Sandy Spring Bancorp Reports First Quarter Earnings of $43.9 Million

Company Reports Strong Deposit and Loan Growth

Sandy Spring Bancorp, Inc., (Nasdaq-SASR), the parent company of Sandy Spring Bank, reported net income of $43.9 million ($0.96 per diluted common share) for the quarter ended March 31, 2022, compared to net income of $75.5 million ($1.58 per diluted common share) for the first quarter of 2021 and $45.4 million ($0.99 per diluted common share) for the fourth quarter of 2021. 

Current quarter core earnings were $45.1 million ($0.99 per diluted common share), compared to $83.5 million ($1.76 per diluted common share) for the quarter ended March 31, 2021 and $46.6 million ($1.02 per diluted common share) for the quarter ended December 31, 2021. Core earnings are determined by excluding the after-tax impact of merger and acquisition expense, the loss on FHLB redemptions, amortization of intangibles and investment securities gains. 

The provision for credit losses for the current quarter was $1.6 million compared to a credit of $34.7 million for the first quarter of 2021 and a charge of $1.6 million for the fourth quarter of 2021. 

“As a result of our steady deposit growth throughout 2021 and record commercial loan production in the fourth quarter, we entered 2022 with significant momentum. We capitalized on our position of strength and opportunities in our market, and we continued to deliver solid deposit and loan growth in the first quarter,” said Daniel J. Schrider, President and Chief Executive Officer.

“We are confident in our ability to successfully manage through the challenges associated with the volatile world events,” added Schrider. "We have a long-term view of our company, so we will lean on our 154 years of experience and focus on meeting the needs of our community - one client at a time.”

First Quarter Highlights:

• Core earnings for the first quarter of 2022 were $45.1 million compared to $83.5 million for the prior year quarter. The decline in core earnings was primarily the product of the impact associated with the provision for credit losses as the prior year's results contained a significant credit to the allowance versus the current year's charge to the allowance. Compared to the first quarter of the prior year, exclusive of the impact of the provision for credit losses, the current quarter reflected a decline in both net interest income and non-interest income, which exceeded the reduction in non-interest expense. 
• At March 31, 2022, total assets were $13.0 billion, a 1% increase compared to $12.9 billion at March 31, 2021. During the previous twelve months, liquidity resulting from deposit growth and PPP loan forgiveness was utilized to fund the growth in the loan and investment securities portfolio, which occurred primarily in the previous two quarters.
• Total loans, excluding PPP loans, increased 10% to $10.1 billion at March 31, 2022 compared to $9.1 billion at March 31, 2021. Excluding the impact of the PPP loan forgiveness, total commercial loans grew by $983.2 million or 13% during the previous twelve months. During this period, the Company generated new commercial gross loan production of $3.8 billion, of which $2.5 billion was funded, more than offsetting $1.5 billion in non-PPP commercial loan run-off. Funded commercial loan production increased 90% to $545.4 million during the first quarter of the current year compared to $287.7 million for the same quarter of the prior year.
• Year-over-year deposits grew 2%, driven by 7% growth in noninterest-bearing deposits, reflecting the impact of the PPP program forgiveness and the growth in transaction relationships, while interest-bearing deposits declined 1% as a result of the attrition of time deposits.
• During the current quarter, an offering of $200 million aggregate principal amount fixed-to-floating rate subordinated notes due in 2032 was completed. The entire amount of the debt is considered Tier 2 capital under current regulatory guidelines.
• For the first quarter of 2022, the net interest margin was 3.49%, compared to 3.56% for the same quarter of 2021, and 3.51% for the fourth quarter of 2021. Excluding the amortization of the fair value marks derived from the previous acquisitions, the current quarter’s net interest margin was 3.49%, compared to 3.46% for first quarter of 2021, and 3.52% for the fourth quarter of 2021.
• The provision for credit losses was $1.6 million for the current quarter compared to the prior year quarter’s credit to the provision of $34.7 million. The provision for the current quarter is a reflection of the growth in the loan portfolio, coupled with the management's consideration of the potential impact of recessionary pressures which exceeded the benefit to the provision derived from continuing improvement in forecasted macroeconomic indicators. 
• Non-interest income for the current quarter decreased by 29% or $8.3 million compared to the prior year quarter. Income from mortgage banking activities declined 77% and other non-interest income decreased 45% compared to the first quarter of 2021. These decreases were partially offset by 7% growth in wealth management income, 26% growth in service charges on deposit accounts and a 10% increase in bank card fees. 
• Non-interest expense for the current quarter decreased $6.0 million or 9% compared to the prior year quarter. The prior year's non-interest expense included a $9.1 million loss from the redemption of FHLB borrowings and was the main driver of the quarter over quarter decline. Excluding the loss on the redemption, non-interest expense increased 5% compared to the prior year quarter driven by an increase in compensation cost, predominantly benefit costs.
• Return on average assets (“ROA”) for the quarter ended March 31, 2022 was 1.42% and return on average tangible common equity (“ROTCE”) was 16.04% compared to 1.41% and 16.07%, respectively, for the fourth quarter of 2021. On a non-GAAP basis, the current quarter's core ROA was 1.45% and core ROTCE was 16.45% compared to core ROA of 1.44% and core ROTCE of 16.49% for the fourth quarter of 2021.
• For the first quarter of 2022, the GAAP efficiency ratio was 50.92% compared to 51.08% for the first quarter of 2021, and 51.75% for the fourth quarter of 2021. The non-GAAP efficiency ratio for the first quarter of 2022 was 49.34% compared to 42.65% for the prior year quarter, and 50.17% for the fourth quarter of 2021. The combination of a decline in non-interest income and an increase in non-interest expense drove the erosion of the non-GAAP efficiency ratio compared to prior year quarter.
• On March 30, 2022, the Company's board of directors authorized a stock repurchase plan that permits the repurchase of up to $50.0 million in shares of common stock. No shares of common stock have been repurchased under this plan.

Balance Sheet and Credit Quality

Total assets grew 1% to $13.0 billion at March 31, 2022, as compared to $12.9 billion at March 31, 2021. During this period, total loans declined by 3% to $10.1 billion at March 31, 2022, compared to $10.4 billion at March 31, 2021 driven by the $1.2 billion year-over-year reduction in PPP loans. Excluding the impact of the PPP loan forgiveness, total commercial loans grew by $983.2 million or 13% during the past twelve months. During this period, the Company generated commercial gross loan production of $3.8 billion, of which $2.5 billion was funded, offsetting $1.5 billion in commercial loan run-off. During the first quarter of 2022, funded commercial loan production was $545.4 million, an increase of 90% compared to $287.7 million for the same quarter of the prior year. The growth in the commercial portfolio, excluding PPP loans, occurred in all commercial portfolios led by the $735.9 million or 20% growth in the investor owned commercial portfolio. Year-over-year the consumer loan portfolio declined 15%, due to the run-off of home equity loan and line products, a result of the refinancing activity in the residential mortgage markets.

During the past twelve months, deposits increased 2%, driven by 7% growth in noninterest-bearing deposits reflecting the impact of the PPP program forgiveness and the growth in transaction relationships, while interest-bearing deposits declined 1% as a result of the attrition of rate advantaged time deposits. Savings and money market categories experienced year-over-year growth in excess of 3%. 

The tangible common equity ratio decreased to 8.70% of tangible assets at March 31, 2022, compared to 8.90% at March 31, 2021 as a result of the $107.3 million repurchase of common shares during 2021 and the $66.6 million increase in the accumulated other comprehensive loss coupled with the increase in tangible assets during the past year. At March 31, 2022, the Company had a total risk-based capital ratio of 16.77%, a common equity tier 1 risk-based capital ratio of 12.03%, a tier 1 risk-based capital ratio of 12.03%, and a tier 1 leverage ratio of 9.66%. 

Non-performing loans include non-accrual loans, accruing loans 90 days or more past due and restructured loans. At March 31, 2022, the level of non-performing loans to total loans was 0.46% compared to 0.94% at March 31, 2021, and 0.49% at December 31, 2021. At March 31, 2022, non-performing loans totaled $46.3 million, compared to $98.7 million at March 31, 2021, and $48.8 million at December 31, 2021. Loans placed on non-accrual during the current quarter amounted to $1.5 million compared to $0.4 million for the prior year quarter and $0.5 million for the fourth quarter of 2021. Non-accrual loans at quarter end declined from the prior quarter due primarily to payoff activity. Loans greater than 90 days or more past due decreased from the prior quarter as a result of the extension of existing performing portfolio loans that were in process of being extended at the end of the prior quarter end. 

The Company recorded net charge-offs of $0.2 million for the first quarter of 2022, as compared to net charge-offs of $0.3 million for the first quarter of 2021 and net charge-offs of $0.4 million for the fourth quarter of 2021.

At March 31, 2022, the allowance for credit losses was $110.6 million or 1.09% of outstanding loans and 239% of non-performing loans, compared to $109.1 million or 1.10% of outstanding loans and 224% of non-performing loans at the end of the previous quarter. Excluding PPP loans, the allowance for credit losses to outstanding loans was 1.10% at March 31, 2022. The increase in the allowance during the current quarter compared to the previous quarter was the result of the growth in the loan portfolio during the quarter, net of the impact of continued improvement in forecasted economic metrics, in addition to the update to various metrics applied in the determination of the allowance for credit losses, which included management's consideration of the potential impact of recessionary pressures.

Income Statement Review
Quarterly Results

The Company recorded net income of $43.9 million for the three months ended March 31, 2022, compared to net income of $75.5 million for the prior year quarter. The primary driver of the decline in earnings was the activity associated with the provision for credit losses as the prior year's results contained a significant credit to the allowance versus the current year's charge to the allowance. Exclusive of the impact of the provision for credit losses, compared to the first quarter of the prior year, the current quarter reflected a decline in both net interest income and non-interest income, which exceeded the reduction in non-interest expense. The decline in net interest income was driven by the net impact of lower PPP and mortgage loan income that exceeded the reduction in interest expense. Non-interest income declined as a result of lower mortgage banking income, the result of rising mortgage interest rates during the previous twelve months. Non-interest expense decreased as a result of the prior year's inclusion of the $9.1 million loss on the redemption of FHLB borrowings that more than offset the increase in compensation expense in the current quarter compared to the prior year quarter.

For the first quarter of 2022, net interest income decreased $3.1 million or 3% compared to the first quarter of 2021, due to the combined impact of the $8.2 million reduction in interest income being partially offset by a $5.1 million reduction in interest expense during the preceding twelve months. The decline in interest income was driven by a $7.7 million decline in interest and fees on PPP loans and a $1.8 million decline in interest income on residential mortgage loans during the previous twelve months. The decrease in interest expense was the result of the prior year's liquidation of FHLB borrowings, in addition to the run-off of time deposits and lower interest expense associated with money market deposits. The net interest margin for the first quarter of 2022 was 3.49% as compared to 3.56% for the same quarter of the prior year, as the 23 basis point decline in yield on interest-earning assets was only partially offset by the 24 basis point decline in the rate paid on interest-bearing liabilities. Net interest margin excluding the effects of amortization of the fair value marks derived from acquisitions remained at 3.49% for the current quarter compared to 3.46% for first quarter of 2021. 

The provision for credit losses was $1.6 million for the first quarter of 2022 compared to a credit of $34.7 million for the first quarter of 2021. The provision for credit losses for the fourth quarter of 2021 was a charge of $1.6 million. The current quarter's provision reflects the continued improvement in the forecasted macroeconomic indicators which resulted in credits for the provision for credit losses during the current quarter, that were offset by the impact of potential recessionary pressures and the growth in the loan portfolio that occurred during the quarter.  

Non-interest income decreased $8.3 million or 29% for the first quarter of 2022, compared to the prior year quarter. This decrease is the result of a $7.9 million or 77% decline in income from mortgage banking activities, which exceeded the 7% growth in wealth management income, 26% growth in service charges on deposit accounts and 10% growth in bank card fees. In addition, other non-interest income declined 45% compared to the prior year primarily as a result of a decrease in credit related fees. 

Non-interest expense decreased $6.0 million or 9% for the first quarter of 2022, compared to the prior year quarter. The prior year's non-interest expense included a $9.1 million loss from the redemption of FHLB borrowings and was the major cause of the quarter over quarter decline. Excluding the loss on the redemption, non-interest expense increased 5% compared to the prior year quarter driven by an increase in compensation expense, predominantly benefit costs. Overall, the increase reflects the net impact of the 7% increase in compensation and benefit costs and a 17% increase in professional fees, partially offset by an 8% decrease in occupancy expense and a 34% reduction in FDIC insurance expense. 

For the first quarter of 2022, the GAAP efficiency ratio was 50.92% compared to 51.08% for the first quarter of 2021, and 51.75% for the fourth quarter of 2021. The non-GAAP efficiency ratio was 49.34% for the current quarter as compared to 42.65% for the first quarter of 2021, and 50.17% for the fourth quarter of 2021. The increase in the non-GAAP efficiency ratio (reflecting a decrease in efficiency) from the first quarter of the prior year to the current year quarter was primarily the result of the 9% decline in non-GAAP revenue, driven chiefly by the decrease in income from mortgage banking activities. ROA for the first quarter ended March 31, 2022 was 1.42% and ROTCE was 16.04% compared to 1.41% and 16.07%, respectively, for the fourth quarter of 2021. On a non-GAAP basis, the current quarter's core ROA was 1.45% and core ROTCE was 16.45% compared to core ROA of 1.44% and core ROTCE of 16.49% for the fourth quarter of 2021. 

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: 

• Tangible common equity and related measures are non-GAAP measures that exclude the impact of goodwill and other intangible assets.
• The non-GAAP efficiency ratio excludes amortization of intangible assets, loss on FHLB redemption, merger and acquisition expense and investment securities gains and includes tax-equivalent income.
• Core earnings and the related measures of core earnings per diluted common share, core return on average assets and core return on average tangible common equity reflect net income exclusive of merger and acquisition expense, amortization of intangible assets, loss on FHLB redemption, and investment securities gains, on a net of tax basis. 

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 tables included with this release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

Conference Call

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. Participants may call 844.200.6205. Please use the following access code: 263081. 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 May 5, 2022. A replay of the teleconference will be available through the same time period by calling 866.813.9403 under conference call number 793380. 

About Sandy Spring Bancorp, Inc.

Sandy Spring Bancorp, Inc., headquartered in Olney, Maryland, is the holding company for Sandy Spring Bank, a premier community bank in the Greater Washington, D.C. region. With over 50 locations, the bank offers a broad range of commercial and retail banking, mortgage, private banking, and trust services throughout Maryland, Northern Virginia, and Washington, D.C. Through its subsidiaries, Rembert Pendleton Jackson, 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
800.399.5919
Email:
DSchrider@sandyspringbank.com 
PMantua@sandyspringbank.com 

Media Contact:
Jen Schell 
301.570.8331
jschell@sandyspringbank.com

Forward-Looking Statements

Sandy Spring Bancorp’s forward-looking statements are subject to the following principal risks and uncertainties: risks, uncertainties and other factors relating to the COVID-19 pandemic, including the effect of the pandemic on our borrowers and their ability to make payments on their obligations, the effectiveness of vaccination programs, and the effect of remedial actions and stimulus measures adopted by federal, state and local governments; 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, 2021, 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.

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