Sandy Spring Bancorp(US:SASR)2023-01-27 00:00Financial Performance - The company reported net income of $34 million or $0.76 per diluted common share for Q4 2022, down from $45.4 million or $0.99 per diluted common share in Q4 2021 and slightly up from $33.6 million or $0.75 per diluted common share in Q3 2022 [7] - Core earnings were $35.3 million or $0.79 per diluted common share, compared to $46.6 million or $1.2 per diluted common share in Q4 2021 and $35.7 million or $0.80 per diluted common share in Q3 2022 [8] - Pre-tax, pre-provision income was $56.6 million, down from $64.1 million in the linked quarter and $61.7 million in the prior year quarter [9] - The provision for credit losses was a charge of $10.8 million, significantly higher than $1.6 million in Q4 2021 and lower than $18.9 million in Q3 2022 [9][10] Balance Sheet and Loan Growth - Total assets grew 10% to $13.8 billion compared to $12.6 billion in the prior year quarter, with total loans (excluding PPP) increasing 16% to $11.4 billion [11] - Gross commercial loan production over the past 12 months was $3.9 billion, with $2.5 billion funded, offsetting a $1.2 billion non-PPP commercial loan run-off [12] - Commercial run-off in Q4 was 38% lower than the linked quarter and 45% lower than the prior year quarter, with an annualized run-off rate of 10% [13] Business Lines and Market Focus - The company is diversifying its lending concentration by attracting more commercial and industrial (C&I) relationships while continuing to serve commercial real estate (CRE) clients [14] - C&I growth has outpaced CRE growth for the first time in many quarters, with expectations for C&I owner-occupied growth of 2% to 3% per quarter starting in Q2 2023 [15] - The commercial pipeline was at $944 million, down from $1.3 billion in the linked quarter, indicating a shift in focus to C&I lending [16] Interest Margin and Funding - The net interest margin was 3.26%, down from 3.51% in Q4 2021 and 3.53% in Q3 2022, attributed to rising rates on interest-bearing liabilities [18] - The company anticipates further decline in the margin to 3.10% to 3.15% in Q1 2023, with potential recovery later in the year [19] - Deposits grew 3% year-over-year, with interest-bearing deposits increasing by 6% [16] Management Commentary and Future Outlook - Management noted a challenging operating environment with high inflation and rapid interest rate increases, but indicated no trends suggesting credit quality deterioration [5][31] - The company expects overall loan growth for the year to be in the mid-single digits, weighted towards the latter half of the year [23] - Management is actively working on initiatives to enhance deposit relationships and has launched a new online account opening platform [25] Other Important Information - The allowance for credit losses was $136.2 million, or 1.2% of outstanding loans, compared to $128.3 million or 1.14% in the previous quarter [34] - The tangible common equity ratio decreased to 8.18% of tangible assets, down from 9.21% a year earlier [35] - The company announced the retirement of its President of Commercial Banking, Ken Cook, who will join the Board of Directors [37] Q&A Session Summary Question: Margin and Loan Growth - Analysts inquired about the potential rebound of the margin if the Fed pauses rate increases, with management suggesting a possible increase of 5 to 10 basis points per quarter [43] - Questions were raised regarding the impact of deposit growth on margin expansion, with management emphasizing the need for core deposit growth [43][44] Question: Office Exposure - Analysts asked about the company's total office exposure, which is approximately $840 million, with a focus on suburban office spaces rather than urban [46] - Management confirmed no downgrades in the office portfolio and highlighted strong cash flow coverages [50] Question: Non-Interest-Bearing Deposits - Questions were raised about the decline in non-interest-bearing deposits, with management indicating that they may have bottomed out and could rebound [72][76] - Analysts also inquired about competitive pressures in the market, with management stating that competition remains strong but stable [79]