Sandy Spring Bancorp Reports Third Quarter Net Income of $12.1 Million, an Increase of 10% Over Prior Year

OLNEY, Md., Oct. 17, 2013 (GLOBE NEWSWIRE) -- Sandy Spring Bancorp, Inc., (Nasdaq:SASR) the parent company of Sandy Spring Bank, today reported net income for the third quarter of 2013 of $12.1 million ($0.48 per diluted share) compared to net income of $11.0 million ($0.44 per diluted share) for the third quarter of 2012 and net income of $12.2 million ($0.49 per diluted share) for the second quarter of 2013.

Net income for the nine-month period ended September 30, 2013 totaled $34.8 million ($1.39 per diluted share) compared to net income of $26.7 million ($1.09 per diluted share) for the prior year period, an increase of 31%.

"While our third quarter results benefitted from significant recoveries on two commercial real estate loans, historically low interest rates continued to exert downward pressure on our net interest margin. The increase in long-term treasury rates reduced both mortgage loan origination volume and the related mortgage banking income from the sales of such loans," said Daniel J. Schrider, President and Chief Executive Officer.

"Despite ongoing challenging market conditions, our focused efforts resulted in further improvement in credit quality metrics, growth from our wealth management and insurance segments and continued control of our funding costs.

"We continue to believe the consistent application of prudent banking principles together with outstanding client service is the formula for success in this very difficult and volatile economy," said Schrider.

Third Quarter Highlights:

• Pre-tax pre-provision income, a non-GAAP measure, was $19.6 million for the third quarter of 2013, a 16% increase compared to the third quarter of 2012 and a 26% increase compared to the second quarter of 2013. Third quarter results with respect to credit metrics, the net interest margin and non-interest income and expense were positively affected by major recoveries from resolution of two previously non-performing commercial real estate credits.
• The provision for loan and lease losses for the third quarter of 2013 was a charge of $1.1 million compared to a charge of $0.2 million for the third quarter of 2012 and a credit of $2.9 million for the second quarter of 2013. This increase in the provision compared to the prior quarter was due primarily to loan growth during the quarter.
• Non-performing loans decreased to $38.3 million at September 30, 2013 compared to $58.9 million at September 30, 2012 and $46.2 million at June 30, 2013. The coverage ratio of the allowance for loan and lease losses to non-performing loans was 103% at September 30, 2013 compared to a coverage ratio of 72% at September 30, 2012 and 84% at June 30, 2013.
• The net interest margin was 3.88% for the third quarter of 2013, compared to 3.67% for the third quarter of 2012 and 3.51% for the second quarter of 2013. Excluding the effect of the loan recoveries mentioned above, the net interest margin was 3.49% for the quarter. The decrease in the normalized margin was due primarily to the decline in the yield on a higher level of earning assets which more than offset the lower cost of borrowings and deposits.
• Non-interest income decreased 8% for the quarter compared to both the prior year quarter and the second quarter of 2013. The decrease was due primarily to the decrease in income from mortgage banking due primarily to a significant decline in the volume of saleable mortgage loan originations. This decrease was somewhat offset by increases in insurance agency commissions and other non-interest income.
• Total loans increased 8% compared to the third quarter of 2012 and 2% compared to the second quarter of 2013 due to organic loan growth in the residential mortgage, commercial investor real estate and consumer loan portfolios.

Review of Balance Sheet and Credit Quality

Total assets increased 4% to $4.1 billion at September 30, 2013 as compared to September 30, 2012. Total loans and leases increased 8% to $2.7 billion compared to the prior year due primarily to the growth in the specific loan portfolios mentioned above.

Customer funding sources, which include deposits and other short-term borrowings from customers, remained stable compared to September 30, 2012. Noninterest-bearing and interest-bearing checking account balances increased 10% compared to the prior year quarter. The Company considers the growth in checking accounts to be an important performance metric as such accounts typically are the primary drivers of growth in multiple product banking relationships with clients. Certificates of deposit declined 14% while FHLB advances increased 28% at September 30, 2013 compared to balances at September 30, 2012, as the Company managed its funding mix to take advantage of current low interest rates to maintain the net interest margin.

Tangible common equity totaled $410.8 million at September 30, 2013 compared to $379.8 million at September 30, 2012 resulting in an increase in the ratio of tangible common equity to tangible assets from 9.99% at September 30, 2012 to 10.36% at September 30, 2013. This increase was due primarily to net income earned during the period. At September 30, 2013, the Company had a total risk-based capital ratio of 15.70%, a tier 1 risk-based capital ratio of 14.45% and a tier 1 leverage ratio of 11.29%.

Non-performing loans totaled $38.3 million at September 30, 2013 compared to $58.9 million at September 30, 2012 and $46.2 million at June 30, 2013. Overall credit quality continued to improve due to the resolution of existing problem credits and the reduced migration of new credits to non-performing status.

Loan charge-offs, net of recoveries, totaled $0.7 million for the third quarter of 2013 compared to net charge-offs of $2.9 million for the third quarter of 2012 and net recoveries of $0.6 million for the second quarter of 2013. This improvement for the third quarter of 2013 compared to the prior year quarter was due primarily to recoveries on existing problem credits. The allowance for loan and lease losses represented 1.48% of outstanding loans and leases and 103% of non-performing loans at September 30, 2013 compared to 1.73% of outstanding loans and leases and 72% of non-performing loans at September 30, 2012 and 1.50% of outstanding loans and leases and 84% of non-performing loans at June 30, 2013. Non-performing loans includes accruing loans 90 days or more past due and restructured loans.

Income Statement Review

Net interest income for the third quarter of 2013 increased 11% compared to the third quarter of 2012 due to $3.7 million in interest recoveries on loans previously charged-off. Excluding these recoveries, net interest income remained virtually level compared to the prior year quarter. The resulting increase was due to an increase in average interest-earning assets and lower funding costs which somewhat offset the decline in asset yields. The Company's funding costs declined due to a lower cost deposit mix and the restructuring of $170 million in Federal Home Loan Bank advances during the fourth quarter of 2012 and the first six months of 2013. The net interest margin increased to 3.88% for the third quarter of 2013 compared to 3.67% for the third quarter of 2012 due to loan recoveries. Excluding the effect of these loan recoveries, the net interest margin would have been 3.49% for the quarter. The resulting decrease in the margin was due to lower yields on a higher amount of interest-earning assets.

The provision for loan and lease losses was a charge of $1.1 million for the third quarter of 2013 compared to a charge of $0.2 million for the third quarter of 2012 and a credit of $2.9 million for the second quarter of 2013. The increase in the provision for the third quarter of 2013 compared to the third quarter of 2012 was due primarily to loan growth during the quarter and the previously mentioned recoveries which were largely offset by a charge-off on a commercial real estate loan together with a lower migration of new problem loans into non-performing status.

Non-interest income decreased 8% to $11.2 million for the third quarter of 2013 compared to $12.2 million for the third quarter of 2012. This decrease was driven by a lack of mortgage banking income due primarily to lower mortgage origination volumes and a decline in client refinancing activity. This decrease was somewhat offset by a 17% increase in wealth management income due to higher assets under management. In addition, other non-interest income increased 36% due to gains on sales and dispositions of loans.

Non-interest expenses decreased 1% to $26.9 million for the third quarter of 2013 compared to $27.2 million in the third quarter of 2012. This decrease was driven primarily by a decline in other non-interest expenses related to the recovery of expenses related to the resolution of problem loan credits mentioned above. The non-GAAP efficiency ratio improved to 55.21% for the third quarter of 2013 compared to 58.91% for the third quarter of 2012. Excluding the effect of the interest recoveries mentioned above, the non-GAAP efficiency ratio for the third quarter of 2013 was 61.47%.

Net interest income for the first nine months of 2013 increased 8% compared to the prior year period while the net interest margin increased to 3.66% for the year to date compared to 3.62% in 2012 due to the $3.7 million in interest recoveries on previously mentioned commercial loans. Excluding the effect of the interest recoveries, net interest income increased 4% for the first nine months of 2013 compared to the prior year period while the net interest margin decreased to 3.53% for the first nine months of 2013 compared to 3.62% for the first nine months of 2012. The increase in net interest income and decrease in the net interest margin were due primarily to the factors cited previously with respect to the third quarter of 2013.

The provision for loan and lease losses was a credit of $1.7 million for the first nine months of 2013 compared to a charge of $2.5 million for first nine months of 2012. The decrease in the provision for the period was due primarily to a decline in historical losses, a lower migration of new problem loans into non-performing status, and net loan recoveries during the period.

Non-interest income increased 3% to $35.9 million for the first nine months of 2013 compared to $34.7 million for the first nine months of 2012. This increase was driven by a 9% increase in wealth management income due to higher assets under management while insurance agency commissions increased 13% due to higher revenues on whole life insurance and physicians' liability lines. Other non-interest income increased 45% due to gains on sales and dispositions of loans and a non-recurring legal settlement. These increases were partially offset by a 36% decrease in mortgage banking income due to declining mortgage origination volumes.

Non-interest expenses remained virtually level at $82.2 million for the first nine months of 2013 compared to $82.7 million in the first nine months of 2012. Outside data services decreased due to merger expenses from the CommerceFirst acquisition recorded in the second quarter of 2012. Other non-interest expenses decreased due to such merger expenses and due to the recovery of expenses from the resolution of problem loan credits. These decreases were somewhat offset by an increase in salaries and benefits expenses due to additional staff and higher incentive compensation. The non-GAAP efficiency ratio improved to 58.89% for the first nine months of 2013 compared to 61.08% for the first nine months of 2012. Excluding the effect of the interest recoveries mentioned above, the non-GAAP efficiency ratio for the first nine months of 2013 was 61.01%.

Conference Call

The Company's management will host a conference call to discuss its third 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 1-888-317-6016. 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) November 18, 2013. A replay of the teleconference will be available through the same time period by calling 1-877-344-7529 under conference call number 10034198.

About Sandy Spring Bancorp/Sandy Spring Bank

With $4.1 billion in assets, Sandy Spring Bancorp is the holding company for Sandy Spring Bank and its principal subsidiaries, Sandy Spring Insurance Corporation and West Financial Services, Inc. Sandy Spring Bancorp is the largest publicly traded banking company headquartered and operating in Maryland. Sandy Spring is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. Independent and community-oriented, Sandy Spring Bank was founded in 1868 and offers a broad range of commercial banking, retail banking and trust services through 49 community offices in Anne Arundel, Carroll, Frederick, Howard, Montgomery, and Prince George's counties in Maryland, and Arlington, Fairfax and Loudoun counties in Virginia. Through its subsidiaries, Sandy Spring Bank also offers a comprehensive menu of insurance and investment management services. Visit www.sandyspringbank.com for more information about Sandy Spring Bank.

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 and lease 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, 2012, 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.

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
         1-800-399-5919
         Email: DSchrider@sandyspringbank.com
                PMantua@sandyspringbank.com
         Web site: www.sandyspringbank.com