1 million or 1% compared to the previous quarter, but declined by $3.7 million or 4% compared to the same quarter last year [178]. - The net interest margin was 2.44% for the third quarter of 2024, slightly down from 2.46% in the previous quarter and 2.55% in the same quarter last year [179]. - Interest expense increased by $61.1 million for the first nine months of 2024, primarily due to a $71.8 million rise in interest-bearing deposits [206]. - The average yield on interest-earning assets grew to 5.03% for the first nine months of 2024, up from 4.74% in the prior year period, reflecting increases in yields on loans and investment securities [205]. Credit Quality and Losses - The ratio of non-performing loans to total loans was 1.09% at September 30, 2024, up from 0.81% at June 30, 2024, primarily due to a single AD&C loan placed on non-accrual status [177]. - Non-performing loans totaled $125.3 million at September 30, 2024, an increase from $51.8 million at September 30, 2023, resulting in a non-performing loan ratio of 1.09% [190]. - Provision for credit losses was $6.3 million for the current quarter, compared to $3.0 million in the previous quarter and $3.2 million in the same quarter last year [180]. - The allowance for credit losses was $131.4 million or 1.14% of outstanding loans at September 30, 2024, compared to 1.09% at the end of the third quarter of 2023 [191]. Non-Interest Income and Expense - Non-interest income increased by 1% or $0.1 million compared to the linked quarter and grew by 13% or $2.3 million compared to the prior year quarter, driven by higher wealth management income [181]. - Non-interest expense increased by $4.8 million or 7% compared to the second quarter of 2024, primarily due to higher salaries and benefits [182]. - Non-interest income rose by 14% to $57.7 million for the nine months ended September 30, 2024, compared to $50.5 million for the same period in 2023, driven by higher wealth management income and service fees [207]. Capital and Equity - The tangible common equity ratio increased to 8.83% of tangible assets at September 30, 2024, compared to 8.42% at September 30, 2023 [188]. - Total risk-based capital ratio was 15.53% at September 30, 2024, up from 14.85% at September 30, 2023 [189]. - Stockholders' equity grew to $1,590,682 thousand, up from $1,522,153 thousand [201]. - The ratio of average equity to average assets was 11.37% for the quarter ended September 30, 2024, compared to 10.97% for the quarter ended December 31, 2023 [256]. Economic and Market Conditions - The company aims to increase net interest income while minimizing fluctuations as a percentage of interest-earning assets through effective interest rate risk management [295]. - The economic value of equity (EVE) at risk declined in most rate change scenarios from December 31, 2023, to September 30, 2024, reflecting a higher proportion of variable rate and soon to be repricing assets and liabilities [304]. - Liquidity stress testing conducted at the end of Q3 2024 indicated sufficient liquidity in severe scenarios [305].

分组1 - Sandy Spring Bancorp reported quarterly earnings of $0.40 per share, missing the Zacks Consensus Estimate of $0.48 per share, and down from $0.62 per share a year ago, representing an earnings surprise of -16.67% [1] - The company posted revenues of $101.13 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 0.47%, and down from $102.47 million year-over-year [1] - Over the last four quarters, Sandy Spring Bancorp has surpassed consensus EPS estimates three times and topped consensus revenue estimates two times [1] 分组2 - The stock has added about 19.7% since the beginning of the year, compared to the S&P 500's gain of 23% [2] - The current consensus EPS estimate for the coming quarter is $0.48 on revenues of $104.8 million, and for the current fiscal year, it is $1.91 on revenues of $404 million [4] - The Zacks Industry Rank for Banks - Northeast is currently in the top 23% of over 250 Zacks industries, indicating a favorable outlook for the industry [5]

Financial Performance - Net income for the third quarter of 2024 was $16.2 million ($0.36 per diluted common share), down from $22.8 million ($0.51 per diluted common share) in the previous quarter and $20.7 million ($0.46 per diluted common share) in the same quarter last year[1][18] - Core earnings for the current quarter were $17.9 million ($0.40 per diluted common share), compared to $24.4 million ($0.54 per diluted common share) in the previous quarter and $27.8 million ($0.62 per diluted common share) in the third quarter of 2023[2][18] - Year-to-date net income for the nine months ended September 30, 2024, was $59.4 million, a decline from $96.7 million for the same period in the prior year[26] - Net income attributable to common shareholders decreased by 22% to $16,205,000 for the three months ended September 2024, compared to $20,719,000 for the same period in 2023[38] - Net income (GAAP) for Q3 2024 was $16,209,000, a decrease of 22.4% from $20,746,000 in Q3 2023[40] - Core earnings (non-GAAP) for Q3 2024 were $17,936,000, down 35.4% from $27,766,000 in Q3 2023[40] Asset and Loan Growth - Total assets increased by 3% to $14.4 billion at September 30, 2024, compared to $14.0 billion at June 30, 2024[3][12] - Total assets as of September 30, 2024, were $14,383,073,000, an increase from $14,135,085,000 in the previous year[41] - Total loans remained stable at $11.5 billion as of September 30, 2024, with increases in AD&C and commercial business loans of $71.3 million (6%) and $19.4 million (1%), respectively[4][12] - Total loans for Q3 2024 reached $11,491,921, a slight increase from $11,483,921 in Q2 2024[45] - Net loans rose to $11,360,493 thousand, compared to $11,246,124 thousand at the end of 2023, reflecting an increase of 1.0%[42] Deposit Trends - Deposits increased by $397.5 million or 4% to $11.7 billion at September 30, 2024, with interest-bearing deposits growing by $425.8 million (5%)[5][13] - Total deposits increased to $11,737,694 in Q3 2024, up from $11,340,228 in Q2 2024, representing a growth of about 3.5%[45] - Total deposits reached $11,737,694 thousand, an increase of 6.7% from $10,996,538 thousand at December 31, 2023[42] Credit Quality and Loss Provisions - The ratio of non-performing loans to total loans was 1.09% at September 30, 2024, up from 0.81% at June 30, 2024 and 0.46% at September 30, 2023[6][16] - The total provision for credit losses was $6.3 million for the third quarter of 2024, significantly higher than $1.0 million in the previous quarter and $2.4 million in the same quarter last year[8][21] - Provision for credit losses increased significantly by 167% to $6,316,000 for the three months ended September 2024, compared to $2,365,000 for the same period in 2023[38] - The allowance for credit losses on loans increased to $131,428 thousand as of September 30, 2024, compared to $120,865 thousand at December 31, 2023, indicating a rise of 8.7%[42] Income and Expense Analysis - Net interest income for the third quarter of 2024 grew by $1.1 million (1%) compared to the previous quarter but decreased by $3.7 million (4%) compared to the third quarter of 2023[6][19] - Non-interest income increased by 1% ($0.1 million) compared to the linked quarter and grew by 13% ($2.3 million) compared to the prior year quarter[9][22] - Non-interest expense for Q3 2024 increased by $4.8 million or 7% compared to Q2 2024, and by $0.5 million or 1% compared to Q3 2023, primarily due to a $3.2 million increase in salaries and benefits[23] - The GAAP efficiency ratio for Q3 2024 was 72.12%, up from 68.19% in Q2 2024 and 70.72% in Q3 2023, reflecting a 1% decline in GAAP revenue[24] - Non-interest expense for the nine months ended September 30, 2024, was $209.0 million, slightly up from $207.9 million in 2023, with significant increases in professional fees and services[30] Return Metrics - Return on Assets (ROA) for Q3 2024 was 0.46%, down from 0.66% in Q2 2024 and 0.58% in Q3 2023[25] - Return on average assets declined to 0.46% for the three months ended September 2024, down from 0.58% for the same period in 2023[38] - Core return on average tangible common equity (non-GAAP) was 5.88% in Q3 2024, compared to 9.51% in Q3 2023, a decrease of 38.5%[40] Capital and Equity - Book value per common share increased by 5% to $36.10 as of September 30, 2024, compared to $34.26 as of September 30, 2023[38] - Total stockholders' equity increased to $1,628,837 thousand as of September 30, 2024, from $1,588,142 thousand at December 31, 2023, reflecting a growth of 2.6%[42] - Tangible common equity ratio improved to 8.83% in Q3 2024 from 8.42% in Q3 2023[41] Mergers and Acquisitions - The company has entered into a merger agreement with Atlantic Union Bankshares Corporation, leading to the cancellation of the scheduled conference call[34]