Q1 2022 Sandy Spring Bancorp Inc Earnings Call

Understood. Thank you.

Thank you.

Thank you.

The next question today comes from Erik Zwick of Boenning Scattergood, Eric. Please go ahead. Your line is now open.

Thank you good afternoon.

Hi, Eric.

I'm wondering if I could start I may have just overlooked at somewhere do you have the current kind of period end balance as well as the remaining unamortized fees for the PPP loans.

Yes.

Erik This is Dan at quarter end, we were at $75 million in PPP, Outstandings, and one 7% and remaining fees to be earned.

Perfect. Thank you.

And then just looking at the the average earning balance.

Im just trying to balance for the quarter, they were down quarter over quarter. It looks like the driver was lower average balance of interest bearing deposits at banks.

As I looked at the period end.

For the first quarter as well as at the fourth quarter of last year. It looks like both of those balances were high.

So just kind of curious what transpired there in the quarter with those balances and how should we think about the trajectory of average earning assets going forward into <unk>.

Eric This is Phil I think I think all of that is.

Just related to that are our ability to absorb the additional liquidity that we talked about in prior quarters.

And a lot of that happened at the very end of last year. If you remember in terms of the.

Backend loaded loan growth so that's going to have a bigger impact on the average here in the.

In the first quarter, given where we are going to start.

And so I would think that the levels. We're at now where we ended this quarter are those that we would we would probably look to manage that going forward, having really been as Dan mentioned in his comments really successful in our <unk>.

<unk> to absorb that excess liquidity so.

That's where I would kind of look at it.

As we as we move forward.

<unk>.

And not look at not look forward to either shrink or grow significantly in either direction.

That's helpful. Thank you and then just given the strong loan production and <unk> can you provide an update on the dollar value of the pipeline at the end of quarter and how that compared to the end of last year.

Yes.

Eric Dan.

Look back over the past four quarters.

Including this quarter and.

I think with the exception of <unk>.

<unk> ended the third quarter, we were about one 1 billion and a half going into at quarter end and the commercial pipeline I think we had one quarter at the end of the third quarter.

Grown to $1, seven, but where it is now or where it was at the beginning of.

The second quarter is where it was at the end of the year and that's.

That is.

From our perspective pretty exceptional given the fact that their first quarter. If you go back. Many many years has traditionally been a pretty soft quarter in terms of commercial loan.

Reduction in growth, so feel pretty good going into the second quarter.

Hey, Eric This is Phil again, let me come back to Europe .

Commentary around that that cash and due from positioned what the other thing that I just.

Thought about it did impact things as we got through the end of the quarter was the additional funds that were raised through the sub debt issuance of $200 million.

There wasn't enough time in a quarter for that to be fully absorbed so that is a bit of inflationary position in that in that cash number today that we would certainly hope to have redeployed into the into loan growth here as we move forward.

Got it that makes sense and so.

I guess going back to your earlier comment that kind of managing at the current level. We should look at that average, earning kind of at the average balance.

As you kind of put some of that period and to work. So okay. Okay. Perfect and then last one for me just curious if you can provide any insight into.

The current kind of yield in the commercial pipeline I'm just curious how that compares to.

The existing yield in that portfolio, if you'd expect that to the other kind of hold the line there or with the increase in interest rates recently is there some opportunity to see some.

For some upward.

<unk>.

Yes.

Okay.

Yes.

I will probably tag team. This one silicon talk a little bit about the history from the quarter in terms of average yields.

Yes.

I think the and what we're experiencing is the competitive environment and particularly in commercial banking has been slow to react to the realities of where the treasury curve has gone we're seeing that play out.

Appropriately in the residential mortgage space, but not not as quickly as it needs to commercially so.

Our expectation.

And in a lot of it.

Driven by what we also think we need to do on the deposit funding side is that we need to see some expansion in those yields as we move through moves.

Move through 2022.

And Eric from a from a.

Booked.

Yield standpoint here in the first quarter.

And the more significant categories, where we had growth which would be the owner occupied fixed in investor real estate fixed categories.

<unk> probably averaged out in the mid three $3 50 to it.

Yes.

In terms of Investor real estate and probably in the $3 65 to 375, maybe $3 80 range on the owner occupied.

Side so.

Sub sub 4% rates as we as we look forward would certainly not be optimal from my perspective.

Great I appreciate the color thanks for taking all my questions today.

Thanks for that.

Thank you.

The next question today comes from Catherine Mealor from K B W. Catherine. Please go ahead. Your line is now open.

Thanks, Good afternoon.

Hi, Catherine Hi, Catherine.

Just a question on expenses the expense run rate came in a little bit lower than you had guided or you think can we.

Turning to the 6400 $65 million range next quarter, and hoping that expense Chris.

And moving forward this year. Thanks.

Yes, Catherine this is Phil.

I think the general.

Direct to answer your question is more yes, the knot.

This quarter.

I think we if you want to call. It we benefited from the fact that.

I don't know if you have already benefited from an expense standpoint from the fact that we've got a fair number of vacant positions and things that we're trying to redeploy with to help us grow the company forward and that ultimately should occur as we find the appropriate.

Talent and resources that were ultimately looking looking for because the large majority.

Majority of the variance here was in salary and benefit area.

And so I would I would run projections using that that $64 million to $65 million range.

As an estimate.

As I think I said on the call last time on a kind of normalized basis about a 4% growth in expenses on a year over year basis as well.

And do we see any benefit from lower mortgage on the expense line as well.

It's not really evident in that number this quarter.

It could be more so as we move ahead as we as we try to react to.

Now our new realities of where mortgage activities are in are probably going to be.

As we as we look at what the impact is going to be certainly on the gain numbers.

And I think we've got a pretty good handle on where that's at to then have some hopeful come back on the expense side. It certainly won't get anywhere near offsetting it but there ought to be some but that has not manifested itself in this quarter yet.

Got it okay, great and then on the efficiency target you've targeted a 50% 51%.

Target is that still where you're thinking that ratio should be or is.

Is there any could even push that lower just given higher margin and a better revenue outlook.

I would I would I would maintain it in that same.

Same place, even even with the possibility of some additional margin.

Expansion there given what we're trying to do from a longer term perspective.

And investments for the future some of which again didnt didnt really work its way into the first quarter.

Based on the speed of of accomplishment and certain projects that will ultimately come through and so I think that that will temper the ability for the efficiency ratio to be a whole lot lower than where it is at this point.

Great and then my last question just on the outlook.

No Dan you gave us some guidance on mortgage but how about other fees any guidance on how you were.

Or you think non mortgage fee growth should land this year.

Yes, when we put our plan together, we customarily, particularly in the wealth area.

And insurance area plan for double digit.

Anywhere from 8% to 10% eight insurance 10 ish in the wealth space absent market moves.

So even with if you look back over prior year quarter. Despite what we experienced in the first quarter in terms of asset values, we still grew the wealth business.

Year over year.

I still think we'd aim for the same obviously that was a.

Greater volatility given given the market the market side.

Those are really outside of mortgage it's wealth and insurance.

Our service charge related revenue.

While we saw some growth just because the world open back up again, not a significant piece of our overall fee based revenue, yes, Catherine I will I will remind everyone that we will be subject to durbin and the second half of the year.

And we have.

And maybe you have to but.

Built into the third and fourth quarters and beyond reduction that's going to come from.

Is that kind of being legislated on us and I think on a quarter quarterly basis is probably somewhere in a $1 1 billion to a quarter.

Okay.

Alright, that's great Yeah, we do have that in our numbers, but thanks for the reminder, alright.

Alright, Thats all I got thank you so much.

Thanks, Kevin.

Thank you.

Thanks Catherine.

The next question today comes from Russell Gunther from D. A Davidson Russell. Please go ahead. Your line is now open.

Hey, good afternoon guys.

Hi, Russell.

Sure.

Circle back to the conversation you guys reiterated the eight to 10 on the commercial side.

<unk> also talked about adding qualitatively to reserves for the potential for recessionary pressures in the next 12 months.

Just curious if that eight to 10 contemplates any softness in the back half of the year and you're comfortable there given where pipelines are another catalyst but.

What are your thoughts there.

Yes.

It does not.

Dissipate.

Softness in the latter half of the year, we're benefiting however in the event things did soften up really strong beginning to the year with how we closed out 21 in the first quarter of 'twenty, two and as we've even this first month in the second quarters.

Is proving proving out to be to be strong so the.

Eight to 10, as we think kind of a healthy level for us to maintain.

Our view towards desired credit quality as well as our ability to to take.

To win our fair share of opportunities at profitable levels.

Within the year. So it does not anticipate a slowdown so to speak towards the end of the year.

That's helpful. I appreciate it and then you touched on the growth in the single family portfolio.

Is that mostly the arm product would you continue to.

Portfolio around current levels.

So how are you thinking about overall loan growth.

Depending on what Youre thinking on the consumer side.

Yes, I think on the.

<unk> mortgage piece.

<unk> seen over the course of several periods some runoff in that portfolio and we had not replenished it and so when we kind of got into the third quarter of 2021 decided that from a diversification standpoint, it would be wise to rebuild that I think future growth and that is really going to be deter.

<unk> by what we believe is most valuable to us whether we push it off balance sheet into and to gain revenue or.

We're portfolio. So it is a blend of arm product as well as some longer term fixed rate, although not meaningful in the overall interest rate risk space.

So I think what you what <unk> seen in the first quarter could be tempered in terms of growth, but at this point, we're still we're still originating for portfolio, but like I said, if we can we feel like it's more beneficial for probably to the earlier question about our ability to contract that business to push it into gain and then we will look to.

Do that as well.

Yes.

Okay I appreciate it and then.

On the margin discussion.

Could you remind us in terms of the 5% to eight hike.

For this year.

Does that.

Stacked up against what you have in terms of floors on the commercial side, which would be.

Through the bulk of them with that type of.

Rate projection.

Yes.

Eric This is Phil most of our floors are around 4% so.

It would take the first $75 to get us back even.

We've had 25 already for the next one is a 50 basis point move then we're pretty much there.

Starting to see.

Incremental an incremental improvement from there.

Okay I appreciate that and then so.

The guide for slight expansion alongside that that rate move.

That in consideration of the deposit beta is at 35% to 40%.

Do you guys think could prove aggressive and so if it does not materialize. There is some upward bias to the slight expansion or how should we think about tying this all together.

That's exactly how I would I would.

It is exactly right using the betas that we talked about.

As being incorporated in the slight expansion.

Within our ability to.

Yes.

Mitigate against that but only in my view allow the margin to expand in a better way.

Okay.

Great well, thanks for taking my questions guys Thats It for me.

Thanks, Ross Alright, thank you.

Thank you Russell.

As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.

The next question today comes from Brody Preston from Stephens. Please go ahead. Your line is now open.

Hey, good afternoon, everyone.

Hi, Brady.

Yeah.

I just wanted to most of my questions have been asked I just had a couple.

A couple of other questions.

On the fee income front.

Yes.

I was just.

Looked like a unique dynamic this quarter, where wealth management grew nicely, but the fees came in.

A little bit so could you could you speak to what drove that.

Yeah, Brian This is Phil I'm not sure that the actual total AUM quarter over quarter went up I think it actually contracted by about $205 million, if I'm not mistaken.

Mostly driven.

Probably exclusively driven by market conditions that doesn't mean to say that we didn't have some.

Some wins in terms of new client origination type activity or whatever but I think the overall market.

Levels and pressure, probably mitigated any of that so I'm a certain net AUM in total went down.

Alright, alright, I'm like I look at the wrong corner, so I'm sorry about that.

No worries.

Okay.

On the mortgage front could you remind us what the Mick what the mix of purchase and refi.

Yes, I've got I've got it here so.

Purchasing construction in the first quarter was 64% and the refi was 36.

That is completely opposite of what it was last year. This time almost to the same percentages.

Where it was $34 66.

Got it.

Got it okay.

And then I would just ask one more you mentioned earlier, Phil that you had some vacant positions that drove the salaries and benefits decrease.

Is there anything specific that's driving driving the vacancies are folks.

Leaving for other institutions or retiring or just some color there would be helpful.

Yes, So first let me, let me clarify kind of what it was.

Kind of what I meant there so.

The quarter over quarter decline was and we didn't talk about this was as much for some of the things that we spent money on in the fourth quarter related to year end incentive accruals and things like that that drove that number higher than what it ended up being here in the first quarter.

So that had a lot to do with why declined but.

But as we look forward in terms of guiding towards a higher level of overall expenses.

I'm, suggesting that there are there are vague.

Vacancy throughout the organization for things we want to.

People, we want to hire to get some other different things accomplished that's filled will allow that number to go up to that guided level. So that's that's the essence of <unk> com.

Comment commentary there.

I would say and Dan can certainly.

Qualify these comments I mean, we.

<unk> got openings across the organization.

It's everything from frontline two two.

To support positions.

In all facets of the company and some of it I think as.

Driven by some of the some of the same things that are going on from a broader standpoint in the market retirements and folks that are just.

Walking away from the things they did for years.

Having a tough time, finding qualified folks to come in and take their place.

Got it.

Okay, then I would just ask one last one I'm sorry, if I missed this earlier I think it was Casey that asked about the deposit beta is it.

Could you remind us what you have in the way of floating rate loans.

No.

Percentage of those that are subject to floors.

Yes.

Thank you.

24% of total loans.

Our floating annabel.

And about half of those that float have floors on them and as we just mentioned the majority of them are at 4%.

Got it thank you very much.

Sure.

Yes.

Thank you Barry.

There are currently no further questions registered so as a reminder, star followed by one on your telephone keypad.

There are no additional questions waiting at this time, so I'll pass the conference back over to Dan Schneider for closing remarks.

Thank you Billy and thanks, everyone for joining us today I Hope you found our time together valuable and do you have any follow up questions. Please reach out to fill right.

<unk>.

So thanks again for participating and have a great afternoon.

That concludes the Sandy Spring Bancorp incorporated earnings conference call and webcast for the first quarter of 2022. Thank you for your participation you may now disconnect your lines.

Okay.