Sandy Spring Bancorp(SASR) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Q2 2022, including statements of condition, income, and cash flows, with notes on significant events Condensed Consolidated Statements of Condition (Unaudited) | (In millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $221.28 | $420.02 | | Net loans | $10,672.62 | $9,857.95 | | Total assets | $13,303.01 | $12,590.73 | | Liabilities & Equity | | | | Total deposits | $10,969.46 | $10,624.73 | | Total borrowings | $730.65 | $313.80 | | Total liabilities | $11,825.84 | $11,071.05 | | Total stockholders' equity | $1,477.17 | $1,519.68 | Condensed Consolidated Statements of Income (Unaudited) | (In millions, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $105.95 | $108.05 | $207.40 | $212.65 | | Provision/ (credit) for credit losses | $3.05 | $(4.20) | $4.68 | $(38.91) | | Non-interest income | $35.25 | $26.26 | $55.84 | $55.13 | | Non-interest expense | $64.99 | $62.98 | $127.14 | $131.15 | | Net income | $54.80 | $57.26 | $98.74 | $132.73 | | Diluted net income per common share | $1.21 | $1.19 | $2.17 | $2.77 | - In Q1 2022, the Company transferred debt securities with an amortized cost of $305.6 million from the available-for-sale (AFS) category to held-to-maturity (HTM) to mitigate the impact of rising interest rates on tangible common equity[43] - Effective June 1, 2022, the Company sold substantially all assets of its insurance subsidiary, Sandy Spring Insurance Corporation, resulting in a $16.7 million gain on disposal of assets in Q2 2022[134][165] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 and H1 2022 financial results, noting a slight net income decrease, strong loan growth, stable net interest margin, and improved credit quality, supported by a stock repurchase program and subordinated debt issuance Financial Performance H1 2022 net income decreased to $98.7 million, primarily due to reduced PPP income and credit provisions, though non-interest income benefited from an insurance business sale gain offsetting a decline in mortgage banking income Key Performance Metrics (Q2 2022 vs. Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Income | $54.8M | $57.3M | | Diluted EPS | $1.21 | $1.19 | | Net Interest Margin | 3.49% | 3.63% | | ROA | 1.69% | 1.79% | | ROTCE (non-GAAP) | 20.42% | 20.44% | | Provision/(Credit) for Credit Losses | $3.0M | ($4.2M) | - Net interest income for H1 2022 decreased by 2% to $207.4 million, primarily driven by a $19.7 million year-over-year reduction in interest and fees from the Paycheck Protection Program (PPP)[157] - Non-interest income for H1 2022 was supported by a $16.7 million gain on the disposal of the insurance business assets, which offset a $12.2 million (76.3%) decline in mortgage banking income due to the rising interest rate environment[165] - The company repurchased 625,710 shares for $25.0 million in Q2 2022 under a new $50.0 million repurchase plan authorized in March 2022[84][153] Financial Condition As of June 30, 2022, total assets grew to $13.3 billion, driven by loan and deposit growth, while stockholders' equity was impacted by rising rates, though capital ratios improved after a subordinated debt issuance Loan Portfolio Composition Change (H1 2022) | Loan Category | June 30, 2022 ($M) | Dec 31, 2021 ($M) | % Change | | :--- | :--- | :--- | :--- | | Commercial investor real estate | $4,761.7 | $4,141.3 | 15.0% | | Commercial business | $1,353.4 | $1,481.8 | (8.7)% | | Residential mortgage | $1,147.6 | $937.6 | 22.4% | | Total loans | $10,786.3 | $9,967.1 | 8.2% | Capital Ratios | Ratio | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Common equity tier 1 capital | 11.58% | 11.91% | | Total capital to risk-weighted assets | 16.07% | 14.59% | | Tangible common equity ratio (non-GAAP) | 8.45% | 9.21% | - Credit quality improved, with non-performing loans as a percentage of total loans decreasing to 0.40% at June 30, 2022, from 0.49% at December 31, 2021, and the allowance for credit losses stood at 1.05% of total loans[220][228][233] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through ALCO, showing asset-sensitivity with NII projected to increase in rising rates, while EVE is projected to decrease, maintaining a strong liquidity position Interest Rate Sensitivity Analysis (as of June 30, 2022) | Change in Interest Rates | Estimated % Change in Net Interest Income (NII) | Estimated % Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 bp | +2.48% | (11.65)% | | +200 bp | +1.98% | (7.66)% | | +100 bp | +1.22% | (3.70)% | | -100 bp | (3.91)% | +2.58% | - The company's liquidity position is strong, with $3.1 billion in available borrowing capacity from the FHLB and $684.9 million from the Federal Reserve Bank as of June 30, 2022[258] Controls and Procedures As of June 30, 2022, the company's disclosure controls and procedures were deemed effective, with no material changes to internal controls over financial reporting during Q2 2022 - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[266] - No changes in internal control over financial reporting occurred during Q2 2022 that have materially affected, or are reasonably likely to materially affect, these controls[266] PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, but management does not anticipate a material adverse effect on financial condition, operating results, or liquidity - Management does not anticipate that ongoing litigation will have a material adverse effect on the Company's financial condition or results[267] Risk Factors No material changes to the company's risk factors were reported from those disclosed in the Annual Report on Form 10-K for FY2021 - No material changes to risk factors were reported for the period[268] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 625,710 shares of common stock as part of a $50.0 million plan, with $25.0 million remaining for future repurchases Share Repurchase Activity (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2022 | 333,409 | $39.58 | | June 2022 | 292,301 | $40.34 | | Total Q2 | 625,710 | $39.93 | - As of June 30, 2022, a maximum value of $25.0 million may yet be purchased under the current stock repurchase plan[270] Other Information and Exhibits The company reported no defaults on senior securities, no mine safety disclosures, and no other material information, with Item 6 listing exhibits filed with the 10-Q report - Item 3, Defaults Upon Senior Securities: None[270] - Item 5, Other Information: None[271]