Sandy Spring Bancorp, Inc. (NASDAQ:SASR) Q1 2024 Earnings Call Transcript

Daniel J. Schrider: Yes. So in terms of mix perspective, we are – we’re basically allowing ourselves to take care of some existing clients on the CRE side of things without materially growing that portfolio. So over time, we like to see a shrink as a concentration of capital. That’s not necessarily by shrinking the portfolio a whole lot, but just not – just keeping it at pretty level. So the emphasis is going to be in the C&I and accompanying owner-occupied lending activities as well as some uptick in consumer lending activities as we ramp up our home equity. But I would say the pipeline is more – consisting more of C&I. And that blends from kind of small business to what we look at as kind of our bread-and-butter community, commercial as well as our move upmarket into middle market.

So I think it’s a blend of all. So the most of what you’re going to see in funded production in quarter-over-quarter that I commented on is going to be in that C&I and accompanying owner-occupied commercial real estate.

Russell Gunther: All right, Dan. Great. Thank you. And then you mentioned the team of SBA lenders brought on intra-quarter. Any additional kind of thoughts around recruiting, how do you characterize the environment for the ability to bring over some teams likely with a C&I background and your appetite to do so and what the opportunity set looks like?

Daniel J. Schrider: Yes, probably less so on the team side of things outside of what we just recently did with building out that SBA which is – it’s very early. We have the producers and now we’re just getting them geared up. But on the other commercial and middle market activity, it’s more one-off than it is bringing in teams. Is there opportunities? We’ve been successful thus far in bringing in new folks, and that goes for treasury management as well. And most of those folks that we can attract are commercial bankers that are with kind of the unnamed super regional and larger players that find what we can deliver in terms of capacity. Products and services are comparable to the largest banks, but we do it in a higher-touch way. And so that’s where we can win in terms of attracting talent. We’re competitive in terms of comps. So – and we obviously want to grow our commercial business, and that’s where we’re going to get them.

Russell Gunther: Thanks, Dan. And then just a follow-up with regard to the margin discussion as we get rate cut – if we get rate cuts, can you just – do you share the percent of deposits you guys have indexed to Fed funds that you think would either formally indexed or would move pretty immediately?

Daniel J. Schrider: Yes. Today, we have, say, in the $300 million to $500 million range of deposits that are directly tied to Fed funds, outside of brokered client relationships, that are tied to Fed funds. But that number is fluid as those balances move around by the day.

Russell Gunther: Okay. Great. And then – thank you for that, last one for me in terms of the transfer into NPL for the CRE credit. Is there any additional color you can disclose there?

Daniel J. Schrider: The – you’re talking about the move out of NPL into other real estate owned?

Russell Gunther: Yes, I’m sorry. Yes. Dan, thank you.

Daniel J. Schrider: Yes. Yes. Yes. It was a small office property that we actually took back into OREO, and we still believe that based on most current appraisal that we’re collateral good on that. So we think we’ll successfully move out of it. But it was – again, it was a small property in market that we don’t see sitting on the books for long.

Russell Gunther: Okay. And then are you able to share what the decline in value from the updated appraisal was?

Daniel J. Schrider: I don’t have that, but I know it far exceeds our carrying costs.

Russell Gunther: Got it. Okay, great. All right, guys, thanks for taking my questions. That’s it for me.

Daniel J. Schrider: Thanks, Russell.

Operator: Thank you. The next question comes from the line of Manuel Navas with D.A. Davidson. Please proceed.

Manuel Navas: Hey, good afternoon.

Daniel J. Schrider: Hey, Manuel.

Manuel Navas: What drives – hey. What drives the increase in net charge-offs to a range is a bit higher than kind of your recent experience? It’s still low at that five basis points to 15 basis points. But what are you watching most? What kind of – have you shooting for that range in this year, you might outperform it. But just kind of any added thoughts on that net charge-off range for the year?

Daniel J. Schrider: Yes, Manuel, this is Dan. That’s a really tough one to predict. And the further we get into the year, obviously, the easier it is to predict because things take a while to kind of move through a credit process if things go south. There’s nothing material about what we saw this quarter, smaller – a few smaller credits that we ran through the cycle. We typically – we just speak plainly, we typically look at about five basis points of annualized net charge-offs a year in any given year. And then we normally come in with one or two or zero. I think in all likelihood, if we’ll – I’ve kind of described what we’re seeing on the credit side of things is maybe some dings and dents along the way, but nothing that significant.

So I don’t have a projection of where NCOs will end up for the year. But if they ended up in the five basis point to 10 basis point annualized number that would appear to be reasonable. We don’t have an outlook that points to that, but I’m just saying it wouldn’t be unreasonable.

Manuel Navas: I noticed through the extra portfolio disclosures that multifamily and hotel have a little bit more loans or pricing this year as a percentage of total. Anything there that you’re kind of reserving extra for? Or is it – you’re as confident as – there as everywhere else, it seems like?

Daniel J. Schrider: Yes. I think the multifamily portfolio is pretty diverse. We’ve got properties that are in urban settings. We have properties in suburban. The ones that we’re watching closely, and we don’t have any significant concerns about, or the ones that have come out of the ground in the last couple of years that have yet to stabilize and were clearly underwritten on a trend of rents that was going up over time. And so those might be assets that ultimately are closer to breakeven than maybe the projected cash flow coverages during underwriting. And so it’s both occupancy, change in interest rate environment and then in the urban settings, the fact that some of those initial tenants never paid rent and it takes a while to get rid of them are all going to aim to probably a little bit of short-term cash flow pain, again, closer to breakeven than maybe the underwritten cash flow coverage that was expected, but nothing that’s giving us big concerns.