Sandy Spring Bancorp Reports Increased Second Quarter Profit of $8.3 Million

OLNEY, Md., July 21, 2011 (GLOBE NEWSWIRE) -- Sandy Spring Bancorp, Inc., (Nasdaq:SASR) the parent company of Sandy Spring Bank, today announced net income for the second quarter of 2011 of $8.3 million ($.34 per diluted share) compared to net income of $6.3 million ($0.26 per diluted share) for the second quarter of 2010 and net income of $7.3 million ($0.30 per diluted share) for the first quarter of 2011. The second quarter of 2011 included a provision for loan and lease losses of $1.2 million compared to $6.1 million for the second quarter of 2010 and $1.5 million for the first quarter of 2011.

Net income for the six-month period ended June 30, 2011 totaled $15.6 million ($0.65 per diluted share) compared to net income of $6.8 million ($0.33 per diluted share) for the prior year period. Results for the year-to-date included a provision for loan and lease losses totaling $2.7 million for the first six months of 2011. Results for the first six months of 2010 included a provision for loan and lease losses of $21.1 million.

"We are pleased with our growth in lower cost core deposits, which form the foundation of many of the banking relationships with our clients. Together with continued growth in our wealth management lines, these provide us with multiple opportunities to deliver an outstanding experience to our clients," said Daniel J. Schrider, President and Chief Executive Officer. "While most indicators continue to point to a very extended and uneven economic recovery, and as quality loan demand continues to be inconsistent at best, we originated $115 million in commercial loans to new and existing clients during the first half of 2011. We believe our improving credit metrics, strong capital and liquidity levels and our community bank presence position us extremely well for the growth opportunities that should occur, as this challenging economic environment improves over time."

Second Quarter Highlights:

• While loan balances declined slightly compared to the first quarter of 2011, new commercial loan originations totaled $115 million for the first six months of the year compared to $53 million for the prior year period.
   
• Deposits increased 2% for the second quarter of 2011 compared to the first quarter of the year due to significant growth of noninterest-bearing demand deposits, which grew 5% during this period.
   
• The net interest margin was 3.58% for the second quarter of 2011, which was the same as the second quarter of 2010 compared to 3.65% for the first quarter of 2011.
   
• Revenue from wealth management services, which includes fees from trust and investment management and sales of investment products, increased 15% for the second quarter of 2011 compared to the second quarter of 2010 due to growth in assets under management.
   
• The provision for loan and lease losses totaled $1.2 million for the quarter compared to $6.1 million for the second quarter of 2010 and $1.5 million for the first quarter of 2011 as credit quality continues to improve.
   
• Non-performing loans declined to $76.5 million compared to $109.3 million at June 30, 2010 and $88.3 million at March 31, 2011. This decrease also resulted in a coverage ratio of the allowance for loan and lease losses to non-performing loans of 72% at June 30, 2011 compared to a ratio of 65% at June 30, 2010 and 67% at March 31, 2011.

Review of Balance Sheet and Credit Quality

Comparing June 30, 2011 balances to June 30, 2010, total assets decreased 2% to $3.6 billion from $3.7 billion. Total loans and leases decreased 4% to $2.1 billion compared to the prior year. The decrease in loans was due primarily to declines in commercial business and consumer loans which were partially offset by an increase in commercial investor real estate loans. The overall trend was due to a combined general lack of loan demand and increased pay-downs as a result of the soft economy. During the current quarter the commercial loan portfolio declined slightly, while total loans at quarter end decreased 1% as compared to such loan balances at March 31, 2011.

Customer funding sources, which include deposits and other short-term borrowings from core customers, decreased 1% compared to the second quarter of 2010. This decrease was due largely to a $95 million or 13% decline in certificates of deposit as a result of a reduction in rates reflecting the Company's net interest margin strategy. Noninterest-bearing and interest-bearing checking accounts increased $104 million or 12%, offsetting the decline in certificates of deposit. Growth in checking accounts was the main driver in the growth in core deposits due to our clients' emphasis on safety and liquidity. Compared to the prior year, money market accounts experienced a 3% decline due mainly to clients' redeployment of funds into alternative investment products. 

Stockholders' equity totaled $423.7 million at June 30, 2011 compared to $483.7 million at June 30, 2010. The decline in equity was the direct result of the repayment of $84.0 million of preferred stock and the related warrant previously issued in 2008 as part of the Company's participation in the TARP Capital Purchase Program. However, the ratio of tangible common equity to tangible assets increased significantly from 8.63% at June 30, 2010 to 9.51% at June 30, 2011. At June 30, 2011, the Company had a total risk-based capital ratio of 16.01%, a tier 1 risk-based capital ratio of 14.75% and a tier 1 leverage ratio of 10.64%.

Non-performing assets totaled $83.4 million at June 30, 2011 compared to $118.0 million at June 30, 2010 and $96.3 million at March 31, 2011. The decrease compared to the prior year was due primarily to decreases in both non-accrual loans and loans 90 days or more delinquent, particularly in the commercial real estate mortgage and construction portfolios, as a result of charge-offs and pay-downs on existing problem credits and a significant reduction in the migration of new credits to non-performing status.

The provision for loan and lease losses totaled $1.2 million for the second quarter of 2011 compared to $6.1 million for the second quarter of 2010 and $1.5 million for the first quarter of 2011. The decrease from the prior year quarter was primarily the result of a lower level of non-performing loans at June 30, 2011 compared to June 30, 2010.

Loan charge-offs, net of recoveries, totaled $4.8 million for the second quarter of 2011 compared to net charge-offs of $4.3 million for the second quarter of 2010 and net charge-offs of $4.7 million for the first quarter of 2011. The allowance for loan and lease losses represented 2.58% of outstanding loans and leases and 72% of non-performing loans at June 30, 2011 compared to 3.22% of outstanding loans and leases and 65% of non-performing loans at June 30, 2010 and 2.74% of outstanding loans and leases and 67% of non-performing loans at March 31, 2011. Non-performing loans includes accruing loans 90 days or more past due and restructured loans.

Income Statement Review

Net interest income for the second quarter of 2011 decreased by $0.8 million compared to the second quarter of 2010 due primarily to a decrease in interest income resulting from lower loan balances during the quarter. This decline in interest income was somewhat offset by a decrease in interest expense as average rates paid on deposit products decreased together with a planned run-off in average deposits. These factors resulted in a net interest margin that was unchanged for the second quarter of 2011 compared to the second quarter of the prior year.

Non-interest income increased $0.1 million or 1% to $10.8 million for the second quarter of 2011 compared to $10.7 million for the second quarter of 2010. This increase was due primarily to increases in trust and investment management fees of $0.5 million or 19% and fees on sales of investment products, which increased $0.1 million or 7%, both due largely to increased assets under management. These increases were partially offset by lower deposit service charges, which declined $0.4 million or 13% as a result of the impact of recently enacted legislation on overdraft fees.

Non-interest expenses were $25.8 million for the second quarter of 2011 compared to $24.8 million in the second quarter of 2010, an increase of $1.0 million or 4%. This increase was driven by an increase of $0.5 million or 3% in salaries and benefits expense due to higher salary and incentive compensation expenses. Other non-interest expenses increased $0.9 million or 28% due largely to losses on sales of other real estate owned. These increases were partially offset by lower FDIC insurance premiums.

Net interest income for the first six months of 2011 decreased by $1.0 million from the same period of the prior year as a result of the decline in interest income due mainly to lower loan balances and selected loans placed on non-accrual status during this period. The impact of a $5.1 million decline in interest income was substantially mitigated by a $4.1 million decline in interest expense as average rates paid on deposit products decreased, although at a slower pace. This resulted in a net interest margin for the first six months of 2011 of 3.62% compared to 3.57% for first six months of 2010.

Non-interest income decreased $0.7 million or 3% to $20.8 million for the first six months of 2011 as compared to $21.5 million in 2010. Deposit service charges declined $0.7 million as a result of the impact of recently enacted legislation on overdraft fees. Trust and investment management fees increased $0.8 million or 17% primarily due to growth in assets under management. Fees on sales of investment products increased $0.2 million or 11% due to an increase in managed assets and increased sales of financial products. These increases in asset management fee income substantially offset the erosion experienced in deposit service fee income. Visa check fees increased $0.2 million or 12% due to increased volume of electronic transactions. Net security gains declined $0.2 million in the first six months of 2011 as compared to 2010. 

Non-interest expenses were $51.9 million in the first six months of 2011 compared to $49.6 million in the same period of 2010, an increase of $2.3 million or 5%. Salaries and benefits expense increased $1.7 million or 6% due primarily to higher salary and incentive compensation expenses. Other non-interest expenses increased $1.3 million or 17% due largely to losses on sales of other real estate owned and loan work out expenses as the Company continued to reduce the level of nonperforming assets. These increases were partially offset by a reduction in outside data services expense and lower FDIC insurance premiums.

Conference Call

The Company's management will host a conference call to discuss its second quarter results today at 2:00 P.M. (ET). A live Web cast of the conference call is available through the Investor Relations' section of the Sandy Spring Web site at www.sandyspringbank.com.  Participants may call 877-380-5664. A password is not necessary. Visitors to the Web site are advised to log on 10 minutes ahead of the scheduled start of the call. An internet-based replay will be available at the Web site until 12:00 midnight (ET) August 21, 2011. A telephone voice replay will also be available during that same time period at 800-642-1687. Please use pass code #78461587 to access.

About Sandy Spring Bancorp/Sandy Spring Bank

With $3.6 billion in assets, Sandy Spring Bancorp is the holding company for Sandy Spring Bank and its principal subsidiaries, Sandy Spring Insurance Corporation and West Financial Services, Inc. Sandy Spring Bancorp is the largest publicly traded banking company headquartered and operating in Maryland. Sandy Spring is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. Independent and community-oriented, Sandy Spring Bank was founded in 1868 and offers a broad range of commercial banking, retail banking and trust services through 44 community offices in Anne Arundel, Carroll, Frederick, Howard, Montgomery, and Prince George's counties in Maryland, and Arlington, Fairfax, and Loudoun counties in Virginia. Through its subsidiaries, Sandy Spring Bank also offers a comprehensive menu of leasing, insurance, and investment management services. Visit www.sandyspringbank.com to locate an ATM near you or for more information about Sandy Spring Bank.

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Forward-Looking Statements

Sandy Spring Bancorp makes forward-looking statements in this news release and in the conference call regarding this news release. These forward-looking statements may include: statements of goals, intentions, earnings expectations, and other expectations; estimates of risks and of future costs and benefits; assessments of probable loan and lease losses; assessments of market risk; and statements of the ability to achieve financial and other goals.

Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "project" and other similar words and expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. Sandy Spring Bancorp does not assume any duty and does not undertake to update its forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that Sandy Spring Bancorp anticipated in its forward-looking statements and future results could differ materially from historical performance.

Sandy Spring Bancorp's forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends, either nationally or locally; conditions in the securities markets; changes in interest rates; changes in deposit flows, and in the demand for deposit, loan, and investment products and other financial services; changes in real estate values; changes in the quality or composition of the Company's loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; the Company's ability to retain key members of management; changes in legislation, regulations, and policies; and a variety of other matters which, by their nature, are subject to significant uncertainties. Sandy Spring Bancorp provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2010, including in the Risk Factors section of that report, and in its other SEC reports. Sandy Spring Bancorp's forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC's Web site at www.sec.gov.