Sandy Spring Bancorp Reports Net Income of $13.3 Million for the Fourth Quarter and Record Annual Earnings of $48.3 Million

OLNEY, Md., Jan. 19, 2017 (GLOBE NEWSWIRE) -- Sandy Spring Bancorp, Inc., (Nasdaq:SASR) the parent company of Sandy Spring Bank, today reported net income for the fourth quarter of 2016 of $13.3 million ($0.55 per diluted share) compared to net income of $12.8 million ($0.52 per diluted share) for the fourth quarter of 2015 and net income of $13.5 million ($0.56 per diluted share) for the third quarter of 2016.

Net income for the year ended December 31, 2016, was $48.3 million ($2.00 per diluted share) compared to net income of $45.4 million ($1.84 per diluted share) for the prior year.

“Our continued ability to meet the needs of our clients is reflected in our record performance this year. Strong loan growth, combined with an improved net interest margin, were the primary drivers to our profitability for both the fourth quarter and full year. This record performance enabled us to increase our dividend to its highest level ever and supported our repurchase of $13.3 million of the Company’s shares during the year. Shareholders also benefited from a 48% increase in our stock price over the year,” said Daniel J. Schrider, President and Chief Executive Officer.  

Fourth Quarter Highlights: 

• Total loans increased 12% compared to the fourth quarter of 2015 and 4% compared to the third quarter of 2016. These increases were driven primarily by year-over-year growth of 17% in the commercial loan portfolio.
   
• The net interest margin improved to 3.52% for the fourth quarter of 2016, compared to 3.45% for the fourth quarter of 2015 and 3.50% for the third quarter of 2016.
   
• Pre-tax, pre-provision income increased 25% compared with the fourth quarter of 2015.
   
• The Non-GAAP efficiency ratio was 57.54% for the current quarter as compared to 63.08% for the fourth quarter of 2015 and 56.33% for the third quarter of 2016.
   
• Return on equity increased to 9.92% for the fourth quarter of 2016 compared to 9.73% for the fourth quarter of 2015 and decreased compared to 10.11% for the third quarter of 2016.

Review of Balance Sheet and Credit Quality

Total assets grew 9% to $5.1 billion at December 31, 2016 compared to $4.7 billion at December 31, 2015.  This growth was driven by the increase in the loan portfolio as total loans ended the year at $3.9 billion. 

At December 31, 2016, combined noninterest-bearing and interest-bearing checking account balances, an important performance driver of multiple-product banking relationships with clients, increased 12% compared to balances at December 31, 2015. Total deposits and certain other short-term borrowings that comprise the funding sources derived from clients, increased 10% compared to December 31, 2015.

Tangible common equity totaled $454 million at December 31, 2016 compared to $441 million at December 31, 2015. The ratio of tangible common equity to tangible assets decreased to 9.07% at December 31, 2016 from 9.66% at December 31, 2015 due to the combined impact of the growth in assets and share repurchases over the preceding 12 months. Dividends per common share increased to $0.26 per share in the fourth quarter and totaled $0.98 per share for the year compared to $0.90 per share for 2015, a 9% increase. 

At December 31, 2016, the Company had a total risk-based capital ratio of 12.80%, a common equity tier 1 risk-based capital ratio of 11.01%, a tier 1 risk-based capital ratio of 11.74% and a tier 1 leverage ratio of 10.14%. On January 6, 2017 the Company repurchased all of its remaining $30 million in subordinated debentures at par value. The Company estimates that this will reduce the above capital ratios by approximately 75 basis points and that the Company will remain well-capitalized for regulatory purposes. This strategy was executed to improve the Company’s future net interest margin.

Non-performing loans totaled $31.9 million at December 31, 2016 compared to $34.5 million at December 31, 2015 and $32.0 million at September 30, 2016. The level of non-performing loans to total loans decreased to 0.81% at December 31, 2016 compared to 0.99% at December 31, 2015 as a result of the growth in the loan portfolio and a concurrent decrease in the level of non-performing loans.

Loan charge-offs, net of recoveries, totaled $0.4 million for the fourth quarter of 2016 compared to $0.6 million for the fourth quarter of 2015. The allowance for loan losses represented 1.12% of outstanding loans and 138% of non-performing loans at December 31, 2016 compared to 1.17% of outstanding loans and 119% of non-performing loans at December 31, 2015. As the ratio of the allowance to outstanding loans decreased due to loan growth during the year, the coverage ratio improved due to the decline in non-performing loans, a reflection of improved credit quality in the loan portfolio. Non-performing loans includes accruing loans 90 days or more past due and restructured loans.

Income Statement Review

Net interest income for the fourth quarter of 2016 increased 9% compared to the fourth quarter of 2015. The net interest margin improved to 3.52% for the fourth quarter of 2016 compared to 3.45% for the fourth quarter of 2015.  This improvement reflects the impact of loan growth over the preceding year combined with the cumulative benefits associated with the prepayment of FHLB advances and the early call of subordinated debentures, and the shift from lower yielding investments to the higher yielding loan portfolio during 2016.  

The provision for loan losses was $0.6 million for the fourth quarter of 2016 compared to $1.9 million for the fourth quarter of 2015 and $0.8 million for the third quarter of 2016. The decrease in the current quarter’s charge versus the prior year’s quarter reflects lower net-charge offs during the quarter, and continued improvement in loan quality which partially offset the effects of loan growth on the provision.

Non-interest income increased to $12.3 million for the fourth quarter of 2016 compared to $12.2 million for the fourth quarter of 2015 due to higher mortgage banking income from increased loan sales volume that more than offset the decrease in income from wealth management.

Non-interest expenses increased 13% to $30.5 million for the fourth quarter of 2016 compared to $27.0 million in the fourth quarter of 2015. The prior year quarter included a $4.5 million recapture of previously accrued litigation expenses and a $1.0 million charitable contribution. Excluding these transactions, total non-interest expenses remained virtually level compared to 2015. The non-GAAP efficiency ratio was 57.54% for the fourth quarter of 2016 compared to 63.08% for the fourth quarter of 2015 as a result of the combined growth in the net interest income and the effects of expense control discipline. 

Net interest income for the year ended December 31, 2016 increased 8% compared to 2015 due primarily to an increase in average loans, which was funded, in part, by a decrease in lower-yielding investment securities. 

The provision for loan losses was a charge of $5.5 million for the year ended December 31, 2016 compared to a charge of $5.4 million for 2015. The provision for the current year is primarily due to growth in the loan portfolio that was offset by the decrease in nonperforming loans and improvement in loan quality.

Non-interest income increased 2% to $51.0 million for 2016 compared to $49.9 million for 2015.  This increase was driven by $1.9 million in gains on securities sales and a gain of $1.2 million due to the extinguishment of subordinated debentures during the first half of 2016. Excluding these transactions, non-interest income decreased 4% due to a decrease in income from wealth management resulting from the sale of a portion of the assets under management in the first quarter of 2016. 

Non-interest expenses increased 7% to $123.1 million for 2016 compared to $115.3 million for the prior year. This increase was due largely to prepayment penalties of $3.2 million for the early payoff of $75 million in high-rate FHLB advances in 2016, combined with the impact of the recapture of previously accrued litigation expenses and the charitable contribution that occurred in late 2015. Excluding these transactions, non-interest expenses increased 1% over the prior year. This increase was due primarily to higher software and outside data services expenses. The non-GAAP efficiency ratio was 58.66% for 2016 compared to 61.09% for 2015.

Conference Call

The Company’s management will host a conference call to discuss its fourth 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 1-866-235-9910. 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) February 2, 2017.  A replay of the teleconference will be available through the same time period by calling 1-877-344-7529 under conference call number 10098228.

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. With $5.1 billion in assets, the bank operates 44 community offices and six financial centers across the region. Visit www.sandyspringbank.com for more information.

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 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, 2015, 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.