Balance Sheet and Credit Quality

Total assets were $14.0 billion at June 30, 2024, as compared to $13.9 billion at March 31, 2024. At June 30, 2024, total loans increased by $119.6 million or 1% to $11.5 billion compared to the previous quarter. Commercial investor real estate loans decreased $64.5 million or 1% quarter-over-quarter, while the AD&C and commercial business loans and lines portfolios grew $94.0 million or 9% and $91.9 million or 6%, respectively, during this period. Total residential mortgage and consumer loan portfolios remained relatively unchanged.

Deposits increased $113.0 million or 1% to $11.3 billion at June 30, 2024 compared to $11.2 billion at March 31, 2024. During this period, noninterest-bearing deposits increased $113.5 million or 4%, while interest-bearing deposits were relatively unchanged. Growth within noninterest-bearing deposit categories was driven by commercial and small business checking accounts. Within interest-bearing deposits, money market and savings accounts grew $167.6 million or 6% and $99.0 million or 6% during the current quarter, respectively. These increases were offset by the $172.5 million or 7% reduction in time deposits, of which $154.7 million was related to a reduction in brokered time deposits, and the $94.6 million or 6% decrease in interest checking accounts. Total deposits, excluding brokered deposits, increased by $271.2 million or 3% quarter-over-quarter and represented 94% of the total deposits as of June 30, 2024 compared to 93% at March 31, 2024, reflecting continued strength and stability of the core deposit base. Total uninsured deposits at June 30, 2024 were approximately 36% of total deposits.

Total borrowings were relatively unchanged at June 30, 2024 as compared to the previous quarter. At June 30, 2024, available unused sources of liquidity, which consist of available FHLB borrowings, fed funds, funds through the Federal Reserve Bank's discount window, as well as excess cash and unpledged investment securities, totaled $6.3 billion or 154% of uninsured deposits.

The tangible common equity to tangible assets ratio declined slightly to 8.85% at June 30, 2024, compared to 8.86% at March 31, 2024.

At June 30, 2024, the Company had a total risk-based capital ratio of 15.49%, a common equity tier 1 risk-based capital ratio of 11.28%, a tier 1 risk-based capital ratio of 11.28%, and a tier 1 leverage ratio of 9.70%. These risk-based capital ratios compare to a total risk-based capital ratio of 15.05%, 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 9.56% at March 31, 2024. The increase across all risk-based capital ratios during the current quarter was driven by reduced risk weightings applied on certain consumer unfunded commitment categories that met the regulatory capital requirements. All of these ratios remain well in excess of the mandated minimum regulatory requirements.

Non-performing loans include non-accrual loans and accruing loans 90 days or more past due. At June 30, 2024, non-performing loans totaled $93.0 million, compared to $84.4 million at March 31, 2024 and $49.5 million at June 30, 2023. The non-performing loans to total loans ratio was 0.81% compared to 0.74% on a linked quarter basis. These levels of non-performing loans compare to 0.44% at June 30, 2023. The current quarter's increase in non-performing loans was mainly related to several loans within the commercial owner-occupied real estate segment, which were placed on non-accrual status during the current period. All of these loans are well secured by collateral and required no individual reserves as of June 30, 2024. Total net charge-offs for the current quarter amounted to $0.2 million compared to $1.1 million for the first quarter of 2024 and $1.8 million for the second quarter of 2023.

At June 30, 2024, the allowance for credit losses was $125.9 million or 1.10% of outstanding loans and 135% of non-performing loans, compared to $123.1 million or 1.08% of outstanding loans and 146% of non-performing loans at the end of the previous quarter and $120.3 million or 1.06% of outstanding loans and 243% of non-performing loans at the end of the second quarter of 2023. The increase in the allowance for the current quarter compared to the previous quarter mainly reflects higher individual reserves on collateral-dependent non-accrual loans coupled with an overall growth of the loan portfolio experienced during the current quarter, partially offset by lower qualitative adjustments as a result of declines in investor commercial real estate loans.

Income Statement Review

Quarterly Results

Net income was $22.8 million ($0.51 per diluted common share) for the three months ended June 30, 2024 compared to $20.4 million ($0.45 per diluted common share) for the three months ended March 31, 2024 and $24.7 million ($0.55 per diluted common share) for the prior year quarter. The current quarter's core earnings were $24.4 million ($0.54 per diluted common share), compared to $21.9 million ($0.49 per diluted common share) for the previous quarter and $27.1 million ($0.60 per diluted common share) for the quarter ended June 30, 2023. The increases in the current quarter's net income and core earnings compared to the previous quarter were driven primarily by higher net interest income and non-interest income in combination with lower provision for credit losses.

Net interest income for the second quarter of 2024 increased $0.9 million or 1% compared to the previous quarter and declined $10.2 million or 11% compared to the second quarter of 2023. During the current quarter, interest income declined $0.9 million, while interest expense decreased $1.8 million, mainly driven by the $2.9 million decrease in interest expense on borrowings, as we fully paid off the Federal Reserve Bank's Bank Term Funding Program facility during the previous quarter. The rising interest rate environment was primarily responsible for a $7.0 million year-over-year increase in interest income. This growth in interest income was more than offset by the $17.1 million year-over-year growth in interest expense as funding costs have also risen in response to the rising rate environment and significant competition for deposits.

The net interest margin was 2.46% for the second quarter of 2024 compared to 2.41% for the first quarter of 2024 and 2.73% for the second quarter of 2023. The increase in the net interest margin during the current quarter was a result of a two basis point increase in the yield earned on interest-earning assets coupled with a three basis points decrease in the rate paid on interest-bearing liabilities. As compared to the prior year quarter, the yield on interest-earning assets increased 28 basis points while the rate paid on interest-bearing liabilities rose 68 basis points, resulting in net interest margin compression of 27 basis points. The rate and yield increases year-over-year were driven by the higher interest rate environment, competition for deposits in the market, and customer movement of excess funds out of noninterest-bearing accounts into higher yielding products.

The total provision for credit losses was $1.0 million for the second quarter of 2024 compared to $2.4 million for the previous quarter and $5.1 million for the second quarter of 2023. The provision for credit losses directly attributable to the funded loan portfolio was $3.0 million for the current quarter compared to $3.3 million for the first quarter of 2024 and $4.5 million for the second quarter of 2023. The current quarter's provision is mainly a reflection of higher individual reserves on collateral-dependent non-accrual loans, based on updated valuations of collateral, in combination with the quarterly loan growth, partially offset by lower qualitative adjustments due to a reduction in commercial investor real estate loans. In addition, during the current quarter, the reserve for unfunded commitments decreased by $1.9 million as a result of higher utilization rates on lines of credit.

Non-interest income for the second quarter of 2024 increased by 7% or $1.2 million compared to the linked quarter and grew by 14% or $2.4 million compared to the prior year quarter. The current quarter's increase in non-interest income as compared to the previous quarter was mainly driven by the $0.7 million increase in BOLI income, due to the receipt of death proceeds, and the $0.5 million increase in wealth management income, due to the $50.2 million or 1% growth in assets under management quarter-over-quarter and the overall favorable market performance. In addition, income from mortgage banking activities increased by $0.2 million during the current quarter compared to the previous quarter reflecting increased gains realized on greater sales volumes during the current period.

Non-interest expense for the second quarter of 2024 increased $0.1 million compared to the first quarter of 2024 and declined $1.0 million or 1% compared to the second quarter of 2023. The quarter-over-quarter increase is predominantly attributable to the $1.1 million increase in salaries and benefits coupled with the $0.5 million increase in marketing expense. These increases were fully offset by lower general operating expenses, which declined by $1.8 million.

For the second quarter of 2024, the GAAP efficiency ratio was 68.19% compared to 69.60% for the first quarter of 2024 and 64.22% for the second quarter of 2023. The GAAP efficiency ratio rose from the prior year quarter primarily as a result of the 7% decrease in GAAP revenue, while GAAP non-interest expense stayed relatively unchanged. The non-GAAP efficiency ratio was 65.31% for the current quarter as compared to 66.73% for the first quarter of 2024 and 60.68% for the second quarter of 2023. The increase in the non-GAAP efficiency ratio (reflecting a decrease in efficiency) from the second quarter of the prior year to the current year quarter was primarily the result of the 7% decline in non-GAAP revenue.

ROA for the quarter ended June 30, 2024 was 0.66% and ROTCE was 8.27% compared to 0.58% and 7.39%, respectively, for the first quarter of 2024 and 0.70% and 8.93%, respectively, for the second quarter of 2023. On a non-GAAP basis, the current quarter's core ROA was 0.70% and core ROTCE was 8.27% compared to 0.63% and 7.39% for the first quarter of 2024 and 0.77% and 9.43%, respectively, for the second quarter of 2023.

Year-to-Date Results

The Company recorded net income of $43.2 million for the six months ended June 30, 2024 compared to net income of $76.0 million for the same period in the prior year. Core earnings were $46.3 million for the six months ended June 30, 2024 compared to $79.4 million for the same period in the prior year. Year-to-date net income and core earnings declined as a result of lower net interest income in combination with higher provision for credit losses.

For the six months ended June 30, 2024, net interest income decreased $28.1 million compared to the prior year as a result of the $49.8 million increase in interest expense, partially offset by the $21.6 million increase in interest income. The increase in interest expense was driven by the interest expense on deposits, primarily associated with savings and time deposit accounts. The net interest margin declined to 2.44% for the six months ended June 30, 2024, compared to 2.86% for the prior year, primarily as a result of higher funding costs due to the rising interest rate environment and market competition for deposits during the period.

The provision for credit losses for the six months ended June 30, 2024 amounted to $3.4 million as compared to a credit of $16.5 million for 2023. The provision for the six months ended June 30, 2024 was primarily due to adjustments applied to specific industries within the commercial real estate segment during the first quarter of 2024. The prior year's credit to provision was mainly attributable to the improving regional forecasted unemployment rate observed during the first half of 2023, and the declining probability of economic recession.

For the six months ended June 30, 2024, non-interest income increased 15% to $38.0 million compared to $33.1 million for 2023. During the current year, wealth management income increased $2.4 million or 13%, as assets under management increased $472.8 million or 8% year-over-year. In addition, BOLI mortality-related income and service charges on deposit accounts both increased $0.8 million.

Non-interest expense increased to $136.1 million for the six months ended June 30, 2024, compared to $135.4 million for 2023. The drivers of the increase in non-interest expense were the $2.0 million increase in professional fees, the $1.6 million increase in amortization of intangible assets, the $1.3 million increase in FDIC expense, and the $1.2 million increase in general operating expenses. These year-over-year increases were offset by the $5.4 million decrease in compensation and benefits, as the prior year period included severance related expenses associated with staffing adjustments, and the $1.1 million decrease in marketing expense.

For the six months ended June 30, 2024, the GAAP efficiency ratio was 68.89% compared to 61.31% for the same period in 2023. The non-GAAP efficiency ratio for the current year was 66.01% compared to 58.73% for the prior year. The growth in the current year’s GAAP and non-GAAP efficiency ratios compared to the prior year, indicating a decline in efficiency, was the result of the declines in GAAP and non-GAAP revenues combined with the growth in GAAP and non-GAAP non-interest expenses.

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, investment securities gains/(losses), severance expense, contingent payment expense, 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 amortization of intangible assets, investment securities gains/(losses) and other non-recurring or extraordinary items, on a net of tax basis.

• Pre-tax pre-provision net income excludes income tax expense and the provision (credit) for credit losses.

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 that 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 second 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 1-833-470-1428. Please use the following access code: 340278. 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 August 6, 2024. A replay of the teleconference will be available through the same time period by calling 1-866-813-9403 under conference call number 846010.

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, Virginia, and Washington, D.C. Through its subsidiaries, Rembert Pendleton Jackson and West Financial Services, Inc., Sandy Spring Bank also offers a comprehensive menu of wealth management services.

Category: Webcast
Source: Sandy Spring Bancorp, Inc.
Code: SASR-E

For additional information or questions, please contact:
Daniel J. Schrider, Chair, President & Chief Executive Officer, or
Charles S. Cullum, E.V.P. & Chief Financial Officer
Sandy Spring Bancorp
17801 Georgia Avenue
Olney, Maryland 20832
1-800-399-5919
Email: [email protected]
[email protected]

Website: www.sandyspringbank.com
Media Contact:
Samantha Price, Vice President
301-260-3614
[email protected]

Forward-Looking Statements

Sandy Spring Bancorp’s forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These risks and uncertainties include, but are not limited to, the risks identified in our quarterly and annual reports and the following: changes in general business and economic conditions nationally or in the markets that we serve; changes in consumer and business confidence, investor sentiment, or consumer spending or savings behavior; changes in the level of inflation; changes in the demand for loans, deposits and other financial services that we provide; the possibility that future credit losses may be higher than currently expected; the impact of the interest rate environment on our business, financial condition and results of operations; the impact of compliance with changes in laws, regulations and regulatory interpretations, including changes in income taxes; changes in credit ratings assigned to us or our subsidiaries; the ability to realize benefits and cost savings from, and limit any unexpected liabilities associated with, any business combinations; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; our ability to maintain the security of our data processing and information technology systems; the impact of changes in accounting policies, including the introduction of new accounting standards; the impact of judicial or regulatory proceedings; the impact of fiscal and governmental policies of the United States federal government; the impact of health emergencies, epidemics or pandemics; the effects of climate change; and the impact of natural disasters, extreme weather events, military conflict, terrorism or other geopolitical events. Sandy Spring Bancorp provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2023, 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

Sandy Spring Bancorp, Inc. and Subsidiaries
RECONCILIATION TABLE - UNAUDITED (CONTINUED)
OPERATING EARNINGS - METRICS

Sandy Spring Bancorp, Inc. and Subsidiaries
RECONCILIATION TABLE - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
HISTORICAL TRENDS - QUARTERLY FINANCIAL DATA - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
HISTORICAL TRENDS - QUARTERLY FINANCIAL DATA - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
LOAN PORTFOLIO QUALITY DETAIL - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES - UNAUDITED

Sandy Spring Bancorp, Inc. and Subsidiaries
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES - UNAUDITED