Summary
Sandy Spring management continues to actively and effectively manage its funding costs, but will need to turn more to wholesale funding to maintain high single-digit loan growth.
D.C.'s office market looks oversupplied and CRE lending competition remains intense, but the area's economy continues to grow and Sandy Spring benefits from growing suburban developments.
Sandy Spring looks undervalued on a long-term basis if it can sustain high single-digit core earnings growth.
With the calendar about to turn and most U.S. banks great and small having been pummeled in recent months, I wanted to review Sandy Spring Bancorp(SASR) again as an idea for 2019. The metro DC region still looks pretty healthy and loan demand does not seem to be a serious concern for Sandy Spring. Deposit growth and funding costs remain a risk, though, as Sandy Spring management has had to get more creative in securing the funds it needs to support profitable growth.
Sandy Spring still sees itself as a buyer, not a seller, but the decline in the share price may well cool near-term deal activity. Although I do think the overall environment for banks has deteriorated somewhat from the middle of 2018, I still believe Sandy Spring can generate high single-digit long-term earnings growth, supporting a fair value close to $40.
