Sandy Spring Bancorp, Inc., (Nasdaq-SASR), the parent company of Sandy Spring Bank, today reported net income for the first quarter of 2019 of $30.3 million ($0.85 per diluted share) compared to net income of $21.7 million ($0.61 per diluted share) for the first quarter of 2018 and net income of $25.6 million ($0.72 per diluted share) for the fourth quarter of 2018. The prior year’s first quarter’s results included the impact of $9.0 million in merger expenses associated with the acquisition of WashingtonFirst Bankshares, Inc. (“WashingtonFirst”). Exclusive of the after-tax impact of these expenses adjusted earnings per diluted share for the prior year quarter was $0.79 per share.
“In the first quarter we saw balanced results and meaningful contributions from all major business lines,” said Daniel J. Schrider, President and Chief Executive Officer. “Our strong performance reflects the coordinated approach we take to serving our clients. Our teams work across disciplines and geographic locations to address our clients’ complete financial picture. This approach distinguishes us in a highly competitive market, and it delivers results for our clients and the company.”
First Quarter Highlights:
- Total assets grew by 5% while loans and deposits grew by 8% and 11%, respectively, compared to the prior year.
- First quarter results reflected an annualized return on average assets of 1.49% and annualized return on average common equity of 11.46% as compared to 1.12% and 8.70% respectively for the first quarter of 2018. Exclusive of the prior year’s first quarter merger costs on an after-tax basis, the return on average assets and return on average common equity would have been 1.47% and 11.40%, respectively.
- The net interest margin was 3.60% for the first quarter of 2019, compared to 3.58% for the first quarter of 2018 and 3.57% for the fourth quarter of 2018. Excluding recovered interest income on acquired credit impaired loans during the quarter the net interest margin would have been 3.52%. No recovered interest was recorded in the first or fourth quarter of 2018.
- Non-interest income excluding insurance mortality proceeds and securities gains increased 6% from the prior year quarter.
- Tangible book value increased 10% to $21.05 per share at the end of the first quarter of the current year compared to $19.12 at March 31, 2018.
- The tangible common equity ratio increased to 9.39% at March 31, 2019 from 8.99% at March 31, 2018.
- The Non-GAAP efficiency ratio was 51.44% for the current quarter as compared to 49.54% for the first quarter of 2018 and 51.78% for the fourth quarter of 2018.
Review of Balance Sheet and Credit Quality
Driven by loan growth, total assets grew to $8.3 billion at March 31, 2019, as compared to $7.9 billion at March 31, 2018. Total loans at March 31, 2019, were $6.6 billion compared to $6.1 billion at March 31, 2018. Deposit growth was 11% from March 31, 2018, to March 31, 2019, as interest-bearing deposits experienced 14% growth and noninterest-bearing deposits grew 3%.
Tangible common equity grew to $748 million at March 31, 2019, compared to $678 million at March 31, 2018. At March 31, 2019, the Company had a total risk-based capital ratio of 12.54%, a common equity tier 1 risk-based capital ratio of 11.19%, a tier 1 risk-based capital ratio of 11.35% and a tier 1 leverage ratio of 9.61%.
The level of non-performing loans to total loans increased to 0.61% at March 31, 2019, compared to 0.48% at March 31, 2018. At March 31, 2019, non-performing loans totaled $40.1 million, compared to $29.4 million at March 31, 2018, and $36.0 million at December 31, 2018. The growth in non-performing loans occurred as a result of modest increase in all segments of the loan portfolio, predominantly loans secured by real estate. Non-performing loans include accruing loans 90 days or more past due and restructured loans, but exclude loans that were considered non-performing from the acquired loan portfolios.
Loan charge-offs, net of recoveries, totaled $0.3 million for the first quarter of 2019 compared to $0.3 million for the first quarter of 2018. The allowance for loan losses represented 0.81% of outstanding loans and 132% of non-performing loans at March 31, 2019, compared to 0.77% of outstanding loans and 160% of non-performing loans at March 31, 2018.
Income Statement Review
Net interest income for the first quarter of 2019 increased 6% compared to the first quarter of 2018 as a result of the Company’s organic loan growth during the period which more than offset the impact of deposit growth. The net interest margin improved to 3.60% for the first quarter of 2019 compared to 3.58% for the first quarter of 2018. The first quarter of 2019 included $1.8 million in recovered interest income on acquired credit impaired loans. Excluding the recovered interest income, the first quarter’s net interest margin would have been 3.52% compared to the prior year’s margin of 3.58% which did not contain any recovered interest income.
The provision for loan losses was a credit of $0.1 million for the first quarter of 2019 compared to a charge of $2.0 million for the first quarter of 2018 and $3.4 million for the fourth quarter of 2018. The decrease in the provision for the current period compared to the prior year was primarily the result of the overall improvement in the qualitative credit metrics of the loan portfolio during the previous twelve months and lower loan growth during the current quarter.
Non-interest income was $17.0 million for the first quarter of 2019 as compared to the $17.1 million for the first quarter of 2018. The current quarter included $0.6 million in life insurance mortality proceeds compared to $1.6 million in the prior year quarter in addition to $0.1 million in securities gains. Exclusive of these proceeds and securities gains, the growth in non-interest income for the quarter was 6% or $0.9 million compared to the prior year quarter. The majority of this increase was derived from mortgage banking activities and, to a lesser extent, wealth management income and credit related fees.
Non-interest expenses decreased 11% to $44.2 million for the first quarter of 2019 compared to $49.6 million in the first quarter of 2018. The prior year’s quarter included $9.0 million in merger expenses. Exclusive of the merger expenses, non-interest expense for the current quarter increased 9% primarily due to the increase in compensation and benefit expense. This increase was the result of the combination of higher compensation expense from normal merit increases over the preceding twelve months, an increase in health care expenses experienced during the current quarter and management’s decision to increase the Company’s contribution to the employee retirement savings plan as a result of the reduction in the corporate tax rate that occurred at the end of 2017.
Explanation of Non-GAAP Financial Measures
This news release contains financial information and performance measures determined by methods other than in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. Non-GAAP measures used in this release consist of the following:
- Adjusted diluted earnings per share is non-GAAP in that it excludes merger expenses and other selected items, net of tax.
- Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets.
- The Non-GAAP efficiency ratio is non-GAAP in that it excludes amortization of intangible assets, merger expenses and securities gains and includes tax-equivalent income.
These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Please refer to the Non-GAAP Reconciliation table included with this release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
The Company’s management will host a conference call to discuss its first quarter results today at 2:00 P.M. (ET). A live Webcast of the conference call is available through the Investor Relations section of the Sandy Spring Website at www.sandyspringbank.com. Participants may call 1-866-235-9910. A password is not necessary. Visitors to the Website are advised to log on 10 minutes ahead of the scheduled start of the call. An internet-based replay will be available on the website until 9:00 am (ET) May 2, 2019. A replay of the teleconference will be available through the same time period by calling 1-877-344-7529 under conference call number 10129889.
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.
For additional information or questions, please contact:
Daniel J. Schrider, President & Chief Executive Officer, or
Philip J. Mantua, E.V.P. & Chief Financial Officer
Sandy Spring Bancorp
17801 Georgia Avenue
Olney, Maryland 20832
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; the possibility that any of the anticipated benefits of acquisitions will not be realized or will not be realized within the expected time period; 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, 2018, 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.