Breaking Down Sandy Spring Bancorp, Inc. (SASR) Financial Health: Key Insights for Investors

Understanding Sandy Spring Bancorp, Inc. (SASR) Revenue Streams

Understanding Sandy Spring Bancorp, Inc.’s Revenue Streams

The primary revenue sources for Sandy Spring Bancorp, Inc. include net interest income and non-interest income. The company primarily generates revenue through its lending activities, deposit services, and wealth management services.

Breakdown of Primary Revenue Sources

• Net Interest Income: For the third quarter of 2024, net interest income was $81.4 million, reflecting a 1% increase from the previous quarter but a 4% decrease year-over-year.
• Non-Interest Income: The total for non-interest income in Q3 2024 was $19.7 million, representing a 1% increase from Q2 2024 and a 13% increase compared to Q3 2023.

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth reflects the following trends:

Contribution of Different Business Segments to Overall Revenue

In the third quarter of 2024, the contributions from different segments were as follows:

• Net Interest Income: Contributed approximately 80.7% of total revenue.
• Non-Interest Income: Contributed approximately 19.3% of total revenue.

Analysis of Significant Changes in Revenue Streams

The analysis indicates several key changes:

• Net interest income decreased by $3.7 million compared to Q3 2023 due to rising interest expenses.
• Non-interest income increased thanks to higher wealth management income, which rose by 14% year-over-year.
• The overall revenue faced pressure from increased competition for deposits and higher funding costs, resulting in a 1% decline in total revenue year-over-year.

Summary of Revenue Metrics

A Deep Dive into Sandy Spring Bancorp, Inc. (SASR) Profitability

A Deep Dive into Sandy Spring Bancorp, Inc.'s Profitability

Gross Profit Margin: The gross profit margin for the third quarter of 2024 was recorded at 2.44%, a decrease from 2.55% in the same quarter of 2023. This decline reflects the rising interest expense attributed to increased competition for deposits and a higher rate environment.

Operating Profit Margin: The operating profit margin has also shown fluctuations, with the GAAP efficiency ratio at 72.12% in Q3 2024, compared to 70.72% in Q3 2023. The non-GAAP efficiency ratio was 69.06% for the current quarter, an increase from 60.91% year-over-year.

Net Profit Margin: The net profit margin for the third quarter of 2024 was 0.46%, down from 0.58% in the previous year. This decrease is mainly due to higher provisions for credit losses and increased non-interest expenses.

Trends in Profitability Over Time

The following table summarizes key profitability metrics over recent quarters:

Comparison of Profitability Ratios with Industry Averages

The company’s return on average assets (ROA) and return on average tangible common equity (ROTCE) ratios are below industry averages. The industry average ROA is approximately 0.85% and ROTCE is around 10%, indicating a need for improvement in profitability metrics.

Analysis of Operational Efficiency

Operational efficiency is assessed through the efficiency ratio. The company's GAAP efficiency ratio of 72.12% indicates that 72.12 cents are spent to generate one dollar of revenue, which is higher than the industry average of approximately 60%.

The increase in non-interest expense, which rose to $72.9 million in Q3 2024 from $72.5 million in the previous quarter, highlights challenges in cost management.

The following table presents detailed operational efficiency metrics:

Debt vs. Equity: How Sandy Spring Bancorp, Inc. (SASR) Finances Its Growth

Debt vs. Equity: How Sandy Spring Bancorp, Inc. Finances Its Growth

Overview of Debt Levels

As of September 30, 2024, Sandy Spring Bancorp, Inc. reported total borrowings of $849.1 million, a decrease of $54.1 million or 6% compared to the previous quarter. This reduction was primarily driven by a $50.0 million pay down of FHLB advances. The company's total assets increased by 3% to $14.4 billion from $14.0 billion at June 30, 2024.

Debt-to-Equity Ratio

The debt-to-equity ratio at Sandy Spring Bancorp, Inc. stood at 0.52 as of September 30, 2024. This ratio reflects a stable capital structure, particularly when compared to industry standards, where the average debt-to-equity ratio is approximately 1.0. The company maintains a solid capital position with a total risk-based capital ratio of 15.53%, and a common equity tier 1 risk-based capital ratio of 11.27%.

Recent Debt Issuances and Credit Ratings

In 2024, Sandy Spring Bancorp, Inc. has not issued any new long-term debt; however, it has seen fluctuations in its short-term borrowing levels. The company’s current credit ratings from major agencies remain stable, with a long-term issuer rating of Baa1 from Moody’s, indicating a moderate credit risk.

Balancing Debt Financing and Equity Funding

The company effectively balances between debt financing and equity funding, primarily relying on deposits for growth. As of September 30, 2024, total deposits increased by $397.5 million or 4%, reaching $11.7 billion. This growth is indicative of a strong core deposit base which provides a stable source of funding while keeping reliance on external debt to a minimum.

Assessing Sandy Spring Bancorp, Inc. (SASR) Liquidity

Assessing Sandy Spring Bancorp, Inc. Liquidity

Current Ratio: As of September 30, 2024, the current ratio stands at 0.95, calculated from current assets of $1.79 billion and current liabilities of $1.88 billion.

Quick Ratio: The quick ratio is reported at 0.82, reflecting a quick asset total of $1.54 billion and current liabilities of $1.88 billion.

Analysis of Working Capital Trends

Working capital has experienced fluctuations, with the latest data showing a decrease of $100 million from the previous quarter, contributing to an overall working capital of -$100 million.

Cash Flow Statements Overview

Potential Liquidity Concerns or Strengths

Liquidity is supported by available unused sources totaling $6.3 billion, which is 146% of uninsured deposits. However, the slight increase in non-performing loans to 1.09% of total loans raises concerns.

Overall, the company maintains a solid liquidity position, but ongoing monitoring is essential due to the increasing trend in non-performing loans and the tighter working capital scenario.

Is Sandy Spring Bancorp, Inc. (SASR) Overvalued or Undervalued?

Valuation Analysis

To assess whether Sandy Spring Bancorp, Inc. (SASR) is overvalued or undervalued, we will analyze key valuation ratios, stock price trends, dividend metrics, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio for SASR stands at 11.25, based on the trailing twelve months (TTM) earnings of $1.44 per share and a stock price of approximately $16.20.

Price-to-Book (P/B) Ratio

The P/B ratio is calculated at 0.45, with a book value per share of $36.10 and the current stock price of $16.20.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is currently 7.89, considering an enterprise value of approximately $504 million and EBITDA of $63.9 million.

Stock Price Trends

Over the past 12 months, the stock price has fluctuated as follows:

Dividend Yield and Payout Ratios

The current dividend yield is 2.09%, with dividends declared at $0.34 per share. The payout ratio is 23.61%, calculated based on net income per share.

Analyst Consensus on Stock Valuation

Analyst consensus indicates a Hold rating for SASR, with price targets averaging between $15.50 and $17.00.

Key Risks Facing Sandy Spring Bancorp, Inc. (SASR)

Key Risks Facing Sandy Spring Bancorp, Inc.

Overview of Internal and External Risks:

The financial health of Sandy Spring Bancorp, Inc. is influenced by various internal and external risk factors. These include:

• Industry competition, particularly in the banking sector, which has intensified due to the rising interest rate environment.
• Regulatory changes that could impact operational costs and compliance burdens.
• Market conditions affecting loan demand and customer behavior, particularly in a volatile economic environment.

Operational, Financial, or Strategic Risks:

Recent earnings reports highlight several key risks:

• The provision for credit losses increased to $6.3 million for Q3 2024, up from $1.0 million in Q2 2024 and $2.4 million in Q3 2023.
• The ratio of non-performing loans to total loans rose to 1.09% as of September 30, 2024, compared to 0.81% in the previous quarter and 0.46% a year earlier.
• Net charge-offs for the current quarter were $0.7 million, an increase from $0.2 million in Q2 2024.

Mitigation Strategies:

The company has implemented several strategies to mitigate risks:

• Focus on maintaining a strong capital position, with a total risk-based capital ratio of 15.53% and a common equity tier 1 risk-based capital ratio of 11.27% as of September 30, 2024.
• Enhancing portfolio diversification to reduce reliance on any single loan category, as shown by the stable total loans of $11.5 billion.
• Continued growth in non-interest income, which increased by 13% year-over-year to $19.7 million in Q3 2024.

Future Growth Prospects for Sandy Spring Bancorp, Inc. (SASR)

Future Growth Prospects for Sandy Spring Bancorp, Inc.

Analysis of Key Growth Drivers

Key growth drivers for the company include:

• Product Innovations: The focus on enhancing wealth management services has led to a growth in assets under management by $352.1 million or 6% quarter-over-quarter.
• Market Expansions: Total deposits increased by $397.5 million or 4% to $11.7 billion as of September 30, 2024, reflecting a stable core deposit base.
• Acquisitions: Strategic initiatives include potential acquisitions aimed at increasing market share in the Mid-Atlantic region.

Future Revenue Growth Projections and Earnings Estimates

Projected revenue growth for the upcoming fiscal year includes:

• Estimated net interest income for 2024 is expected to decrease by 12% year-over-year, totaling approximately $241 million.
• Core earnings are projected at $64.3 million for the nine months ended September 30, 2024, down from $107.2 million in the prior year.

Strategic Initiatives or Partnerships

The company has implemented several strategic initiatives:

• Expansion of wealth management teams, which have shown an increasing number of referrals from current clients.
• Partnerships with local businesses to enhance service offerings and client engagement.

Competitive Advantages

Competitive advantages that position the company for growth include:

• Strong Capital Position: The total risk-based capital ratio was 15.53% at September 30, 2024, well above regulatory requirements.
• Core Deposit Strategies: The company has demonstrated ongoing success with its core deposit strategies, with total deposits excluding brokered deposits increasing by 3% quarter-over-quarter.
• Wealth Management Growth: Wealth management income increased by 14% year-over-year, contributing to overall non-interest income growth of 14% for the nine months ended September 30, 2024.

Article updated on 8 Nov 2024

Resources:

• Sandy Spring Bancorp, Inc. (SASR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Sandy Spring Bancorp, Inc. (SASR)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Sandy Spring Bancorp, Inc. (SASR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.