Sandy Spring Bancorp Reports Net Income of $14.7 Million for the Second Quarter

Company Release - 7/20/2017 7:00 AM ET

OLNEY, Md., July 20, 2017 (GLOBE NEWSWIRE) -- Sandy Spring Bancorp, Inc., (Nasdaq:SASR), the parent company of Sandy Spring Bank, today reported net income for the second quarter of 2017 of $14.7 million ($0.61 per diluted share) compared to net income of $10.6 million ($0.44 per diluted share) for the second quarter of 2016 and net income of $15.1 million ($0.63 per diluted share) for the first quarter of 2017.

“The current quarter reflects strong core performance driven by loan and deposit growth.  We continue our efforts to create new and deepen existing client relationships to improve the financial performance of the Company.  As part of those efforts, during the current quarter we were extremely pleased to announce a definitive agreement for the acquisition of WashingtonFirst Bankshares, Inc. and its banking unit, WashingtonFirst Bank, a well-regarded bank in northern Virginia.  We believe that the creation of the region’s largest locally headquartered community bank will offer complementary products and the best possible experience for our combined clients and greater value to our shareholders,” said Daniel J. Schrider, President and Chief Executive Officer. 

Second Quarter Highlights: 

  • Total loans increased 13% compared to the second quarter of 2016 and 4% compared to the first quarter of 2017. These increases were driven primarily by year-over-year growth of 16% in the commercial loan portfolio.
  • Total deposits grew 11% from the prior year quarter and 2% from the prior quarter.
  • The net interest margin was 3.60% for the second quarter of 2017, compared to 3.51% for the second quarter of 2016 and 3.51% for the first quarter of 2017.  The quarter’s margin was positively impacted by an interest income recovery of $0.7 million.  Exclusive of this non-core item, the margin would have been 3.54%.
  • Return on average common equity increased 32% to 10.80% as compared to 8.21% from the prior year.
  • On May 16, 2017, the Company announced it had entered into a definitive agreement and plan of merger pursuant to which WashingtonFirst Bankshares, Inc., the parent company for WashingtonFirst Bank, will merge with and into the Company in a transaction valued at approximately $498 million. WashingtonFirst, headquartered in Reston, Virginia, has 19 community banking offices and more than $2.1 billion in assets (as of March 31, 2017).
  • The Non-GAAP efficiency ratio was 54.10% for the current quarter as compared to 59.12% for the second quarter of 2016 and 54.78% for the first quarter of 2017.
  • Pre-tax, pre-provision income increased 29% compared with the second quarter of 2016.

Review of Balance Sheet and Credit Quality

At June 30, 2017, total assets were $5.3 billion, an 11% increase compared to $4.7 billion at June 30, 2016.  Loan growth continues to be the driver of asset growth as total loans ended the period at $4.1 billion compared to $3.7 billion at June 30, 2016. The growth in the loan portfolio was funded primarily by an 11% increase in total deposits from June 30, 2016 to June 30, 2017.

Combined noninterest-bearing and interest-bearing checking account balances at June 30, 2017, an important performance driver of multiple-product banking relationships with clients, increased by 9% compared to balances at June 30, 2016.

Tangible common equity totaled $472 million at June 30, 2017, compared to $439 million at June 30, 2016. The ratio of tangible common equity to tangible assets decreased to 9.10% at June 30, 2017, from 9.44% at June 30, 2016, as a result of asset growth over the preceding 12 months. Dividends per common share were $0.26 per share for the second quarter of 2017 compared to $0.24 per share for the second quarter of 2016, an 8% increase.  At June 30, 2017, the Company had a total risk-based capital ratio of 12.00%, a common equity tier 1 risk-based capital ratio of 10.96%, a tier 1 risk-based capital ratio of 10.96% and a tier 1 leverage ratio of 9.26%.

The level of non-performing loans to total loans decreased to 0.78% at June 30, 2017, compared to 0.85% at June 30, 2016, as a result of the growth in the loan portfolio.  Non-performing loans totaled $32.2 million at June 30, 2017, compared to $31.4 million at June 30, 2016, and $30.9 million at March 31, 2017. Non-performing loans include accruing loans 90 days or more past due and restructured loans.

Loan charge-offs, net of recoveries, totaled $0.1 million for the second quarter of 2017 compared to $1.3 million for the second quarter of 2016.  Charge-offs for the second quarter of 2016 were affected by a single large charge-off related to a residential mortgage loan. The allowance for loan losses represented 1.09% of outstanding loans and 140% of non-performing loans at June 30, 2017, compared to 1.18% of outstanding loans and 138% of non-performing loans at June 30, 2016. The decline in the allowance to outstanding loans ratio is a reflection of improved credit quality and growth of the loan portfolio over the past year.

Income Statement Review

Net interest income for the second quarter of 2017 increased 15% compared to the second quarter of 2016 as average loans from quarter to quarter increased 12%. The net interest margin improved to 3.60% for the second quarter of 2017 compared to 3.51% for the second quarter of 2016.  Net interest income for the second quarter of 2017 included $0.7 million from the full payoff during the quarter of a previously acquired credit impaired loan.  Exclusive of the recovered interest income, the net interest margin would have been 3.54% based on an adjusted net interest income of $41.6 million.  The margin improvement reflects the impact of loan growth, the cumulative benefits associated with the execution of funding strategies and the shift from lower yielding investments to the higher yielding loan portfolio during the past 12 months.

The provision for loan losses was $1.3 million for the second quarter of 2017 compared to $3.0 million for the second quarter of 2016 and $0.2 million for the first quarter of 2017. The decrease in the current quarter’s charge versus the prior year’s quarter reflects improved loan portfolio credit quality, which partially offset the effects of loan growth on the provision over the past year.

Non-interest income increased to $13.6 million for the second quarter of 2017 compared to $12.8 million for the second quarter of 2016.  The second quarter of 2017 included gains of $1.3 million on sales of investment securities. The second quarter of 2016 included a $1.2 million gain on the extinguishment of subordinated debentures and $0.2 million in gains on the sales of investment securities.  Excluding these gains, non-interest income increased 8% compared to the prior year quarter due to increases in insurance agency commissions and other non-interest income.

Non-interest expenses increased 6% to $32.9 million for the second quarter of 2017 compared to $30.9 million in the second quarter of 2016. The second quarter of 2017 included $1.3 million in penalties on the early payoff of high-rate FHLB advances and $1.0 million in merger expenses. The comparable period for 2016 included $1.4 million in prepayment penalties.  Excluding these transactions, non-interest expenses increased 4% compared to the second quarter of 2016 due to merit increases, performance incentives and volume driven compensation costs.  The non-GAAP efficiency ratio was 54.10% for the second quarter of 2017 compared to 59.12% for the second quarter of 2016 as a result of the growth in net interest income. 

Net interest income for the first six months of 2017 increased 13% compared to the first six months of 2016 due primarily to an increase in average loans, which was funded primarily by an 11% increase in average deposits. As a result, the net interest margin was 3.56% for the first six months of 2017 compared to 3.47% for the prior year period. The first six months net interest income included the previously mentioned $0.7 million recovery of interest income.  Exclusive of this recovery the net interest margin would have been 3.54%.    

The provision for loan losses was $1.5 million for the first six months of 2017 compared to $4.2 million for the first six months of 2016 primarily reflecting the growth in the loan portfolio over the prior year period offset by the effects of improved credit quality of the loan portfolio.

Non-interest income was $26.2 million for the first six months of 2017 compared to $26.1 million for the first six months of 2016.  The first six months of 2017 included gains of $1.3 million on sales of investment securities. The same prior year period included a $1.2 million gain on the extinguishment of subordinated debentures and $2.0 million in gains on the sales of investment securities.  Excluding these gains, non-interest income increased 8% compared to the prior year period primarily due to increases in insurance agency commissions and other non-interest income.

Non-interest expenses decreased 1% to $62.8 million for the first six months of 2017 compared to $63.2 million for the prior year period. For the six months ended June 30, 2017, the decrease in prepayment penalties of $1.9 million for the early payoff of high-rate FHLB advances as compared to the six months ended June 30, 2016, offset increases in salaries and benefits, FDIC insurance due to asset growth and $1.0 million in merger expenses. Excluding the impact of prepayment penalties and merger expenses, non-interest expenses increased 1% over the prior year period. The non-GAAP efficiency ratio decreased to 54.44% for the first six months of 2017 compared to 60.47% for the first six months of 2016 as a direct result of the growth in net interest income.

Conference Call

The Company’s management will host a conference call to discuss its second quarter results today at 2:00 P.M. (ET).  A live Web cast of the conference call is available through the Investor Relations’ section of the Sandy Spring Web site at www.sandyspringbank.com.  Participants may call 1-866-235-9910. A password is not necessary.  Visitors to the Web site are advised to log on 10 minutes ahead of the scheduled start of the call.  An internet-based replay will be available at the Web site until 9:00 am (ET) August 3, 2017.  A replay of the teleconference will be available through the same time period by calling 1-877-344-7529 under conference call number 10109345.

About Sandy Spring Bancorp, Inc.

Sandy Spring Bancorp, Inc., headquartered in Olney, Maryland, is the holding company for Sandy Spring Bank. Independent and community-oriented, Sandy Spring Bank offers a broad range of commercial banking, retail banking, mortgage and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. Through its subsidiaries, Sandy Spring Insurance Corporation and West Financial Services, Inc., Sandy Spring Bank also offers a comprehensive menu of insurance and wealth management services. With $5.3 billion in assets, the bank operates 44 community offices and six financial centers across the region. Visit www.sandyspringbank.com for more information.

Forward-Looking Statements

Sandy Spring Bancorp makes forward-looking statements in this news release and in the conference call regarding this news release.  These forward-looking statements may include: statements of goals, intentions, earnings expectations, and other expectations; estimates of risks and of future costs and benefits; assessments of probable loan losses; assessments of market risk; and statements of the ability to achieve financial and other goals.

Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions.  Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time.  Forward-looking statements speak only as of the date they are made.  Sandy Spring Bancorp does not assume any duty and does not undertake to update its forward-looking statements.  Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that Sandy Spring Bancorp anticipated in its forward-looking statements and future results could differ materially from historical performance.

Sandy Spring Bancorp’s forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends, either nationally or locally; conditions in the securities markets; changes in interest rates; changes in deposit flows, and in the demand for deposit, loan, and investment products and other financial services; changes in real estate values; changes in the quality or composition of the Company’s loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; the Company’s ability to retain key members of management; changes in legislation, regulations, and policies; and a variety of other matters which, by their nature, are subject to significant uncertainties.  Sandy Spring Bancorp provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2016, including in the Risk Factors section of that report, 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.

               
Sandy Spring Bancorp, Inc. and Subsidiaries      
FINANCIAL HIGHLIGHTS - UNAUDITED      
               
  Three Months Ended    Six Months Ended   
  June 30,  June 30, 
(Dollars in thousands, except per share data)  2017  2016 Change   2017  2016 Change 
Results of Operations:              
  Net interest income $   42,326  $36,732 15 % $   82,579  $72,854 13 %
  Provision for loan losses    1,322   2,957 (55)     1,516   4,193 (64) 
  Non-interest income    13,571   12,751 6      26,203   26,114 -  
  Non-interest expenses    32,868   30,871 6      62,849   63,188 (1) 
  Income before income taxes    21,707   15,655 39      44,417   31,587 41  
  Net income     14,741   10,647 38      29,853   21,460 39  
               
  Pre-tax pre-provision income  $   24,016  $18,612 29   $   46,920  $35,780 31  
               
  Return on average assets    1.14 % 0.92%      1.17 % 0.92%  
  Return on average common equity    10.80 % 8.21%      11.12 % 8.25%  
  Net interest margin    3.60 % 3.51%      3.56 % 3.47%  
  Efficiency ratio - GAAP basis  (1)    58.80 % 62.39%      57.78 % 63.85%  
  Efficiency ratio - Non-GAAP basis  (1)    54.10 % 59.12%      54.44 % 60.47%  
               
Per share data:              
  Basic net income $   0.61  $0.45 36 % $   1.24  $0.90 38 %
  Diluted net income $   0.61  $0.44 39   $   1.23  $0.89 38  
  Average fully diluted shares   24,262,745   24,108,668 1     24,258,791   24,165,675 -  
  Dividends declared per share $   0.26  $0.24 8   $   0.52  $0.48 8  
  Book value per share    23.13   22.18 4      23.13   22.18 4  
  Tangible book value per share    19.68   18.40 7      19.68   18.40 7  
  Outstanding shares   23,983,997   23,874,650 -     23,983,997   23,874,650 -  
               
Financial Condition at period-end:              
  Investment securities $   821,491  $734,828 12 % $   821,491  $734,828 12 %
  Loans    4,133,171   3,672,624 13      4,133,171   3,672,624 13  
  Interest-earning assets    4,988,704   4,461,180 12      4,988,704   4,461,180 12  
  Assets    5,270,521   4,739,449 11      5,270,521   4,739,449 11  
  Deposits    3,885,445   3,510,141 11      3,885,445   3,510,141 11  
  Interest-bearing liabilities    3,380,221   2,996,893 13      3,380,221   2,996,893 13  
  Stockholders' equity    554,683   529,479 5      554,683   529,479 5  
               
Capital ratios:              
  Tier 1 leverage  (4)    9.26 % 10.29%      9.26 % 10.29%  
  Tier 1 capital to risk-weighted assets  (4)    10.96 % 12.42%      10.96 % 12.42%  
  Total regulatory capital to risk-weighted assets  (4)    12.00 % 13.57%      12.00 % 13.57%  
  Common equity tier 1 capital to risk-weighted assets  (4)    10.96 % 11.63%      10.96 % 11.63%  
  Tangible common equity to tangible assets  (2)    9.10 % 9.44%      9.10 % 9.44%  
  Average equity to average assets    10.52 % 11.18%      10.50 % 11.18%  
               
Credit quality ratios:              
  Allowance for loan losses to loans    1.09 % 1.18%      1.09 % 1.18%  
  Non-performing loans to total loans    0.78 % 0.85%      0.78 % 0.85%  
  Non-performing assets to total assets    0.64 % 0.69%      0.64 % 0.69%  
  Allowance for loan losses to non-performing loans    140.00 % 138.36%      140.00 % 138.36%  
  Annualized net charge-offs to average loans  (3)    0.01 %   0.15%      0.03 %   0.10%  
               
(1) The efficiency ratio - GAAP basis is non-interest expenses divided by net interest income plus non-interest income from the Condensed Consolidated Statements of Income. The traditional efficiency ratio - Non-GAAP basis excludes intangible asset amortization from non-interest expense; securities gains (losses) from non-interest income; OTTI; and the tax-equivalent adjustment to net interest income.  See the Reconciliation Table included with these Financial Highlights.  
(2) The tangible common equity to tangible assets ratio is a non-GAAP ratio that divides assets excluding intangible assets into stockholders' equity after deducting intangible assets and other comprehensive gains (losses).  See the Reconciliation Table included with these Financial Highlights.  
(3) Calculation utilizes average loans, excluding residential mortgage loans held-for-sale.  
(4) Estimated ratio at June 30, 2017    
               


Sandy Spring Bancorp, Inc. and Subsidiaries        
RECONCILIATION TABLE - UNAUDITED        
         
  Three Months Ended Six Months Ended
  June 30, June 30,
(Dollars in thousands)  2017   2016   2017   2016 
Pre-tax pre-provision income:        
Net income $   14,741   $10,647  $   29,853   $21,460 
  Plus non-GAAP adjustment:        
    Merger expenses    987    -     987    - 
    Income taxes    6,966    5,008     14,564    10,127 
    Provision for loan losses    1,322    2,957     1,516    4,193 
Pre-tax pre-provision income $   24,016   $18,612  $   46,920   $35,780 
         
Efficiency ratio - GAAP basis:        
Non-interest expenses  $   32,868   $30,871  $   62,849   $63,188 
         
Net interest income plus non-interest income $   55,897   $49,483  $   108,782   $98,968 
         
Efficiency ratio - GAAP basis  58.80%  62.39%  57.78%  63.85%
         
         
Efficiency ratio - Non-GAAP basis:        
Non-interest expenses  $   32,868   $30,871  $   62,849   $63,188 
  Less non-GAAP adjustment:        
    Amortization of intangible assets    25    28     51    60 
    Loss on FHLB Redemption    1,275    1,416     1,275    3,167 
    Merger expenses    987    -     987    - 
Non-interest expenses -  as adjusted $   30,581   $29,427  $   60,536   $59,961 
         
Net interest income plus non-interest income  $   55,897   $49,483  $   108,782   $98,968 
  Plus non-GAAP adjustment:        
    Tax-equivalent income    1,901    1,640     3,697    3,304 
  Less non-GAAP adjustments:        
    Securities gains    1,273    150     1,275    1,919 
    Gain on redemption of subordinated debentures    -    1,200     -    1,200 
Net interest income plus non-interest income - as adjusted $   56,525   $49,773  $   111,204   $99,153 
         
Efficiency ratio - Non-GAAP basis  54.10%  59.12%  54.44%  60.47%
         
Tangible common equity ratio:        
Total stockholders' equity $   554,683   $529,479  $   554,683   $529,479 
  Accumulated other comprehensive loss (income)    3,712    (5,886)    3,712    (5,886)
  Goodwill    (85,768)  (84,171)    (85,768)  (84,171)
  Other intangible assets, net    (629)  (77)    (629)  (77)
Tangible common equity $   471,998   $439,345  $   471,998   $439,345 
         
Total assets $   5,270,521   $4,739,449  $   5,270,521   $4,739,449 
  Goodwill    (85,768)  (84,171)    (85,768)  (84,171)
  Other intangible assets, net    (629)  (77)    (629)  (77)
Tangible assets $   5,184,124   $4,655,201  $   5,184,124   $4,655,201