Sandy Spring Bancorp Inc (SASR) 2015 Q4 法說會逐字稿

Good afternoon and welcome to the Sandy Spring Bancorp, Inc. fourth quarter 2015 earnings call.

(Operator Instructions)

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

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

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

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 uncertainties 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.

Thank you, Ron. Today, as usual, we will move to your questions immediately after some brief remarks. Overall, we produced another strong quarter just ended and our results for the full-year were very solid.

As I've said in previous calls, we continue to strive for and achieve balanced results in a highly competitive environment across the Washington, Baltimore and Northern Virginia marketplace. It doesn't get any tougher than the competitive dynamics we see among the banks around here, so it is gratifying to be able to prove once again during 2015 that the Sandy Spring community banking business model is working successfully.

Here's 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 fourth quarter of 2015, was $12.8 million or $0.52 per diluted share, up $0.40 compared to the net income of $9.1 million or $0.36 per diluted share for the fourth quarter of 2014, and we reported net income of $11 million or $0.44 per share for the third quarter of 2015, which was up 16% over the linked quarter.

This indicates good ongoing momentum as we enter the first quarter of 2016 that could be turbulent from a macroeconomic perspective. That said, as a community bank that remains focused in our geography, we do not have exposure to energy related segments or international markets.

Net income for the year ended December 31, 2015, was $45.4 million or $1.84 per diluted share compared to net income of $38.2 million or $1.52 per diluted share for the prior year. This is a 19% increase which we believe is healthy for a strong community bank in our market.

Of note, the fourth quarter of the current year includes the recapture of $4.5 million in litigation expenses previously accrued in prior periods due to the settlement of all claims that were subject of an adverse jury verdict that was rendered in 2014. This recapture also provided a unique opportunity to make a $1 million charitable donation to the Sandy Spring Bank Foundation. The mission of this Foundation is to continue our legacy of contributing to the strength and vitality of our communities we serve. Our areas of focus will include affordable housing, at-risk families, health and personal wellness, personal growth and development as well as financial literacy.

Our continued strong core performance was driven by higher net interest income. Building on the first three quarters of the year, loan growth continued steadily at a double-digit year-over-year rate.

Total loans increased 12% compared to the fourth quarter of last year and were up 2% compared to the third quarter of 2015. All three major portfolio segments achieved strong growth over the prior year. This was driven primarily by year-over-year growth of 15% in the commercial loan portfolio, a key focus of our corporate strategy.

The provision for loan and lease losses for the fourth quarter of 2015 was a charge of $1.9 million compared to a charge of $900,000 for the fourth quarter of 2014 and a charge of $1.7 million for the linked third quarter of 2015. This is obviously consistent with our solid ongoing loan growth and due to prudent management of our reserves.

As reported, our net interest margin was at 3.45% for the fourth quarter of 2015, compared to 3.44% for the fourth quarter of 2014 and 3.43% for the third quarter of 2015. We are modeling a stable margin in 2016 given continued strong loan growth, the potential for a pricier deposit market and liquidity management given the success of our varied lending businesses.

On the deposit side, at December 31, 2015, combined non-interest bearing and interest bearing checking account balances, a primary driver of our multi-product banking relationships with our clients, increased 3% compared to the balances a year ago. Total deposits and other short-term borrowings that are part of overall funding sources from customers increased 7% compared to a year ago.

We're also pleased with the performance of our fee-based businesses in 2015; namely growth in wealth management and mortgage banking related revenue. Our fee-based businesses are not silos, rather fully integrated lines of business aimed at meeting the needs of our retail and commercial clients, and the result is deeper relationships, loyal clients, multiple connections within our Company and enhancement to our franchise value.

On the capital front, at December 31, 2015, the Company had a total risk-based capital ratio of 14.25%, a common equity tier 1 risk-based ratio of 12.17%, a tier 1 risk-based capital ratio of 13.13% and a tier 1 leverage ratio of 10.6%. These numbers continue to be very solid.

During the fourth quarter of 2015, the Company repurchased 141,518 shares of its common stock at an average price of $26.53 per share as part of our ongoing robust share repurchase program. For the year-to-date, we repurchased 870,450 shares at an average price of $25.99 per share. And we believe this has been a very meaningful component of our capital deployment strategy.

With organic growth our main priority, we continue to seek both bank and fee-based acquisition opportunities. As I've commented previously, those conversations continue and will be aimed at organizations that value our approach to clients and employees, meet our financial objectives and enhance the value of your Company.

To conclude, our underlying goal is still unchanged. We strive to produce consistent results by growing a diverse stream of revenue driven by creating meaningful, lasting, remarkable experiences for our clients and our employees.

So that concludes my general comments for today and we will now move to your questions. So Gary, if we can have the first question. We would appreciate it if you would state your name and company affiliation as you come on so we know with whom we are speaking.

(Operator Instructions)

Catherine Mealor, KBW.

First question for you, Dan, on the margin. You said in your opening remarks that you think you can keep the margin stable throughout 2016. What rate scenario are you assuming in that assumption and do you believe that you can still keep the margin stable even if we're in a scenario where the Fed doesn't move again this year?

Catherine, this is Phil actually here. As it relates to the comment Dan made, I think that when we put our plan together for this year, we actually have anticipated that the Fed would move the short-term side of the yield curve two more times throughout the year. And with that, I would suggest that we would believe that we would have at least a stable margin if not some potential expansion of that margin throughout the year on a somewhat modest basis and gradually as those increases might occur.

Now, given the volatility of everything going on here of late, there's getting to be again, less likelihood that any other potential Fed increases might occur. And if that is the scenario looking forward, then I would say that a truly stable margin in the range of where we just reported in the last quarter in that mid-3.4%, 3.44%, 3.45% range is probably the way we would continue to view it. And that would also in both of those scenarios, be predicated on the kind of loan growth we've achieved in the past and are looking forward to as we look ahead, which is again that 10% to 12% on average kind of annual assumption.

That's really helpful. Thank you, Phil. And then on the margin too, with the first move we saw in December, did you see any movement in deposit cost in your market? Or is everything staying pretty much as is?

Yes, Catherine, this is Dan. We did not see a material move as it relates to the local deposit market. That is a bit of the wild card as we move through the remainder of the year.

Great. I'll pop out of the queue. Thank you very much.

(Operator Instructions) Bryce Rowe, Baird.

Phil, was wondering if you could help us on the efficiency or the expense side of things? The fourth quarter saw a bit of an uptick in the salary and employee benefits line. Curious if there is any kind of nonrecurring incentive catch-up in there, or do you feel like that's a pretty good run rate here?

Yes, Bryce, you're really right on the point there. I certainly expected to need to give a little bit of color or whatever as it related to what happened in the quarter. So in the salary and benefit area, which is the primary part of your focus, there is some incentive comp bonus kind of dollars that are embedded in that number for the quarter. It's probably about $0.5 million. We try our best throughout the year to track that as much as we can so that we don't get any lumpiness as such. But sometimes it's just the way that things true up at year end, and so there is an element of that in there.

And so overall, when I look at the run rate aspect of overall expenses, when you take that and the funding of the Foundation into consideration, that's about $1.5 million in overall expenses that I don't see being a run rate reoccurrence type of item. When I do that and do the math on the quarter-to-quarter growth, we really had less than a 1% growth in overall normalized expenses from the third to fourth quarter. And it would have a similar impact to the pretax pre-provision number in a quarter-to-quarter basis too, so --

Okay. That's helpful, Phil. Then wanted to follow up to some of your prepared remarks there, Dan. You talked or you highlighted the competitive marketplace and maybe even the increasingly competitive marketplace. Curious about loan pricing. It looks like loan pricing was stable and really has been pretty stable all year. So trying to match those comments up, the competitiveness versus being able to maintain loan pricing? That would be helpful to discuss. Thanks.

Yes, good point. We have worked hard in 2015 and continue as we move forward to make sure that recognizing our need to improve our earning asset yield, quite frankly, within the loan portfolio, realizing that we've got a pretty good portion relative to our peers in the mortgage lending space, the residential mortgage space. So we've done a great job in maintaining that. But this is a -- in this economic environment, it's kind of a slow growth situation. It is a highly competitive marketplace.

And as we get larger and focus both in the small business arena up through middle market, there's a lot of competition for winning new business and that's really where my remarks were aimed. I think our team is -- we positioned our talent and we have great talent to be able to continue the growth rates that we've seen on the lending front. But that's not to say it's not a competitive environment.

The competitive side of things is both from a pricing standpoint as well as credit structures. And so we're staying disciplined with the things that we want to put in our portfolio, not taking oversized bites at the apple and I feel really good about our disciplined approach there as it relates to what we see in the marketplace.

That's great. Thanks, guys.

My signaling -- I was not signaling that it was becoming more competitive than it has been. It's just a highly competitive in the bank market.

Okay. Thanks, guys.

(Operator Instructions) As we have no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Daniel Schrider for any closing remarks.

Thank you, Gary. And thank you again, everyone, for -- we really appreciate you spending time with us this afternoon. We'd like to receive your feedback with regard to how the effectiveness of this call. You can email any comments to ir@sandyspringbank.com. So thanks and have a great afternoon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.