Sandy Spring Bancorp Inc (SASR) 2006 Q1 法說會逐字稿

Good afternoon and welcome everyone to Sandy Spring Bancorp's conference call to discuss our performance for the first quarter of 2006. Joining me, as usual, here today is Phil Mantua, our Chief Financial Officer, and Ron Kuykendall, General Counsel and Corporate Secretary of our Company. As always, this call is open to all investors, analysts and is the news media. There will be a live webcast of today's call and there will be a replay of the call available at Sandy Spring's website beginning later today, and it will be up for about 48 hours. We can take your questions after a brief review of the key highlights before I make my remarks, and then we go to questions. Ron Kuykendall will give the Safe Harbor statement.

Thank you, Hunter. Good afternoon, ladies and gentlemen. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risk and uncertainties. These forward-looking statements include statements of goals, intentions, earnings and other expectations, estimates of risk and future cost and benefits, estimates of probable loan and lease losses, assessments of market risk, and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon or affected by management's estimates and projections of future interest rate, market behavior and other economic conditions, future laws and regulations, and a variety of other matters which, by their very nature, are subject to significant uncertainties. Because of these uncertainties, Sandy Spring Bancorp's actual future results may differ materially from those indicated. In addition, the Company's past results of operation do not necessarily indicate its future results.

Thank you, Ron. As we noted in this morning's press release, it's our fifth consecutive solid quarter in terms of earnings per share and net income in what is certainly an increasingly difficult rate and competitive environment. We had a strong final quarter of 2005, during which there was greater than anticipated loan growth as we finished out the year. Our commercial lenders had closed some of the transactions in our pipeline at year end, so 2006 started off a bit slow, as much of the focus was on rebuilding the loan transaction pipeline. We began to close more deals as the quarter progressed, and by the end of March had rebuilt the pipeline of pending transactions to a level where we really have good momentum now.

Our overall performance for the first quarter was very consistent with consensus estimate, and we think will compare favorably with the better community banks operating in comparable fluid markets once the results get -- get reported over the next several days. Loans grew 19% over where they were at the end of the first quarter of last year and were up about 4% on a linked-quarter basis. The linked-quarter growth was very much influenced by the need to do two things at the same time, close new loans over the past 90 days and refill the pipeline to where it was before it essentially emptied out somewhat at year end. In the meantime, competition for quality commercial transactions remains intense. Loan pricing continues to be highly competitive, but as we said previously, we are simply not willing to compromise cwedit -- credit quality in order to build the loan volume.

We are back at the point where we have a good pipeline of quality transactions to carry us forward into the next couple of quarters, and we see our forward progress marked by a combination of patience and consistency. Maintaining our net interest margin in the current rate environment continues to be a significant challenge, especially in this market, where the competition on the deposit side is also very intense. That said, we have a good stable and loyal customer base of underlying core deposits that we've been able to do a good job retaining, and we're continually looking for select opportunities to bring in new households when it makes sense to do so. In this regard, one of our strategic focuses throughout the remainder of 2006 is to expand our marketing efforts to create a better overall market awareness of Sandy Spring to therefore drive a greater number of relationships into the bank.

Comparing the first quarter of 2006 and 2005, net interest income increased by $2 million or 9%, due primarily to continued growth in the loan portfolio, which was primarily offset by lower net interest margin. Net interest margin decreased to 4.35% in 2006 from 4.39% a year ago, four basis point decline, as a result of slowing growth in non-interest-bearing deposits and increased short-term borrowings. With the current yield curve there isn't much difference in the cost of funds, but we think the solution is a combination of patience and adherence to sound fundamentals in terms of deposit pricing. As for the other piece of the revenue equation, non-interest income increased 26%, a major good news story we think. It was up 26% in the first quarter of '06 compared to 2005, due to increases in virtually every business line. Also, I would note this increase is without any benefit from gains on the sale of securities. This is the first quarter in the last five without such gains.

Trusts and investment management fees increased 143%, coming from a combination of growth in the bank's bank trust assets under management, as well as from the acquisition of West Financial Services in the fourth quarter of 2005. Insurance agency commissions also increased, up 16% over 2005, due to higher premiums from commercial property and casualty lines and the acquisition of Neff & Associates in the first quarter of 2006. Fees on sale of investment products also increased nicely at 61% over the prior year, as a result of increased sales volume. And Visa check fees increased 9%, reflecting a growing volume of electronic banking transactions. Among the most available demographic attributes of this market are: The workforce is highly educated, which lends itself very well to usage of electronic banking services; the per capita wealth is very high, which lends itself to growing the asset management side of our business; and the metropolitan workforce consists of a relatively higher percentage of baby boomers, which also helped support the growth of our trust and retirement-related product offerings.

So we think the growth trend in our non-interest income is positive, as we are beginning to benefit from investing in the two acquisitions, West and Neff, that were a great fit, given the demographics of our marketplace. And they obviously help us to continue to diversify our revenue stream. We certainly would like to be able to acquire similar businesses as we move forward. It is worth noting, also, that we produced ongoing improvement in the efficiency ratio over both the linked-quarter and last year's first quarter, even while adding such new businesses that -- as I referred to earlier that are traditionally not as efficient as core banking activities.

On a final note, ROE came in at 15.41% for the first quarter of 2006, compared to 16.20% for the same period in the prior year. ROA for the first quarter of 2006 was 1.36%, down slightly from 1.39% from the first quarter of 2005. In summary, then, despite the challenges of the flat yield curve, we are pleased to have produced another solid quarter of consistent profitability. That's a quick outline of our news for today, which we can expand on as we take any questions you may have.

[OPERATOR INSTRUCTIONS] We'll go first to the site of Rick Weiss of Janney. Please go ahead.

Hey, guys.

Hey, Rick.

I was wondering if you could give a little bit more flavor to the loan pipeline that you have? Which cata -- loan categories do you see growth?

Yes, the loan growth has been pretty balanced across all categories. The pipeline that I referred to in my remarks and the one that emptied out to some degree at year end and then we rebuilt in the first part of '06 is primarily our commercial loan pipeline, referring to both larger commercial loans and our -- our small business loans, which we generally think of in terms of loans of $500,000 or less to businesses. And in both those categories, the pipeline is strong, even stronger than it was a year ago, so we're very optimistic about the potential for loan growth because of that. But specific answer to your question, primarily the pipeline in the two categories of commercial.

Okay. And also, what's -- just can you talk a little bit about the housing market and construction market in your suburbs? Is that slowing down at all?

I think the short answer, yes, is it is slowing down somewhat, and of course that's among the hottest topics of the conversation when anybody tries to figure out where the economy's going. But I would say our observation here is that houses are staying on the market a little longer, new home sales are a little slower, but generally we have not seen deterioration in prices. Sellers seem to continue to get close to asking price. Certainly developers have not reduced prices. So sales pace has slowed, but we haven't seen any observable deterioration in price.

Okay. Thank you very much.

Thanks, Rick.

[OPERATOR INSTRUCTIONS] Next we'll go to Jennifer Demba of SunTrust Robinson. Please go ahead.

Thank you. I just wonder if you can comment on the deposit declines on an average basis from fourth quarter to first quarter. Is any of that seasonal or due to pricing, or can you just give us some color on that?

Yes. Jennifer, that -- I think that is to some degree seasonal. I wouldn't say that we aren't experiencing, certainly, the additional competitive pressure that exists in -- just in deposit gathering. So, yes, we might like to have seen it a little stronger, but I think part of it's seasonal, and part of it is just adjusting to the very competitive environment.

Would you say its gotten more competitive over the last few months than it was previously?

I would say so. It has gotten more competitive, as it appears to me that all banks or most banks, or certainly are emphasizing need for deposit growth. And I think that's showing up in -- in rates and promotional activities and advertising and those sorts of things. I think it is getting more competitive. Now, we still believe in sticking to our knitting of having a strategy that is around relationships and tends not to rely to a large degree on running specials or -- or that sort of thing. But, clearly, we need to respond to the competition, and we're assessing how we need to do that. But, yes, more competitive.

Just one more question on that competition. So it sounds like from your comments it's more broad-based and not one, two, three big offenders?

I would say that's true, because it seems that everybody has reacted to some of the new entrants that have come into the market, which may have been a smaller number at one time, but now it seems like it's more across-the-board competition.

Okay. Thank you.

Thanks.

Thank you. And at this time, there appears to be no further questions.

Okay. Thanks, everyone. That wraps up our questions. We thank you for participating, and always welcome your comments at our -- at sandyspringbank.com. Thanks again.

Thank you, ladies and gentlemen. This concludes your teleconference. You may disconnect at any time.