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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1995
Commission File Number 0-19065
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SANDY SPRING BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1532952
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) or No.)
17801 Georgia Avenue, Olney, Maryland 20832
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 774-6400.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The registrant's Common Stock is not regularly and actively traded in any
established market. The aggregate market value of the Common Stock held by non-
affiliates of the registrant, computed by reference to the price ($36.75 per
share) at which the stock was sold on March 11, 1996, was approximately
$152,025,820. For purposes of this calculation, the term "affiliate" refers to
all directors and executive officers of the registrant.
As of the close of business on March 11, 1996, 4,365,284 shares of the
registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II: Portions of the Annual Report to Shareholders for the year
ended December 31, 1995 (the "Annual Report").
Part III: Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 17, 1996 (the "Proxy Statement").
Page 1 of __ Pages Exhibit Index at Page __
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PART I
ITEM 1. BUSINESS
GENERAL
Sandy Spring Bancorp, Inc. ("Bancorp") is a one-bank holding company for
Sandy Spring National Bank of Maryland (the "Bank"). Bancorp is registered as a
bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"). As such, Bancorp is subject to the
supervision of and regulation by the Board of Governors of the Federal Reserve
System (the "FRB"). Bancorp commenced operations in 1988. The Bank traces its
origin to 1868 and is the oldest banking business based in Montgomery County,
Maryland. The Bank is independent, community oriented, and conducts a full-
service commercial banking business through 17 community offices located in
Montgomery and Howard counties in Maryland. The Bank is subject to the
supervision of and regulation by the Office of the Comptroller of the Currency
(the "OCC"). The Bank's savings and deposit accounts are insured by the Bank
Insurance Fund administered by the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum permitted by law.
The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans.
Direct competition for savings deposits comes from savings institutions, other
commercial banks and credit unions located in the Bank's primary market area of
Montgomery and Howard Counties in Maryland. Additional significant competition
for savings deposits comes from mutual funds and corporate and government debt
securities. As an alternative to traditional deposit accounts, annuities are
offered through Sandy Spring Insurance Corporation, a wholly owned subsidiary of
the Bank. The primary factors in competing for loans are interest rates and
loan origination fees and the range of services offered by the various financial
institutions. Competition for origination of real estate and other loans
normally comes from thrift institutions, other commercial banks, mortgage
bankers, mortgage brokers and insurance companies. Management believes the Bank
is able to compete effectively in its primary market area.
Bancorp's and the Bank's principal executive office is at 17801 Georgia
Avenue, Olney, Maryland 20832, and its telephone number is (301) 774-6400.
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY
The following is a brief summary of certain statutes, rules and regulations
affecting Bancorp and the Bank. A number of other statutes and regulations have
an impact on their operations. The following summary of applicable statutes and
regulations does not purport to be complete and is qualified in its entirety by
reference to such statutes and regulations.
Bank Holding Company Regulation. Bancorp is registered as a bank holding
-------------------------------
company under the Holding Company Act and, as such, is subject to supervision
and regulation by the FRB. As a bank holding company, Bancorp is required to
furnish to the FRB annual and quarterly reports of its operations at the end of
each period and to furnish such additional information as the FRB may require
pursuant to the Holding Company Act. Bancorp is also subject to regular
examination by the FRB.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the FRB before (i) acquiring direct or indirect ownership or control
of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.
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The Holding Company Act, as amended by the Riegle-Neal Act, however,
permits the FRB, effective September 29, 1995, to approve interstate bank
acquisitions by bank holding companies. See "Competition."
Under the Holding Company Act, any company must obtain approval of the FRB
prior to acquiring control of Bancorp or the Bank. For purposes of the Holding
Company Act, "control" is defined as ownership of more than 25% of any class of
voting securities of Bancorp or the Bank, the ability to control the election of
a majority of the directors, or the exercise of a controlling influence over
management or policies of Bancorp or the Bank.
The Change in Bank Control Act and the regulations of the FRB thereunder
require any person or persons acting in concert (except for companies required
to make application under the Holding Company Act), to file a written notice
with the FRB before such person or persons may acquire control of Bancorp or the
Bank. The Change in Bank Control Act defines "control" as the power, directly
or indirectly, to vote 25% or more of any voting securities or to direct the
management or policies of a bank holding company or an insured bank.
The Holding Company Act also prohibits, with certain exceptions, a bank
holding company from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of a company that is not a bank or a bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The activities of Bancorp are subject to these legal and
regulatory limitations under the Holding Company Act and the FRB's regulations
thereunder. Notwithstanding the FRB's prior approval of specific nonbanking
activities, the FRB has the power to order a holding company or its subsidiaries
to terminate any activity, or to terminate its ownership or control of any
subsidiary, when it has reasonable cause to believe that the continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness or stability of any bank subsidiary of that holding
company.
The FRB has adopted guidelines regarding the capital adequacy of bank
holding companies, which require bank holding companies to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See "Regulatory Capital Requirements."
The FRB has the power to prohibit dividends by bank holding companies if
their actions constitute unsafe or unsound practices. The FRB has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the FRB's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.
As a bank holding company, Bancorp is required to give the FRB notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of Bancorp's consolidated net worth. The FRB
may disapprove such a purchase or redemption if it determines that the proposal
would violate any law, regulation, FRB order, directive, or any condition
imposed by, or written agreement with, the FRB.
Bank Regulation. As a national bank, the Bank is subject to the primary
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supervision of the OCC under the National Bank Act. The prior approval of the
OCC is required for a national bank to establish or relocate an additional
branch office or to engage in any merger, consolidation or significant purchase
or sale of assets.
The OCC regularly examines the operations of the Bank, including but not
limited to capital adequacy, reserves, loans, investments and management
practices. These examinations are for the protection of the Bank's depositors
and not its shareholders. In addition, the Bank is required to furnish
quarterly and annual reports to the OCC. The OCC's enforcement authority
includes the power to remove officers and directors and the authority to
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issue cease-and-desist orders to prevent a bank from engaging in unsafe or
unsound practices or violating laws or regulations governing its business.
The OCC has adopted regulations regarding the capital adequacy of national
banks, which require national banks to maintain specified minimum ratios of
capital to total assets and capital to risk-weighted assets. See "Regulatory
Capital Requirements."
Pursuant to the National Bank Act, no national bank may pay dividends from
its paid-in capital. All dividends must be paid out of current or retained net
profits, after deducting reserves for losses and bad debts. The National Bank
Act further restricts the payment of dividends out of net profits by prohibiting
a national bank from declaring a dividend on its shares of common stock until
the surplus fund equals the amount of capital stock or, if the surplus fund does
not equal the amount of capital stock, until one-tenth of a bank's net profits
for the preceding half year in the case of quarterly or semi-annual dividends,
or the preceding two half-year periods in the case of annual dividends, are
transferred to the surplus fund.
The approval of the OCC is required prior to the payment of a dividend if
the total of all dividends declared by a national bank in any calendar year
would exceed the total of its net profits for that year combined with its net
profits for the two preceding years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. In addition, the Bank is
prohibited by federal statute from paying dividends or making any other capital
distribution that would cause the Bank to fail to meet its regulatory capital
requirements. Further, the OCC also has authority to prohibit the payment of
dividends by a national bank when it determines such payment to be an unsafe and
unsound banking practice.
The Bank is a member of the Federal Reserve System and its deposits are
insured by the FDIC to the legal maximum of $100,000 for each insured depositor.
Some of the aspects of the lending and deposit business of the Bank that are
subject to regulation by the FRB and the FDIC include reserve requirements and
disclosure requirements in connection with personal and mortgage loans and
savings deposit accounts. In addition, the Bank is subject to numerous federal
and state laws and regulations which set forth specific restrictions and
procedural requirements with respect to the establishment of branches,
investments, interest rates on loans, credit practices, the disclosure of credit
terms and discrimination in credit transactions.
The Bank is subject to restrictions imposed by federal law on extensions of
credit to, and certain other transactions with, Bancorp and other affiliates,
and on investments in the stock or other securities thereof. Such restrictions
prevent Bancorp and such other affiliates from borrowing from the Bank unless
the loans are secured by specified collateral, and require such transactions to
have terms comparable to terms of arms-length transactions with third persons.
Further, such secured loans and other transactions and investments by the Bank
are generally limited in amount as to Bancorp and as to any other affiliate to
10% of the Bank's capital and surplus and as to Bancorp and all other affiliates
to an aggregate of 20% of the Bank's capital and surplus. These regulations and
restrictions may limit Bancorp's ability to obtain funds from the Bank for its
cash needs, including funds for acquisitions and for payment of dividends,
interest and operating expenses.
Under an OCC regulation that became effective March 19, 1993, national
banks must adopt and maintain written policies that establish appropriate limits
and standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards, including loan-to-value limits, that
are clear and measurable, loan administration procedures and documentation,
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies (the "Interagency Guidelines") that have been adopted by the federal
bank regulators. The Interagency Guidelines, among other things, call upon
depository institutions to establish internal loan-to-value limits for real
estate loans that are not in excess of the loan-to-value limits specified in the
Guidelines for the various types of real estate loans. The Interagency
Guidelines state, however, that it may be appropriate in individual cases to
originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits.
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The FDIC has established a risk-based deposit insurance premium assessment
system for insured depository institutions. Under the system, the assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, which is determined by
the institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups -- well-capitalized, adequately
capitalized or undercapitalized -- based on the data reported to regulators for
the date closest to the last day of the seventh month preceding the semi-annual
assessment period. Well-capitalized institutions are institutions satisfying
the following capital ratio standards: (i) total risk-based capital ratio of
10.0% or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and
(iii) Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized
institutions are institutions that do not meet the standards for well-
capitalized institutions but that satisfy the following capital ratio standards:
(i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based
capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or
greater. Undercapitalized institutions consist of institutions that do not
qualify as either well-capitalized or adequately capitalized institutions.
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. For
the semi-annual period beginning June 30, 1995, the assessment rate for
institutions, such as the Bank, with deposits insured by the Bank Insurance Fund
of the FDIC was lowered to between 0.04% and .31% of insured deposits from 0.23%
to 0.31% of insured deposits and was subsequently reduced to the statutory
minimum of $1,000 for the most highly rated banks for the semi-annual period
beginning January 1, 1996. The Bank was notified that its assessment rate for
the first six months of 1996 is the $1,000 statutory minimum.
Supervision, regulation and examination of the Bank and Bancorp by the bank
regulatory agencies are intended primarily for the protection of depositors
rather than for holders of Bank or Bancorp stock.
Regulatory Capital Requirements. The FRB and the OCC have established
-------------------------------
guidelines with respect to the maintenance of appropriate levels of capital by
bank holding companies and national banks, respectively. The regulations impose
two sets of capital adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the
maintenance of specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the FRB and the OCC require bank holding companies and
national banks, respectively, to maintain a minimum leverage ratio of "Tier 1
capital" (as defined in the risk-based capital guidelines discussed in the
following paragraphs) to total assets of 3.0%. Although setting a minimum 3.0%
leverage ratio, the capital regulations state that only the strongest bank
holding companies and banks, with composite examination ratings of 1 under the
rating system used by the federal bank regulators, would be permitted to operate
at or near such minimum level of capital. All other bank holding companies and
banks are expected to maintain a leverage ratio of at least 1% to 2% above the
minimum ratio, depending on the assessment of an individual organization's
capital adequacy by its primary regulator. Any bank or bank holding company
experiencing or anticipating significant growth would be expected to maintain
capital well above the minimum levels. In addition, the FRB has indicated that
whenever appropriate, and in particular when a bank holding company is
undertaking expansion, seeking to engage in new activities or otherwise facing
unusual or abnormal risks, it will consider, on a case-by-case basis, the level
of an organization's ratio of tangible Tier 1 capital (after deducting all
intangibles) to total assets in making an overall assessment of capital.
The risk-based capital rules of the FRB and the OCC require bank holding
companies and state member banks to maintain minimum regulatory capital levels
based upon a weighting of their assets and off-balance sheet obligations
according to risk. The risk-based capital rules have two basic components: a
core capital (Tier 1) requirement and a supplementary capital (Tier 2)
requirement. Core capital consists primarily of common
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stockholders' equity, certain perpetual preferred stock (which must be
noncumulative with respect to banks), and minority interests in the equity
accounts of consolidated subsidiaries; less all intangible assets, except for
certain purchased mortgage servicing rights and purchased credit card
relationships. Supplementary capital elements include, subject to certain
limitations, the allowance for losses on loans and leases; perpetual preferred
stock that does not qualify as Tier 1 capital and long-term preferred stock with
an original maturity of at least 20 years from issuance; hybrid capital
instruments, including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-
weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital will be limited to no more than 100% of
core capital; and (ii) the aggregate amount of certain types of supplementary
capital will be limited. In addition, the risk-based capital regulations limit
the allowance for loan losses includable as capital to 1.25% of total risk-
weighted assets.
The federal bank regulatory agencies, including the OCC, have proposed to
revise their risk-based capital requirements to ensure that such requirements
provide for explicit consideration by commercial banks of interest rate risk.
Under the proposed rule, a bank's interest rate risk exposure would be
quantified using either the measurement system set forth in the proposal or the
bank's internal model for measuring such exposure, if such model is determined
to be adequate by the bank's examiner. If the dollar amount of a bank's
interest rate risk exposure, as measured under either measurement system,
exceeds 1% of the bank's total assets, the bank would be required under the
proposed rule to hold additional capital equal to the dollar amount of the
excess. Management of the Bank does not believe that adoption of the proposed
rule would have a material adverse effect on the required levels of capital.
The proposed interest rate risk component rule would not apply to bank holding
companies on a consolidated basis.
The OCC has issued final regulations which classify national banks by
capital levels and which provide for the OCC to take various prompt corrective
actions to resolve the problems of any bank that fails to satisfy the capital
standards. Under such regulations, a well-capitalized bank is one that is not
subject to any regulatory order or directive to meet any specific capital level
and that has or exceeds the following capital levels: a total risk-based capital
ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of
5%. An adequately capitalized bank is one that does not qualify as well-
capitalized but meets or exceeds the following capital requirements: a total
risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a
leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest composite
examination rating. A bank not meeting these criteria is treated as
undercapitalized, significantly undercapitalized, or critically undercapitalized
depending on the extent to which the bank's capital levels are below these
standards. A national bank that falls within any of the three undercapitalized
categories established by the prompt corrective action regulation will be
subject to severe regulatory sanctions. As of December 31, 1995, the Bank was
well-capitalized as defined by the OCC's regulations.
For information regarding Bancorp's and the Bank's compliance with their
respective regulatory capital requirements, see "Management's Discussion and
Analysis -- Capital and Capital Ratios" in the Annual Report.
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COMPETITION
In order to compete effectively, the Bank relies substantially on local
commercial activity; personal contacts by its directors, officers, other
employees and shareholders; personalized services; and its reputation in the
communities it serves.
The Bank presently competes within its market area with numerous bank
subsidiaries of larger bank holding companies, including the subsidiaries of
regional bank holding companies with principal operations in states other than
Maryland. It also competes with numerous independent banks, thrift
institutions, credit unions, and various other nonbank financial companies.
The banking business in Maryland generally, and the Bank's primary service
areas specifically, are highly competitive with respect to both loans and
deposits. As noted above, the Bank competes with many larger banking
organizations that have offices over a wide geographic area. These larger
institutions have certain inherent advantages, such as the ability to finance
wide ranging advertising campaigns and promotions and to allocate their
investment assets to regions offering the highest yield and demand. They also
offer services such as international banking, which are not offered directly by
the Bank (but could be offered indirectly through correspondent institutions);
and by virtue of their larger total capitalization (legal lending limits to an
individual consumer or corporation are limited to a percentage of the Bank's
total capital accounts), such banks have substantially higher lending limits
than does the Bank. Other entities, both governmental and in private industry,
raise capital through the issuance and sale of debt and equity securities and
thereby indirectly compete with the Bank in the acquisition of deposits.
In addition to competing with other commercial banks and thrift
institutions, commercial banks such as the Bank compete with nonbank financial
institutions for funds. For instance, yields on corporate and government debt
and equity securities affect the ability of commercial banks to attract and hold
deposits. Commercial banks also compete for available funds with money market
instruments, which are not subject to interest rate ceilings. Such money market
funds have provided substantial competition to banks for deposits, and it is
anticipated they may continue to do so in the future.
'
The Holding Company Act was recently amended by the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), which
significantly eased applicable restrictions on interstate banking. The Riegle
Neal Act permits the FRB, effective September 29, 1995, to approve an
application of an adequately capitalized and adequately managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank located in a state other than such holding company's home state,
without regard to whether the transaction is prohibited by the laws of any
state. The FRB may not approve the acquisition of bank that has not been in
existence for the minimum time period (not exceeding five years) specified by
the statutory law of the host state. The Riegle-Neal Act also prohibits the FRB
from approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Riegle-Neal
Act does not affect the authority of states to limit the percentage of total
insured deposits in the state which may be held or controlled by a bank or bank
holding company to the extent such limitation does not discriminate against out-
of-state banks or bank holding companies. The effect of the Riegle-Neal Act may
be to increase competition within the State of Maryland among banking and thrift
institutions located in Maryland and from banking companies located anywhere in
the country.
The Riegle-Neal Act also authorizes the federal banking agencies, effective
June 1, 1997, to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Riegle-Neal Act by adopting a law
after the date of enactment of such Act and prior to June 1, 1997 that applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks.
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The State of Maryland had previously enacted reciprocal interstate banking
statutes that authorized banks and thrift institutions, and their holding
companies, in Maryland to be acquired by regional banks and thrift institutions,
or their holding companies, in designated states, and permitted Maryland banks
and thrift institutions, and their holding companies, to acquire banks and
thrift institutions in designated states, if such jurisdictions have enacted
reciprocal statutes. A majority of the jurisdictions designated in the
interstate banking statutes have enacted legislation authorizing interstate
transactions in one form or another. In 1995, the State of Maryland adopted
legislation allowing out of state financial institutions to merge with Maryland
banks and to establish branches in Maryland, subject to certain limitations.
The effect of the federal and Maryland legislation may be to increase
competition within the State of Maryland among banking and thrift institutions
located in Maryland and from the major regional bank holding companies that
acquire institutions in Maryland, most of which are larger than the Bank.
EMPLOYEES
As of February 29, 1996, Bancorp and the Bank employed 327 persons,
including executive officers, loan and other banking and trust officers, branch
personnel, and others. None of Bancorp's or the Bank's employees is presently
represented by a union or covered under a collective bargaining agreement.
Management of Bancorp and the Bank consider their employee relations to be
excellent.
EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers
of Bancorp and the Bank who are not directors.
<TABLE>
<CAPTION>
Name Age (1) Principal Position(s)
- ---- ------- ---------------------
<S> <C> <C>
James H. Langmead 46 Vice President and Treasurer of Bancorp and Senior
Vice President and Chief Financial Officer of the
Bank
Stanley L. Merson 39 Senior Vice President of the Bank
James R. Farmer 44 Senior Vice President of the Bank
Frank H. Small 49 Senior Vice President of the Bank
Lawrence T. Lewis 47 Senior Vice President of the bank
- --------------------
</TABLE>
(1) At March 25, 1996
The principal occupation(s) and business experience of each executive
officer who is not a director for the last five years are set forth below.
JAMES H. LANGMEAD became Vice President and Treasurer of Bancorp and
Senior Vice President and Chief Financial Officer of the Bank on May 6, 1995.
Prior to that, Mr. Langmead was a Senior Vice President of the Bank from January
1994, Vice President and Controller of the Bank from March 1992 and Executive
Vice President of the Bank of Baltimore from 1987.
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STANLEY L. MERSON has been a Senior Vice President of the Bank since
1991 and was Vice President of the Commercial Loan Department prior to becoming
Senior Vice President. Mr. Merson has been employed by the Bank since 1982.
JAMES R. FARMER became a Senior Vice President of the Bank on January
1, 1994. Prior to that, Mr. Farmer was Vice President of the Bank. Mr. Farmer
has been employed by the Bank since 1979.
FRANK H. SMALL became a Senior Vice President of the Bank on January
1, 1994. Mr. Small was Vice President of the Bank (1990-1993) and prior to
that, was Vice President in charge of branch operations at Equitable Bank, N.A.
LAWRENCE T. LEWIS began his employment with the Bank on January 22,
1996 as Senior Vice President. From January 1984 to December 1995, Mr. Lewis
was a managing director of Clark Melvin Securities Corporation.
TABULAR FINANCIAL INFORMATION
Rate Volume Table. The following table sets forth information
regarding the effect of volume and rate changes on net interest income (dollars
in thousands and tax-equivalent basis).
<TABLE>
<CAPTION>
1995 v. 1994 1994 v. 1993
------------------ ----------------------------
Increase in Average: (1)(2) Increase in Average: (1)(2)
or ------------------ or ----------------
(Decrease) Volume Rate (Decrease) Volume Rate
---------- ------------------ ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Income From
Earnings Assets:
Loans............................. $9,873 $ 7,001 $2,872 $3,711 $4,425 $(714)
Taxable securities................ (420) (1,359) 939 1,544 2,406 (862)
Nontaxable securities............. (873) (743) (130) (313) (36) (277)
Other investments................. 221 (2) 223 (613) (836) 223
------ ------
Total Interest Income......... 8,801 3,482 5,319 4,329 5,231 (902)
Interest Expense on Funding
Of Earnings Assets:
Interest-bearing demand deposits.. (42) (26) (16) 14 184 (170)
Regular savings deposits.......... (327) (291) (36) 1,038 1,057 (19)
Money market savings deposits..... 38 (935) 973 (240) (115) (125)
Time deposits..................... 6,071 3,506 2,565 62 85 (23)
Short-term and other borrowings... 1,079 555 524 617 435 182
------ ------
Total Interest Expense........ 6,819 1,524 5,295 1,491 1,715 (224)
------ ------- ------ ------ ------ -----
Net Interest Income........... $1,982 $ 1,958 $ 24 $2,838 $3,516 $(678)
====== ======= ====== ====== ====== =====
</TABLE>
- --------------------
(1) Variances are computed on a line-by-line basis and are non-additive.
(2) Combined rate/volume variances, a third element of the calculation, are
allocated to the volume and rate variances based on their relative size.
9
<PAGE>
Loan Maturity Table. The following table sets forth information as of
December 31, 1995, regarding the loan maturities and interest rate sensitivity
for the real estate-construction, commercial and tax exempt categories (dollars
in thousands).
<TABLE>
<CAPTION>
1 or Less Over 1-5 Over 5 Total
--------- -------- ------ -------
<S> <C> <C> <C> <C>
Real Estate Construction.. $30,859 $ -- $ -- $30,859
Commercial................ 37,016 12,540 12 49,568
Tax Exempt................ 40 160 208 408
------- ------- ---- -------
Total................. $67,915 $12,700 $220 $80,835
======= ======= ==== =======
Rate Terms:
Fixed................... $10,993 $12,700 $220 $23,913
Variable or adjustable.. 56,922 -- -- 56,922
------- ------- ---- -------
Total................. $67,915 $12,700 $220 $80,835
======= ======= ==== =======
</TABLE>
Credit Loss Allowance Table. The following table presents the
allocation of the allowance for credit losses for the past five years, along
with the percentage of total loans in each category (dollars in thousands).
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
Loan Loan Loan Loan Loan
Amount Mix Amount Mix Amount Mix Amount Mix Amount Mix
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount applicable to:
Real estate--mortgage...... $ 512 74% $1,581 76% $2,046 77% $1,756 82% $1,861 80%
Real estate--construction.. 10 7 41 6 34 4 78 4 72 5
Consumer................... 181 7 136 7 324 6 353 6 285 7
Commercial................. 907 12 832 11 1,998 13 61 7 472 7
Tax exempt................. -- -- -- -- -- -- -- 1 -- 1
Unallocated................ 4,300 3,518 1,775 1,568 --
------ ------ ------ ------ ------
Total allowance for
credit losses........ $5,910 $6,108 $6,177 $3,816 $2,690
====== ====== ====== ====== ======
</TABLE>
The tabular financial information set forth on pages 14 through 25 of
the Annual Report is incorporated herein by reference.
ITEM 2. DESCRIPTION OF PROPERTY
The outside back cover page of the Annual Report (listing executive and
community offices) is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
Note 17 on page 39 of the Annual Report ("Litigation") is hereby
incorporated by reference.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1995, through solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The sections entitled "Recent Stock Prices and Dividends" and "Quarterly
Stock Information" on page 13 of the Annual Report is hereby incorporated by
reference.
For information regarding regulatory restrictions on the Bank's and,
therefore, Bancorp's payment of dividends, see Note 10 -- "Stockholders' Equity"
on page 35 of the Annual Report, which is hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Historical Trends in Financial Data 1991 - 1995" on
page 15 of the Annual Report is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 14 through 25 of the Annual Report are hereby incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 26 through 43 of the Annual Report are hereby incorporated by
reference. The remaining information appearing in the Annual Report to
Shareholders is not deemed to be filed as part of this Report, except as
expressly provided herein.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and nominees for directors of Bancorp and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is included
under the captions entitled "Election of Directors -- Information as to Nominees
and Continuing Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" on pages 3 through 5 and page 17 of the Proxy Statement
and is hereby incorporated by reference.
11
<PAGE>
Information concerning the executive officers of Bancorp is included under
the caption entitled "Item 1. Business -- Executive Officers" of this report
and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of Bancorp's directors and executive
officers is included under the caption "Executive Compensation" on pages 6
through 14 of the Proxy Statement and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of Bancorp's common stock by
certain beneficial owners and management of Bancorp is included under the
caption "Stock Ownership of Management" on page 2 of the Proxy Statement and is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
management is included under the caption "Transactions and Relationships with
Management" on page 15 of the Proxy Statement and is hereby incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of Bancorp included in the
Annual Report to Stockholders for the year ended December 31, 1995, are
incorporated herein by reference in Item 8 of this Report. The remaining
information appearing in the Annual Report to Shareholders is not deemed to
be filed as part of this Report, except as expressly provided herein.
The following financial statements are filed as a part of this report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1994 and 1995
Consolidated Statements of Income for the years ended December 31,
1993, 1994 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1993, 1994 and 1995
Notes to the Consolidated Financial Statements
All financial statement schedules have been omitted as the required
information is either inapplicable or included in the consolidated
financial statements or related notes.
12
<PAGE>
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated by Reference to:
- -----------
<S> <C> <C>
3(a) Articles of Incorporation of Sandy Spring Bancorp, Exhibit 3.1 of Form 8-K dated
Inc. May 13, 1992, SEC File No. 0-
19065.
3(b) Bylaws of Sandy Spring Bancorp, Inc. Exhibit 3.2 of Form 8-K dated
May 13, 1992, SEC File No. 0-
19065.
10(a) Sandy Spring Bancorp, Inc. Retirement Income Plan, Exhibit 10(a) of Form 10-K for
as amended the year ended December 31,
1989, SEC File No. 0-19065,
and Exhibit 10(l) hereto
10(b) Sandy Spring Bancorp, Inc., Cash and Deferred Exhibit 10(b) of Form 10-K for
Profit Sharing Plan and Trust, as amended the year ended December 31,
1989, SEC File No. 0-19065,
and Exhibit 10(m) hereto
10(c) Sandy Spring Bancorp, Inc. 1982 Incentive Stock Exhibit 10(c) of Form 10-Q for
Option Plan the quarter ended June 30, 1990,
SEC File No. 0-19065
10(d) Lease dated December 11, 1986 for Leisure World Exhibit 10(d) of Form 10-K for
Plaza Branch of Sandy Spring National Bank of the year ended December 31,
Maryland 1988, SEC File No. 0-19065
10(e) Employment Agreement with Hunter R. Hollar Exhibit 10(e) of Form 10-K for
the year ended December 31,
1990, SEC File No. 0-19065
10(f) Form of 1992 Amendment to Employment Exhibit 10(f) of Form 10-K for
Agreement with Hunter R. Hollar the year ended December 31,
1991, SEC File No. 0-19065
10(g) Forms of Supplemental Executive Retirement Exhibit 10(g) of Form 10-K for
Agreements with Willard H. Derrick, Hunter R. the year ended December 31,
Hollar, Thomas O. Keech and A. Hardy Pickett, with 1991, SEC File No. 0-19065
1992 Amendments
10(h) Forms of Executive Severance Agreements with Exhibit 10(h) of Form 10-K for
Willard H. Derrick, Thomas O. Keech and A. Hardy the year ended December 31,
Pickett, with 1992 Amendments 1991, SEC File No. 0-19065
10(i) Sandy Spring Bancorp, Inc. 1992 Stock Option Plan Exhibit 10(i) of Form 10-K for
the year ended December 31,
1991, SEC File No. 0-19065
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated by Reference to:
- -----------
<S> <C> <C>
10(j) Sandy Spring National Bank of Maryland Executive Exhibit 10(g) of Form 10-K
Health Insurance Plan for the year ended December 31,
1991, SEC File No. 0-19065
10(k) Sandy Spring National Bank of Maryland Executive Exhibit 10(k) of Form 10-K
Health Expense Reimbursement Plan for the year ended December 31,
1991, SEC File No. 0-19065
10(l) First Amendment to Sandy Spring Bancorp, Inc. Exhibit 10(l) of Form 10-K
Retirement Income Plan for the year ended December 31,
1993, SEC File No. 0-19065
10(m) First Amendment to Sandy Spring Bancorp Cash and Exhibit 10(m) of Form 10-K
Deferred Profit Sharing Plan and Trust as Amended the year ended December 31,
for and Restated and Second Amendment to the 1993, SEC File No. 0-19065
Adoption Agreement to Sandy Spring Bancorp Cash
and Deferred Profit Sharing Plan and Trust
13 1995 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
(b) No Current Reports on Form 8-K were filed during the three month period
ended December 31, 1995.
(c) Exhibits to this Form 10-K are attached or incorporated by reference as
stated above.
(d) None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SANDY SPRING BANCORP, INC.
(Registrant)
By: /s/ Hunter R. Hollar
--------------------
Hunter R. Hollar
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 22, 1996.
Principal Executive Officer and Director: Principal Financial and
Accounting Officer:
/s/ Hunter R. Hollar /s/ James H. Langmead
- -------------------- ---------------------
Hunter R. Hollar James H. Langmead
President and Chief Executive Officer Vice President and
Treasurer
A majority of the directors of Bancorp executed a power of attorney
appointing Marjorie S. Cook as their attorney-in-fact, empowering her to sign
this report on their behalf. This power of attorney has been filed with the
Securities and Exchange Commission under Part IV, Exhibit 24 of this Form 10-K
for the year ended December 31, 1995. This report has been signed below by such
attorney-in-fact as of March 22, 1996.
By: /s/ Marjorie S. Cook
--------------------
Marjorie S. Cook
Attorney-in-Fact for Majority of the
Directors of Bancorp
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated by Reference to:
- -----------
<S> <C> <C>
3(a) Articles of Incorporation of Sandy Spring Bancorp, Exhibit 3.1 of Form 8-K dated
Inc. May 13, 1992, SEC File No. 0-
19065.
3(b) Bylaws of Sandy Spring Bancorp, Inc. Exhibit 3.2 of Form 8-K dated
May 13, 1992, SEC File No. 0-
19065.
10(a) Sandy Spring Bancorp, Inc. Retirement Income Plan, Exhibit 10(a) of Form 10-K for
as amended the year ended December 31,
1989, SEC File No. 0-19065,
and Exhibit 10(l) hereto
10(b) Sandy Spring Bancorp, Inc., Cash and Deferred Exhibit 10(b) of Form 10-K for
Profit Sharing Plan and Trust, as amended the year ended December 31,
1989, SEC File No. 0-19065,
and Exhibit 10(m) hereto
10(c) Sandy Spring Bancorp, Inc. 1982 Incentive Stock Exhibit 10(c) of Form 10-Q for
Option Plan the quarter ended June 30, 1990,
SEC File No. 0-19065
10(d) Lease dated December 11, 1986 for Leisure World Exhibit 10(d) of Form 10-K for
Plaza Branch of Sandy Spring National Bank of the year ended December 31,
Maryland 1988, SEC File No. 0-19065
10(e) Employment Agreement with Hunter R. Hollar Exhibit 10(e) of Form 10-K for
the year ended December 31,
1990, SEC File No. 0-19065
10(f) Form of 1992 Amendment to Employment Exhibit 10(f) of Form 10-K for
Agreement with Hunter R. Hollar the year ended December 31,
1991, SEC File No. 0-19065
10(g) Forms of Supplemental Executive Retirement Exhibit 10(g) of Form 10-K for
Agreements with Willard H. Derrick, Hunter R. the year ended December 31,
Hollar, Thomas O. Keech and A. Hardy Pickett, with 1991, SEC File No. 0-19065
1992 Amendments
10(h) Forms of Executive Severance Agreements with Exhibit 10(h) of Form 10-K for
Willard H. Derrick, Thomas O. Keech and A. Hardy the year ended December 31,
Pickett, with 1992 Amendments 1991, SEC File No. 0-19065
10(i) Sandy Spring Bancorp, Inc. 1992 Stock Option Plan Exhibit 10(i) of Form 10-K for
the year ended December 31,
1991, SEC File No. 0-19065
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10(j) Sandy Spring National Bank of Maryland Executive Health
Insurance Plan Exhibit 10(g) of Form 10-K for the year
ended December 31, 1991, SEC File No. 0-19065
10(k) Sandy Spring National Bank of Maryland Executive Exhibit 10(k) of Form 10-K
Health Expense Reimbursement Plan for the year ended December 31,
1991, SEC File No. 0-19065
10(l) First Amendment to Sandy Spring Bancorp, Inc. Exhibit 10(l) of Form 10-K
Retirement Income Plan for the year ended December 31,
1993, SEC File No. 0-19065
10(m) First Amendment to Sandy Spring Bancorp Cash and Exhibit 10(m) of Form 10-K
Deferred Profit Sharing Plan and Trust as Amended for the year ended December 31,
and Restated and Second Amendment to the 1993, SEC File No. 0-19065
Adoption Agreement to Sandy Spring Bancorp Cash
and Deferred Profit Sharing Plan and Trust
13 Sections of 1995 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 13
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
(FROM THE OUTSIDE BACK COVER OF THE ANNUAL REPORT)
<PAGE>
Executive Offices
17801 Georgia Avenue
Olney, Maryland 20832 East Gude Drive
(301) 774-6400 1601 East Gude Drive
Rockville, Maryland 20850
Airpark (301) 570-8330
7653 Lindbergh Drive
Gaithersburg, Maryland 20879 Gaithersburg
(301) 774-8408 814 West Diamond Avenue
Gaithersburg, Maryland 20878
Ashton (301) 963-3600
1 Ashton Road
Ashton, Maryland 20861 Layhill
(301) 774-8405 14241 Layhill Road
Silver Spring, Maryland 20906
Aspenwood (301) 774-8406
(Aspenwood Residents and Employees Only)
14400 Homecrest Road Leisureworld Plaza
Silver Spring, Maryland 20906 3801 International Drive
(301) 774-8406 Silver Spring, Maryland 20906
(301) 774-8407
Bedford Court
(Bedford Court Residents and Employees Only) Lisbon
3701 International Drive 710-N Lisbon Centre Drive
Silver Spring, Maryland 20906 Woodbine, Maryland 21797
(301) 774-8407 (410) 442-1878
Burtonsville Montgomery Village
3535 Spencerville Road 9921 Stedwick Road
Burtonsville, Maryland 20866 Gaithersburg, Maryland 20879
(301) 774-8404 (301) 990-3800
Clarksville Olney
12276 Clarksville Pike 17801 Georgia Avenue
Clarksville, Maryland 21029 Olney, Maryland 20832
(410) 531-2650 (301) 774-8402
Colesville Rockville
13300 New Hampshire Avenue 611 Rockville Pike
Silver Spring, Maryland 20904 Rockville, Maryland 20852
(301) 774-8403 (301) 217-0555
Damascus Sandy Spring
26250 Ridge Road 908 Olney-Sandy Spring Road
Damascus, Maryland 20872 Sandy Spring, Maryland 20860
(301) 253-0133 (301) 774-8401
- --------------------------------------------------------------------------------
[SANDY SPRING BANCORP LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
(FROM PAGE 39 OF THE ANNUAL REPORT)
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
(FROM PAGE 13 OF THE ANNUAL REPORT)
(FROM PAGE 35 OF THE ANNUAL REPORT)
<PAGE>
NOTE 17 -- LITIGATION
In the normal course of business, the Company may become involved in litigation
arising from banking, financial, and other activities of the Company.
Management, after consultation with legal counsel, does not anticipate that the
ultimate liability, if any, arising out of these matters will have a material
effect on the Company's financial condition.
39
<PAGE>
RECENT STOCK PRICES AND DIVIDENDS
(Dollars in thousands, except per share data)
Shareholders received quarterly cash dividends totaling $2,755 in 1995 and
$2,273 in 1994. Regular dividends have been declared for ninety-five consecutive
years. The Company has increased its dividends per share each year for the past
fifteen years. Since 1990, dividends per share have risen at an annual compound
growth rate of 12.2%, with an increase of 18.5% in 1995. On March 29, 1995, the
Board of Directors declared a 2-for-1 stock split in the form of a stock
dividend intended to enhance the marketability of the stock.
Total dividends, expressed as a percentage of net income, were 30.9% in
1995 and 28.3% in 1994. The amount of dividends is established by the Board of
Directors in consideration of operating results, financial condition, capital
adequacy, regulatory requirements, shareholder returns and other factors.
Shares issued under the dividend reinvestment plan totaled 35,300 in 1995
and 16,613 in 1994.
There is no established public trading market for the Company's common
stock, which is traded lightly in a local market. The number of shareholders of
record continues to grow, reaching approximately 2,000 as of February 10, 1996,
from approximately 1,900 a year earlier. Management estimates that about three
fourths of the Company's shareholders reside in its market area.
The following table presents the range of high and low sales prices for the
common stock along with dividends declared in each quarter of the two most
recent years, adjusted retroactively to reflect the 2-for-1 stock split. Sales
prices reported were based upon actual transactions known to the Company to have
occurred in each quarter, as well as upon reports of transactions published by
third parties.
QUARTERLY STOCK INFORMATION
<TABLE>
<CAPTION>
1995 1994
--------------------------------- ------------------------------
Stock Price Range Per Share Stock Price Range Per Share
----------------- -----------------
Quarter Low High Dividend Low High Dividend
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st $24.50 $26.25 $0.15 $23.00 $23.50 $0.13
2nd 25.38 32.00 0.15 22.50 24.32 0.13
3rd 29.25 39.00 0.16 23.50 27.00 0.14
4th 35.00 39.00 0.18 23.75 26.25 0.14
- --------------------------------------------------------------------------------
Total $ 0.64 $ 0.54
====== ======
</TABLE>
13
<PAGE>
NOTE 10 -- STOCKHOLDERS' EQUITY
Bancorp's Articles of Incorporation authorize 6,000,000 shares of capital stock,
par value $1.00 per share, to be initially classified as common stock. However,
as set out in the Articles of Incorporation, remaining unissued stock may in the
future be designated as either common or preferred stock.
On December 16, 1992, the Board of Directors approved the Sandy Spring
Bancorp Dividend Reinvestment Plan (the Plan) effective for the first dividend
of 1993. The Plan provides shareholders with the opportunity to increase their
equity ownership in Bancorp by electing to have cash dividends automatically
reinvested in additional shares of common stock without payment of any brokerage
commission or service charge. The Board has reserved 200,000 shares for issuance
under the Plan.
Bank and holding company regulations, as well as Maryland law, impose
certain restrictions on dividend payments by the Bank, as well as restricting
extensions of credit and transfers of assets between the Bank and the holding
company. These restrictions have had no impact on Bank dividend payments in
prior years and none is anticipated in future periods. There were no loans
outstanding between the Bank and Bancorp at December 31, 1995 and 1994.
On March 29, 1995, the Board of Directors approved a 2-for-1 stock split in
the form of a stock dividend payable to shareholders of record at the close of
business on April 12, 1995.
35
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(FROM PAGE 15 OF THE ANNUAL REPORT)
<PAGE>
Historical Trends in Financial Data 1991-1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (for the year):
Interest income $ 55,241 $ 46,264 $ 41,674 $ 44,520 $ 47,448
Interest expense 25,998 19,179 17,695 21,188 28,471
Net interest income 29,243 27,085 23,979 23,332 18,977
Provision for credit losses -- 160 950 1,750 835
Net interest income after provision
for credit losses 29,243 26,925 23,029 21,582 18,142
Noninterest income 4,446 4,129 4,808 4,573 2,724
Noninterest expenses 20,787 19,895 16,942 15,269 13,477
Income before taxes and cumulative effect
of accounting change 12,902 11,159 10,895 10,886 7,389
Income tax expense 3,979 3,139 2,888 2,981 1,994
Income before cumulative effect of
accounting change 8,923 8,020 8,007 7,905 5,395
Cumulative effect of accounting change -- -- -- 744 --
Net income 8,923 8,020 8,007 8,649 5,395
PER SHARE DATA:/(1)/
Net income $ 2.07 $ 1.89 $ 1.95 $ 2.07/(2)/$ 1.51
Dividends declared 0.64 0.54 0.49 0.43 0.38
Book value 18.04 15.65 15.73 13.38 10.99
FINANCIAL CONDITION (at year end):
Assets $794,319 $764,135 $722,465 $626,084 $573,812
Deposits 679,587 645,619 622,056 557,958 517,110
Loans 424,626 401,524 324,372 274,189 313,315
Securities 286,411 304,004 309,013 284,999 191,221
Stockholders' equity 78,091 66,956 66,391 54,668 39,501
MEASUREMENTS (for the year):
Return on average assets 1.16% 1.11% 1.24% 1.32%/(2)/ 1.00%
Return on average equity 12.24 12.12 13.74 17.65/(2)/ 14.75
Average equity to average assets 9.46 9.19 9.06 7.45 6.79
Dividends declared to net income 30.88 28.34 25.14 20.76/(2)/ 24.94
</TABLE>
/(1)/ Adjusted to give retroactive effect to a 2-for-1 stock split declared
on March 29, 1995.
/(2)/ Excludes the cumulative benefit recorded in 1992 from the change in
accounting for income taxes.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(FROM PAGES 14 THROUGH 25 OF THE ANNUAL REPORT)
<PAGE>
Management's Analysis of Operations and Financial Condition
(Dollars in thousands, except per share data)
OVERVIEW
The year 1995 was characterized by the Company achieving record earnings while
Sandy Spring National Bank posted average deposit growth and above average loan
growth during the year as compared to recent historical levels.
Average total deposits increased 5%, while average total loans grew by 24%.
During 1995, market interest rates declined steadily, although for the full year
of 1995, average interest rates were higher than for the full year of 1994. Both
the Prime interest rate and the federal funds rates ended 1995 at the same level
as they began the year: 8.50% and 5.50%, respectively. Sandy Spring Bank's one
year C.D., a popular product during the past year, began 1995 at 5.00% and
finished the year at 5.20%. The Company experienced a successful "C.D.'s ARE
BACK" marketing campaign in the first half of 1995, resulting in substantial
growth in this category of deposit, although a portion of the growth was the
result of depositors shifting funds from other types of deposits held at the
Bank into Bank certificates of deposit.
For the year 1995, Sandy Spring Bancorp recorded an 11% improvement in net
earnings to a record level $8,923 ($2.07 per share) as compared to $8,020 ($1.89
per share) for 1994. This improvement was accomplished primarily as a result of
earning asset growth in the Bank and by reductions in the rate of growth of
noninterest expenses. For the year 1995, average earning assets increased 7%,
which combined with a stable net interest margin, resulted in an 8% increase in
net interest income in 1995 over 1994. Noninterest expenses grew by 4% in 1995
over 1994. This lower rate of operating expense growth was due in part to lower
FDIC insurance premiums for 1995. This premium rate reduction was a reflection
of the FDIC achieving a more fully funded status in reserves. Excluding the
benefits of lower deposit insurance premiums, noninterest expenses in 1995 were
8% higher than 1994.
Contributing to the improvement in earnings growth in 1995 over 1994, was a
continuation of favorable asset quality trends in the Bank's loan portfolios.
Nonperforming loans, classified assets and net credit losses all recorded
reduced amounts at year-end 1995 compared to year-end 1994. Based on these
favorable conditions, the Bank was able to omit any provisions for its allowance
for credit losses during 1995. This compares to a modest provision of $160
recorded in 1994.
Noninterest income, on which the Company is placing greater emphasis in
order to achieve revenue growth, posted an increase of 11% in 1995 over 1994,
excluding the effect of investment gains and losses. This growth was achieved
primarily from increases in trust services revenues and deposit account service
charges.
For the year 1995, return on average assets was 1.16%, which represented an
increase over 1994's 1.11%, while return on average stockholders' equity
advanced to 12.24% in 1995 from 12.12% in 1994.
<TABLE>
<CAPTION>
CHANGES IN NET INCOME PER COMMON SHARE
1994 1993
to to
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Prior year net income per share $ 1.89 $ 1.95
Change attributed to:
Net interest income 0.29 0.47
Provision for credit losses 0.02 0.12
Noninterest income 0.05 (0.11)
Noninterest expenses (0.14) (0.46)
Income taxes (0.01) (0.02)
Increased shares outstanding (0.03) (0.06)
------ ------
Total 0.18 (0.06)
------ ------
NET INCOME PER SHARE $ 2.07 $ 1.89
====== ======
</TABLE>
14
<PAGE>
Historical Trends in Financial Data 1991-1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (for the year):
Interest income $ 55,241 $ 46,264 $ 41,674 $ 44,520 $ 47,448
Interest expense 25,998 19,179 17,695 21,188 28,471
Net interest income 29,243 27,085 23,979 23,332 18,977
Provision for credit losses -- 160 950 1,750 835
Net interest income after provision
for credit losses 29,243 26,925 23,029 21,582 18,142
Noninterest income 4,446 4,129 4,808 4,573 2,724
Noninterest expenses 20,787 19,895 16,942 15,269 13,477
Income before taxes and cumulative effect
of accounting change 12,902 11,159 10,895 10,886 7,389
Income tax expense 3,979 3,139 2,888 2,981 1,994
Income before cumulative effect of
accounting change 8,923 8,020 8,007 7,905 5,395
Cumulative effect of accounting change -- -- -- 744 --
Net income 8,923 8,020 8,007 8,649 5,395
PER SHARE DATA:(1)
Net income $ 2.07 $ 1.89 $ 1.95 $ 2.07(2) $ 1.51
Dividends declared 0.64 0.54 0.49 0.43 0.38
Book value 18.04 15.65 15.73 13.38 10.99
FINANCIAL CONDITION (at year end):
Assets $794,319 $764,135 $722,465 $626,084 $573,812
Deposits 679,587 645,619 622,056 557,958 517,110
Loans 424,626 401,524 324,372 274,189 313,315
Securities 286,411 304,004 309,013 284,999 191,221
Stockholders' equity 78,091 66,956 66,391 54,668 39,501
MEASUREMENTS (for the year):
Return on average assets 1.16% 1.11% 1.24% 1.32%(2) 1.00%
Return on average equity 12.24 12.12 13.74 17.65(2) 14.75
Average equity to average assets 9.46 9.19 9.06 7.45 6.79
Dividends declared to net income 30.88 28.34 25.14 20.76(2) 24.94
</TABLE>
/(1)/ Adjusted to give retroactive effect to a 2-for-1 stock split declared
on March 29, 1995.
/(2)/ Excludes the cumulative benefit recorded in 1992 from the change in
accounting for income taxes.
15
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Average Balances, Yields and Rates/(1)/
(Dollars in thousands and tax-equivalent)
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:/(2)/
Real estate/(3)/ $347,056 $30,693 8.84% $281,280 $22,764 8.09% $248,805 $20,596 8.28%
Consumer 26,099 2,373 9.09 19,826 1,716 8.66 15,428 1,585 10.27
Commercial 47,351 4,495 9.49 38,868 3,194 8.22 21,295 1,744 8.19
Tax exempt 479 63 13.15 611 77 12.60 967 115 11.89
------- ------- -------- ------ -------- -------
Total loans 420,985 37,624 8.94 340,585 27,751 8.15 286,495 24,040 8.39
Securities:
Taxable 229,084 13,504 5.89 252,781 13,924 5.51 209,860 12,380 5.90
Nontaxable 65,606 5,140 7.83 75,046 6,013 8.01 75,481 6,326 8.38
------- ------- -------- ------ -------- -------
Total securities 294,690 18,644 6.33 327,827 19,937 6.08 285,341 18,706 6.56
Interest-bearing deposits
with banks 651 35 5.38 1,004 37 3.69 12,385 399 3.22
Federal funds sold 11,366 654 5.75 11,070 431 3.89 22,540 682 3.03
------- ------- -------- ------ -------- -------
TOTAL EARNING
ASSETS 727,692 56,957 7.83 680,486 48,156 7.08 606,761 43,827 7.22
Less: allowance for
credit losses (6,049) (6,309) (4,519)
Cash and due from banks 24,115 22,482 19,621
Premises and equipment, net 15,047 14,419 13,185
Other assets 9,824 9,011 8,340
------- -------- --------
Total assets $770,629 $720,089 $643,388
======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
demand deposits $ 84,902 $ 2,211 2.60% $ 85,898 $ 2,253 2.62% $ 79,126 $ 2,239 2.83%
Regular savings deposits 99,080 2,977 3.00 108,747 3,304 3.04 73,956 2,266 3.06
Money market
savings deposits 145,430 5,298 3.64 173,744 5,260 3.03 177,547 5,500 3.10
Time deposits 236,672 13,118 5.54 166,392 7,047 4.24 164,381 6,985 4.25
------- ------- -------- ------ -------- -------
Total interest-
bearing deposits 566,084 23,604 4.17 534,781 17,864 3.34 495,010 16,990 3.43
Short-term and
other borrowings 42,151 2,394 5.68 31,004 1,315 4.24 20,230 705 3.48
------- ------- -------- ------ -------- -------
TOTAL INTEREST-
BEARING
LIABILITIES 608,235 25,998 4.27 565,785 19,179 3.39 515,240 17,695 3.43
------- ------- ----- ------ ----- ------- -----
Net Interest Income
and Spread $30,959 3.56% $28,977 3.69% $26,132 3.79%
======= ===== ====== ===== ======= =====
Non-interest-bearing
demand deposits 88,337 87,880 68,531
Other liabilities 1,175 275 1,350
Stockholders' equity 72,882 66,149 58,267
------- -------- --------
Total liabilities and
stockholders' equity $770,629 $720,089 $643,388
======= ======== ========
Interest income/
earning assets 7.83% 7.08% 7.22%
Interest expense/
earning assets 3.58 2.82 2.91
----- ----- -----
Net interest margin 4.25% 4.26% 4.31%
===== ===== =====
</TABLE>
/(1)/ Income and yields are presented on a tax-equivalent basis using a federal
income tax rate of 34%.
/(2)/ Nonaccrual loans are included in the average balances.
/(3)/ Includes residential mortgage loans held for sale.
16
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
NET INTEREST INCOME
Net interest income for 1995 was $29,243, representing an increase of $2,158 or
8.0% from 1994. Net interest income for 1994 of $27,085 was up 13.0% from the
1993 level of $23,979. On a tax-equivalent basis, net interest income amounted
to $30,959 in 1995, representing a 6.8% annual rise, and $28,977 in 1994,
representing a 10.9% annual rise, preceded by $26,132 in 1993.
Since net interest income is the most significant element of earnings,
management focuses considerable efforts in this area. This involves a balancing
effort to increase the amount of sound earning assets at yields that are
competitive while being sufficiently high, compared to funding costs, to
generate a rise in net interest income consistent with desirable profitability
ratios. See the "Consolidated Average Balances, Yields and Rates" table
accompanying this discussion. During 1995, the Company encountered higher than
expected money costs, resulting in an essentially unchanged net interest margin.
Thus, improvement in net interest income came primarily from an increase in
earning assets. This was also the major factor in the significant rise in net
interest income in 1994, compared to 1993.
Interest Income
The Company's tax-equivalent interest income increased by 18.3% or $8,801 in
1995, as a result of a $47,206 or 6.9% increase in average earning assets. The
average yield on earning assets for 1995 was 75 basis points more than in 1994.
Average loans (yielding 8.94%) increased 23.6% or $80,400, while average
securities (yielding 6.33%) decreased by 10.1% or $33,137 in 1995 compared to
1994, as a result of increased loan demand.
In 1994, tax-equivalent interest income increased, by 9.9% or $4,329, as a
rise of 12.2% in average earning assets was partially offset by a decline of 14
basis points in the average yield earned on them.
Interest Expense
Interest expense increased more in 1995 than tax-equivalent interest income,
rising 35.6% or $6,819, due to the combined effects of a 7.5% increase in
average interest-bearing liabilities and an 88 basis point rise in the average
rate paid for those funds. Average time deposits (costing 5.54%) rose 42.2% or
$70,280, principally due to a focused advertising program targeting this
customer base. All other major categories of interest-bearing deposits declined,
including average money market savings deposits (costing 3.64%), down 16.3% or
$28,314, average regular savings (costing 3.00%), down 8.9% or $9,667, and
average interest-bearing demand deposits (costing 2.60%), down 1.2% or $996.
Average short-term and other borrowings (costing 5.68%) increased 36.0% or
$11,147, with a significant part of the rise coming from repurchase agreements
related to cash management services provided to small businesses.
In 1994, interest expense increased 8.4% or $1,484, compared to 1993, due
to a 9.8% rise in average interest-bearing liabilities coupled with a small
decline in average rate paid.
Interest Rate Performance
In 1994 and 1995, changes in net interest spread and margin were modest,
compared to the prior year, and thus were not significant factors in net
interest income growth. Maintenance of the profit spreads between 1994 and 1995
means that the Company increased its earning asset base at a fairly consistent
level of profitability. The interest rate spread was 3.56% in 1995, compared to
3.69% in 1994, while the net interest margin was essentially unchanged due to
the more positive impact of noninterest sources of funds in a higher interest
rate environment. Both the spread and margin showed little change in 1994,
compared to 1993.
NONINTEREST INCOME
Total noninterest income increased 7.7% during 1995 to $4,446 for the year, an
improvement following the 14.1% or $679 decline during 1994. Holding down the
size of increase in 1995 were $156 higher losses on securities transactions in
1995 than in 1994, and the small amount of increase achieved in gains on
residential mortgage loan sales. The Company is beginning to see results from
organizational changes in 1995 to increase residential mortgage loan
originations and sales in order to generate additional income in this category
in future periods.
Securities losses of $240 in 1995 and $84 in 1994 were preceded by
securities gains of $257 in 1993.
Gains on mortgage sales were $232 in 1995 on sales of $16,822 and $164 in
1994 on sales of $15,487. More substantial gains of $976 on sales of $48,360
were recorded in 1993, which included a period of substantial refinancing.
Service charges on deposit accounts increased 9.7% or $225 to $2,533 in
1995, up from $2,308 in 1994 and $2,028 in 1993. A majority of the rise in this
category during 1995, compared to 1994, was attributable to return check
charges.
17
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
Many types of service charges either declined or increased slightly, reflecting
a substantial shift in 1995 from deposit products having service charges into
time deposits which generally do not.
Other noninterest income was up 10.3% or $180 during 1995, preceded by
12.5% or $194 the prior year. Of significance to 1995's increase were higher
gains on sales of student loans, recording a rise of $130 which was both volume
and price driven. Fees for trust services increased 20.8% or $131 in 1995,
compared to 1994, and 18.3% in 1994. Newer fee based businesses, such as credit
cards, annuities and mutual funds, are generating revenue, while a decline in
servicing fees on mortgages sold reflects the Company's current practice of
releasing the servicing rights on a substantial portion of the mortgages it
sells.
NONINTEREST EXPENSES
Noninterest expenses totaled $20,787 in 1995, representing a 4.5% increase over
$19,895 in 1994. By contrast, noninterest expenses increased 17.4% in 1994,
compared to 1993. Costs associated with building a more solid base of operations
necessary to better service a growing customer base, which led to higher overall
operating expense levels in 1994, were not a predominate factor in 1995, when
the focus was on cost containment.
Salaries and employee benefits increased 5.2% or $570 in 1995, compared to
a 22.0% or $1,994 rise in 1994. A significant part of the growth reported for
1995 is attributable to merit salary increases in 1995 and growth related staff
increases in 1994. The Company had nonrecurring costs associated with special
early retirement benefits extended to certain long-term employees of
approximately $300 in both 1995 and 1994.
The ratio of net income to average full-time-equivalent employees was $31
for 1995, $28 for 1994 and $32 for 1993. The improvement in 1995 was the result
of greater relative growth in net income compared to a small increase in average
full-time equivalent employees during the year. The decline in this measure in
1994 reflected an increase in staffing related in part to opening three
additional branches.
Occupancy expense, which is recorded net of rental income, grew 2.9% or $53
during 1995. The increase was moderated in part by rental income from a newly
acquired facility. The increase was 14.4% or $230 in 1994, compared to 1993, due
in large measure to rental expenses for new branches and office space.
Equipment expenses grew 20.8% or $322 in 1995, reflecting to a great extent
additional depreciation charges for Bank equipment and furniture and the $157
write-off of software incident to the new systems that were put in place in
1995. The rise in equipment expenses was 23.4% or $293 in 1994, and was
significantly associated with branch automation, equipping a new branch and
acceleration of depreciation on automated teller machines.
The aggregate of FDIC insurance, outside data services and other
noninterest expenses decreased 1.0% or $53 in 1995, compared to 1994. There was
a significant industrywide reduction in FDIC insurance premiums in 1995, a year
when the Company's insurance premiums amounted to .11% of average deposits
versus .22% in 1994. Partially offsetting this positive development were $192 in
nonrecurring conversion costs associated with moving to a new data processing
provider during 1995. Attorney fees and consulting services were major
contributors to the 8.7% overall increase shown for these expense categories in
1994, compared to 1993.
Net Overhead
Management believes that the net overhead ratio, which expresses the level of
net operating expenses (noninterest expenses less noninterest income) as a
percentage of tax-equivalent net interest income, is a good measure of overall
noninterest expense performance. During 1995, the Company's net overhead ratio
was 52.8%, compared to ratios of 54.4% achieved in 1994 and 46.4% in 1993.
Ratios close to 50% are considered desirable.
BALANCE SHEET ANALYSIS
During 1995, the Company's size, as measured by total assets, grew by $30,184 or
4.0%, to $794,319 at December 31, 1995, from $764,135 at December 31, 1994. The
Company's decision to reduce borrowed funds (Federal Home Loan Bank advances)
during 1995 had the effect of reducing asset growth below historical levels.
Earning assets increased
18
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
$28,974 or 4.1%, to $740,088 from $711,114. The majority of the rise in earning
assets occurred in the loan portfolio, which increased $23,102 or 5.8%.
Loans
Real estate mortgage loans rose 3.1% to $315,708 in 1995. Included in this
category are commercial mortgages, which increased 0.6% during 1995 and totalled
$116,744 at December 31, 1995. These mortgages mainly consist of owner occupied
properties where an established banking relationship exists. Home equity lines
and home equity loans, types of real estate mortgages which permit homeowning
consumers to leverage their equity and possibly receive an income tax deduction
on the interest, advanced 9.3% during 1995 to $60,056 at year end. One to four
family residential loans, up 1.3% in 1995, represented $126,149 of the real
estate mortgage portfolio at December 31, 1995. Other real estate mortgages,
including residential lot loans, collectively rose 20.7% to $12,759.
Real estate construction loans increased 34.4% to $30,859 from 1994,
attributable to a substantial rise in commercial construction credits. The
Company conducts its commercial construction lending in the markets it knows and
understands, works selectively with local, top-quality builders and developers,
and requires substantial equity from the borrower.
The consumer loan portfolio remained essentially unchanged, decreasing
slightly to $28,083 at December 31, 1995, from $28,337 at December 31, 1994. In
recent years, much of consumer lending has moved from traditional installment
credits into home equity lines and credit cards. During 1995, the Company
achieved a 7.5% increase in home equity lines, which are included above in real
estate mortgage loans. Credit cards were introduced in 1995 and comprise a small
part of the loan portfolio.
Commercial loans rose 13.8% to $49,568 during 1995. For the most part,
these are loans to a diverse cross-section of small to mid-size local
businesses, many of whom are existing customers of the Company. These types of
banking relationships are a natural fit for the Company, which is experienced in
serving and lending to this market segment and has knowledge of the marketplace
through its community roots and involvement. The Company desires to expand this
part of its loan portfolio.
Analysis of Loans
(Dollars in thousands)
The following table presents the trends in the composition of the loan portfolio
over the previous five years.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate -- mortgage/(1)/ $315,708 $306,122 $250,781 $224,494 $251,597
Real estate -- construction/(2)/ 30,859 22,969 13,711 12,234 16,839
Consumer 28,083 28,337 18,848 17,509 21,225
Commercial 49,568 43,560 40,361 18,709 22,040
Tax exempt 408 536 671 1,243 1,614
-------- -------- -------- -------- --------
TOTAL LOANS $424,626 $401,524 $324,372 $274,189 $313,315
======== ======== ======== ======== ========
</TABLE>
/(1)/ Consists of fixed and adjustable rate first and second home mortgage
loans, home equity lines of credit and commercial mortgage loans.
/(2)/ Includes both residential and commercial properties.
Securities
The investment portfolio, which consists of available-for-sale and held-to-
maturity as well as other equity securities, declined $17,593 or 5.8% during
1995 to $286,411 at December 31, 1995, from $304,004 at the prior year end. This
portfolio is managed to generate interest revenue, achieve asset/liability
management objectives and provide liquidity. As permitted by a newly issued
accounting pronouncement, $41,097 were transferred during the fourth quarter of
1995 from the held-to-maturity category to the available-for-sale portfolio in
order to add flexibility to the Bank's future management of this portfolio. This
transaction resulted in an increase in stockholders' equity since the transfer
allowed for the recognition of net unrealized gains of $342, net of taxes, on
the securities transferred.
19
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
Analysis of Securities
(Dollars in thousands)
The composition of Securities at December 31 for each of the latest three fiscal
years was:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE/(1)/
U.S. Treasury $ 15,991 $ 23,272 $ 32,691
U.S. Agency 68,301 23,579 19,093
State and municipal 35,330 39,836 51,084
Corporate debt obligations 2,458 3,260 7,230
Mortgage-backed securities/(2)/ 40,282 37,307 119,151
Marketable equity securities 1,786 518 5,715
-------- -------- --------
Total 164,148 127,772 234,964
HELD-TO-MATURITY AND OTHER EQUITY
U.S. Agency 39,685 77,959 42,242
State and municipal 30,432 29,627 27,883
Mortgage-backed securities/(2)/ 48,181 64,680 --
Other equity securities 3,965 3,966 3,924
-------- -------- --------
Total 122,263 176,232 74,049
-------- -------- --------
TOTAL SECURITIES/(3)/ $286,411 $304,004 $309,013
======== ======== ========
</TABLE>
/(1)/ At estimated fair value.
/(2)/ Mortgage-backed securities are either issued by a federal agency or are
secured by U.S. Agency collateral and therefore are believed to be high-
quality.
/(3)/ The outstanding balance of no single issuer exceeded ten percent of
stockholders' equity at December 31, 1995, 1994 or 1993.
Maturities and weighted average yields for investments available-for-sale
and held-to-maturity at December 31, 1995, are shown below:
<TABLE>
<CAPTION>
Within Over 1 Over 5 Over
1 through 5 through 10 10
-------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield TOTAL YIELD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS
AVAILABLE-FOR-SALE/(1)/
U.S. Treasury $ 7,990 5.87% $ 7,982 5.45% $ -- --% $ -- --% $ 15,972 5.66%
U.S. Agency 13,990 5.93 50,251 5.84 4,000 7.08 -- -- 68,241 5.93
State and municipal/(2)/ 8,296 9.00 23,758 7.74 2,632 6.49 -- -- 34,686 7.95
Corporate debt obligations 999 8.15 500 6.13 1,000 6.06 -- -- 2,499 6.91
Mortgage-backed securities 479 6.55 28,709 6.25 6,303 6.03 5,067 6.49 40,558 6.25
------- -------- ------- ------ -------
Total debt securities $31,754 6.80% $111,200 6.33% $13,935 6.42% $5,067 6.49% 161,956 6.43%
======= ======== ======= ======
Marketable equity securities 470
-------
TOTAL INVESTMENTS
AVAILABLE-FOR-SALE $162,426
========
INVESTMENTS HELD-
TO-MATURITY
U.S. Agency $1,000 5.03% $28,698 5.33% $ 6,987 6.36% $3,000 7.48% $ 39,685 5.67%
State and municipal/(2)/ -- -- 8,703 7.51 21,129 7.31 600 7.79 30,432 7.38
Mortgage-backed securities 3,587 7.19 44,594 6.92 -- -- -- -- 48,181 6.94
------ ------- ------- ------ --------
TOTAL INVESTMENTS
HELD-TO-MATURITY $4,587 6.72% $81,995 6.43% $28,116 7.08% $3,600 7.53% $118,298 6.63%
====== ======= ======= ====== ========
</TABLE>
/(1)/Amounts shown at amortized cost without market value adjustments required
by FASB 115 (see notes 1 and 3 of Notes to the Consolidated Financial
Statements).
/(2)/The yields on state and municipal securities have been calculated on a tax-
equivalent basis assuming a 34% marginal federal income tax rate.
Other Earning Assets
Residential mortgage loans held for sale rose to $3,975 in 1995 from a zero
balance at the prior year end. Interest-bearing deposits with banks and federal
funds sold together rose $19,490 from December 31, 1994, to December 31, 1995.
Deposits and Borrowings
Customer-based deposits continue to be the Company's primary funding source and
increased $33,968 or 5.3% to $679,587 at December 31, 1995, from $645,619 at
December 31, 1994. All deposit categories declined except certificates of
deposit, which rose $79,798 or 43.5%, reflecting in large part aggressive
marketing and competitive pricing. The decrease in non-
20
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
interest bearing deposits balances of $10,770 or 10.3% included seasonal losses.
Based on average balances, these deposits increased slightly by 0.5% during
1995. Over the same period, total borrowings decreased $15,493.
CAPITAL MANAGEMENT
During 1995, stockholders' equity increased $11,135 or 16.6%, to $78,091 at
December 31, 1995, from $66,956 at December 31, 1994. Capital additions resulted
from earnings, net of dividends, and, to a lesser extent, from stock issuances.
Also included in the increase was $3,731 of change (net of taxes) related to the
fair value of the investments available-for-sale portfolio. Such unrealized
gains and losses on available-for-sale securities are a component of
stockholders' equity under generally accepted accounting principles, but are not
included in capital for purposes of computing regulatory capital ratios.
Internal capital generation (net income less dividends) provided $6,168 in
additional equity during 1995, which equates to an internal capital generation
rate of 8.5% as compared to 8.7% for 1994.
External capital formation resulted from dividend reinvestment, which provided
$1,000 of additional equity through the issuance of 35,300 shares in 1995 and
$785 through 16,613 new shares in 1994, and from employee investment programs,
which added $236 and $278 in the respective years to the Company's capital
position. In 1993, new equity capital of $1,940 was raised as a result of the
issuance of 44,605 shares of the Company's common stock in exchange for First
Montgomery Bank stock in the merger transaction.
In a transaction that did not affect either the total common stock and surplus
of the Company or the relative stock ownership of the shareholders, a 2-for-1
stock split in the form of a stock dividend was declared by the Board of
Directors on March 29, 1995.
Regulatory Capital Requirements
The Company recorded a total risk-based capital ratio of 18.16% at December 31,
1995, compared to 17.52% at December 31, 1994, a tier 1 risk-based capital ratio
of 16.91% compared to 16.27%, and a capital leverage ratio of 9.89% compared to
9.45%. The total risk-based capital ratio is the primary regulatory measure of
capital adequacy. This ratio relates capital adequacy to the level of credit
risk inherent in assets both on and off the balance sheet, with higher-risk
assets requiring a greater commitment of capital.
Management monitors historical and projected earnings, dividends and asset
growth, as well as risks associated with the various types of on- and off-
balance sheet assets, in order to determine the appropriate capital levels and
the action needed, if any, to preserve capital adequacy.
As is evident in the following table, both the Company and its subsidiary bank
are well capitalized as measured by regulatory standards for safety and
soundness.
<TABLE>
<CAPTION>
December 31,
------------------ Regulatory
1995 1994 Standards
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPANY:
Tier 1 capital/(1)/ $77,128 $69,658
Tier 1 risk-based capital ratio 16.91% 16.27% 4.00%
Total risk-based capital/(2)/ $82,830 $74,974
Total risk-based capital ratio 18.16% 17.52% 8.00%
Capital leverage ratio 9.89% 9.45% 3-5%/(3)/
BANK:
Tier 1 capital/(1)/ $67,643 $61,423
Tier 1 risk-based capital ratio 14.86% 14.36% 4.00%
Total risk-based capital/(2)/ $73,335 $66,736
Total risk-based capital ratio 16.11% 15.61% 8.00%
Capital leverage ratio 8.69% 8.34% 3-5%/(3)/
</TABLE>
/(1)/Total stockholders' equity less intangibles and the net unrealized gain
(loss) on investments available-for-sale.
/(2)/Tier 1 capital plus a permitted amount of the allowance for credit losses.
/(3)/Established on an individual basis for each bank.
CREDIT RISK MANAGEMENT
The allowance for credit losses is available for future loan charge-offs. The
allowance is funded at a level deemed appropriate by charges to earnings through
the provision for credit losses. The allowance is decreased for loan charge-offs
and increased for recoveries of loans previously charged off. The amount of
provision necessary is determined by loss allocations for specific problem
credits, historical loss experience and consideration of other factors including
economic conditions, portfolio trends
21
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
and credit concentrations, based upon data and analysis provided by the
Company's loan review department. With adoption of Statement of Financial
Accounting Standards No. 114, as amended by Statement of Financial Accounting
Standards No. 118 (see Note 1 of the Notes to the Consolidated Financial
Statements), effective in 1995, impaired loans are accounted for within the
allowance for credit losses, with the amount of provision generally determined
based upon collateral values or the present value of estimated cash flows. The
Company had no impaired loans at December 31, 1995, as defined by these
accounting standards. Although $590 of loans were classified as being in
nonaccrual status at December 31, 1995, the insignificant delay of payments
caused the loans not to be classified as impaired loans in the Company's loan
review process.
Management believes overall credit quality in the loan portfolio is excellent,
as indicated by a ratio of nonperforming loans to total loans of 0.16% at
December 31, 1995, down from 0.39% at December 31, 1994. The amount of total
nonperforming loans declined by $894 or 56.5% during 1995. The allowance for
credit losses was 8.6 times greater than nonperforming loans at December 31,
1995. During the year, net charge-offs of $198 were recorded out of an average
loan portfolio totalling $420,985, a ratio of 0.05%. Other real estate owned was
$47, net of an allowance of $45, at December 31, 1995.
Due to continuing improvement in asset quality indicators, there was no
provision for credit losses in 1995 and a small provision of $160 in 1994, as
compared to $950 for 1993.
The Company continues to experience a low level of credit losses. Net charge-
offs of $198 were 0.05% of average loans during 1995, preceded by $229 and
0.07%, respectively, in 1994.
The major concentrations of credit risk for the Company arise by customer
location, because it operates only in two counties in the State of Maryland, and
by loan portfolio composition. Real estate credits represented 81.6% of total
loans at December 31, 1995, and 82.0% at December 31, 1994. In the past, the
Company has experienced low loss levels, especially in real estate secured
loans, through various economic cycles and conditions. Within the real estate
loan portfolio, one category generally thought to possess high risk potential is
commercial construction lending, which comprised 5.8% of total real estate loans
and 4.8% of total loans at December 31, 1995. However, management believes these
loans represent low risk due to characteristics outlined in the loan section of
Balance Sheet Analysis on page 19. In addition, the Bank's sizeable portfolio of
traditional home construction and mortgage loans, considered by the industry to
be among the safest credit categories, amounted to 43.1% of total real estate
loans and 35.2% of total loans. The remaining balances of real estate loans
consisted primarily of commercial mortgages, home equity lines of credit and
residential lot loans which bear risk profiles that have been reduced by the
Bank's substantial experience in its markets and its historically risk aversive
lending culture.
Analysis of Credit Risk
(Dollars in thousands)
Activity in the allowance for credit losses for the preceding five years ended
December 31 is shown below:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $6,108 $6,177 $3,816 $2,690 $2,568
Provision for credit losses -- 160 950 1,750 835
Allowance from merger transaction -- -- 1,158 -- --
Loan charge-offs:
Real estate -- mortgage (33) (135) -- (506) (50)
Real estate -- construction -- -- -- -- (5)
Consumer (209) (32) (104) (243) (294)
Commercial (190) (342) (29) (76) (412)
------ ------ ------ ------ ------
Total charge-offs (432) (509) (133) (825) (761)
Loan recoveries:
Real estate -- mortgage 153 16 54 -- --
Real estate -- construction -- -- -- 5 --
Consumer 30 40 79 61 40
Commercial 51 224 253 135 8
------ ------ ------ ------ ------
Total recoveries 234 280 386 201 48
------ ------ ------ ------ ------
Net recoveries (charge-offs) (198) (229) 253 (624) (713)
------ ------ ------ ------ ------
BALANCE, DECEMBER 31 $5,910 $6,108 $6,177 $3,816 $2,690
====== ====== ====== ====== ======
Net charge-offs to average loans 0.05% 0.07% * 0.22% 0.22%
Allowance to total loans 1.39% 1.52% 1.90% 1.39% 0.86%
</TABLE>
* The Company had net recoveries in 1993.
22
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
<TABLE>
<CAPTION>
The following table presents nonperforming assets for a five year period:
December 31,
-------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans/(1)/ $590 $ 866 $2,933 $ 508 $ 580
Loans 90 days past due 61 671 517 953 1,318
Restructured loans 36 44 -- -- --
---- ------ ------ ------ ------
Total nonperforming loans/(2)/ 687 1,581 3,450 1,461 1,898
Other real estate owned, net 47 277 1,387 999 1,097
---- ------ ------ ------ ------
TOTAL NONPERFORMING ASSETS $734 $1,858 $4,837 $2,460 $2,995
==== ====== ====== ====== ======
NONPERFORMING ASSETS TO TOTAL ASSETS 0.09% 0.24% 0.67% 0.39% 0.52%
</TABLE>
/(1)/Gross interest income that would have been recorded in 1995 if nonaccrual
loans had been current and in accordance with their original terms was $64,
while interest actually recorded on such loans was $49.
/(2)/Those performing loans considered potential problem loans, as defined and
identified by management, amounted to $3,867 at December 31, 1995. Although
these are loans where known information about the borrowers' possible
credit problems causes management to have doubts as to their ability to
comply with the present loan repayment terms, most are well collateralized
and are not believed to present significant risk of loss.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity
The Company's liquidity position, considering both internal and external sources
available, exceeded anticipated short- and long-term funding needs at December
31, 1995. Core deposits, considered to be stable funds sources and defined to
include all deposits except certificates of deposit of $100,000 or more, equaled
86.0% of total earning assets at December 31, 1995. In addition, substantial
amortizing residential mortgage loans, maturities and paydowns of securities,
deposit growth and earnings contribute a flow of funds available to meet
liquidity requirements. In assessing liquidity, management considers operating
requirements, the seasonality of deposit flows, investment, loan and deposit
maturities, expected fundings of loans, deposit withdrawals, and the market
values of available-for-sale investments, so that sufficient funds are available
on short notice to meet obligations as they arise and to ensure that the Company
is able to pursue new business opportunities.
Internally generated funds on hand at December 31, 1995, consisting of cash
and cash equivalents, interest-bearing deposits with banks, residential mortgage
loans held for sale, maturities of investments held-to-maturity due within one
year at fair value and investments available-for-sale, totalled $227,907 or
28.7% of total assets.
The primary external source of liquidity available is a line of credit for
$145,000 with the Federal Home Loan Bank of Atlanta of which $3,020 was
outstanding at December 31, 1995. Core deposits increased by $23,198 during
1995, while loans grew by $23,102, results which did not require borrowed funds.
In fact, the Company reduced Federal Home Loan Bank borrowings by $20,500 during
1995.
The Company's time deposits of $100,000 or more represented 6.4% of total
deposits at December 31, 1995, and are shown by maturity in the table below.
<TABLE>
<CAPTION>
Months to Maturity
-----------------------------------------
3 or Over 3 Over 6 Over
less to 6 to 12 12 TOTAL
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Time deposits -- $100,000 or more $13,214 $5,114 $8,648 $16,371 $43,347
======= ====== ====== ======= =======
</TABLE>
Interest Rate Sensitivity
The Bank's interest rate sensitivity at December 31, 1995, which did not differ
materially from that of the Company, is analyzed in the gap table on page 24. It
shows an asset sensitive position cumulative to one year of $61,284 or 7.7% of
total assets, indicating the assumption of relatively low interest rate risk.
Interest sensitivity is one measure of the way earnings may react to changes
in the general levels of interest rates. Whenever earning assets reprice to
market interest rates at a different pace than interest-bearing liabilities, net
interest income will be affected. Risk factors not reflected in gap analysis in
the table below include differences in the speed and amount of response by the
specific types of assets and liabilities to a change in general market interest
rates. Management believes its overall rate sensitivity position is appropriate
for current rate conditions.
23
<PAGE>
Management's Discussion and Analysis
(Dollars in thousands)
There is a prepayment risk associated with the Bank's portfolio of mortgage-
backed securities, especially collateralized mortgage obligations, whose
maturities can be significantly affected when interest rates change. However,
based on current prepayment assumptions, these assets have a relatively short
weighted average life.
In addition to the analysis of rate sensitivity, management performs
simulation analysis to more closely evaluate the short-term impact of changing
interest rates on net interest income and the long-term impact on the value of
equity capital. This approach is believed to provide a more accurate assessment
of the interest rate risk embedded in the Bank's balance sheet.
The Board of Directors has established the limits of acceptable risk as a
policy which the Asset-Liability Committee implements in its management of
interest rate risk. The Committee, comprised of senior management, meets weekly
and conducts comprehensive quarterly reviews with the Board of Directors.
The following schedule sets out the time frames from December 31, 1995, in
which the Bank's assets and liabilities are subject to repricing:
<TABLE>
<CAPTION>
----------------------------------------------
0-90 91-365 Over 1-3 Over 3-5 Over 5
Days Days Years Years Years
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Loans $148,886 $ 77,551 $129,851 $34,577 $33,761
Taxable securities 61,911 55,502 66,142 12,495 23,055
Nontaxable securities 3,155 5,120 12,475 19,120 25,248
Other investments 35,337 -- -- -- 821
-------- -------- -------- ------- -------
TOTAL 249,289 138,173 208,468 66,192 82,885
RATE SENSITIVE LIABILITIES:
Noninterest-bearing demand
deposits 9,392 -- -- -- 84,525
Interest-bearing demand
deposits 5,299 15,898 42,396 24,731 --
Regular savings deposits 7,583 22,749 60,664 2,528 --
Money market savings deposits 14,945 44,834 89,666 -- --
Time deposits 72,483 103,208 65,563 22,005 --
Short-term borrowings and
other rate sensitive liabilities 29,780 7 5 1,000 2,020
-------- -------- -------- ------- -------
TOTAL 139,482 186,696 258,294 50,264 86,545
-------- -------- -------- ------- -------
CUMULATIVE GAP $109,807 $ 61,284 $ 11,458 $27,386 $23,726
======== ======== ======== ======= =======
As a percent of total assets 13.82% 7.72% 1.44% 3.45% 2.99%
CUMULATIVE RATE SENSITIVE
ASSETS TO RATE SENSITIVE
LIABILITIES 1.79 1.19 1.02 1.04 1.03
</TABLE>
NOTE: This analysis is based upon a number of significant assumptions including
the following: Loans are repaid/rescheduled by contractual maturity and
repricings. Securities, except mortgage-backed securities, are repaid according
to contractual maturity adjusted for call features. Mortgage-backed security
repricing is adjusted for estimated early paydowns. In order to reflect the
temporary seasonal influx of non-interest-bearing demand deposits at year end,
which inflates short-term rate sensitive assets, such deposits in excess of
their average balance for the year are shown in 0-90 days. Interest-bearing
demand, regular savings and money market savings deposits are estimated to
exhibit some rate sensitivity based on management's analysis of deposit
withdrawals. Time deposits are shown in the table based on contractual maturity.
24
<PAGE>
Selected Glossary and Abbreviations
BASIS POINT: One hundredth of one percent. An increase in yield from 7.00% to
7.50% could be expressed as a change of 50 basis points.
BOOK VALUE PER SHARE: Total stockholders' equity divided by the number of shares
of common stock outstanding at year-end.
CAPITAL LEVERAGE RATIO: Year-end core capital (stockholders' equity less
intangibles and the net unrealized gain or loss on investments available-for-
sale) as a percentage of average total assets for the fourth quarter.
THE COMPANY: Sandy Spring Bancorp, Sandy Spring National Bank of Maryland and
Sandy Spring Insurance Corporation.
INTERNAL CAPITAL GENERATION RATE: Net income less cash dividends, expressed as a
percentage of average total stockholders' equity.
NET INTEREST MARGIN: Fully tax-equivalent net interest income as a percentage of
average earning assets.
NET INTEREST SPREAD: Fully tax-equivalent yield on earning assets less the
average rate paid on interest-bearing liabilities.
NET OVERHEAD RATIO: Net overhead (noninterest expenses less noninterest income)
divided by fully tax-equivalent net interest income.
NONPERFORMING LOANS: Sum of loans which are nonaccrual, 90 days past due or
restructured.
RETURN ON AVERAGE ASSETS: Net income as a percentage of average total assets.
RETURN ON AVERAGE EQUITY: Net income as a percentage of average total
stockholders' equity.
TOTAL RISK-BASED CAPITAL RATIO: Qualifying regulatory capital (stockholders'
equity less intangibles and the net unrealized gain or loss on investments
available-for-sale, plus a portion of the allowance for credit losses) as a
percentage of risk-adjusted total assets.
TAX-EQUIVALENT NET INTEREST INCOME: Interest income, plus the addition of tax
savings from nontaxable loans and investments, less interest expense.
TIER 1 RISK-BASED CAPITAL RATIO: Regulatory core capital (stockholders' equity
less intangibles and the net unrealized gain or loss on investments available-
for-sale) as a percentage of risk-adjusted total assets.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(FROM PAGES 26 THROUGH 43 OF THE ANNUAL REPORT)
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,108 $ 32,549
Interest-bearing deposits with banks 821 211
Federal funds sold 24,255 5,375
Residential mortgage loans held for sale 3,975 --
Investments available-for-sale (at fair value) 164,148 127,772
Investments held-to-maturity -- fair value of $119,597
(1995) and $164,103 (1994) 118,298 172,266
Other equity securities 3,965 3,966
Total loans (net of unearned income) 424,626 401,524
Less: Allowance for credit losses (5,910) (6,108)
-------- --------
Net loans 418,716 395,416
Premises and equipment 17,953 14,230
Accrued interest receivable 5,847 5,726
Other real estate owned, net of allowance of $45 (1995)
and $66 (1994) 47 277
Other assets 6,186 6,347
-------- --------
TOTAL ASSETS $794,319 $764,135
======== ========
LIABILITIES
Noninterest-bearing deposits $ 93,893 $104,663
Interest-bearing deposits 585,694 540,956
-------- --------
Total deposits 679,587 645,619
Short-term borrowings 29,779 45,243
Long-term borrowings 3,151 3,180
Accrued interest and other liabilities 3,711 3,137
-------- --------
TOTAL LIABILITIES 716,228 697,179
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares authorized 6,000,000;
shares issued and outstanding 4,329,828 (1995)
and 2,140,149 (1994) 4,330 2,140
Surplus 26,179 27,133
Retained earnings 47,138 40,970
Net unrealized gain (loss) on investments
available-for-sale, net of taxes 444 (3,287)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 78,091 66,956
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $794,319 $764,135
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $37,576 $27,672 $23,695
Interest on loans held for sale 55 57 300
Interest on deposits with banks 35 37 399
Interest and dividends on securities:
Taxable 13,471 14,030 12,350
Nontaxable 3,450 4,037 4,247
Interest on federal funds sold 654 431 683
------- ------- -------
TOTAL INTEREST INCOME 55,241 46,264 41,674
Interest expense:
Interest on deposits 23,604 17,864 16,990
Interest on short-term borrowings 2,175 1,165 641
Interest on long-term borrowings 219 150 64
------- ------- -------
TOTAL INTEREST EXPENSE 25,998 19,179 17,695
------- ------- -------
NET INTEREST INCOME 29,243 27,085 23,979
Provision for credit losses -- 160 950
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 29,243 26,925 23,029
Noninterest income:
Securities gains (losses) (240) (84) 257
Service charges on deposit accounts 2,533 2,308 2,028
Gains on mortgage sales 232 164 976
Other income 1,921 1,741 1,547
------- ------- -------
TOTAL NONINTEREST INCOME 4,446 4,129 4,808
Noninterest expenses:
Salaries and employee benefits 11,630 11,060 9,066
Occupancy expense of premises 1,881 1,828 1,598
Equipment expenses 1,867 1,545 1,252
FDIC insurance expense 752 1,388 1,275
Outside data services 737 582 519
Other expenses 3,920 3,492 3,232
------- ------- -------
TOTAL NONINTEREST EXPENSES 20,787 19,895 16,942
------- ------- -------
Income before income taxes 12,902 11,159 10,895
Income tax expense 3,979 3,139 2,888
------- ------- -------
NET INCOME $ 8,923 $ 8,020 $ 8,007
======= ======= =======
NET INCOME PER COMMON SHARE $ 2.07 $ 1.89 $ 1.95
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,923 $ 8,020 $ 8,007
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,547 1,435 1,078
Provision for credit losses -- 160 950
Deferred income taxes 285 (267) (508)
Origination of loans held for sale (20,797) (8,508) (49,787)
Proceeds from sales of loans held for sale 17,054 15,651 49,336
Gains on sales of loans held for sale (232) (164) (976)
Securities (gains) losses 240 84 (139)
Net change in:
Accrued interest receivable (121) (1,095) 213
Accrued income taxes 477 (133) (499)
Other accrued expenses 239 (263) 433
Other -- net (2,533) 492 1,678
-------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,082 15,412 9,786
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits with banks (610) 11,865 (11,976)
Purchases of investment securities -- -- (81,561)
Purchases of investments held-to-maturity (25,035) (56,191) --
Origination of investments held for sale -- -- (39,693)
Purchases of investments available-for-sale (38,030) (65,782) --
Proceeds from sales of investment securities -- -- 6,132
Proceeds from sales of investments held for
sale -- -- 10,683
Proceeds from sales of investments
available-for-sale 12,496 33,879 --
Proceeds from maturities and principal
payments of investment securities -- -- 83,955
Proceeds from maturities and principal
payments of investments held-to-maturity 37,973 15,286 --
Proceeds from principal payments of
investments held for sale -- -- 516
Proceeds from maturities and principal
payments of investments available-for-sale 35,729 66,955 --
Proceeds from sales of other real estate
owned 230 1,459 752
Net increase in loans receivable (23,102) (67,174) (50,183)
Purchases of loans -- (10,301) --
Expenditures for premises and equipment (5,250) (1,727) (2,409)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (5,599) (71,731) (83,784)
Cash flows from financing activities:
Net increase (decrease) in demand and
savings accounts (45,830) 5,372 67,265
Net increase (decrease) in time and other
deposits 79,798 18,191 (3,166)
Net increase (decrease) in short-term
borrowings (15,464) 17,936 17,543
Proceeds from long-term borrowings -- 1,000 2,020
Retirement of long-term borrowings (29) (26) (24)
Proceeds from issuance of common stock 1,236 1,063 726
Dividends paid (2,755) (2,273) (2,014)
-------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 16,956 41,263 82,350
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 16,439 (15,056) 8,352
Cash and cash equivalents at beginning of year 37,924 52,980 44,628
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR* $ 54,363 $ 37,924 $ 52,980
======== ======== ========
Supplemental disclosures:
Interest payments $ 26,077 $ 18,211 $ 18,105
Income tax payments 3,584 3,547 4,127
Noncash investing activities:
Transfers from loans to other real estate
owned $ -- $ 323 $ --
Investment transfers from
available-for-sale to held-to-maturity -- 66,925 --
Investment transfers from held-to-maturity
to available-for-sale 41,097 -- --
Unrealized gain (loss) on investments
available-for-sale net of
deferred tax effect of $2,348, $(3,929),
and $1,861, respectively 3,731 (6,245) 2,958
</TABLE>
* Cash and cash equivalents include those amounts under the captions "Cash and
due from banks" and "Federal funds sold" on the Consolidated Balance Sheets.
See Notes to Consolidated Financial Statements.
28
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 2,140 $ 2,110 $ 2,044
Increase in beginning shares as a result of
2-for-1 stock split in the form of a
stock dividend 2,140 -- --
Employee stock purchases -- shares issued
8,592 (1995), 4,950 (1994) and 5,276 (1993) 9 5 5
Exercise of stock options -- shares issued
5,649 (1995), 8,356 (1994) and 1,524 (1993) 6 8 2
Dividend reinvestment plan stock purchases
-- shares issued 35,300 (1995), 16,613 (1994)
and 14,982 (1993) 35 17 15
Common stock issued pursuant to merger with
First Montgomery Bank -- 44,605 shares -- -- 44
------- ------- -------
COMMON STOCK AT END OF YEAR 4,330 2,140 2,110
Surplus:
Balance at beginning of year 27,133 26,100 23,394
Transfer to common stock -- for 2-for-1
stock split (2,140) -- --
Employee stock purchases 201 223 195
Exercise of stock options 20 42 (2)
Dividend reinvestment stock purchases 965 768 617
Common stock issued in merger -- -- 1,896
------- ------- -------
SURPLUS AT END OF YEAR 26,179 27,133 26,100
Retained earnings:
Balance at beginning of year 40,970 35,223 29,230
Net income 8,923 8,020 8,007
Cash dividends* -- $0.64 (1995), $0.54 (1994)
and $0.49 (1993) per share (2,755) (2,273) (2,014)
------- ------- -------
RETAINED EARNINGS AT END OF YEAR 47,138 40,970 35,223
Net unrealized gain (loss) on investments
available-for-sale, net of taxes:
Balance at beginning of year (3,287) 2,958 --
Initial valuation adjustments, net of taxes -- -- 2,958
Net change in unrealized gains (losses) on
investments available-for-sale, net of taxes 3,731 (6,245) --
------- ------- -------
NET UNREALIZED GAIN (LOSS), NET OF TAXES,
AT END OF YEAR 444 (3,287) 2,958
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY $78,091 $66,956 $66,391
======= ======= =======
</TABLE>
* Per share data have been adjusted to give retroactive effect to a 2-for-1
stock split declared on March 29, 1995.
See Notes to Consolidated Financial Statements.
29
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Notes to the Consolidated Financial Statements
(Dollars in thousands, except per share data)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company, which includes Sandy
Spring Bancorp, its wholly owned subsidiary, Sandy Spring National Bank of
Maryland (the Bank), and Sandy Spring Insurance Corporation, the Bank's
subsidiary, conform to generally accepted accounting principles and to general
practice within the banking industry. Certain reclassifications have been made
to amounts previously reported to conform with the classifications made in 1995.
The following is a summary of the more significant accounting policies:
Nature of Operations
Through its subsidiary, the Company conducts a full-service commercial banking
business. Services to individuals and businesses include accepting deposits,
extending real estate, consumer and commercial loans and lines of credit, safe
deposit boxes, and personal trust services. The Company operates only in two
Maryland counties, Montgomery and Howard, and continues to show a concentration
in residential and commercial real estate loans. The Company has a small
presence, based on revenue, in the annuity business through an insurance agency.
Policy for Consolidation
The consolidated financial statements include the accounts of Sandy Spring
Bancorp and its subsidiaries. Consolidation has resulted in the elimination of
all significant intercompany balances and transactions.
The financial statements of Sandy Spring Bancorp (Parent Only) include the
Bank under the equity method of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Investments Held-to-Maturity and Other Equity Securities
Investments held-to-maturity are those securities which the Company has the
ability and positive intent to hold until maturity. Securities so classified at
time of purchase are recorded at cost. Securities transferred into held-to-
maturity from the available-for-sale portfolio are recorded at fair value at
time of transfer with unrealized gains or losses reflected in equity and
amortized over the remaining life of the security. The carrying values of
securities held-to-maturity are adjusted for premium amortization and discount
accretion.
Other equity securities represent Federal Reserve Bank and Federal Home Loan
Bank stock which are considered restricted as to marketability.
Investments Available-for-Sale
Marketable equity securities and debt securities not classified as held-to-
maturity are classified as available-for-sale. Securities available-for-sale are
acquired as part of the Company's asset/liability management strategy and may be
sold in response to changes in interest rates, loan demand, changes in
prepayment risk and other factors. Securities available-for-sale are carried at
fair value, with unrealized gains or losses based on the difference between
amortized cost and fair value, reported as a separate component of shareholders'
equity, net of deferred tax. Realized gains and losses, using the specific
identification method, are included as a separate component of noninterest
income. Related interest and dividends are included in interest income.
Loans
Loans are stated at their principal balance outstanding net of any deferred fees
and costs. Interest income on loans is accrued at the contractual rate based on
the principal outstanding. The Company places loans, except for installment, on
nonaccrual when any portion of the principal or interest is ninety days past due
and collateral is insufficient to discharge the debt in full. Interest accrual
may also be discontinued earlier if, in management's opinion, collection is
unlikely. Generally, installment loans are not placed on nonaccrual, but are
charged off when they are five months past due.
30
<PAGE>
Residential Mortgage Loans Held for Sale
The Company engages in sales of residential mortgage loans originated by the
Bank. Mortgage loans held for sale are carried at the lower of aggregate cost or
fair value. Gains and losses on sales of these mortgage loans are recorded as a
component of noninterest income in the Consolidated Statements of Income.
When the Company retains the servicing rights to collect and remit principal
and interest payments, manage escrow account matters and handle borrower
relationships on mortgage loans sold, resulting service fee income is included
in noninterest income.
Allowance for Credit Losses
The allowance for credit losses represents an amount which, in management's
judgement, will be adequate to absorb probable losses on existing loans and
other extensions of credit that may become uncollectible. The allowance for
credit losses is available for future loan charge-offs. The adequacy of the
allowance is determined by regular review and evaluation of the loan portfolio
considering current economic conditions, past and expected future loss
experience, changes in the character and size of the portfolio and management's
judgement. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. Loans deemed
uncollectible are charged against, while recoveries are credited to, the
allowance. Management adjusts the level of the allowance through the provision
for credit losses, which is recorded as a current period operating expense.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization computed using the straight-line method. Premises and equipment are
depreciated over the useful lives of the assets, except for leasehold
improvements which are amortized over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. The costs of
major renewals and betterments are capitalized, while the costs of ordinary
maintenance and repairs are expensed as incurred.
Other Real Estate Owned (OREO)
OREO comprises properties acquired in partial or total satisfaction of problem
loans. The properties are recorded at the lower of cost or fair value at the
date acquired. Losses arising at the time of acquisition of such properties are
charged against the allowance for credit losses. Subsequent write-downs that may
be required are added to a valuation reserve. Gains and losses realized from the
sale of OREO, as well as valuation adjustments, are included in noninterest
income. Expenses of operation are included in noninterest expense.
Income Taxes
Income tax expense is based on the results of operations, adjusted for permanent
differences between items of income or expense reported in the financial
statements and those reported for tax purposes. Under the liability method,
deferred income taxes are determined based on the differences between the
financial statement carrying amounts and the income tax bases of assets and
liabilities and are measured at the enacted tax rates that will be in effect
when these differences reverse.
New Accounting Standard -- Accounting for Loan Impairment
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (FASB 114). FASB 114 applies to loans where it is probable that the
creditor will not collect all principal and interest payments according to the
loan's contractual terms. Under FASB 114, impaired loans must be measured by
methods that consider the present value of the expected future cash flows
discounted at the loan's effective interest rate, the observable market price of
the loan, or the fair value of the collateral. If the measure of an impaired
loan is less than the carrying value, a valuation allowance must be estimated.
In October 1994, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures" (FASB 118), which amends FASB
114 and permits a creditor to use its existing income recognition methods for
impaired loans.
31
<PAGE>
FASB 114, as amended by FASB 118, is effective for financial statements for
fiscal years beginning after December 15, 1994, and was adopted by the Company
on January 1, 1995. Loan impairment is evaluated on a regular basis as an
element of the Company's overall review of the adequacy of the allowance for
credit losses.
NOTE 2 -- CASH AND DUE FROM BANKS
Regulation D of the Federal Reserve Act requires that banks maintain reserve
balances with the Federal Reserve Bank based principally on the type and amount
of their deposits. At its option, the Bank maintains additional balances to
compensate for clearing and safekeeping services. The average daily balance
maintained in 1995 was $19,041 and in 1994 was $16,514.
NOTE 3 -- INVESTMENTS AVAILABLE-FOR-SALE
The amortized cost and estimated fair values of investments available-for-sale
at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------- ----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 15,972 $ 49 $ (30) $ 15,991 $ 23,959 $ 12 $ (699) $ 23,272
U.S. Agency 68,241 300 (240) 68,301 24,845 6 (1,272) 23,579
State and municipal 34,686 692 (48) 35,330 39,719 337 (220) 39,836
Corporate debt obligations 2,499 9 (50) 2,458 3,272 6 (18) 3,260
Mortgage-backed securities 40,558 159 (435) 40,282 39,290 4 (1,987) 37,307
-------- ------ ----- -------- -------- ---- ------- --------
Total debt securities 161,956 1,209 (803) 162,362 131,085 365 (4,196) 127,254
Marketable equity securities 470 1,316 -- 1,786 5 513 -- 518
-------- ------ ----- -------- -------- ---- ------- --------
Total investments
available-for-sale $162,426 $2,525 $(803) $164,148 $131,090 $878 $(4,196) $127,772
======== ====== ===== ======== ======== ==== ======= ========
</TABLE>
The amortized cost and estimated fair values of investments available-for-
sale at December 31, 1995 and 1994, by contractual maturity, except mortgage-
backed securities for which an average life is used, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 31,754 $ 31,871 $ 21,655 $ 21,576
Due after one through five years 111,200 111,620 91,224 88,537
Due after five years through ten years 13,935 13,848 11,197 10,706
Due after ten years 5,067 5,023 7,009 6,435
-------- -------- -------- --------
Total debt securities $161,956 $162,362 $131,085 $127,254
======== ======== ======== ========
</TABLE>
Sales of investments available-for-sale during 1995 and 1994 resulted in the
following:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Proceeds $12,496 $33,879
Gross gains 4 139
Gross losses 242 284
</TABLE>
At December 31, 1995 and 1994, investments available-for-sale with a
carrying value of $48,709 and $27,020, respectively, were pledged as collateral
for certain government deposits and for other purposes as required or permitted
by law. The outstanding balance of no single issuer exceeded ten percent of
stockholders' equity at December 31, 1995 and 1994.
During 1993, the Company had proceeds from sales of its investments held
for sale of $10,683, and gross gains of $188 and gross losses of $44 were
realized on those sales.
32
<PAGE>
NOTE 4 -- INVESTMENTS HELD-TO-MATURITY AND OTHER EQUITY SECURITIES
The amortized cost and estimated fair values of investments held-to-maturity at
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------- ----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency $ 39,685 $ 89 $(361) $ 39,413 $ 77,959 $19 $(4,516) $ 73,462
State and municipal 30,432 855 (38) 31,249 29,627 31 (1,273) 28,385
Mortgage-backed securities 48,181 807 (53) 48,935 64,680 -- (2,424) 62,256
-------- ------ ----- -------- -------- ---- ------- --------
Total investments
held-to-maturity $118,298 $1,751 $(452) $119,597 $172,266 $50 $(8,213) $164,103
======== ====== ===== ======== ======== ==== ======= ========
</TABLE>
In accordance with a Financial Accounting Standards Board pronouncement in
late 1995, permitting a one-time transfer from investments held-to-maturity into
investments available-for-sale, the Company transferred $41,097 from its
held-to-maturity portfolio into the available-for-sale category with net
unrealized gains of $342, net of taxes.
The amortized cost and estimated fair values of debt securities at December
31 by contractual maturity, except mortgage-backed securities for which an
average life is used, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 4,587 $ 4,600 $ 11,386 $ 11,277
Due after one through five years 81,995 82,739 111,604 105,910
Due after five years through ten years 28,116 28,661 44,276 42,100
Due after ten years 3,600 3,597 5,000 4,816
-------- -------- -------- --------
Total investments held-to-maturity $118,298 $119,597 $172,266 $164,103
======== ======== ======== ========
</TABLE>
At December 31, 1995 and 1994, investments held-to-maturity with a book
value of $23,835 and $24,975, respectively, were pledged as collateral for
certain government deposits and for other purposes as required or permitted by
law. The outstanding balance of no single issuer exceeded ten percent of
stockholders' equity at December 31, 1995 or 1994.
Other equity securities at both December 31, 1995 and 1994, included the
Company's required investments in stock of the Federal Home Loan Bank of Atlanta
of $3,110 and in the Federal Reserve Bank of $855.
During 1993, the Company had proceeds from sales of its investment
securities of $6,132, and gross gains of $10 and gross losses of $48 were
realized on those sales.
NOTE 5 -- LOANS
Book values for the two most recent years are presented below for the major loan
categories at December 31:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate--mortgage $315,708 $306,122
Real estate--construction 30,859 22,969
Consumer 28,083 28,337
Commercial 49,568 43,560
Tax exempt 408 536
-------- --------
Total Loans 424,626 401,524
Less: Allowance for credit losses (5,910) (6,108)
-------- --------
NET LOANS $418,716 $395,416
======== ========
</TABLE>
Loan fees amounting to $230 (1995), $207 (1994) and $250 (1993) were
included in interest and fees on loans.
The servicing portfolio of mortgage loans sold totalled $103,801 at
December 31, 1995, and $112,456 at December 31, 1994.
33
<PAGE>
Activity in the allowance for credit losses for the preceding three years
ended December 31 is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $6,108 $6,177 $3,816
Provision for credit losses -- 160 950
Allowance from merger transaction -- -- 1,158
Loan charge-offs (432) (509) (133)
Loan recoveries 234 280 386
------ ------ ------
Net recoveries (charge-offs) (198) (229) 253
------ ------ ------
BALANCE AT END OF YEAR $5,910 $6,108 $6,177
====== ====== ======
</TABLE>
There were no impaired loans at December 31, 1995, as defined by FASB 114,
which was amended by FASB 118. Although $590 of loans were classified as being
in nonaccrual status at December 31, 1995, the insignificant delay of payments
caused the loans not to be classified as impaired in the Company's loan review
process.
NOTE 6 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 7,044 $ 4,307
Buildings and leasehold improvements 10,245 9,228
Equipment 10,528 9,373
------- -------
27,817 22,908
Less: Accumulated depreciation and amortization (9,864) (8,678)
------- -------
NET PREMISES AND EQUIPMENT $17,953 $14,230
======= =======
</TABLE>
Depreciation and amortization expense amounted to $1,482 for 1995, $1,367
for 1994 and $1,078 for 1993.
Total rental expenses (net of rental income) for premises and equipment for
the three years ended December 31 were $694 (1995), $684 (1994) and $505 (1993).
Lease commitments bear initial terms varying from 3 to 10 years and are
associated with premises. Future minimum payments as of December 31, 1995, for
all noncancelable operating leases are:
<TABLE>
<CAPTION>
Premises and
Year Ending December 31, Equipment
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
1996 $ 587
1997 436
1998 165
1999 114
------
TOTAL $1,302
======
</TABLE>
NOTE 7 -- DEPOSITS
Deposits outstanding at December 31 consist of:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-interest-bearing demand $ 93,893 $104,663
Interest-bearing:
Demand 88,325 91,844
Money market savings 140,587 156,477
Regular savings 93,523 109,174
Time deposits 219,912 150,884
Time deposits -- $100,000 or more 43,347 32,577
-------- --------
Total Interest-bearing 585,694 540,956
-------- --------
TOTAL DEPOSITS $679,587 $645,619
======== ========
</TABLE>
Interest expense on time deposits of $100,000 or more amounted to $2,200,
$1,317 and $1,239 for 1995, 1994 and 1993, respectively.
34
<PAGE>
NOTE 8 -- SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to repurchase,
a U.S. Treasury demand note, federal funds purchased and advances from the
Federal Home Loan Bank of Atlanta (FHLB).
The Company has a line of credit arrangement with the FHLB under which it
may borrow up to $145,000 at interest rates based upon current market
conditions. Short-term advances outstanding were $0 at December 31, 1995, and
$20,500 at December 31, 1994.
Information relating to short-term borrowings is as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- ---------------
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At year end:
Repurchase agreements $29,529 5.00% $20,824 4.70% $13,684 2.75%
Other short-term borrowings 250 5.61 24,419 6.12 13,623 3.48
------- ------- -------
Total $29,779 5.01% $45,243 5.47% $27,307 3.12%
======= ======= =======
Average for the year:
Repurchase agreements $23,835 5.15% $14,973 3.61% $10,019 2.97%
Other short-term borrowings 14,928 6.36 13,744 4.61 9,741 3.56
Maximum month-end balance:
Repurchase agreements $32,415 $20,824 $13,684
Other short-term borrowings 40,359 35,730 13,624
</TABLE>
NOTE 9 -- LONG-TERM BORROWINGS
The Company had outstanding mortgages with balances due of $131 at December 31,
1995, and $160 at December 31, 1994. Interest rates range up to 10% and the
maximum maturity is July 2000.
In addition, the Company had long-term advances from the Federal Home Loan
Bank of Atlanta of $3,020 at December 31, 1995 and 1994 (see line of credit
described in note 8). Interest rates at December 31, 1995, range up to 8.21% and
the maximum maturity is August 2003.
NOTE 10 -- STOCKHOLDERS' EQUITY
Bancorp's Articles of Incorporation authorize 6,000,000 shares of capital stock,
par value $1.00 per share, to be initially classified as common stock. However,
as set out in the Articles of Incorporation, remaining unissued stock may in the
future be designated as either common or preferred stock.
On December 16, 1992, the Board of Directors approved the Sandy Spring
Bancorp Dividend Reinvestment Plan (the Plan) effective for the first dividend
of 1993. The Plan provides shareholders with the opportunity to increase their
equity ownership in Bancorp by electing to have cash dividends automatically
reinvested in additional shares of common stock without payment of any brokerage
commission or service charge. The Board has reserved 200,000 shares for issuance
under the Plan.
Bank and holding company regulations, as well as Maryland law, impose
certain restrictions on dividend payments by the Bank, as well as restricting
extensions of credit and transfers of assets between the Bank and the holding
company. These restrictions have had no impact on Bank dividend payments in
prior years and none is anticipated in future periods. There were no loans
outstanding between the Bank and Bancorp at December 31, 1995 and 1994.
On March 29, 1995, the Board of Directors approved a 2-for-1 stock split in
the form of a stock dividend payable to shareholders of record at the close of
business on April 12, 1995.
NOTE 11 -- INCENTIVE STOCK OPTION PLAN
The Company's 1992 Stock Option Plan, which essentially replaced the expired
1982 Incentive Stock Option Plan, provides for the granting of incentive and
nonincentive options to selected key employees on a periodic basis at the
discretion of the Board. Share amounts and prices which follow have been
adjusted to give retroactive effect to the 2-for-1 stock split declared March
29, 1995. The 1992 Plan authorizes the issuance of up to 270,000 shares of
common stock, has a term of
35
<PAGE>
ten years, and is administered by the Compensation Committee of the Board.
Options are granted at market value at date of grant, are immediately
exercisable, and must be exercised within ten years.
A total of 103,900 shares of common stock were granted under the 1982 Plan,
of which 40,200 are outstanding, and the outstanding options will continue until
exercise or expiration.
The following is a summary of changes in shares under option for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year 69,800 83,300
Granted 5,250 11,000
Exercised (6,000) (24,500)
------ ------
BALANCE, END OF YEAR 69,050 69,800
====== ======
</TABLE>
The following is a summary of option prices per share:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prices of shares under option at December 31 $9.25 to $37.00 $6.50 to $24.50
Weighted average price of shares under option at December 31 $18.34 $15.93
Prices of shares exercised during year $ 6.50 $5.00 to $19.00
</TABLE>
NOTE 12 -- PENSION, PROFIT SHARING AND OTHER EMPLOYEE BENEFIT PLANS
The Company has a qualified, noncontributory, defined benefit pension plan
covering substantially all employees. Benefits are based on years of service and
the employee's compensation during the last five years of employment. The
Company's funding policy is to contribute the maximum amount deductible for
federal income tax purposes. Contributions provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. Net pension cost for the previous three years includes the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 333 $ 316 $ 253
Interest cost on projected benefit obligation 301 307 307
Actual (return) loss on plan assets (721) 5 (427)
Net amortization and deferral 479 (370) 92
Early retirement window options 274 271 --
----- ----- -----
PENSION EXPENSE FOR THE YEAR $ 666 $ 529 $ 225
===== ===== =====
</TABLE>
For 1995, 1994 and 1993, the weighted average discount rate and rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligation were 7.50% and 5.50%, respectively,
while the expected long-term rate of return on assets was 8.50%.
The Plan's funded status as of December 31 is:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $3,169 in 1995 and $2,678 in 1994 $3,460 $2,922
Additional liability based upon projected compensation 1,268 1,148
------ ------
Projected benefit obligation for service rendered to date (PBO) 4,728 4,070
Plan assets at fair value 4,787 3,484
------ ------
Plan assets greater than (less than) PBO 59 (586)
Unrecognized net gain 915 1,535
Prior service cost not yet recognized in net periodic pension expense 10 10
Unrecognized net asset, net of amortization (11) (16)
------ ------
PREPAID PENSION COST INCLUDED IN OTHER ASSETS $ 973 $ 943
====== ======
</TABLE>
36
<PAGE>
The Company has a qualified, noncontributory profit sharing plan that
covers all employees after ninety days of service. The Plan permits employees to
purchase shares of Sandy Spring Bancorp's common stock with their profit sharing
allocations and other contributions under the Plan. Profit sharing contributions
by the Company, which are included in operating expenses, totaled $400 in 1995,
$346 in 1994 and $320 in 1993.
The Company has a Supplemental Executive Retirement Plan (SERP) providing
for retirement income benefits as well as preretirement death benefits for
selected executives. Retirement benefits payable under the SERP, if any, are
integrated with other pension plan and Social Security retirement benefits
expected to be received by the SERP plan participants. The Company is accruing
the present value of these benefits over the remaining number of years to the
participants' retirement dates. Benefit accruals included in operating expenses
for 1995, 1994 and 1993 were $99, $55 and $48, respectively.
The Company has an Executive Health Plan effective January 1, 1991, that
provides for payment of defined medical and dental expenses not otherwise
covered for selected executives including their families. Benefits, which are
paid during both employment and retirement, are subject to a $5 limitation for
each executive per year. Expenses paid under the plan, covering insurance
premium and out-of-pocket expense reimbursement benefits, totalled $21 in 1995,
$20 in 1994 and $12 in 1993.
NOTE 13 -- INCOME TAXES
Income tax expense for the years ended December 31 consists of:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Federal $2,836 $2,562 $2,539
State 858 844 857
------ ------ ------
TOTAL CURRENT 3,694 3,406 3,396
Deferred income tax benefit:
Federal 233 (219) (416)
State 52 (48) (92)
------ ------ ------
TOTAL DEFERRED 285 (267) (508)
------ ------ ------
TOTAL INCOME TAX EXPENSE $3,979 $3,139 $2,888
====== ====== ======
</TABLE>
Temporary differences between the amounts reported in the financial
statements and the tax bases of assets and liabilities result in deferred taxes.
Deferred tax assets and liabilities, shown as the sum of the appropriate tax
effect for each significant type of temporary difference, are presented below
for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $(1,835) $(1,911)
Deferred loan fees and costs (294) (589)
Unrealized losses on investments available-for-sale -- (2,068)
Net operating loss carryforward (473) (513)
Other (297) (257)
------- -------
Gross deferred tax assets (2,899) (5,338)
Deferred tax liabilities:
Depreciation 843 929
Pension plan costs 660 676
Unrealized gains on investments available-for-sale 175 --
Other 207 273
------- -------
Gross deferred tax liabilities 1,885 1,878
------- -------
NET DEFERRED TAX (ASSET) LIABILITY $(1,014) $(3,460)
======= =======
</TABLE>
No valuation allowance exists with respect to deferred tax items. Net deferred
tax assets are included in other assets.
37
<PAGE>
A three-year reconcilement of the difference between the statutory federal
income tax rate and the effective tax rate for the Company is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX RATE 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Tax-exempt interest income (8.1) (11.7) (12.2)
State income taxes, net of federal income tax
benefits 4.6 4.7 4.6
Other 0.3 1.1 0.1
----- ----- -----
EFFECTIVE TAX RATE 30.8% 28.1% 26.5%
===== ===== =====
</TABLE>
NOTE 14 -- NET INCOME PER COMMON SHARE
Income per common share is based on weighted average number of shares
outstanding of 4,303,287 in 1995, 4,248,186 in 1994 and 4,117,220 in 1993. All
per share data have been adjusted to give retroactive effect to a 2-for-1 stock
split in the form of a stock dividend declared on March 29, 1995. The dilutive
effect of stock options is not material for any of the three years.
NOTE 15 -- RELATED PARTY TRANSACTIONS
Certain directors and senior officers have loan transactions with the Company.
Such loans were made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with outsiders. The following schedule
summarizes changes in amounts of loans outstanding, both direct and indirect, to
these persons during 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1995 $10,038
Additions 3,426
Repayments (6,241)
-------
BALANCE AT DECEMBER 31, 1995 $ 7,223
=======
</TABLE>
NOTE 16 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company has various outstanding credit
commitments which are properly not reflected in the financial statements. These
commitments are made to satisfy the financing needs of the Company's clients.
The associated credit risk is controlled by subjecting such activity to the same
credit and quality controls as exist for the Company's lending and investment
activities. The commitments involve diverse business and consumer customers and
are generally well collateralized. Management does not anticipate that losses,
if any, which may occur as a result of these commitments would materially affect
the stockholders' equity of the Company. Since a portion of the commitments have
some likelihood of not being exercised, the amounts do not necessarily represent
future cash requirements.
Loan and credit line commitments, excluding unused portions of home equity
lines of credit, totaled $74,169 at December 31, 1995, and $64,648 at December
31, 1994. These commitments are contingent upon continuing customer compliance
with the terms of the agreement.
Unused portions of equity lines at year end amounted to $50,926 in 1995 and
$56,901 in 1994. The Company's home equity line accounts, which are secured by
the borrower's residence, are reviewed annually.
Irrevocable letters of credit, totalling $5,021 at December 31, 1995, and
$6,725 at December 31, 1994, are obligations to make payments under certain
conditions to meet contingencies related to customers' contractual agreements.
They are primarily used to guarantee a customer's contractual and/or financial
performance, and are seldom exercised.
38
<PAGE>
NOTE 17 -- LITIGATION
In the normal course of business, the Company may become involved in litigation
arising from banking, financial, and other activities of the Company.
Management, after consultation with legal counsel, does not anticipate that the
ultimate liability, if any, arising out of these matters will have a material
effect on the Company's financial condition.
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" (FASB 107), as amended by Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments," requires the disclosure in statement
form of estimated fair values of financial instruments. Financial instruments
have been defined broadly to encompass 97.4% of the Company's assets and 99.7%
of its liabilities.
Quoted market prices, where available, are shown as estimates of fair market
values. Because no quoted market prices are available for a significant part of
the Company's financial instruments, the fair values of such instruments have
been derived based on the amount and timing of future cash flows and estimated
discount rates.
Present value techniques used in estimating the fair value of many of the
Company's financial instruments are significantly affected by the assumptions
used. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases could not be realized in
immediate cash settlement of the instrument. Additionally, the accompanying
estimates of fair values are only representative of the fair values of the
individual financial assets and liabilities and should not be considered an
indication of the fair value of the Company.
The estimated fair values of the Company's financial instruments at December 31
are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- ------------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and temporary investments(1) $ 59,159 $ 59,219 $ 38,135 $ 38,135
Investments available-for-sale 164,148 164,148 127,772 127,772
Investments held-to-maturity and
other equity securities 122,263 123,562 176,232 168,069
Loans, net of allowance 418,716 423,916 395,416 395,615
Accrued interest receivable and other assets(2) 9,307 9,307 9,495 9,495
FINANCIAL LIABILITIES
Deposits $679,587 $680,421 $645,619 $644,454
Short-term borrowings 29,779 29,779 45,243 45,175
Long-term borrowings 3,151 3,304 3,180 2,857
Accrued interest payable and other liabilities(2) 1,545 1,545 1,590 1,590
<CAPTION>
Estimated Estimated
Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OFF-BALANCE SHEET FINANCIAL
ASSETS
Commitments to extend credit(3) $125,095 $(314) $121,549 $(274)
Irrevocable letters of credit 5,021 (25) 6,725 (34)
Servicing rights on mortgages sold 103,801 986 112,456 1,113
</TABLE>
(1) Temporary investments include interest-bearing deposits with banks, federal
funds sold and residential mortgage loans held for sale.
(2) Only financial instruments as defined in FASB 107 are included in other
assets and other liabilities.
(3) Includes loan and credit line commitments and unused portions of equity
lines.
39
<PAGE>
The following methods and assumptions were used to estimate the fair value
of each category of financial instruments for which it is practicable to
estimate that value:
Cash and due from banks and federal funds sold. Carrying amount
approximated fair value.
Interest-bearing deposits with banks. The fair value was estimated by
computing the discounted value of contractual cash flows using a current
interest rate for similar instruments.
Residential mortgage loans held for sale. The fair value of mortgage loans
held for sale was derived from committed sales prices for this portfolio.
Securities. The fair value for U.S. Treasury and Agency, state and
municipal, and corporate debt securities is based upon quoted market bids; for
mortgage-backed securities upon bid prices for similar pools of fixed and
variable rate assets, considering current market spreads and prepayment speeds;
and for equity securities upon quoted market prices.
Loans. Fair value was estimated by computing the discounted value of
estimated cash flows, adjusted for potential credit losses, for pools of loans
having similar characteristics. The discount rate was based on the current loan
origination rate for a similar loan. Nonperforming loans have an assumed
interest rate of 0%.
Accrued interest receivable. Carrying amount approximated the fair value of
accrued interest, considering the short-term nature of the receivable and its
expected collection.
Other assets. Carrying amount approximated fair value of certain accrued
commissions in other assets, considering the short-term nature of the receivable
and its expected collection.
Deposit liabilities. Under FASB 107, the fair value of demand, money market
savings and regular savings deposits, which have no stated maturity, must be
considered equal to their book value, representing the amount payable on demand,
regardless of any value which may be derived from retaining those deposits for
an expected future period of time (the deposit base intangible).
The fair value of certificates of deposit was based upon the discounted
value of contractual cash flows at current rates for deposits of similar
remaining maturity.
Short-term borrowings. Carrying amount approximated fair value of
repurchase agreements and the Treasury demand note due to their variable
interest rates. The fair value of Federal Home Loan Bank advances was estimated
by computing the discounted value of contractual cash flows payable at current
interest rates for obligations with similar remaining terms.
Long-term borrowings. The fair value of these mortgage and Federal Home
Loan Bank advances was estimated by computing the discounted value of
contractual cash flows payable at current interest rates for obligations with
similar remaining terms.
Other liabilities. Carrying amount approximated fair value of accrued
interest payable, accrued dividends and premiums payable, considering their
short-term nature and expected payment.
Off-balance sheet instruments. The fair value of unused lines of credit,
letters of credit, and commitments to fund and deliver loans was estimated based
upon the amount of unamortized fees collected or paid incident to granting or
receiving the commitment. The fair value of the Bank's serviced mortgage loan
portfolio was estimated utilizing an independent appraisal which considered fees
receivable, number of loans, average loan size, delinquency data, prepayment
risks, and current market supply and demand factors.
40
<PAGE>
NOTE 19 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements for Sandy Spring Bancorp (Parent Only)
pertaining to the periods covered by the Company's consolidated financial
statements are presented below:
<TABLE>
<CAPTION>
December 31,
----------------------
BALANCE SHEETS 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,880 $ 8,107
Investments available-for-sale (at fair value) 735 --
Investment in subsidiary 68,163 62,008
Other assets 159 259
------- -------
Total assets $77,937 $70,374
======= =======
LIABILITIES
Other liabilities $ 124 $ 131
------- -------
Total liabilities 124 131
STOCKHOLDERS' EQUITY
Common stock 4,330 2,140
Surplus 26,179 27,133
Retained earnings 47,138 40,970
Unrealized gain on investments available-for-sale, net of taxes 166 --
------- -------
Total stockholders' equity 77,813 70,243
------- -------
Total liabilities and stockholders' equity $77,937 $70,374
======= =======
<CAPTION>
Years Ended December 31,
--------------------------------------
STATEMENTS OF INCOME 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiary $2,755 $1,705 $1,515
Interest income 358 250 236
------- ------- -------
Total income 3,113 1,955 1,751
Interest and other expenses 337 261 241
------- ------- -------
Income before income taxes and equity in undistributed income of subsidiary 2,776 1,694 1,510
Income tax expense (benefit) 8 (4) (10)
------- ------- -------
Income before equity in undistributed income of subsidiary 2,768 1,698 1,520
Equity in undistributed income of subsidiary 6,155 6,322 6,487
------- ------- -------
NET INCOME $8,923 $8,020 $8,007
======= ======= =======
<CAPTION>
Years Ended December 31,
--------------------------------------
STATEMENTS OF CASH FLOWS 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,923 $ 8,020 $ 8,007
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income -- subsidiary (6,155) (6,322) (6,487)
Other -- net 6 -- (20)
------ ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,774 1,698 1,500
Cash flows from investing activities:
Purchase of investments available-for-sale (465) -- --
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (465) -- --
Cash flows from financing activities:
Retirement of long-term debt (17) (17) (14)
Proceeds from issuance of common stock 1,236 1,063 726
Dividends paid (2,755) (2,273) (2,014)
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (1,536) (1,227) (1,302)
------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 773 471 198
Cash and cash equivalents at beginning of year 8,107 7,636 7,438
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,880 $ 8,107 $ 7,636
======= ======= =======
</TABLE>
41
<PAGE>
NOTE 20 -- PROSPECTIVE ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(FASB 121), requires, among other things, that certain long-lived assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized if, upon such review, the sum of expected future cash flows is less
than the carrying amount of the asset. An impairment loss is measured based on
the difference between the carrying amount of the asset and its fair value. The
effect of adopting FASB 121 on the Company is not expected to be material.
Adoption is required by no later than the first quarter of 1996.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" (FASB 122), requires that rights to service mortgage
loans be recognized as an intangible asset when the underlying loans are sold
and the servicing rights related to these loans are retained. The standard also
requires that capitalized mortgage servicing rights be assessed for impairment
by individual risk stratum based on the fair value of such rights. The effect of
adopting FASB 122 is not expected to be material. Adoption is required by no
later than the first quarter of 1996.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FASB 123), establishes a fair value based method of
accounting for employee stock options and expands disclosure requirements,
including a description of the plan. FASB 123 permits a company to continue to
measure compensation cost for its stock option plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). In the event that the
Company continues to measure the value of stock based compensation in accordance
with APB 25, pro forma disclosures of net income and earnings per share are
required as if the fair value based method of accounting defined in FASB 123 had
been applied. Under APB 25, the Company recognizes no compensation cost for its
stock option plan, whereas under the fair value based method of FASB 123,
compensation cost is measured at the grant date based on a computed value of the
award using option-pricing methodology. Such value is recognized over the
service period. The Company expects to elect to continue using APB 25 treatment,
in which event adoption of FASB 123 would have no effect on earnings or
financial position. FASB 123 is effective for transactions entered into in
fiscal years that begin after December 15, 1995. The 1996 financial statements
must include pro forma disclosures for 1995 and 1996 grants.
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
STEGMAN & COMPANY
Certified Public Accountants
BOARD OF DIRECTORS AND SHAREHOLDERS
SANDY SPRING BANCORP
OLNEY, MARYLAND
We have audited the accompanying consolidated balance sheets of Sandy Spring
Bancorp and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the management of Sandy Spring
Bancorp and Subsidiaries. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sandy Spring
Bancorp and Subsidiaries as of December 31, 1995 and 1994, and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Stegman & Company
Towson, Maryland
February 8, 1996
43
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage State
Subsidiaries Owned of Incorporation
- ------------ ---------- ----------------
<S> <C> <C>
Sandy Spring National Bank of Maryland 100% United States
Sandy Spring Insurance Corporation (1) 100% Maryland
</TABLE>
- --------------------
(1) Second-tier subsidiary, 100% owned by Sandy Spring National Bank of
Maryland.
<PAGE>
EXHIBIT 23
<PAGE>
Stegman & Company
Certified Public Accountants
Suite 200
400 East Joppa Road
Towson, Maryland 21286
(410) 823-8000
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Sandy Spring Bancorp, Inc.
We hereby consent to the incorporation by reference in the prospectuses
included in Registration Statements No. 33-29316, 33-35319, 33-48453 and
33-56692, each on Form S-8, and Registration Statement No. 33-57182 on Form S-3,
and in the Annual Report on Form 10-K of Sandy Spring Bancorp, Inc. for the year
ended December 31, 1995, of our report dated February 8, 1996, relating to the
consolidated financial statements of Sandy Spring Bancorp, Inc. and
Subsidiaries.
/s/ Stegman & Company
Stegman & Company
Towson, Maryland
March 22, 1996
<PAGE>
EXHIBIT 24
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors of the Registrant, hereby severally constitute and
appoint Marjorie S. Cook our true and lawful attorney and agent, to do any and
all things in our names in the capacities indicated below which said person may
deem necessary or advisable to enable the Registrant to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
annual report on Form 10-K for the year ended December 31, 1995, including
specifically, but not limited to, power and authority to sign for us in our
names in the capacities indicated below the annual report and any amendments
thereto; and we hereby approve, ratify and confirm all that said person shall do
or cause to be done by virtue thereof.
Signature Title Date
/s/ Andrew N. Adams, Jr. Director February 28, 1996
- -------------------------
Andrew N. Adams, Jr.
/s/ John Chirtea Director February 28, 1996
- -----------------
John Chirtea
/s/ Willard H. Derrick Chairman of the Board and
- ----------------------- Director
Willard H. Derrick February 28, 1996
/s/ Susan D. Goff Director February 28, 1996
- ------------------
Susan D. Goff
/s/ Solomon Graham Director February 28, 1996
- -------------------
Solomon Graham
/s/ Joyce R. Hawkins Director February 28, 1996
- ---------------------
Joyce R. Hawkins
/s/ Thomas O. Keech Director February 28, 1996
- --------------------
Thomas O. Keech
/s/ Charles F. Mess Director February 28, 1996
- --------------------
Charles F. Mess
/s/ Robert L. Mitchell Director February 28, 1996
- -----------------------
Robert L. Mitchell
/s/ Robert L. Orndorff, Jr. Director February 28, 1996
- ----------------------------
Robert L. Orndorff, Jr.
/s/ Lewis R. Schumann Director February 28, 1996
- ----------------------
Lewis R. Schumann
/s/ W. Drew Stabler Director February 28, 1996
- --------------------
W. Drew Stabler
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 30,108
<INT-BEARING-DEPOSITS> 821
<FED-FUNDS-SOLD> 24,255
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,148
<INVESTMENTS-CARRYING> 118,298
<INVESTMENTS-MARKET> 119,597
<LOANS> 422,691
<ALLOWANCE> 5,910
<TOTAL-ASSETS> 794,319
<DEPOSITS> 679,587
<SHORT-TERM> 29,779
<LIABILITIES-OTHER> 3,711
<LONG-TERM> 3,151
4,330
0
<COMMON> 0
<OTHER-SE> 73,761
<TOTAL-LIABILITIES-AND-EQUITY> 794,319
<INTEREST-LOAN> 37,576
<INTEREST-INVEST> 16,921
<INTEREST-OTHER> 744
<INTEREST-TOTAL> 55,241
<INTEREST-DEPOSIT> 23,604
<INTEREST-EXPENSE> 25,998
<INTEREST-INCOME-NET> 29,243
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (240)
<EXPENSE-OTHER> 20,787
<INCOME-PRETAX> 12,902
<INCOME-PRE-EXTRAORDINARY> 12,902
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,923
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.07
<YIELD-ACTUAL> 3.56
<LOANS-NON> 590
<LOANS-PAST> 61
<LOANS-TROUBLED> 36
<LOANS-PROBLEM> 3,867
<ALLOWANCE-OPEN> 6,108
<CHARGE-OFFS> (432)
<RECOVERIES> 234
<ALLOWANCE-CLOSE> 5,910
<ALLOWANCE-DOMESTIC> 1,610
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,300
</TABLE>
