<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to ________________________
Commission File Number: O-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
------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
17801 Georgia Avenue, Olney, Maryland 20832 301-774-6400
------------------------------------- ----- ------------
(Address of principal office) (Zip Code) (Telephone Number)
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
filing requirements for the past 90 days.
YES X NO
------- -------
The number of shares of common stock outstanding as of November 1, 1996 is
4,886,489 shares.
<PAGE>
SANDY SPRING BANCORP
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995.......................... 1
Consolidated Statements of Income for the Nine Month
Periods Ended September 30, 1996 and 1995......................... 2
Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 1996 and 1995.............. 3
Notes to Consolidated Financial Statements........................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 6
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 12
SIGNATURES............................................................ 13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $34,657 $30,215
Interest-bearing deposits with banks 644 848
Federal funds sold 16,655 30,220
Residential mortgage loans held for sale 3,164 4,725
Investments available-for-sale (at market) 206,811 165,953
Investments held-to-maturity -- market value
of $120,779 (1996) and $121,177 (1995) 119,048 119,886
Other equity securities 5,111 4,947
Total Loans (net of unearned income) 516,923 492,540
Less: Allowance for credit losses (6,544) (6,597)
------------ ------------
Loans, net 510,379 485,943
Premises and equipment 19,901 19,897
Accrued interest receivable 6,985 6,494
Other real estate owned, net of allowance 210 47
Other assets 4,734 7,028
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TOTAL ASSETS $928,299 $876,203
============= =============
LIABILITIES
Noninterest-bearing deposits $113,512 $95,975
Interest-bearing deposits 667,373 647,617
------------- -------------
Total deposits 780,885 743,592
Short-term borrowings 46,367 34,804
Long-term borrowings 4,828 5,151
Accrued interest and other liabilities 3,166 5,715
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TOTAL LIABILITIES 835,246 789,262
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares
authorized 15,000,000 (1996) and 6,000,000
(1995); shares issued and outstanding
4,886,489 (1996) and 4,820,604 (1995) 4,887 4,821
Surplus 33,092 31,814
Retained earnings 55,454 49,893
Net unrealized gain (loss) on investments
available-for-sale (380) 413
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 93,053 86,941
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $928,299 $876,203
============ ============
See Notes to Consolidated Financial Statements.
1
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $11,627 $11,528 $34,508 $32,474
Interest on loans held for sale 36 23 117 28
Interest on deposits with banks 81 27 180 39
Interest and dividends on securities:
Taxable 3,841 3,468 10,898 10,331
Nontaxable 831 851 2,525 2,612
Interest on federal funds sold 357 227 1,087 624
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 16,773 16,124 49,315 46,108
Interest expense:
Interest on deposits 6,973 6,998 20,878 19,616
Interest on short-term borrowings 523 493 1,372 1,788
Interest on long-term borrowings 84 88 239 299
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 7,580 7,579 22,489 21,703
----------- ----------- ----------- -----------
NET INTEREST INCOME 9,193 8,545 26,826 24,405
Provision for Credit Losses -- 30 208 128
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 9,193 8,515 26,618 24,277
Noninterest Income:
Securities losses (16) (3) (66) (8)
Service charges on deposit accounts 766 642 2,154 1,872
Gains on mortgage sales 145 37 588 57
Other income 623 499 2,054 1,474
----------- ----------- ----------- -----------
TOTAL NONINTEREST INCOME 1,518 1,175 4,730 3,395
Noninterest Expenses:
Salaries and employee benefits 3,718 3,205 10,76 9,202
Occupancy expense of premises 525 468 1,559 1,384
Equipment expenses 582 503 1,633 1,436
Other expenses 2,041 1,175 4,959 4,384
----------- ----------- ----------- -----------
TOTAL NONINTEREST EXPENSES 6,866 5,351 18,897 16,406
----------- ----------- ----------- -----------
Income Before Income Taxes 3,845 4,339 12,451 11,266
Income Tax Expense 1,372 1,419 4,199 3,592
----------- ----------- ----------- -----------
NET INCOME $2,473 $2,920 $8,252 $7,674
=========== =========== =========== ===========
PER SHARE DATA:
Net Income $0.51 $0.61 $1.70 $1.61
Dividends Declared 0.20 0.16 0.57 0.46
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $8,252 $7,674
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,374 1,206
Provision for credit losses 208 128
Deferred income taxes 152 252
Origination of loans held for sale (40,134) (9,799)
Proceeds from sales of loans held for sale 42,348 7,167
(Gains) losses on sales of loans held for sale (653) (90)
Securities (gains) losses 66 8
Net change in:
Accrued interest receivable (491) (131)
Accrued income taxes (550) 98
Other accrued expenses (172) 81
Other -- net 515 (1,994)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,915 4,600
Cash Flows from Investing Activities:
Net (increase) decrease in interest-bearing
deposits with banks 204 (462)
Purchases of investments held-to-maturity (24,967) (23,771)
Purchases of other equity securities (304) 0
Purchases of investments available-for-sale (96,434) (19,492)
Proceeds from sales of investments
available-for-sale 14,798 1,998
Proceeds from maturities, calls and principal
payments of investment held-to-maturity 25,151 26,888
Proceeds from maturities, calls and principal 40,027 22,877
payments of investments available-for-sale
Proceeds from sales of loans 291 1,620
Proceeds from sales of other real estate owned 250 224
Net increase in loans receivable (24,884) (38,271)
Purchase of loans 0 (2,827)
Expenditures for premises and equipment (1,311) (1,633)
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NET CASH USED BY INVESTING ACTIVITIES (67,179) (32,849)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and
savings accounts 21,579 (51,001)
Net increase (decrease) in time and other deposits 15,714 79,744
Net increase (decrease) in short-term borrowings 11,563 (5,398)
Proceeds from long-term borrowings 1,800 0
Retirement of long-term borrowings (2,123) (21)
Proceeds from issuance of common stock 1,344 2,053
Dividends paid (2,736) (2,067)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 47,141 23,310
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,123) (4,939)
Cash and Cash Equivalents at Beginning of Year 60,435 40,731
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $51,312 $35,792
=========== ===========
</TABLE>
3
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1996 1995
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<S> <C> <C>
Supplemental Disclosures
Interest payments $22,575 $19,866
Income tax payments $4,297 $3,290
Noncash Investing Activities
Transfers from loans to other real estate owned $210 $420
Unrealized gain (loss) on investments available-
for-sale net of deferred tax effect of $(499)
in 1996 and $1,932 in 1995 $(793) $3,070
</TABLE>
*Cash and cash equivalents include amounts of "Cash and due from banks" and
"Federal funds sold" on the Consolidated Balance Sheets.
See Notes to Consolidated Financial Statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1 - GENERAL
The foregoing financial statements are unaudited; however, in the opinion
of Management, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the results of the interim periods have
been included. These statements should be read in conjunction with the financial
statements and accompanying notes included in Sandy Spring Bancorp's 1995 Annual
Report to Shareholders. The results shown in this interim report are not
necessarily indicative of results to be expected for the full year 1996.
The accounting and reporting policies of Sandy Spring Bancorp (the
"Company") 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 current classifications.
Consolidation has resulted in the elimination of all significant
intercompany accounts and transactions.
NOTE 2 - MERGER
On August 29, 1996, the Company and its wholly owned subsidiary, Sandy
Spring National Bank of Maryland, (the "Bank") merged with Annapolis Bancshares,
Inc. ("ABI") and its wholly owned state trust company subsidiary, Bank of
Annapolis, Annapolis, Maryland ("BOA") in a transaction accounted for as a
pooling of interests. Accordingly, historical financial data for periods before
the merger have been restated to include the combined results of both the
Company and ABI. Based on an exchange ratio of .62585 shares of the Company's
common stock for each outstanding share of ABI common stock, the Company issued
495,940 shares of common stock. ABI had consolidated total assets of
approximately $80 million at date of merger, representing approximately 9% of
the consolidated total assets of the Company. Pre tax merger-related expenses
amounted to $744 and are included in noninterest expenses for the nine month
period ended September 30, 1996.
NOTE 3 - PER SHARE DATA
Net income per common share is based on the weighted average number of
shares outstanding for each period which was, for the third quarter, 4,878,888
in 1996 and 4,805,794 in 1995 and, for the first nine months, 4,860,422 in 1996
and 4,754,608 in 1995.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Consolidated basis, dollars in thousands except per share data)
This Management's Discussion and Analysis contains forward-looking
statements, including statements of goals, intentions and expectations,
regarding or based upon general economic conditions, interest rates,
developments in national and local markets, and other matters, and which, by
their nature, are subject to significant uncertainties.
THE COMPANY
The Company is the registered bank holding company for Sandy Spring
National Bank of Maryland (the "Bank"), headquartered in Olney, Maryland. The
Bank operates eighteen banking offices in Montgomery, Howard, and Anne Arundel
Counties in Maryland. The Bank also has an office under construction in
Gaithersburg, Maryland, to replace its existing leased Gaithersburg office and
has entered into an agreement to acquire the Bethesda, Maryland office of Bank
of Maryland, along with approximately $20 million in deposits. The acquisition
is subject to regulatory approvals, and is expected to be completed in 1996. The
Company has established a strategy of independence, and intends to establish or
acquire additional offices or banking organizations as appropriate opportunities
may arise.
A. FINANCIAL CONDITION
The Company's total assets were $928,299 at September 30, 1996, compared to
$876,203 at December 31, 1995, increasing $52,096 or 5.9% during the first nine
months of 1996. Earning assets increased $49,237 or 6.0% to $868,356 from
$819,119.
Total loans rose 5.0% or $24,383 during the first nine months of 1996. Of
the major loan categories, commercial loans showed significant growth, rising
$11,977 or 20.8%, while construction loans increased $7,152 or 17.1%, reflecting
contributions from both the commercial and residential sectors. Real estate
mortgages grew $5,055 or 1.4% during the period.
The investment portfolio, which consists of investments available-for-sale
and held-to-maturity as well as other equity securities, increased $40,184 or
13.8% during the nine month period ended September 30, 1996, reflecting the
investments of funds from deposit growth and other sources not needed to support
loan growth during the period. Federal funds sold and interest-bearing deposits
with banks together declined $13,769 or 44.3% over the period. Residential
mortgage loans held for sale recorded a $1,561 or 33.0% decrease. However, both
originations and sales of these loans were much stronger during the first nine
months of 1996, than in the comparable period in 1995, as reflected in the
Consolidated Statements of Cash Flows.
Total deposits were $780,885 at September 30, 1996, increasing $37,293 or
5.0% from $743,592 at December 31, 1995. This increase was due primarily to
growth in non-interest-bearing demand deposits, which grew $17,537 or 18.3% and
time deposits, which increased $15,630 or 12.6% during the period. The rise in
interest free demand deposits was driven primarily by growth in commercial
checking balances. This is consistent with the Company's current business plans
which place major emphasis on growth in commercial banking loans and deposits.
Repurchase agreements related primarily to cash management services were
responsible for a majority of the $11,563 or 33.2% rise in short-term
borrowings.
Liquidity and Interest Rate Sensitivity
The Company's liquidity position, considering both internal and external
sources available, exceeded anticipated short and long term funding needs at
September 30, 1996.
6
<PAGE>
In assessing liquidity, management considers operating requirements, the
seasonality of deposit flows, investment, loan and deposit maturities, expected
funding of loans, deposit withdrawals, and the market values of available-for-
sale investments.
Using the latest information available as of September 30, 1996, the Bank
has achieved an asset sensitive position, cumulative to one year, of
approximately $58,852 or 6.3% of total assets, indicating the assumption of
relatively low interest rate risk. The Company employs simulation analysis in
order to assess the degree of interest rate risk inherent in its asset and
liability portfolios. Such risk is monitored in accordance with board of
directors' policy limits by the Bank's asset-liability committee. The limit
established for the estimated twelve month period impact of a 200 basis point
change in interest rates on net interest income is 15%, while the limit for the
estimated fair value change in the net assets of the Company is 25%.
Capital Management
The Company recorded a total risk-based capital ratio of 17.60% at
September 30, 1996 compared to 17.67% at December 31, 1995; a tier 1 risk-based
capital ratio of 16.44%, compared to 16.42%; and a capital leverage ratio of
10.10% compared to 10.09%. Capital adequacy, as measured by these ratios, was
well above regulatory requirements.
Stockholders' equity totaled $93,053 (including a net unrealized loss of
$380 on investments available-for-sale) at September 30, 1996, an increase of
7.0% from $86,941 (including a net unrealized gain of $413) at December 31,
1995. Internal capital generation (net income less dividends) provided $5,561 in
additional equity during the first nine months of 1996, representing an
annualized rate of 8.3% versus 8.8% for the year ended December 31, 1995.
External capital formation contributed $1,274 in new equity during the first
nine of 1996, including 25,276 shares issued through dividend reinvestment,
24,430 shares through exercise of stock options and 11,020 shares through 401-K
benefit plans.
For the nine months ended September 30, 1996, dividends per share were
$0.57, compared to $0.46 a year earlier, while the dividend payout ratios
computed to 32.61% and 27.04%, respectively.
B. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net income for the first nine months of the year rose $578 or 7.5% in 1996,
to $8,252 ($1.70 per share) from year earlier $7,674 ($1.61 per share). Net
income for the nine months ended September 30, 1996 equates to an annualized
return on average assets of 1.23%, the same as in 1995, and returns on average
equity of 12.35% versus 12.81% for the respective periods.
Net Interest Income
Net interest income for the first nine months of the year was $26,826 in
1996, an increase of 9.9% over $24,405 in 1995, reflecting a higher volume of
average earning assets and a 9 basis point increase in net interest spread to
3.73% from 3.64%.
For the first nine months, tax-equivalent interest income increased $3,178
or 6.7% in 1996, compared to 1995. This increase was the result of a 7.5% rise
in average earning assets over the period, offset in part by a 7 basis point
decline in average yield earned on those assets. The slight decrease in average
yield was attributable to both changes in the composition of earning assets and
in yields earned. While loans and investments decreased as a percentage of
average earning assets, other components of earning assets, which generally
produce lower yields than either loans or investments, increased as a percentage
of average earnings assets and recorded an overall decline in average yield.
7
<PAGE>
Comparing the first nine months of 1996 to 1995, average loans grew 5.7% to
$503,390 (59.3% of average earning assets compared to 60.3% in 1995), while
experiencing a small increase in average yield to 9.15%. Commercial credits of
all types increased, with commercial construction up 32.8%, commercial loans
rising 18.4% and commercial real estate advancing 8.0%. Although total
residential lending recorded a decline over the twelve month period, home equity
products increased, posting an 8.0% gain. Average total securities increased
2.7% to $309,947 (36.5% of average earning assets compared to 38.2% in 1995),
while earning an average yield of 6.31% in 1996 and approximately the same in
1995.
Interest expense for the first nine months rose $786 or 3.6%, as a net
result of 7.4% higher average interest-bearing liabilities and a 16 basis point
decrease in average rate paid.
Credit Risk Management
During the first nine months of 1996, the provision for credit losses was
$208, compared to $128 for the like period of 1995. Net charge-offs of $261 were
recorded for the period ended September 30, 1996 versus $161 a year earlier. At
third quarter end 1996, commercial construction and development credits,
regarded in general as having higher credit risk than most other loan types,
comprised 5.8% of total loans, while traditional home construction and mortgage
loans, among the best loan categories in terms of credit risk, amounted to
29.4%. By comparison, these percentages at December 31, 1995 were 5.3% and
32.4%, respectively.
Nonperforming loans increased $3,770 from $898 at December 31, 1995 to
$4,668 at September 30, 1996, as shown in the following table. About two-thirds
of the rise in loans 90 days past due resulted from applying the Company's more
stringent loan review and classification practices to credits of the newly
merged bank. The vast majority of these are matured balloon loans that are still
current as to principal and interest payments. However, these loans have not
been formally renewed and are therefore included in delinquent status. It is
anticipated that many of these past due loans, while technically classified as
nonperforming at third quarter end, will be renewed by year-end 1996. The
majority of the increase in nonaccruals involved loans to a single borrower
which entered this status near quarter end.
Nonperforming assets, expressed as a percentage of total loans plus other
real estate owned, were 0.94% at September 30, 1996 versus 0.19% at December 31,
1995 for reasons discussed in the paragraph above. At September 30, 1996, the
allowance for credit losses was 1.27% of total loans versus 1.34% at December
31, 1995. The allowance for credit losses covered nonperforming loans by a
factor of 2.3 times at September 30, 1996. The Company regularly analyzes the
sufficiency of the allowance for credit losses based upon a number of factors,
including loss allocations for specific non-performing credits, historical loss
experience, economic conditions, portfolio trends and credit concentrations, and
changes in the size and character of the loan portfolio, among other things.
Management establishes the allowance for credit losses in an amount that it
determines, based upon these factors, is sufficient to provide for losses
inherent in the loan portfolio. The level of the allowance to non-performing
loans is only one of these factors. The amount of non-performing loans and the
ratio of the allowance to nonperforming loans may vary significantly from period
to period because the amount of nonperforming loans depends largely on the
condition of a small number of individual loans and borrowers relative to the
total loan portfolio.
Noninterest Income and Expenses
Non-interest income of $4,730 earned during the nine month period ended
September 30, 1996 represented a $1,335 or 39.3% increase over $3,395 achieved
over the same time frame in the prior year. Gains on sales of residential
mortgages contributed $531 to the total increase in noninterest income. Trust
fees, mutual funds and annuities, generated $266 of the increase
8
<PAGE>
(representing a 41.8% rise) in interest income, and nonrecurring gains on sales
of other real estate owned contributed $180. Finally, return check charges on
deposit accounts accounted for approximately $196 of the overall increase.
For the nine months ended September 30, 1996, noninterest expenses
increased $2,491 or 15.2% to $18,897 from $16,406 in 1995. These results include
expense savings of $742 from the industry wide reduction in FDIC insurance
premiums, offset by nonrecurring pre-tax merger costs of $744 in 1996. Higher
salary and benefit costs were responsible for $1,544 or 62.0% of the total
increase is noninterest expenses. Principal factors here were staff additions,
merit raises and an expanded incentive program. Also, data processing expenses
rose, by $315 or 54.4%, reflecting the conversion to a new system with expanded
capabilities in late 1995. Marketing expenses increased by $323 or 83.5%, due to
the costs of an advertising program designed to increase the Company's name
recognition and to promote a new checking product.
The ratio of net income to average full-time-equivalent (FTE) employees was
$24 for both the nine month period ended September 30, 1996 and for the same
period in 1995, despite an 8.1% rise in average FTE employees to 344 in 1996
from 319.
Income Taxes
The effective tax rate through the first three quarters of the year was
33.7% in 1996, compared to 31.9% in 1995, reflecting a lower level of tax exempt
income to total income in 1996 than in 1995.
9
<PAGE>
ANALYSIS OF CREDIT RISK
(Dollars in thousands)
Activity in the allowance for credit losses is shown below:
<TABLE>
<CAPTION>
9 Months Ended 12 Months Ended
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $6,597 $6,663
Provision for credit losses 208 180
Loan charge-offs:
Real estate-mortgage (3) (33)
Real estate-construction -- --
Consumer (109) (209)
Commercial (239) (507)
----------------- -----------------
Total charge-offs (351) (749)
Loan recoveries:
Real estate-mortgage -- 153
Real estate-construction -- --
Consumer 35 30
Commercial 55 320
----------------- -----------------
Total recoveries 90 503
----------------- -----------------
Net charge-offs (261) (246)
----------------- -----------------
BALANCE, PERIOD END $6,544 $6,597
================= =================
Net charge-offs to average
loans (annual basis) 0.04% 0.07%
Allowance to total loans 1.27% 1.34%
Balance sheet risk inherent in the lending function is presented as follows
at the dates indicated:
<CAPTION>
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans $1,609 $ 590
Loans 90 days past due 3,030 272
Restructured loans 29 36
----------------- -----------------
Total Nonperforming Loans* 4,668 898
Other real estate owned 210 47
----------------- -----------------
TOTAL NONPERFORMING ASSETS $4,878 $ 945
================= =================
Nonperforming assets to total assets 0.53% 0.11%
- --------------------------------------------------------------------------------
</TABLE>
* Those performing loans considered potential problem loans, as defined and
identified by management, amounted to approximately $4,111 at September 30,
1996, compared to $4,362 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.
10
<PAGE>
C. RESULTS OF OPERATIONS - THIRD QUARTER 1996 AND 1995
Third quarter earnings of $2,473 ($0.51 per share) in 1996 were below
results of $2,920 ($0.61 per share) shown for the same quarter of 1995,
representing a decline of $447 or 15.3%. Excluding non-recurring merger expenses
of $570 on an after-tax basis, earnings rose 4.2% to $3,043 ($0.62 per share).
Tax-equivalent net interest income rose 7.3% during the third quarter of
1996 compared to the like three month period of 1995, showing the effects of a
9.2% increase in the earning asset base and a 5 basis point decline in net
interest spread.
No provision for credit losses was believed necessary by management for the
third quarter of 1996 and only $30 was provided in third quarter 1995. There
were net charge-offs of $234 and $35 in the respective quarters.
Non-interest income for the third quarter increased 29.2% in 1996 versus
1995. The largest contributors to the rise were gains on mortgage sales, fee-
based businesses and return check charges on deposit accounts.
Non-interest expenses rose 28.3%. Excluding non-recurring pre-tax merger
costs of $744, the rise was 14.4%, attributable largely to the same factors as
discussed above for the nine month periods. The FDIC premium reduction referred
to in the year-to-date comparison occurred in the third quarter of 1995.
The third quarter effective tax rate was 35.7% in 1996 versus 32.7% shown
in 1995.
11
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following is a list of Exhibits filed as part of this
--------
Quarterly Report on Form 10-Q:
No. Exhibit
--- -------
27 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
On September 12, 1996, the Company filed a Current Report on Form 8-K,
reporting under item 2 of such form the Acquisition by merger of Annapolis
Bancshares, Inc. and its subsidiary, Bank of Annapolis, as of August 29, 1996.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly 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
Date: November 8, 1996
By: /s/ James H. Langmead
--------------------------------------------
James H. Langmead
Vice President and Treasurer
Date: November 8, 1996
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
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</TABLE>
