Sandy Spring Bancorp Inc (SASR) 2015 Q3 法說會逐字稿

Good day, and welcome to the Sandy Spring Bancorp Inc. earnings conference call and webcast for the third quarter of 2015.

(Operator Instructions)

Please also note, this event is being recorded. I would now like to turn the conference over to Mr. Daniel J. Schrider, President and CEO of Sandy Spring Bancorp. Please go ahead.

Thank you, Rocco, and good afternoon, everyone. Welcome to Sandy Spring Bancorp's conference call to discuss our performance for the third quarter of 2015. This is Dan Schrider speaking, and I'm joined here today by Phil Mantua, our Chief Financial Officer, and Ron Kuykendall, General Counsel for Sandy Spring Bancorp. We really appreciate you joining today's call.

As always, this call is open to all investors, the analysts, and the news media. And there will be a live webcast of today's call, and a replay of the call available at our website beginning later today. We will take your questions after a brief review of some key highlights. But before we get started, Ron will give the customary Safe Harbor statement.

Thank you, Dan, and 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 risks and future cost and benefits, assessments 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 uncertainty, because they are based upon or affected by management's estimates and projections of future interest rates, 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 operations do not necessarily indicate its future results.

Thanks, Ron. Today as usual, we will move to your questions immediately after some brief remarks. Overall, we produced another respectable quarter, and first nine months of 2015. As I've commented previously, we continue to strive for, and achieve balanced results in a very competitive environment.

Here is just a quick rundown of the main highlights from the release we issued earlier this morning, with a bit of added color where appropriate. Net income for the third quarter of 2015 was $11 million or $0.45 per diluted share, compared to net income of $11.1 million or $0.44 per share for the third quarter of 2014, and a net income of $10.3 million or $0.42 per diluted share for the linked second quarter of this year.

For the nine months ended September 30, net income was $32.6 million or $1.31 per diluted share, compared to net income of $29.1 million or $1.16 per diluted share for the same period of the prior-year. Third-quarter results were driven by ongoing momentum that we've sustained consistently thus far during 2015.

As noted in our release, the main takeaway is that our net interest income remained very solid, and earning assets were nicely balanced across all three loan portfolios, especially in C&I, as well as CRE, and that's where the local marketplace competition is particularly tough. Total loans were up 4% over the second quarter of this year.

To drill down a little bit further, we are pleased to report that our 15% year-over-year growth in total loans was ahead of our outlook, which was in the 10% to 12% range. Solid loan growth led to a higher provision, of course. Over 50% of the provision increase is attributable to higher quarterly loan growth, with the remainder of the provision increase distributed across the portfolio, with no material concentration tied to any specific credits. We're comfortable with both the level of the provision and our allowance, and the fact that our earning asset yield is up 3 basis points year over year, as we redeploy assets out of our investment portfolio.

The net interest margin was as expected at 3.43% for the third quarter. On the non-interest income side, insurance agency commissions were higher for the quarter, due to the seasonality of that business. The third quarter usually does produce a favorable bump in commissions. And separately, fee income on the asset management side was less than we anticipated, while at the same time, we do continue to grow new assets under management.

Quarterly fees were clearly affected by the volatility in the market, as the third quarter came to a close. And that's not a -- that's a circumstance that's not going to be unique to just Sandy Spring.

As noted in today's release, we have repurchased nearly 154,000 shares of our common stock during the third quarter, bringing the total thus far in 2015 to about 729,000 shares, at an average price of $25.88. And we do intend to continue to repurchase shares when the market provides an opportunity to do so.

As of a week ago, at $26.88 per share on October 16, our stock price had advanced over 14% year over year, as compared with the KBW Bank index at just under 7% for the same time frame. This seems to validate that even in the current environment for bank stock investing, our shareholders appreciate the quality of our business model, and our consistent performance.

So to summarize, for the first nine months, loan growth remains balanced and steady. Our margin is stable, and compares favorably with peers. Deposit balances have been growing solidly, and according to plan. Fee income remains strong. The efficiency ratio is down, and our capital levels are very healthy.

And to conclude, our underlying goal is unchanged. We want to produce consistent results, by growing a diverse stream of revenue, driven by creating the remarkable experience for our clients and our employees.

So that concludes my general comments for today, and we will now move to your questions. Rocco, we can take the first question? And when doing so, we'd appreciate it if you would state your name, and your company affiliation when you come on, so that we know with whom we are speaking.

Thank you, sir.

(Operator Instructions)

Will Curtiss, SunTrust Robinson Humphrey.

Hey, good afternoon, guys.

Hi, Will.

Hey, Will.

So I guess, first on the loan growth, it was a solid quarter of loan growth, and pretty broad as you mentioned. I'm just curious to get your thoughts on how things are shaping up to finish the year?

Yes, Will, this is Dan. It obviously, it was a very strong quarter, and been a really good year. I think when we look at the competitive environment and the economic environment, our outlook as we look forward on loan growth is probably not dissimilar from what we've commented previously, is in that 10% to 12% range. We think that is pretty fair, although we certainly have outpaced that thus far this year.

Okay. And continue to -- or likely continue to be kind of broadly, or broad across the board?

Yes, that would be our goal. Yes.

Okay. And then, on fees, in specifically the insurance business. I believe the first and third quarters are typically seasonally strong, but the growth this quarter seemed to be a little bit stronger than normal. Any additional color there that you can provide?

Will, this is Phil. A couple of points there. You are correct, as it relates to the seasonality. And in particular that seasonality is driven by the specific area in the revenue line related to physicians' liability insurance, especially this quarter. And the majority of that quarter over quarter growth was related to that, to the tune of about $700,000, and that grew from what it was the prior year.

So what we're seeing there is that, the more significant aspect of a contribution by that particular line within the insurance area. And then, in addition to that, we did also have nice growth on all of the different components of insurance in the quarter. So I mean, I would suggest that, as it relates to looking for to the fourth quarter, backing out the majority of that seasonal piece related to the physicians' liability, would be the way to evaluate the ongoing levels.

Okay. Great. That's helpful. And then maybe the last question for me, is on the margin. And maybe talk a little bit about the margin outlook from here, given the expectation that rates are going to remain low for some time. And maybe how, or if that's changed your strategy any?

Yes, this is Phil again, Will. I think, first of all, as we were very pleased that the margin in this quarter, not only held up, but slightly expanded on a linked basis. And I think it, as Dan mentioned in his opening comments, just again demonstrates what we've been trying to accomplish there, with an ongoing mix shift within the asset side of the balance sheet. I think it's proved out that that's the real reason, given absence of any change in the broader rate environment, for that to be able to be maintained.

I would suggest that, that would still hold true in the fourth quarter. If in fact, we have a similar kind of level of loan growth and mix shift, then it will work. If we don't, then we're apt to have a couple basis points of compression in the overall margin. And balancing -- being balanced by our funding needs, where we'll pull the appropriate levers on attracting CD or other types of funds to accommodate the growth.

Okay. Thanks for taking my questions.

Thanks, Will.

Thanks, Will.

Catherine Mealor, KBW.

Thanks. Good afternoon, everyone.

Good afternoon.

Hey, Catherine.

Maybe one follow-up on the margin. How are you thinking about CD costs going into next quarter? You had an increase this past quarter. Any thoughts on [some] bleed over from some specials you have this quarter, or that would bring that up higher again? Or do you think you can kind of level it off, until maybe we see a move in rates?

Yes, Catherine, this is Phil again. We have already pulled back on some of the offered CD special rates, just because what is going on in the broader rate market. And our view of -- in terms of not anticipating any movement by the Fed here within the quarter. Now there's a lot of speculation they might do something at year end, but we had already backed that down a little bit here as we sit. So I think we'll stay the course there, in terms of the overall cost of us doing that, and yet staying competitive within the market. And again balancing it related to just how much loan growth we need to fund.

Great. And then, maybe a follow up too on M&A. Just any commentary on how conversations with potential targets are going? Do you feel like conversations have increased, about the same? And how does the rate environment change the way those conversations are going?

Catherine, this is Dan. I would say the level of activity in terms of conversations is probably about the same. I think there's still a lot of folks trying to figure out what the -- get some visibility on the future. The rate environment can only cloud that visibility a bit. So I can't say that, the fact that there was not a move, and now that it looks like it's going to be kicked out even further, that hasn't manifested itself in any heightened level of discussion, but it certainly could.

I still -- I just think there's a lot of institutions across the country that are just, particularly within certain size bands, that are trying to figure out what the future holds. So I would expect like many do, that those conversations will continue.

Great. All right. Thanks. Congrats on a good quarter.

Thanks, Catherine.

Thank you.

(Operator Instructions)

Matt Schultheis, Boenning.

Hi, good afternoon.

Hi, Matt.

Hey, Matt.

Really quickly, as a follow-up to Catherine's question. On the M&A front, how far south are you guys willing to go?

We tend to look at contiguous markets to where we are in the greater Washington market, and draw a circle that might have us -- at least having conversations that would probably take about 100 mile radius around where we are here in Olney, which (multiple speakers) if that answers your question.

Yes. I'm assuming that excludes Baltimore, but yes. Thanks.

Thanks, Matt.

Will Curtiss, SunTrust Robinson Humphrey.

Hey, guys. Thanks for taking the follow-up. Just a couple of housekeeping things. And if I heard correctly, the provision is kind of tracking along with expected loan growth, and should we expect that to continue going forward?

Yes, Will, Dan. I would expect that to continue to track loan growth pretty well. Just to give you a little bit of a sense -- I mean, we're -- with progress we've made on the asset quality front over the last multiple quarters, we're sitting at probably about 18% of our allowance is, are those balances that are dedicated to specific reserves, watch reserves, historical losses. Which means that, about 82% of our allowance is in kind of the general reserve soft factor category. So that would cause it, to kind of map along with loan growth, which is where that new production typically falls.

Okay. And then, the last one for me. Just in terms of the tax rate, it looks like it's kind of hovered -- or been in a range of 33% to 31% or so. I was just curious, any thoughts there, on what's a good tax rate to use?

I'd go right in the middle of that, pretty much in the 32% range. I think that's what we've averaged for the year. Just off top of my head, WIll, I think that's a reasonable place to be. I don't see anything that we're doing that's going to change it materially from here out.

Fair enough. Thank you.

You're welcome.

Thanks, Will.

And this concludes our question and answer session. I would like to turn the call back to Mr. Schrider, and the rest of the management team for any final remarks.

All right. Thank you, Rocco. And thank you for your time and for your questions. We appreciate your investment with us this afternoon. And we want to remind you, that we would appreciate receiving your feedback, so that you can help us evaluate how we've done. You can email your comments to ir@sandyspringbank.com. Thank you again, and have a great afternoon.

And thank you, sir. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.