Sandy Spring Bancorp(SASR) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Sandy Spring Bancorp, Inc Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including statements of condition, income, and cash flows, along with detailed accounting policy notes for Sandy Spring Bancorp, Inc Condensed Consolidated Statements of Condition As of September 30, 2021, total assets increased to $13.02 billion from $12.80 billion at year-end 2020, driven by a rise in cash to $1.11 billion, while net loans decreased to $9.61 billion and total deposits grew to $10.99 billion | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total assets | $13,017,464 | $12,798,429 | | Cash and cash equivalents | $1,114,633 | $297,003 | | Net loans | $9,613,428 | $10,235,142 | | Total liabilities | $11,471,404 | $11,328,474 | | Total deposits | $10,987,400 | $10,033,069 | | Total borrowings | $320,143 | $1,149,320 | | Total stockholders' equity | $1,546,060 | $1,469,955 | Condensed Consolidated Statements of Income For the nine months ended September 30, 2021, net income surged to $189.7 million from $40.3 million in the prior-year, driven by a $(47.1) million credit for credit losses and a 21% increase in net interest income | (Dollars in thousands, except per share data) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net interest income | $319,250 | $263,332 | | Provision/ (credit) for credit losses | $(47,141) | $90,158 | | Total non-interest income | $79,519 | $70,482 | | Total non-interest expense | $194,329 | $194,121 | | Net income | $189,703 | $40,291 | | Diluted net income per common share | $3.98 | $0.93 | Notes to the Condensed Consolidated Financial Statements These notes detail significant accounting policies, including revenue recognition and credit loss allowance, and provide breakdowns of key financial statement items and segment reporting - The company's loan portfolio is segmented for credit risk management into: Commercial investor real estate, Commercial owner-occupied real estate, Commercial acquisition, development and construction (AD&C), Commercial business, Residential mortgage, Residential construction, and Consumer loans[54] - The company operates in three segments: Community Banking, Insurance, and Investment Management, with the Community Banking segment being the largest, holding nearly all assets and generating the majority of income[129][130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results of operations for Q3 and the first nine months of 2021, highlighting increased net income due to credit for credit losses and lower funding costs Financial Overview For Q3 2021, net income increased 28% to $57.0 million ($1.20 per diluted share), driven by lower interest expense and a credit to the provision for credit losses, with total assets growing 3% to $13.0 billion | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | | :--- | :--- | :--- | | Net Income | $57.0 million | $44.6 million | | Diluted EPS | $1.20 | $0.94 | | Core Earnings | $52.0 million | $52.1 million | | Net Interest Margin | 3.52% | 3.24% | | Provision for Credit Losses | $(8.2) million | $7.0 million | - During Q3 2021, the company repurchased 1,261,828 shares of its common stock at an average price of $43.04 per share[148] Financial Condition As of September 30, 2021, total assets were $13.0 billion, loans decreased 6.5% to $9.7 billion (due to PPP forgiveness), and deposits grew 9.5% to $11.0 billion, improving the tangible common equity ratio to 9.10% - The loan to deposit ratio declined significantly to 88.5% at September 30, 2021, from 103.7% at December 31, 2020, reflecting strong deposit growth and reduced total loans[218] | Capital Ratios | September 30, 2021 | Minimum Requirement | | :--- | :--- | :--- | | Tier 1 leverage | 9.33% | 4.00% | | Common equity tier 1 capital | 12.50% | 4.50% | | Tier 1 capital | 12.50% | 6.00% | | Total capital | 15.26% | 8.00% | Results of Operations For the first nine months of 2021, net income was $189.7 million, a substantial increase driven by a $47.1 million credit for credit losses, 21% net interest income growth, and 13% non-interest income growth - The net interest margin for the nine months ended September 30, 2021, improved to 3.57% from 3.33% in the prior-year period, as the average rate paid on interest-bearing liabilities fell 52 basis points[168] - Non-interest income for the first nine months of 2021 increased by 12.8%, driven by a 21.9% increase in wealth management income and a 133.3% increase in other income, offsetting an 18.3% decline in mortgage banking activities[177] - Excluding prior-year merger expenses of $25.2 million and FHLB prepayment penalties, non-interest expense grew 14% year-over-year, driven by higher salaries and benefits related to 2020 acquisitions and strategic initiatives[180] Credit Risk Credit quality improved significantly in 2021, with non-performing loans decreasing to 0.80% of total loans and the allowance for credit losses (ACL) reducing to $107.9 million (1.11% of loans) due to an improved economic forecast | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Non-performing loans (Millions USD) | $78.2 million | $115.5 million | | Non-performing loans to total loans | 0.80% | 1.11% | | Allowance for credit losses (ACL) (Millions USD) | $107.9 million | $165.4 million | | ACL to total loans | 1.11% | 1.59% | | ACL to non-performing loans | 138.06% | 143.23% | - As of September 30, 2021, only $13.6 million in loans remained under COVID-19 related payment accommodations, a significant decrease from a peak of $2.1 billion[245] Market Risk and Liquidity Management The company manages interest rate risk through its ALCO committee, maintaining an asset-sensitive position with NII projected to increase by 3.76% in a +100 bp rate shock, and strong liquidity with $5.4 billion in available credit lines - The company's liquidity position is strong, with available lines of credit totaling $3.9 billion from the FHLB and $1.5 billion from the Federal Reserve and correspondent banks, with no outstanding borrowings as of September 30, 2021[280] | Change in Interest Rates | Estimated % Change in NII (12 months) | | :--- | :--- | | +400 bp | 15.75% | | +300 bp | 11.61% | | +200 bp | 8.09% | | +100 bp | 3.76% | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the Market Risk Management discussion from the MD&A, detailing the company's interest rate risk management through its ALCO committee and simulation modeling - The company's market risk disclosures are incorporated by reference from the 'Market Risk Management' section of the MD&A[286] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls over financial reporting during Q3 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[287] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, and details regarding unregistered sales of equity securities and use of proceeds Item 1. Legal Proceedings The company is involved in various legal proceedings in the normal course of business, but management does not anticipate a material effect on its financial condition, operating results, or liquidity - Management does not anticipate that the ultimate liability from pending litigation will have a material effect on the Company's financial condition[288] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020, were reported - No material changes in risk factors were reported from the company's 2020 Annual Report on Form 10-K[289] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 1,261,828 shares of common stock at an average price of $43.04 per share, with 1,088,172 shares remaining available for repurchase | Period | Total Shares Purchased | Average Price Paid (USD) | | :--- | :--- | :--- | | July 2021 | 88,985 | $41.85 | | August 2021 | 567,522 | $43.11 | | September 2021 | 605,321 | $43.17 | | Q3 2021 Total | 1,261,828 | $43.04 |