Sandy Spring profit falls 22 percent in 3Q

Bank attributes decrease to lower investment gains, re-fi falloff, competition

October 15, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Sandy Spring Bancorp, which revealed this week that two top finance executives departed amid problems with its large securities portfolio, said yesterday that profit slipped 22 percent in the third quarter from a year earlier.

The Olney-based company made $6.4 million, or 44 cents per diluted share, in the quarter that ended Sept. 30, compared with $8.2 million, or 56 cents per diluted share, in 2003's third quarter.

Profit fell because of a sharp decline in gains on investment securities, a falloff in demand for mortgage refinancing and increasing competition from large banks that are soliciting Sandy Spring customers.

"In many cases they [large banks] are focused on buying market share with profitability, in their case, taking a back seat," Hunter R. Hollar, Sandy Spring's president and chief executive, said in a conference call yesterday. "This does have an impact on our pricing and in turn our commercial loan yields."

The bank, which has $2.5 billion in assets and 30 branches in fast-growing counties, including Montgomery, Howard and Anne Arundel, said loans and deposits grew briskly in the quarter, up 24 percent and 9.7 percent, respectively, and credit quality remained strong.

"In our view, the basic elements of our business are quite healthy with positive momentum," Hollar said.

On Tuesday, the company said Lawrence T. Lewis III, executive vice president and chief investment officer, had retired, and James H. Langmead, executive vice president and chief financial officer, was no longer working at the bank. Philip Mantua was named CFO and given responsibility for the investment portfolio.

The company had relied heavily on a strategy of borrowing money for short terms at low interest rates from the Federal Home Loan Bank of Atlanta and investing the money in bonds, most of them with maturities of more than five years.

That strategy had paid off handsomely in the past, but income from the securities portfolio dropped during the quarter by 20 percent to $9.2 million from a year earlier as interest rates rose.

Hollar said he wants to a shrink the securities portfolio, which represents about 37 percent of the company's assets, and refocus the bank on more traditional banking - lending, gathering deposits, generating fees and serving customers.

"The exact speed of that [reducing the portfolio] or whether it would be rapid or slow, we don't have the answer to that yet," Hollar said.

Rising interest rates would prompt the company to act more quickly, Mantua said.

"I would say the speed at which interest rates move would probably have a pretty significant bearing on how quickly we might move to dismantle the program in a quicker fashion," Mantua said.

Hollar said he was not prepared to release a specific figure as to how much it would cost the company to reduce the securities portfolio.

He said the company might take a one-time charge in the fourth quarter in regard to the departure of the executives.

Profit in the first nine months of the year was down 20 percent to $20.1 million, or $1.37 per diluted share, compared with $25.3 million, or $1.72 per diluted share, a year earlier.

Shares of Sandy Spring closed down 10 cents to $33 yesterday.

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