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SANDY SPRING BANCORP INC (SASR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 EPS was $0.36 and net income $16.2M, down sequentially from $0.51/$22.8M in Q2, as higher provision for credit losses and elevated non‑interest expense offset modestly higher net interest income .
  • Net interest margin compressed 2 bps QoQ to 2.44% (2.55% YoY), including a ~3 bps drag from reversing previously accrued interest on a single large AD&C loan placed on non‑accrual; interest income rose $5.0M QoQ, but interest expense rose $3.9M .
  • Core deposit growth was strong: deposits increased $397.5M QoQ to $11.74B (ex‑brokered +$351.7M), driven by money market (+$185.2M), time (+$151.5M), and savings (+$66.1M); noninterest‑bearing declined $28.3M .
  • Merger announced with Atlantic Union Bankshares (AUB): fixed exchange ratio 0.90 AUB shares per SASR share; conference call to discuss Q3 results was cancelled in light of the deal, making the transaction the dominant stock catalyst near‑term .

What Went Well and What Went Wrong

  • What Went Well

    • Core funding momentum: deposits rose 4% QoQ (ex‑brokered +3%), with broad‑based growth across interest‑bearing categories; available unused liquidity stood at $6.3B (146% of uninsured deposits) .
    • Fee income resilience: non‑interest income grew 13% YoY (+$2.3M), led by wealth management; quarter‑over‑quarter, wealth income increased $0.3M on $352.1M AUM growth and favorable markets .
    • Management emphasized solid capital and successful deposit/wealth strategies: “We have a solid capital position…ongoing success with our core deposit strategies and wealth management…” (Dan Schrider, CEO) .

  • What Went Wrong

    • Credit costs and asset quality: provision for credit losses rose to $6.3M (vs $1.0M in Q2), driven by higher individual reserves on collateral‑dependent loans, primarily a single AD&C relationship; NPL ratio increased to 1.09% (0.81% in Q2) .
    • Margin pressure: NIM fell to 2.44% from 2.46% in Q2 due to higher funding costs; the AD&C non‑accrual interest reversal negatively impacted NIM by ~3 bps .
    • Operating efficiency slipped: GAAP efficiency ratio rose to 72.12% (68.19% in Q2) as non‑interest expense increased $4.8M QoQ, mainly salaries/benefits and one‑time professional fees .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Diluted EPS ($)$0.46 $0.45 $0.51 $0.36
Net Income ($USD Millions)$20.7 $20.4 $22.8 $16.2
Tax-Equivalent Net Interest Income ($USD Millions)$86.1 $80.4 $81.4 $82.5
Non-Interest Income ($USD Millions)$17.4 $18.4 $19.6 $19.7
Total Revenue (TE NII + Non-Interest) ($USD Millions)$103.5 $98.8 $101.0 $102.2
Provision for Credit Losses ($USD Millions)$2.4 $2.4 $1.0 $6.3
Net Interest Margin (%)2.55 2.41 2.46 2.44
Efficiency Ratio - GAAP (%)70.72 69.60 68.19 72.12
ROA (%)0.58 0.58 0.66 0.46
ROTCE (%)7.42 7.39 8.27 5.88

Segment/Portfolio Breakdown (End of Period Loans)

Category ($USD Millions)Q3 2023Q1 2024Q2 2024Q3 2024
Commercial Investor Real Estate$5,137.7 $4,997.9 $4,933.3 $4,868.5
Commercial Owner-Occupied RE$1,760.4 $1,741.1 $1,747.7 $1,737.3
Commercial AD&C$938.7 $1,090.3 $1,184.3 $1,255.6
Commercial Business$1,454.7 $1,509.6 $1,601.5 $1,620.9
Residential Mortgage$1,432.1 $1,511.6 $1,521.9 $1,529.8
Residential Construction$160.3 $97.7 $78.0 $53.6
Consumer$416.4 $416.1 $417.2 $426.2
Total Loans$11,300.3 $11,364.3 $11,483.9 $11,491.9

Key KPIs

KPIQ3 2023Q1 2024Q2 2024Q3 2024
Total Deposits ($USD Millions)$11,151.0 $11,227.2 $11,340.2 $11,737.7
Noninterest-Bearing Deposits ($USD Millions)$3,013.9 $2,817.9 $2,931.4 $2,903.1
Total Assets ($USD Millions)$14,135.1 $13,888.1 $14,008.3 $14,383.1
Loans/Deposits (%)101.34 101.22 101.27 97.91
NPLs / Total Loans (%)0.46 0.74 0.81 1.09
ACL / NPL Coverage (%)238.32 145.78 135.35 104.92
Assets Under Management ($USD Thousands)$5,536,499 $6,165,509 $6,215,697 $6,567,752

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin2H 2024 / 2025Expected expansion of 2–4 bps per quarter through 2024 absent Fed cuts; targeting low ~3% by end of 2025 with expected cuts .No updated guidance; Q3 call cancelled due to merger .Withdrawn/not reiterated.
Non-Interest Expense per quarter2H 2024Manage in $68–$70M per quarter .Actual Q3 2024 expense $72.9M, with higher salaries/benefits and one‑time professional fees .Above prior range (raised vs plan).
Mortgage Banking RevenueQ3 2024$1.0–$1.5M per quarter .Actual Q3: $1.529M .In line/high end.
SBA GainsBy year‑end 2024Program expected to contribute by year‑end .No update provided; call cancelled .Unchanged/NA.
DividendQuarterly$0.34 per share .$0.34 declared .Maintained.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2024)Trend
Core deposits and fundingFocus on growing core funding; high‑yield savings conversion; Q2: core deposits +$271M ex‑brokered .Deposits +$397.5M QoQ; growth in money market/time/savings; uninsured at ~37% .Improving core funding, diversified mix.
Net interest margin outlookNIM bottomed with expected 2–4 bps quarterly expansion; faster with Fed cuts, low 3% by end 2025 .NIM 2.44% (−2 bps QoQ); ~3 bps hit from AD&C non‑accrual interest reversal .Stabilization with near-term pressure.
CRE exposure/creditEarly reclassification to special mention/substandard; monitoring multifamily/office; NPLs improved in Q1 .NPLs rose to 1.09% (from 0.81%); provision elevated due to single AD&C relationship .Credit normalization with idiosyncratic risk.
Wealth managementAUM growth (Q1: $6.2B) and strong fee contribution; ~54% of non‑interest income .AUM +$352.1M QoQ; wealth income +$0.3M .Positive trajectory.
SBA programTeam build underway; anticipated contribution late 2024 .No update (call cancelled) .In progress.
Strategic/M&A—Merger with AUB; 0.90x exchange ratio; cost saves ~27% of SASR opex; CRE sale up to $2B contemplated post‑close .Transformational; de‑risking pro forma balance sheet.

Management Commentary

  • “We have a solid capital position and are seeing ongoing success with our core deposit strategies and our wealth management lines of business…The success of our wealth teams' approach is reflected in our strong fee income results.” — Daniel J. Schrider, Chair, President & CEO .
  • “Atlantic Union Bank and Sandy Spring Bank share the same values and commitment…This combination…will provide greater opportunities for our employees to grow within a larger organization.” — Daniel Schrider (AUB/SASR merger call) .
  • Merger terms include a fixed exchange ratio of 0.90 AUB shares per SASR share; conference call to discuss Q3 results was cancelled in light of the announcement .

Q&A Highlights

  • CRE loan sale logistics and marks: identified ~200 notes (retail/multifamily largest), service retained; assumed low‑90s sale price including ~1.5% credit mark and ~5% interest rate mark; proceeds to delever FHLB and high‑cost brokered deposits .
  • Targeted CRE concentration post‑transaction: aiming below 300% of risk‑based capital, modeled ~272% holdco/~280% bank; pro forma loan‑to‑deposit ratio below 90% .
  • Pro forma NIM outlook at close: projected ~3.75–3.85% including accretion, with transaction modeling already incorporating CRE sale impact .
  • C&I growth playbook for SASR markets: overlay AUB middle‑market capabilities (equipment finance, ABL, FX, treasury) to augment SASR’s C&I; revenue synergies not modeled but expected .
  • Origination yields: new/renewed AUB loans ~7.00–7.05% in Q3; term rate declines impacted yields; marks will put SASR portfolio on market yield basis post‑close .

Estimates Context

  • We attempted to retrieve S&P Global Wall Street consensus estimates for SASR’s Q3 2024 EPS and revenue; consensus data was unavailable for SASR at this time due to SPGI mapping limitations. As a result, estimate comparison cannot be provided for this quarter [GetEstimates attempt noted; no values available].

Key Takeaways for Investors

  • Sequential earnings decline driven by higher provision on a single AD&C exposure and elevated operating costs; underlying core net interest income improved modestly QoQ, but funding costs remain a headwind .
  • Deposit growth was robust and broadly based, reducing loans‑to‑deposits and supporting liquidity — a positive setup for NIM stabilization as competition for deposits normalizes .
  • Asset quality showed idiosyncratic pressure (NPLs up to 1.09%); allowance coverage declined but remains above 100% of NPLs; monitor AD&C and criticized CRE cohorts into 2025 .
  • Wealth management continues to be a bright spot with growing AUM and fee contribution, partially offsetting margin pressure — a defensive earnings mix characteristic .
  • The AUB merger is the primary near‑term catalyst: fixed 0.90 exchange ratio, targeted cost saves (~27% of SASR opex), planned CRE loan sale up to $2B to de‑risk pro forma balance sheet; expect event‑driven trading tied to regulatory/closing milestones .
  • Short‑term: stock likely trades on deal spreads, regulatory timeline, and any further credit headlines (particularly AD&C/CRE); medium‑term: pro forma earnings accretion and balance sheet de‑risking could improve valuation vs regional bank peers .
  • With the Q3 call cancelled and no updated guidance, use Q2 commentary as baseline but adjust for Q3’s higher expenses and provision; watch for subsequent disclosures as merger process advances .