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SANDY SPRING BANCORP INC (SASR)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered sequential improvement: EPS rose to $0.51 (core $0.54) on higher net interest income, stronger fee income, and lower credit provision; NIM expanded 5 bps QoQ to 2.46% as deposit costs stabilized and asset yields inched higher .
  • Core deposit momentum and mix improvement continued: total deposits grew 1% QoQ (+$113M), noninterest-bearing deposits rose 4% QoQ (+$114M), and brokered CDs were reduced $155M; core deposits were 94% of total (vs. 93% in Q1) .
  • Credit remained manageable though mixed: NPLs increased to 0.81% (0.74% in Q1) largely in owner-occupied CRE, but net charge-offs were minimal (0.01% annualized); ACL/loans ticked up to 1.10% (coverage 135% of NPLs) .
  • 2024 outlook reiterated/updated: NIM 2.45%-2.55% with “modest” QoQ expansion (2–4 bps/quarter), expenses raised to $68–$70M per quarter (from $66–$68M), deposit growth lifted to mid/high-single digits; CET1 “low 11% area” .
  • Street estimates from S&P Global were unavailable for SASR; assessment is versus prior quarter and prior year (cannot declare a beat/miss).

What Went Well and What Went Wrong

  • What Went Well

    • Deposit franchise and funding quality improved: total deposits +1% QoQ, noninterest-bearing +4% QoQ; brokered CDs down $155M; core deposits 94% of total .
    • NIM inflected higher: 2.46% vs. 2.41% in Q1, driven by 2 bps higher earning-asset yields and 3 bps lower interest-bearing liability costs; management expects ongoing 2–4 bps QoQ expansion absent Fed moves .
    • Fee momentum: wealth management +$0.5M QoQ on AUM growth/markets; mortgage banking +$0.2M; BOLI +$0.7M (mortality-related) .
    • Management tone positive on profitability trajectory: “We have steadily improved our profitability and fully intend to maintain this trajectory” — Daniel J. Schrider .

  • What Went Wrong

    • Asset quality mixed: NPLs/loans rose to 0.81% from 0.74% on a few owner-occupied CRE loans placed on nonaccrual; ACL coverage to NPLs declined to 135% from 146% .
    • Efficiency still elevated: GAAP efficiency ratio 68.19% (down QoQ but up YoY), reflecting a still-pressured revenue base versus prior-year period; non-GAAP 65.31% .
    • Year-over-year revenue pressure persists: net interest income down 11% YoY; NIM down 27 bps YoY on deposit cost competition and mix shift to interest-bearing categories .
    • Regulatory/adverse classification: $144M moved to special mention and $19.5M to substandard per portfolio review (minimal delinquencies, limited reserve impact ~ $0.9M), highlighting ongoing CRE risk management .

Financial Results

Income and EPS

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Net Interest Income ($MM)$90.471 $81.696 $79.343 $80.285
Non-interest Income ($MM)$17.176 $16.560 $18.367 $19.587
Diluted EPS ($)$0.55 $0.58 $0.45 $0.51
Core Diluted EPS ($)$0.60 $0.60 $0.49 $0.54
Pre-tax Pre-provision Income ($MM)$38.511 $31.114 $29.704 $31.768

Margins and Efficiency

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Net Interest Margin2.73% 2.45% 2.41% 2.46%
ROA0.70% 0.73% 0.58% 0.66%
ROTCE8.93% 9.26% 7.39% 8.27%
Efficiency Ratio (GAAP)64.22% 68.33% 69.60% 68.19%
Efficiency Ratio (Non-GAAP)60.68% 66.16% 66.73% 65.31%

Balance Sheet (Period End)

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Loans ($MM)$11,369.639 $11,366.989 $11,364.284 $11,483.921
Deposits ($MM)$10,958.922 $10,996.538 $11,227.200 $11,340.228
Noninterest-bearing Deposits ($MM)$3,079.896 $2,914.161 $2,817.928 $2,931.405
CET1 Ratio10.65% 10.90% 10.96% 11.28%
TCE/TA8.51% 8.77% 8.86% 8.85%

Credit KPIs

MetricQ2 2023Q4 2023Q1 2024Q2 2024
NPLs / Loans0.44% 0.81% 0.74% 0.81%
NPAs / Assets0.36% 0.65% 0.63% 0.68%
ACL / Loans1.06% 1.06% 1.08% 1.10%
ACL / NPLs243% 132% 146% 135%
Net Charge-offs (Ann.)0.06% —% 0.04% 0.01%

Non-interest Income Components ($000)

CategoryQ2 2023Q1 2024Q2 2024
Service Charges on Deposits2,606 2,817 2,939
Mortgage Banking1,817 1,374 1,621
Wealth Management9,031 9,958 10,455
BOLI Income1,251 1,160 1,816
Bank Card Fees447 413 445
Other Income2,024 2,645 2,311

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2024)Current Guidance (Q2 2024)Change
Loan GrowthFY 2024Low/Mid-single digits Low/Mid-single digits Maintained
Deposit GrowthFY 2024Mid-single digits Mid/High-single digits Raised
Net Interest MarginFY 20242.45%–2.55% (stabilizing; modest expansion from Q2) 2.45%–2.55% (stabilized; +2–4 bps/quarter through YE) Maintained (added cadence)
Efficiency RatioFY 2024Mid-60% area Mid-60% area Maintained
Fee Income GrowthFY 2024High-single digits High-single digits Maintained
Expenses (per quarter)FY 2024$66–$68M $68–$70M Raised
CET1FY 2024High 10% to Low 11% area Low 11% area Tightened upward
TCE/TAFY 2024High 8% to Low 9% area High 8% to Low 9% area Maintained
Tax RateFY 202424%–26% 24%–26% Maintained
Credit (ACL/Loans; NCOs)FY 2024ACL ~1.10%; NCOs 5–15 bps ACL ~1.10%; NCOs 5–15 bps Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
NIM trajectory and deposit betasNIM compressed to 2.45% in Q4 on deposit costs; stabilization expected in 2024 . Q1: NIM 2.41%; “experienced a margin increase during last month of the quarter” .NIM 2.46%; mgmt expects +2–4 bps/quarter through YE absent Fed moves; with cuts, 5–10 bps/quarter, aiming for “low 3% by end of 2025” .Improving; controlled expansion expected.
Deposit growth and mixQ4: core deposits up ex-brokered; brokered reduced $240M . Q1: deposits +$231M; strong savings growth; brokered down $50M .Deposits +$113M; NIB +$114M; brokered CDs –$155M; core deposits 94% .Positive momentum; mix improving.
CRE credit and classificationsQ4: NPLs up to 0.81% on two large investor CRE; ACL 1.06% . Q1: NPLs down to 0.74%; ACL 1.08% .NPLs up to 0.81% (owner-occupied CRE); mgmt reclassified $144M special mention, $19.5M substandard, minimal reserve impact (~$0.9M) .Intensified surveillance; manageable losses expected.
Capital/RWA optimizationNot highlighted.Reclassified HELOC unfunded as “unconditionally cancelable,” reducing RWA by ~$360M; expect more refinements in Q3 .Positive for capital ratios.
Fee growth and new SBA platformQ4 fees –5% QoQ; wealth robust . Q1 fees +11% QoQ; wealth +3% AUM .Wealth +$0.5M QoQ; mortgage +$0.2M; BOLI +$0.7M; SBA build to add gains late Q4 or early 2025 .Building to low double-digit potential.

Management Commentary

  • “We delivered strong results in several key categories – growing core deposits, building our commercial loan portfolio and expanding the margin… We have steadily improved our profitability and fully intend to maintain this trajectory throughout the balance of the year.” — Daniel J. Schrider, Chair, President & CEO .
  • “Absent action by the Fed, we believe that our margin will be expanding throughout the remainder of 2024 by 2–4 bps per quarter… with cuts… toward a low 3% margin by the end of 2025.” — CFO Charlie Cullum .
  • “We remain focused on improving our profitability, continuing to bolster core funding, managing expenses and enhancing credit portfolio management while also reducing our commercial real estate exposure.” — Daniel J. Schrider .

Q&A Highlights

  • NIM path and deposit costs: Deposit costs near peak; expect stable to slightly higher deposit costs short-term, offset by lower wholesale funding and modest asset yield gains to drive 2–4 bps QoQ NIM expansion; with Fed cuts, 5–10 bps/quarter possible .
  • Fixed-rate loan repricing cadence: ~$500M per quarter repricing in 2H24 (from mid-to-upper 6% coupons) with limited yield uplift; in 2025 repricing falls to ~$200–$300M per quarter, coupons drifting lower thereafter .
  • Credit reclassifications: $144M moved to special mention and $19.5M to substandard per guidance; minimal delinquency and reserve impact (~$0.9M); rate outlook not a catalyst for the moves, focus was on current performance and covenants .
  • RWA optimization: HELOC unfunded commitments reclassified as unconditionally cancelable (Reg Z), reducing RWA by ~ $360M; further reviews underway in Q3 .
  • Fee outlook: High single-digit to potentially low double-digit full-year growth depending on markets; BOLI uplift was one-time; SBA gain-on-sale likely Q4 or Q1 next year .

Estimates Context

  • S&P Global (Capital IQ) consensus estimates for SASR were unavailable, so we benchmark performance versus prior quarter and prior year; we cannot assess beat/miss to Street for EPS or revenue this quarter.

Key Takeaways for Investors

  • Funding and margin inflection: Core deposit inflows and reduced brokered reliance, combined with a stabilizing deposit cost curve, are translating into measurable NIM expansion; mgmt guides continued 2–4 bps QoQ improvement (greater with rate cuts) .
  • Credit watch but contained losses: NPL uptick centered in owner-occupied CRE with collateral support and minimal charge-offs; ACL/loans at 1.10% and coverage at 135% provide a buffer, but monitor CRE reclassifications and office/multifamily dynamics .
  • Expense bar reset higher: Expense run-rate raised to $68–$70M/quarter to support growth initiatives (e.g., SBA), requiring revenue follow-through to improve efficiency back toward mid-60s .
  • Capital trajectory improving: RWA optimization and retained earnings support CET1 in “low 11% area,” creating optionality if growth accelerates or credit costs rise .
  • Fee diversification helps: Wealth management and mortgage banking offset NII pressures; SBA should add lift late-2024/early-2025; fee growth tracking high-single digits with potential upside if markets cooperate .
  • Tactical focus for 2H24: Watch deposit mix/NIB trends, realized NIM cadence, CRE classification migration, and expense discipline against the higher run-rate; these factors are likely to drive stock narrative near-term .

Citations: Press release and supplemental (Form 8‑K, July 23, 2024) ; Q2 2024 earnings call (July 23, 2024) ; Q1 2024 8‑K (April 23, 2024) ; Q4 2023 8‑K (January 23, 2024) .