Sandy Spring Bankcorp Reports Net Income of $21.7 Million for The First Quarter of 2018
Quarterly Performance Demonstrates Company's Continued Stability and Strength Following Acquisition
Sandy Spring Bancorp, Inc., (Nasdaq-SASR), the parent company of Sandy Spring Bank, today reported net income for the first quarter of 2018 of $21.7 million ($0.61 per diluted share) compared to net income of $15.1 million ($0.63 per diluted share) for the first quarter of 2017 and net income of $8.3 million ($0.34 per diluted share) for the fourth quarter of 2017. The current quarter’s results included the impact of $9.0 million in merger expenses. Exclusive of the after-tax impact of these expenses, earnings per diluted share would have been approximately $0.80 per share. The prior quarter’s results included $5.6 million in additional income tax expense from the revaluation of deferred tax assets as a result of the reduction in the corporate income tax rate under the recently enacted Tax Cuts and Jobs Act, as well as $1.8 million in post-tax merger expenses. Fourth quarter 2017 earnings per share would have been approximately $0.64 per share excluding the combined impact of these items. (Please refer to the Non-GAAP Reconciliation table included with this release for details on the earnings impact of merger related expenses and additional income tax expense related to the Tax Cuts and Jobs Act).
On January 1, 2018, Sandy Spring Bancorp completed its acquisition of WashingtonFirst Bankshares, Inc. (“WashingtonFirst”) of Reston, Virginia. The results of operations from this acquisition have been included in the consolidated results of operations from the date of the acquisition. The first quarter of 2018 reflects increased levels of average and actual balances, income and expense as compared to the first quarter of 2017. At the acquisition date, WashingtonFirst had assets of $2.1 billion, loans of $1.7 billion and deposits of $1.6 billion. As a result of the growth in the balance sheet, interest income and expense increased from the prior year. Cost savings from the synergies resulting from the combination of the institutions will continue to be realized throughout 2018.
“Our strong quarterly performance demonstrates the value of the recently completed acquisition and our ability to effectively execute on a key part of our overall growth strategy,” said Daniel J. Schrider, President and Chief Executive Officer. “As we mark our 150th anniversary this year, we remain true to what has always driven our success.”
“We are focused on building long-lasting client relationships by helping people and businesses reach their financial goals,” added Schrider. “Providing personalized and remarkable service to all of our clients is what will continue to set us apart as a premier bank in the Greater Washington region and what will continue to drive our future growth.”
First Quarter Highlights:
- Total assets, loans and deposits grew by 52%, 52% and 48%, respectively compared to the prior year primarily as a result of the acquisition.
- First quarter results reflected an annualized return on average assets of 1.12% and annualized return on average equity of 8.70% as compared to 1.20% and 11.45% respectively for the first quarter of 2017. Exclusive of merger costs on an after tax basis, the return on average assets and return on average equity would have been 1.47% and 11.40%, respectively.
- The net interest margin was 3.58% for the first quarter of 2018, compared to 3.51% for the first quarter of 2017 and 3.57% for the fourth quarter of 2017. The fourth quarter’s interest margin would have been 3.53% after excluding the recovery of interest income from a previously charged-off loan.
- Pre-tax merger expenses recognized in the first quarter of 2018 totaled $9.0 million compared to $2.9 million recognized in the fourth quarter of 2017.
- The effective tax rate for the current quarter was 23.6% compared to 33.5% for the same quarter of the prior year.
- Tangible book value declined 5% at the end of the first quarter to $19.12 per share as compared to $20.18 at the end of 2017 as a result of the acquisition.
- The Non-GAAP efficiency ratio which excludes merger costs was 49.54% for the current quarter as compared to 54.78% for the first quarter of 2017 and 55.69% for the fourth quarter of 2017.
Review of Balance Sheet and Credit Quality
As a result of the WashingtonFirst acquisition, total assets grew to $7.9 billion at March 31, 2018 as compared to $5.2 billion at March 31, 2017. Total loans at March 31, 2018 were $6.1 billion compared to $4.0 billion at March 31, 2017. Organic loan growth during the first quarter of 2018 was $0.1 billion. This growth is net of $60 million in portfolio sales during the quarter from mortgage loans held for investment.
Combined noninterest-bearing and interest-bearing checking account balances at March 31, 2018, an important performance driver of multiple-product banking relationships with clients, increased by 36% compared to balances at March 31, 2017.
Tangible common equity totaled $678 million at March 31, 2018, compared to $463 million at March 31, 2017. The asset and equity growth from the merger was affected by the growth in intangibles associated with the recent acquisition resulting in a decline in the ratio of tangible common equity to tangible assets to 8.99% at March 31, 2018 as compared to 9.06% at March 31, 2017. At March 31, 2018, the Company had a total risk-based capital ratio of 12.27%, a common equity tier 1 risk-based capital ratio of 10.92%, a tier 1 risk-based capital ratio of 11.08% and a tier 1 leverage ratio of 9.21%.
The level of non-performing loans to total loans decreased to 0.48% at March 31, 2018, compared to 0.77% at March 31, 2017, as a result of the growth in the loan portfolio. At March 31, 2018, non-performing loans totaled $29.4 million compared to $30.9 million at March 31, 2017, and $29.3 million at December 31, 2017. 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 2018 compared to $0.4 million for the first quarter of 2017. The allowance for loan losses represented 0.77% of outstanding loans and 160% of non-performing loans at March 31, 2018, compared to 1.10% of outstanding loans and 142% of non-performing loans at March 31, 2017. The decline in the allowance to outstanding loans ratio is the result of the accounting for credit losses on the loans acquired in the WashingtonFirst acquisition as any incurred credit losses have been embedded in the determination of the fair values of those loans.
Income Statement Review
Net interest income for the first quarter of 2018 increased 56% compared to the first quarter of 2017 as a result of the WashingtonFirst acquisition and, to a lesser extent, the Company’s organic loan growth during the period. The net interest margin improved to 3.58% for the first quarter of 2018 compared to 3.51% for the first quarter of 2017.
The provision for loan losses was $2.0 million for the first quarter of 2018 compared to $0.2 million for the first quarter of 2017 and $0.5 million for the fourth quarter of 2017. The increase in the provision reflects the impact of organic loan growth during the first quarter of 2018.
Non-interest income increased 36% for the first quarter of 2018 as compared to the first quarter of 2017. The current quarter included $1.6 million in BOLI life insurance proceeds. Exclusive of these proceeds, the growth in non-interest income for the quarter was 23% or $2.8 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 bank card fees. The increase in mortgage banking activities is attributable to the increased origination volume associated with the mortgage lending operations acquired as part of the WashingtonFirst acquisition.
Non-interest expenses increased 66% to $49.6 million for the first quarter of 2018 compared to $30.0 million in the first quarter of 2017. The increase in non-interest expense excluding merger expenses is 36%, primarily in compensation and facility costs. The non-GAAP efficiency ratio was 49.54% for the first quarter of 2018 compared to 54.78% for the first quarter of 2017 as a result of the growth in net interest income.
The recently enacted tax legislation resulted in a significant tax rate reduction. This reduction has provided a net income benefit in the current quarter and this benefit will continue to affect future periods. The resultant effective tax rate at March 31, 2018 was 23.6% as compared to 33.5% at March 31, 2017.
Explanation of Non-GAAP Financial Measures
Reported amounts are presented in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s management believes that the supplemental non-GAAP information, which consists of reported net income excluding merger related expenses and additional income tax expense related to the recently enacted Tax Reform, which can vary from period to period, 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. 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 Non-GAAP Reconciliation table included with this release for details on the earnings impact of these items.
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 1-800-860-2442. 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 3, 2018. A replay of the teleconference will be available through the same time period by calling 1-877-344-7529 under conference call number 10118759.
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, 2017, 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