By Danielle Douglas
Capital Business Staff Writer
Sunday, December 19, 2010; 6:17 PM
Sandy Spring Bank in Olney repaid all of the funds it borrowed from the federal Troubled Asset Relief Program last week, becoming the largest community bank in the Washington area to close out its balance.
The bank, with $2.5 billion in deposits and $3.6 billion in assets, handed the Treasury Department back the remaining $41.5 million on its $83 million tab.
Sandy Spring paid the other half in July, with a portion of the $101 million it raised from a common stock offering completed in March.
Though the offering garnered the bank enough proceeds to settle up its debt in full, regulators, who must approve any repayment, wanted to see another quarter of improved credit metrics, according to Daniel J. Schrider, president and chief executive of Sandy Spring.
"The third quarter really showed what we've felt all along was continued improvement in credit trends and profitability, and indicative that the worst of the credit cycle is behind us," Schrider said. "We wanted to move TARP out as soon as practical, and that's what we did."
Sandy Spring has been clearing its balance sheet of troubled commercial and residential loans for the past several quarters, but its not completely out of the woods.
The institution was carrying roughly $103.6 million in nonperforming loans on its books in the third quarter, down from $150.2 million 12 months earlier. Sandy Spring also closed out the previous quarter with $6.4 million in net income, compared with a net loss of $14.8 million a year before.
"Their asset quality has improved steadily, and I think this eliminates any uncertainty in the market about the bank and its stock," said David G. Danielson, president of Danielson Associates, a small-banking consultant firm in Bethesda. "They are setting themselves up for a 2011 that gets back to their normal earnings level, or at least closer to it."
With its books in order, Sandy Spring is better positioned to take advantage of growth opportunities in the market, such as branch expansion or acquisitions.Schrider said he will consider "both bank and non-bank expansion opportunities" that are a good strategic fit.
Looking back on the tumultuous years of the downturn, the chief executive is pleased Sandy Spring addressed the weakness in its balance sheet early on, rather than waiting for loan values to rebound.
"Yes, it was painful in the short run, but we wanted to make sure that when the economy turned we could be confident that the worse was behind us," he said. "In community banking, with the recognition of problems, some have hit it early and some are hitting it now."
Of the 11 community banks in the metropolitan region that tapped TARP, few have repaid their debt in full. Bowie-based Old Line Bank handed back the $7 million it received in July 2009, while IBW Financial Corp., the holding company for Industrial Bank in the District, repaid its $6 million loan this fall. The remaining banks have $3 million to just more than $20 million in outstanding debt from the program.
Bethesda-based EagleBank paid down $15 million of its $23.5 million TARP bill. The bank's chairman and chief executive, Ronald D. Paul, has said the bank is exploring several options for repaying the balance.
"A lot of the smaller banks are waiting to raise capital at more favorable prices," Danielson said. "The larger banks were pushed to do it by the markets, but the smaller banks can be more patient."