<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 June 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.
- -------------------------------------------------------------------------------
(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 July 18, 1996 is
4,381,584 shares.
<PAGE>
SANDY SPRING BANCORP
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995.................................. 1
Consolidated Statements of Income for the Six Month
Period Ended June 30, 1996 and 1995.................................. 2
Consolidated Statements of Cash Flows for
the Six Month Period Ended June 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 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS....................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 11
SIGNATURES............................................................... 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $30,464 $30,108
Interest-bearing deposits with banks 6,025 821
Federal funds sold 23,259 24,255
Residential mortgage loans held for sale 2,773 3,975
Investments available-for-sale (at fair value) 184,927 164,148
Investments held-to-maturity -- fair value of
$121,502 (1996) and $119,597 (1995) 121,961 118,298
Other equity securities 3,965 3,965
Total Loans (net of unearned income) 438,099 424,626
Less: Allowance for credit losses (6,033) (5,910)
----------- -----------
Loans, net 432,066 418,716
Premises and equipment 18,072 17,953
Accrued interest receivable 6,460 5,847
Other real estate owned, net of allowance of
$0 (1996) and $45 (1995) 93 47
Other assets 5,227 6,186
----------- -----------
TOTAL ASSETS $835,292 $794,319
LIABILITIES
Noninterest-bearing deposits $103,089 $ 93,893
Interest-bearing deposits 604,822 585,694
------------ -----------
Total deposits 707,911 679,587
Short-term borrowings 38,766 29,779
Long-term borrowings 5,136 3,151
Accrued interest and other liabilities 2,512 3,711
------------ -----------
TOTAL LIABILITIES 754,325 716,228
============ ===========
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares authorized
15,000,000 (1996) and 6,000,000 (1995);
shares issued and outstanding 4,381,584 (1996)
and 4,329,828 (1995) 4,382 4,330
Surplus 27,090 26,179
Retained earnings 50,559 47,138
Net unrealized gain (loss) on investments
available-for-sale (1,064) 444
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 80,967 78,091
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $835,292 $794,319
============ ===========
See Notes to Consolidated Financial Statements.
</TABLE>
1
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $9,625 $9,326 $19,120 $18,082
Interest on loans held for sale 49 5 82 5
Interest on deposits with banks 74 5 97 5
Interest and dividends on
securities:
Taxable 3,528 3,322 6,997 6,718
Nontaxable 847 857 1,692 1,759
Interest on federal funds sold 274 215 626 304
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 14,397 13,730 28,614 26,873
Interest expense:
Interest on deposits 6,081 5,958 12,215 11,208
Interest on short-term
borrowings 364 504 720 1,291
Interest on long-term
borrowings 87 55 150 110
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 6,532 6,517 13,085 12,609
---------- ---------- ---------- ----------
NET INTEREST INCOME 7,865 7,213 15,529 14,264
Provision for Credit Losses -- -- 150 --
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 7,865 7,213 15,379 14,264
Noninterest Income:
Securities gains (losses) 3 1 -- (5)
Service charges on deposit
accounts 731 633 1,369 1,212
Gains on mortgage sales 188 27 341 27
Other income 719 512 1,427 971
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 1,641 1,173 3,137 2,205
Noninterest Expenses:
Salaries and employee benefits 3,283 2,808 6,354 5,500
Occupancy expense of premises 505 480 1,054 939
Equipment expenses 506 454 1,009 892
Other expenses 1,501 1,431 2,701 2,933
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSES 5,795 5,173 11,118 10,264
---------- ---------- ---------- ----------
Income Before Income Taxes 3,711 3,213 7,398 6,205
Income Tax Expense 1,189 1,005 2,360 1,894
---------- ---------- ---------- ----------
NET INCOME $2,522 $2,208 $5,038 $4,311
========== ========== ========== ==========
PER SHARE DATA:
Net Income $0.58 $0.51 $1.16 $1.00
Dividends Declared 0.19 0.15 0.37 0.30
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $5,038 $4,311
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 842 757
Provision for credit losses 150 --
Deferred income taxes 130 67
Origination of loans held for sale (23,926) (2,870)
Proceeds from sales of loans held for sale 25,469 2,287
Gains on sales of loans held for sale (341) (27)
Securities gains (losses) -- 5
Net change in:
Accrued interest receivable (613) 132
Accrued income taxes (341) 49
Other accrued expenses (857) (771)
Other -- net 1,641 (795)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,192 3,145
Cash Flows from Investing Activities:
Net increase in interest-bearing deposits with banks (5,204) (503)
Purchases of investments held-to-maturity (19,967) (6,407)
Purchases of investments available-for-sale (61,984) (4,444)
Proceeds from sales of investment available-for-sale 6,997 994
Proceeds from maturities and principal payments of
investment held-to-maturity 15,452 11,668
Proceeds from maturities and principal payments of
investments available-for-sale 32,481 16,451
Proceeds from sales of other real estate owned 250 220
Net increase in loans receivable (13,566) (22,974)
Expenditures for premises and equipment (933) (776)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (46,474) (5,771)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and savings accounts 17,836 (36,797)
Net increase in time and other deposits 10,488 61,459
Net increase (decrease) in short-term borrowings 8,987 (12,528)
Proceeds from long-term borrowings 2,000 --
Retirement of long-term borrowings (15) (14)
Proceeds from issuance of common stock 963 673
Dividends paid (1,617) (1,288)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,642 11,505
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (640) 8,879
Cash and Cash Equivalents at Beginning of Period 54,363 37,924
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD* $ 53,723 $ 46,803
=========== ===========
</TABLE>
3
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosures
Interest payments $12,646 $11,299
Income tax payments $2,436 $1,778
Noncash Investing Activities
Transfers from loans to other real estate owned $93 $--
Unrealized gain (loss) on investments available-for-sale
net of deferred tax effect of $(949) in 1996 and $1,684
in 1995 $(1,508) $2,676
</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 AGREEMENT
In April 1996, the Company and its wholly owned subsidiary, Sandy Spring
National Bank of Maryland, (the "Bank") entered into an Agreement and Plan of
Reorganization (the "Agreement") with Annapolis Bancshares, Inc. ("ABI") and its
wholly owned state trust company subsidiary, Bank of Annapolis, Annapolis,
Maryland ("BOA"), pursuant to which: shareholders of ABI would exchange each of
their shares of ABI common stock, par value $1.00 per share, for .62585 shares
of the Company's common stock, par value $1.00 per share, subject to adjustment
in certain circumstances; ABI would be merged with and into Bancorp; and BOA
would be merged with and into the Bank. No fractional shares of the Company's
common stock would be issued.
The merger transaction contemplated by the Agreement is subject to numerous
conditions, including regulatory approval and approval by the shareholders of
ABI. The necessary regulatory approvals have been received. Assuming the
satisfaction of all conditions to each party's obligation to consummation, it is
anticipated that the transactions contemplated by the Agreement will become
effective during the third quarter of 1996.
At March 31, 1996, ABI had consolidated total assets of approximately
$82,000, representing approximately 10% of consolidated total assets of the
Company.
NOTE 3 - PER SHARE DATA
Net income per common share is based on the weighted average number of
shares outstanding which was, for the second quarter, 4,374,870 in 1996 and
4,300,125 in 1995 and, for the first six months, 4,358,402 in 1996 and 4,293,060
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)
A. FINANCIAL CONDITION
The Company's total assets were $835,292 at June 30, 1996, compared to
$794,319 at December 31, 1995, an increase of $40,973 or 5.2%. Earning assets
increased $40,921 or 5.5% to $781,009 from $740,088.
Total loans rose 3.2% or $13,473 during the first half of 1996. Mortgage
refinancing by customers taking advantage of lower rates limited loan growth
during the period. Of the major loan categories, commercial loans grew $10,559
or 21.3%, while real estate mortgages rose $4,102 or 1.3%, construction loans
increased $2,232 or 7.2% and consumer loans declined $3,197 or 11.4% reflecting
in part seasonal fluctuation in student loans.
The investment portfolio, which consists of investments available-for-sale
and held-to-maturity as well as other equity securities, increased $24,442 or
8.5% during the six month period ended June 30, 1996. The rise in investments
reflects the use of funds from deposit growth in excess of funds needed to
support growth in loans or for other purposes. Residential mortgage loans held
for sale declined by $1,202 from December 31, 1995 to June 30, 1996. However,
origination volumes in 1996 outpaced the volumes achieved in 1995.
Total deposits were $707,911 at June 30, 1996, increasing $28,324 or 4.2%
from $679,587 at December 31, 1995. All deposit categories advanced, especially
noninterest-bearing demand deposits, which increased $9,196 or 9.8% due
primarily to growth in commercial and small business checking accounts.
Repurchase agreements related to cash management services were largely
responsible for the $8,987 or 30.2% rise in total short-term borrowings, while
advances from the Federal Home Loan Bank of Atlanta caused the $1,985 or 63.0%
rise in long-term borrowings. These advances were used to fund commercial loans
in order to achieve a better maturity match for asset-liability management
purposes.
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
June 30, 1996.
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.
Core deposits (total deposits less CD's of $100,000 or more) increased
$25,215 during the first six months of 1996, while the funding of loan
production during the period required only $13,473.
Using the latest information available as of June 30, 1996, the Bank has
achieved an asset sensitive position, cumulative to one year, of approximately
$11,826 or 1.43% 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
6
<PAGE>
director's policy limits by the Bank's Asset-Liability committee. The limit
established for the estimated short-term impact of a 200 basis point change in
interest rates on net interest income is 15%, while the limit for the estimated
long-term impact on the net assets of the Company is 25%.
Capital Management
The Company recorded a total risk-based capital ratio of 18.38% at
June 30, 1996 compared to 18.16% at December 31, 1995; a tier 1 risk-based
capital ratio of 17.13%, compared to 16.91%; and a capital leverage ratio of
9.97% compared to 9.89%. Capital adequacy, as measured by these ratios, was well
above regulatory requirements.
Stockholders' equity totaled $80,967 (including a net unrealized loss of
$1,064 on investments available-for-sale) at June 30, 1996, an increase of 3.7%
from $78,091 (including a net unrealized gain of $444) at December 31, 1995.
Internal capital generation (net income less dividends) provided $3,421 in
additional equity during the first six months of 1996, representing an
annualized generation rate of 8.7% on average equity versus 8.5% for the year
ended December 31, 1995. External capital formation amounted to $963 for the
six months ended June 30, 1996, resulting from issuance of 16,305 shares under
the Company's dividend reinvestment plan and 35,450 shares through employee
related programs such as 24,430 shares issued from the exercise of stock options
and 11,020 shares from employee purchases through 401K benefit plans.
For the six months ended June 30, 1996, dividends were $1,617 or $0.37 per
share, compared to $1,288 or $0.30 per share in 1995, for payout ratios of
31.90% and 30.58%, respectively.
B. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the first six months of the year rose $727 or 16.9% in
1996, to $5,038 ($1.16 per share) from year earlier $4,311 ($1.00 per share).
Net income for the six months ended June 30, 1996 represents an annualized
return on average assets of 1.25%, compared to 1.14% in 1995, and an annualized
return on average equity of 12.84% versus 12.26% for the first half of 1995.
Net Interest Income
First half net interest income was $15,529 in 1996, an increase of 8.9%
over $14,264 in 1995, reflecting a higher volume of average earning assets and a
14 basis point increase in net interest spread to 3.65% from 3.51%.
First half tax-equivalent interest income increased $1,747 or 6.3% in
1996, compared to 1995. Average earning assets rose 5.4% over the period while
the average yield earned on such assets increased 5 basis points. Average loans
were 3.5% greater in the first half of 1996, totalling $427,651 (56.3% of
average earning assets) while experiencing a 17 basis point increase in average
yield. Commercial credits, commercial construction lending and home equity lines
and loans were primarily responsible for the change in volume. Average total
investments increased 1.5% to $301,699 (39.7% of average earning assets) and
recorded a 3 basis point increase in average yield.
First half interest expense increased $476 or 3.8%, as a net result of
5.7% higher average interest-bearing liabilities and a 9 basis point decrease in
average rate paid.
Credit Risk Management
The first half provision for credit losses was $150 in 1996, compared to
no
7
<PAGE>
provision in 1995. There were net charge-offs of $27 recorded for the six month
period in1996 versus $126 a year earlier. At June 30, 1996, commercial
construction and development credits, often considered to be a higher risk
category of loans, comprised 4.8% of total loans, while traditional home
construction and mortgage loans, generally considered to be a lower risk
category, amounted to 32.3%. By comparison, levels shown at December 31, 1995
were 4.8% and 35.2%, respectively.
Nonperforming assets, expressed as a percentage of total loans plus other
real estate owned, were 0.45% at June 30, 1996 versus 0.17% at December 31,
1995. At June 30, 1996, the allowance for credit losses was 1.38% of total
loans versus 1.39% at December 31, 1995. The allowance for credit losses
covered nonperforming loans by a factor of 3.2 times at June 30, 1996. The
Company regularly analyzes the sufficiency of its 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
For the six months ended June 30, 1996, noninterest income rose $932 or
42.3% to $3,137 from $2,205 in 1995. The primary causes for the change were a
$314 rise in gains on mortgage sales, in part the result of greater corporate
emphasis on mortgage banking, $72 in increased fees for trust services and $133
derived from higher fees realized on sales of mutual funds and tax deferred
annuity products. The Company also benefitted from a $158 nonrecurring gain on
sale of other real estate owned during the first quarter of 1996. The $157, or
13.0%, increase in service charges on deposit accounts was attributable largely
to higher return check charges.
For the six months ended June 30, 1996, noninterest expenses increased
$854 or 8.3% to $11,118 from $10,264 in 1995. Excluding the industry wide
reduction in FDIC insurance premiums, which saved the Company $721 in expenses
between the periods, noninterest expenses increased $1,575 or 16.5%. Higher
salary expense due to additional staff and merit increases, coupled with
expenses related to an expanded incentive program, were responsible for a large
part of the overall rise in non-interest expenses. Also, data processing
expenses rose, reflecting the conversion to a new system with expanded
capabilities in late 1995. Marketing expenses advanced due to a greatly expanded
advertising program to promote the company's name recognition and a new checking
product.
The ratio of net income to average full-time-equivalent (FTE) employees
was $16 for the six month period ended June 30, 1996, compared to $15 during the
first six months of 1995, although the number of average FTE employees rose to
315 from 293.
Income Taxes
The first half-year effective tax rate was 31.9% in 1996, compared to
30.5% in 1995, reflecting a lower amount of tax exempt income in 1996.
8
<PAGE>
ANALYSIS OF CREDIT RISK
(Dollars in thousands)
Activity in the allowance for credit losses is shown below:
<TABLE>
<CAPTION>
6 Months Ended 12 Months Ended
June 30, 1996 December 31, 1995
<S> <C> <C>
- ------------------------------------------------------------------------------
Balance, January 1 $5,910 $6,108
Provision for credit losses 150 --
Loan charge-offs:
Real estate-mortgage (3) (33)
Real estate-construction -- --
Consumer (68) (209)
Commercial (43) (190)
----------- -------------
Total charge-offs (114) (432)
Loan recoveries:
Real estate-mortgage -- 153
Real estate-construction -- --
Consumer 33 30
Commercial 54 51
----------- -------------
Total recoveries 87 234
----------- -------------
Net charge-offs (27) (198)
----------- -------------
BALANCE, PERIOD END $6,033 $5,910
=========== =============
Net charge-offs to average
loans (annual basis) 0.01% 0.05%
Allowance to total loans 1.38% 1.39%
</TABLE>
<TABLE>
<CAPTION>
Balance sheet risk inherent in the lending function is presented as follows
at the dates indicated:
June 30, December 31,
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans $1,023 $ 590
Loans 90 days past due 840 61
Restructured loans 32 36
----------- ------------
Total Nonperforming Loans* 1,895 687
Other real estate owned 93 47
----------- ------------
TOTAL NONPERFORMING ASSETS $1,988 $ 734
=========== ============
Nonperforming assets to
total assets 0.24% 0.09%
- -----------------------------------------------------------------------------
</TABLE>
* Those performing loans considered potential problem loans, as defined and
identified by management, amounted to approximately $3,006 at June 30, 1996,
compared 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.
9
<PAGE>
C. RESULTS OF OPERATIONS - SECOND QUARTER 1996 AND 1995
Second quarter earnings of $2,522 ($0.58 per share) in 1996 were above the
second quarter of 1995's $2,208 ($0.51 per share) by $314 or 14.2%.
Tax-equivalent net interest income rose 8.1% during the second quarter of
1996 compared to the same three month period of 1995, showing the effect of a
6.3% increase in the earning asset base and a 13 basis point rise in net
interest spread.
No provision for credit losses was believed necessary by management for the
second quarters of 1996 and 1995, reflecting favorable asset quality. There
were net charge-offs of $27 and $137 in the respective quarters.
Non-interest income for the second quarter increased 39.9% in 1996,
compared to 1995, with the largest contributor being higher gains on mortgage
sales. Non-interest expenses rose 12.0%, due largely to the same factors
discussed above for year-to-date performance.
The second quarter effective tax rate was 32.0% in 1996 versus 31.3% shown
in 1995.
10
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual shareholders' meeting, held on April 17, 1996, the
shareholders of the Company elected John Chirtea, Willard H. Derrick, Joyce R.
Hawkins, Hunter R. Hollar and Thomas O. Keech as directors for three year terms.
There were no solicitations in opposition to management's nominees and all such
nominees were elected. All of these nominees were incumbent directors. Other
directors continuing in office are Andrew N. Adams, Jr., Susan D. Goff, Solomon
Graham, Charles F. Mess, M.D., Robert L. Mitchell, Robert L. Orndorff, Jr.,
Lewis R. Schumann, and W. Drew Stabler.
Also at the annual shareholders' meeting, the shareholders of the Company
voted to amend the Articles of Incorporation of the Company to increase the
number of shares of capital stock that the Company is authorized to issue from
6,000,000 shares to 15,000,000 shares. The vote in this matter was 3,321,372
shares for, 131,845 shares against, 122,214 shares abstaining, and no broker
non-votes.
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
--- -------
3.1 Certificate of Incorporation of Sandy Spring Bancorp, Inc., as
amended.
27 Financial Data Schedule
(b) Reports on Form 8-K. On May 2, 1996, the Company filed a report on
-------------------
Form 8-K with respect to Item 5 of that form, reporting that the Company and its
wholly-owned subsidiary, Sandy Spring National Bank of Maryland (the "Bank") had
entered into an Agreement and Plan of Reorganization (the "Agreement") as of
April 16, 1996, with Annapolis Bancshares, Inc. ("ABI") and its wholly owned
state trust company subsidiary, Bank of Annapolis, Annapolis, Maryland ("BOA"),
pursuant to which: shareholders of ABI would exchange each of their shares of
ABI common stock, par value $1.00 per share, for .62585 shares of the Company's
common stock, par value $1.00 per share, subject to adjustment in certain
circumstances; ABI would be merged with and into Bancorp; and BOA would be
merged with and into the Bank; all as subject to various terms and conditions
contained in the Agreement.
11
<PAGE>
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: August 8, 1996
By: /s/ James H. Langmead
-------------------------------------------
James H. Langmead
Vice President and Treasurer
Date: August 8, 1996
12
<PAGE>
ARTICLES OF INCORPORATION
OF
SANDY SPRING MARYLAND BANCORP, INC.
The undersigned, Willard H. Derrick, whose address is 17801 Georgia Avenue,
Olney, Maryland 20832, being at least 18 years of age, acting as incorporator,
does hereby form a corporation under the General Laws of the State of Maryland
having the following Articles of Incorporation:
ARTICLE I
Name
The name of the corporation is Sandy Spring Maryland Bancorp, Inc. (herein
the "Corporation").
ARTICLE II
Purposes
The purposes for which the Corporation is organized are to exercise all
powers of a bank holding company registered with the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act of 1956, as amended,
and to engage in any and all activities allowed for such a bank holding company
under federal law and the General Laws of the State of Maryland. The
Corporation shall have all the powers of a corporation organized under the
General Laws of the State of Maryland.
ARTICLE III
Principal Office
The address of the Corporation's principal office in the State of Maryland
is 17801 Georgia Avenue, Olney, Maryland 20832.
ARTICLE IV
Resident Agent
The name and address of the resident agent of the Corporation in the State
of Maryland are Willard H. Derrick, 17801 Georgia Avenue, Olney, Maryland 20832.
The resident agent is a citizen of the State of Maryland and actually resides
therein.
ARTICLE V
Capital Stock
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 6,000,000 shares of capital stock, $1.00
par value per share, amounting in aggregate par value to $6,000,000. All of
such shares are initially classified as common stock. The Board of Directors
may classify and reclassify any unissued shares of capital stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to distributions and
dividends, qualifications or terms or
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conditions of redemption of such shares of stock. The consideration for the
issuance of the shares shall be paid to or received by the Corporation in full
before their issuance and shall not be less than the par value per share. The
consideration for the issuance of the shares, other than cash, shall be
determined by the Board of Directors in accordance with the General Laws of the
State of Maryland. In the absence of actual fraud in the transaction, the
judgment of the Board of Directors as to the value of such consideration shall
be conclusive. Upon payment of such consideration such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, the part
of the surplus of the Corporation which is transferred to stated capital upon
the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
Common Stock. The following is a description of the preferences,
------------
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the common
stock of the Corporation:
(1) Each share of common stock shall have one vote, and, except as
otherwise provided in respect of any class of stock hereafter classified or
reclassified, the holders of the common stock shall exclusively possess all
voting power.
(2) Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock, and on any class
or series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only as declared by
the Board of Directors.
(3) In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the common stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
(4) Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of common stock of the Corporation.
Serial Preferred Stock. Subject to the foregoing, the power of the Board
----------------------
of Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, authority to classify or reclassify any unissued
shares of such stock into a class or classes of preferred stock or other stock,
and to divide and classify shares of any class into one or more series of such
class, by determining, fixing, or altering one or more of the following:
(1) the distinctive designation and the number of shares constituting such
class or series; provided that, unless otherwise prohibited by the terms of such
or any other class or series, the number of shares of any class or series may be
decreased by the Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such class or
series may be increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class or series that
have been redeemed, purchased, otherwise acquired or converted into shares of
common stock or any other class or series shall become part of the authorized
capital stock of the Corporation and be subject to classification and
reclassification as provided in this paragraph;
(2) whether or not and, if so, the rates, amounts and times at which, and
the conditions under which, distributions and dividends shall be payable on
shares of such class or series, whether any such distributions and
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dividends shall rank senior or junior to or on a parity with the distributions
and dividends payable on any other class or series of stock, and the status of
any such distributions and dividends as cumulative, cumulative to a limited
extent or non-cumulative and as participating or non-participating; provided,
however, that the Corporation's indebtedness to a shareholder incurred by reason
of a distribution shall be on a parity with the Corporation's indebtedness to
its general unsecured creditors, except to the extent subordinated by agreement;
(3) whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the terms
of such voting rights;
(4) whether the shares of such class or series shall be redeemable and, if
so, the price or prices at which, and the terms and conditions upon which, such
shares may be redeemed;
(5) the amount or amounts payable upon the shares of such class or series
in the event of voluntary or involuntary liquidation, dissolution or winding up
of the Corporation;
(6) whether the shares of such class or series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such funds;
(7) whether the shares of such class or series shall be convertible into,
or exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) the subscription or purchase price and form of consideration for which
the shares of such class or series shall be issued;
(9) the status of the shares of such class or series which are redeemed or
converted and whether such shares may be reissued as shares of the same or any
other class or series; and
(10) any other preferences, rights, restrictions, including restrictions
on transferability, and qualifications of shares of such class or series, not
inconsistent with law and these Articles.
ARTICLE VI
Authorization of Issuance of Stock
The shares of capital stock of the Corporation may be issued from time to
time as authorized by the Board of Directors without the approval of the
shareholders except to the extent that such approval is required by governing
law, rule or regulation. Such authorization by the Board of Directors may be
made by a majority or such other vote of the Board of Directors as may be
provided in the Corporation's Bylaws.
ARTICLE VII
Preemptive Rights
No holder of any stock or any other securities of the Corporation, whether
now or hereafter authorized, shall have any preemptive right to subscribe for or
purchase any stock or any other securities of the Corporation other than such,
if any, as the Board of Directors, in its sole discretion, may determine and at
such price or prices and upon such other terms as the Board of Directors, in its
sole discretion, may fix; and any stock or other securities which
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the Board of Directors may determine to offer for subscription may, as the Board
of Directors shall, in its sole discretion, determine, be offered to the holders
of any class, series or type of stock or other securities at the time
outstanding to the exclusion of the holders of any or all other classes, series
or types of stock or other securities at the time outstanding.
ARTICLE VIII
Meetings of Shareholders; Cumulative Voting
A. Special meetings of the shareholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors, by a committee
of the Board of Directors that has been duly designated by the Board, or in
accordance with the Corporation's Bylaws.
B. There shall be no cumulative voting by shareholders of any class or
series in the election of directors of the Corporation.
ARTICLE IX
Directors
A. Number. The initial number of directors of the Corporation shall be
------
eleven (11), which number may be increased or decreased from time to time by
vote of the Board of Directors pursuant to the Corporation's Bylaws, but shall
never be less than the minimum number permitted by the General Laws of the
State of Maryland now or hereafter in force or greater than fifteen (15)
(exclusive of directors, if any, to be elected by holders of preferred stock of
the Corporation, voting separately as a class).
B. Classified Board. The Board of Directors of the Corporation shall be
----------------
divided into three classes as nearly equal in number as the then total number of
directors constituting the entire Board of Directors shall permit, which classes
shall be designated Class I, Class II and Class III. At each annual meeting of
shareholders beginning in 1992, successors to the class of directors whose term
expires at such annual meeting shall be elected for a term of three years.
(1) The following directors shall be assigned to Class I and shall
serve until the 1994 annual meeting of shareholders:
Andrew N. Adams, Jr.
Robert L. Mitchell
Robert L. Orndorff, Jr.
(2) The following directors shall be assigned to Class II and shall
serve until the 1993 annual meeting of shareholders:
William M. Canby
John Chirtea
Willard H. Derrick
Hunter R. Hollar
(3) The following directors shall be assigned to Class III and shall
serve until the 1992 annual meeting of shareholders.
Charles F. Mess
Louisa W. Riggs
Francis Snowden
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W. Drew Stabler
Notwithstanding the foregoing, a director whose term shall expire at any
annual meeting shall continue to serve until such time as his successor shall
have been duly elected and shall have qualified unless his position on the Board
of Directors shall have been abolished by action taken to reduce the size of the
Board of Directors prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as nearly equal as possible. The
Board of Directors shall designate, by the name of the incumbent(s), the
position(s) to be abolished. Notwithstanding the foregoing, no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as nearly equal as
possible.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the Board of Directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article IX. Notwithstanding the foregoing, and except as
otherwise may be required by applicable law, whenever the holders of any one or
more series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
terms of the director or directors elected by such holders shall expire at the
next succeeding annual meeting of shareholders.
ARTICLE X
Removal of Directors
Subject to applicable provisions of federal law and the rights of the
holders of any class separately entitled to elect one or more directors, any
director or the entire Board of Directors of the Corporation may be removed, at
any time, but only for cause and only by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the shareholders called for that
purpose. For purposes of this Article X, "cause" is defined as final conviction
of a felony, unsound mind, adjudication of bankruptcy, non-acceptance of office
or conduct prejudicial to the interests of the Corporation. A director may only
be removed by vote of shareholders after service of specific charges, adequate
notice, and full opportunity to refute the charges.
ARTICLE XI
Vacancies in the Board of Directors
Subject to the rights of the holders of any class separately entitled to
elect one or more directors, any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the directors then in office,
whether or not a quorum, or by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors. A director so chosen by shareholders
shall hold office for the remainder of the term of the class to which the
director is assigned. A director elected by the Board of Directors to fill a
vacancy resulting from the removal of a director shall hold office for the
remainder of the term of the removed director. A director elected by the Board
of Directors to fill a vacancy resulting from any cause other than removal of a
director shall hold office for a term expiring at the following annual meeting
of shareholders.
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ARTICLE XII
Approval of Certain Transactions
The affirmative vote of the holders of not less than eighty percent (80%)
of the outstanding shares of voting stock of the Corporation is required to
authorize (a) a merger or consolidation of the Corporation with, or (b) a sale,
exchange or lease of all or substantially all of the assets of the Corporation
to, any person or entity unless approval of any transaction enumerated in
clauses (a) or (b) above is recommended by at least a majority of the entire
Board of Directors. For purposes of this Article XII, "substantially all of the
assets" shall mean assets having a fair market value or book value, whichever is
greater, of twenty-five percent (25%) or more of the total assets of the
Corporation as reflected on a balance sheet of the Corporation as of a date no
earlier than forty-five (45) days prior to any acquisition of such assets.
ARTICLE XIII
Approval of Business Combinations with Controlling Parties
The shareholder vote required to approve Business Combinations (as
hereinafter defined) with Controlling Parties (as hereinafter defined) shall be
as set forth in this Article XIII.
A. (1) Except as otherwise expressly provided in this Article
XIII, the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding shares of all voting stock of the Corporation and
the affirmative vote of the holders of not less than sixty-seven percent
(67%) of the outstanding shares of voting stock of the Corporation not
including shares deemed beneficially owned by a Controlling Party (as
hereinafter defined), shall be required in order to authorize any of the
following transactions, if any such transactions involves a Controlling
Party:
(a) any merger or consolidation of the Corporation;
(b) any sale, lease, exchange, transfer or other
disposition, including without limitation, a mortgage, or any other
security device, of all or substantially any of the assets of the
Corporation (as defined in Article XII of these Articles);
(c) any reverse stock split involving the common stock of
the Corporation; and
(d) any agreement, contract or other arrangement providing
for any of the transactions described in this Article XIII.
(2) The term "Business Combination" as used in this Article
XIII shall mean any transaction which is referred to in any one or more of
subparagraphs (a) through (d) above.
B. The provisions of Part A of this Article XIII shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by any
other provision of these Articles, any provision of law, or any agreement
with any regulatory agency or national securities exchange, if all of the
conditions specified in either of the following paragraphs (1) and (2) are
met with respect to such Business Combination:
(1) The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined) at a meeting
at which a Continuing Director Quorum (as hereinafter defined) is present.
(2) All of the following conditions shall have been met:
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(a) The aggregate amount of (x) cash and (y) fair market
value (as determined by the Continuing Directors in good faith)
as of the date of the consummation of any Business Combination of
consideration other than cash, to be received per share by
holders of Common Stock in such Business Combination shall be at
least equal to the highest amount determined under clauses (i),
(ii) and (iii) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Controlling Party for
any share of Common Stock acquired by it (A) within the
three-year period immediately prior to the first public
announcement of the proposal of the Business Combination
(the "Announcement Date") or (B) in the transaction in which
it became a Controlling Party, whichever is higher;
(ii) the fair market value (as determined by the
Continuing Directors in good faith) per share of Common
Stock on the Announcement Date or on the date on which the
Controlling Party became a Controlling Party, whichever is
higher; and
(iii) (if applicable) the price per share equal to
the fair market value (as determined by the Continuing
Directors in good faith) per share of Common Stock
determined pursuant to clause (2)(a)(ii) above, multiplied
by the ratio of (1) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Controlling Party for any shares
of Common Stock acquired by it within the three-year period
immediately prior to the Announcement Date to (2) the total
shareholder's equity per share of common stock (determined
in accordance with generally accepted accounting principles)
on the first day in such three-year period on which the
Controlling Party acquired any shares of Common Stock.
(b) The aggregate amount of (x) cash and (y) fair market
value (as determined by the Continuing Directors in good faith)
as of the date of the consummation of any Business Combination of
consideration other than cash to be received per share by holders
of shares of any class or series of outstanding preferred stock
shall be at least equal to the highest amount determined under
clauses (i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Controlling Party for
any shares of such class or series of preferred stock
acquired by it (1) within the three-year period immediately
prior to the Announcement Date or (2) in the transaction in
which it became a Controlling Party, whichever is higher;
(ii) the highest preferential amount per share to
which the holders of shares of such class or series of
Preferred Stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation regardless of whether
the Business Combination to be consummated constitutes such
an event;
(iii) the fair market value (as determined by the
Continuing Directors in good faith) per share of such class
or series of preferred stock on the Announcement Date or on
the date on which the Controlling Party became a Controlling
Party, whichever is higher; and
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(iv) (if applicable) the price per share equal to the
fair market value (as determined by the Continuing Directors
in good faith) per share of such class or series of
preferred stock determined pursuant to clause (2)(b)(iii)
above, multiplied by the ratio of (A) the highest per share
price (including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Controlling Party
for any shares of such class or series of preferred stock
acquired by it within the three-year period immediately
prior to the Announcement Date to (B) the fair market value
(as determined by the Continuing Directors in good faith)
per share of such class or series of preferred stock on the
first day in such three-year period upon which the
Controlling Party acquired any shares of such class or
series of preferred stock.
The provisions of this sub-paragraph 2(b) shall be required
to be met with respect to every class or series of
outstanding preferred stock of the Corporation, whether or
not the Controlling Party has previously acquired any shares
of a particular class or series of preferred stock.
C. For the purposes of this Article XIII, the following definitions
apply:
(1) The term "Controlling Party" shall mean and include (a) any
individual, corporation, partnership or other person or entity that
together with its "affiliates" (as that term is defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Act of 1934),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934) in the
aggregate twenty percent (20%) or more of the outstanding shares of the
common stock of the Corporation; and (b) any "affiliate" (as that term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934) of any
such individual, corporation, partnership or other person or entity.
Without limitation, any shares of the common stock of the Corporation which
any Controlling Party has the right to acquire pursuant to any agreement,
or upon exercise of conversion rights, warrants or options, or otherwise,
shall be deemed "beneficially owned" by such Controlling Party.
(2) The term "Continuing Director" shall mean any member of the
Board of Directors of the Corporation who is not a Controlling Party or in
any manner affiliated or associated with or a representative of the
Controlling Party and was a member of the Board of Directors prior to the
time that the Controlling Party became a Controlling Party, and any
successor of a Continuing Director who is unaffiliated with the Controlling
Party and is recommended to succeed a Continuing Director by a majority of
Continuing Directors then on the Board.
(3) The term "Continuing Director Quorum" shall mean two-thirds
of the Continuing Directors capable of exercising the powers conferred on
them.
ARTICLE XIV
Evaluation of Business Combinations
The Board of Directors of the Corporation shall consider all factors it
deems relevant in evaluating any proposed tender offer or exchange offer for the
stock of the Corporation or any subsidiary, any proposed merger or consolidation
of the Corporation or a subsidiary with or into another entity and any proposal
to purchase or otherwise acquire all or substantially all the assets of the
Corporation or any subsidiary. The Board of Directors shall evaluate whether
the proposal is in the best interests of the Corporation and its subsidiaries by
considering the best interests of the shareholders and other factors the
directors determine to be relevant, including the social, legal and economic
effects on employees, customers, depositors, and communities served by the
Corporation and any subsidiary. The Board of Directors shall evaluate the
consideration being offered to the shareholders in relation to the then current
market value of the Corporation or any subsidiary, the then current market value
of the stock of the Corporation or any subsidiary in a freely negotiated
transaction, and the Board of Directors' estimate of the future value of stock
of the Corporation or any subsidiary as an independent entity.
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ARTICLE XV
Indemnification
Subject to applicable provisions of federal law, the Corporation shall
indemnify to the fullest extent permissible under the Maryland General
Corporation Law any individual who is or was a director, officer, employee, or
agent of the Corporation, and any individual who serves or served at the
Corporation's request as a director, officer, partner, trustee, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise, in any proceeding in which the individual is made a party as a
result of his service in such capacity. An individual will not be indemnified
if (i) it is established that the act or omission at issue was material to the
matter giving rise to the proceeding and (a) was committed in bad faith, or (b)
was the result of active and deliberate dishonesty; (ii) the individual actually
received an improper personal benefit in money, property, or services; or (iii)
in the case of a criminal proceeding, the individual had reasonable cause to
believe that the act or omission was unlawful. In the event any litigation is
brought against a director of this Corporation, authorization is hereby made to
advance all expenses needed by the director to defend the lawsuit. There shall
be no obligation to repay the expenses forwarded, unless it shall be determined
ultimately by the Corporation, in accordance with the provisions of this Article
XV and the Maryland General Corporation Law, that the director shall not be
entitled to indemnification.
The rights of indemnification provided for in this Article XV shall not be
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise. Rights of indemnification under this Article XV shall continue as to
a person who has ceased to serve in one of the capacities listed in the
immediately preceding paragraph and shall inure to the benefit of the heirs,
executors and administrators of such person.
ARTICLE XVI
Limitations on Liability of Officers and Directors
An officer or director of the Corporation shall not be personally liable to
the Corporation or its shareholders for monetary damages for breach of their
fiduciary duty as an officer or director, unless: (i) it is proved that the
individual officer or director actually received an improper benefit or profit
in money, property or services from the Corporation, or (ii) a judgment or other
final adjudication adverse to the individual officer or director is entered in a
proceeding based on a finding in the proceeding that the individual's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. If the General
Laws of the State of Maryland are amended to further eliminate or limit the
personal liability of officers and directors, then the liability of officers and
directors of the Corporation shall be eliminated or limited to the fullest
extent permitted by Maryland law, as so amended.
Any repeal or modification of the foregoing paragraph by the shareholders
of the Corporation shall not adversely affect any right or protection of an
officer or director of the Corporation existing at the time of such repeal or
modification.
ARTICLE XVII
Special Quorum Requirements
Any meeting of shareholders, whether annual or special, called to consider
a vote in favor of a reverse stock split or merger or consolidation of the
Corporation with, or a sale, exchange or lease of substantially all of the
assets of the Corporation as defined under Article XII of these Articles to, any
person or entity that is not recommended by the Board of Directors of the
Corporation by the required vote applicable to the proposed transaction under
Article XII or Article XIII of these Articles, shall require attendance in
person or by proxy of the holders of eighty percent (80%) of the outstanding
shares of voting stock of the Corporation in order for a quorum for the conduct
of business to exist. Such a meeting may not be adjourned with notice if a
quorum is not present.
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ARTICLE XVIII
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
repeal, alter, amend and rescind the Bylaws of the Corporation. Notwithstanding
any other provision of these Articles or the Corporation's Bylaws (and
notwithstanding the fact that some lesser percentage may be specified by law),
the Bylaws shall not be made, repealed, altered, amended or rescinded by the
shareholders of the Corporation except by the vote of the holders of not less
than eighty percent (80%) of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the shareholders called for
that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such meeting)
or by a majority vote of the Board of Directors.
ARTICLE XIX
Amendment of Articles of Incorporation
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in these Articles in the manner now or hereafter prescribed
by law, and all rights conferred on shareholders herein are granted subject to
this reservation. Notwithstanding the foregoing, the provisions set forth in
Articles VI, IX, XII, XIII, XIV and this Article XIX of these Articles may not
be repealed, altered, amended or rescinded in any respect unless the same is
approved by the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this purpose as a
single class) cast at a meeting of the shareholders called for that purpose
(provided that notice of such proposed adoption, repeal, alteration, amendment
or rescission is included in the notice of such meeting).
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Laws of the State of
Maryland, do make these Articles, hereby declaring and certifying that this is
my act and deed, and accordingly have hereunto set my hand this 22 day of
January, 1992.
/s/ Willard H. Derrick
-------------------------------------
Willard H. Derrick
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AGREEMENT AND ARTICLES OF MERGER
BETWEEN
SANDY SPRING MARYLAND BANCORP, INC.
AND
SANDY SPRING BANCORP, INC.
SANDY SPRING MARYLAND BANCORP, INC., a corporation duly organized and
existing under the laws of the State of Maryland ("Sandy Spring-Maryland"), and
SANDY SPRING BANCORP, INC., a corporation duly organized and existing under the
laws of the State of Delaware ("Sandy Spring-Delaware"), do hereby certify that:
FIRST: Sandy Spring-Maryland and Sandy Spring-Delaware agree to merge.
SECOND: The name and place of incorporation of each party to this
Agreement and Articles of Merger are SANDY SPRING MARYLAND BANCORP, INC., a
Maryland corporation, and SANDY SPRING BANCORP, INC., a Delaware corporation.
Sandy Spring-Maryland shall be the successor corporation in the merger.
THIRD: The date of incorporation of Sandy Spring-Delaware was September
10, 1987. Sandy Spring-Delaware is incorporated under the Delaware General
Corporation Law. Sandy Spring-Delaware was registered or qualified to do
business in Maryland on November 30, 1987.
FOURTH: Sandy Spring-Maryland has its principal office in Maryland in
Montgomery County, and Sandy Spring-Delaware has its principal office in
Maryland in Montgomery County. Sandy Spring-Delaware does not own an interest
in land in Maryland.
FIFTH: The terms and conditions of the transaction set forth in this
Agreement and Articles of Merger were advised, authorized, and approved by each
corporation party to the Agreement and Articles of Merger in the manner and by
the vote required by its charter and the laws of the state of its incorporation.
The manner of approval was as follows:
(a) The Board of Directors of Sandy Spring-Maryland at a meeting
held on January 29, 1992, by vote of a majority of the entire Board of
Directors, adopted a resolution that approved the Agreement and Articles of
Merger. There are no shareholders of Sandy Spring-Maryland. The Board of
Directors of Sandy Spring-Delaware at a meeting held on January 29, 1992,
by vote of a majority of the entire Board of Directors, adopted resolutions
approving the Agreement and Articles of Merger, declaring that the proposed
merger was advisable on substantially the terms and conditions set forth or
referred to in the resolution, and directing that the proposed merger be
submitted for consideration at the annual meeting of the shareholders of
Sandy Spring-Delaware.
(b) Notice stating that a purpose of the annual meeting was to act
on the proposed merger was given by Sandy Spring-Delaware as required by
law.
(c) The proposed merger was approved by the shareholders of Sandy
Spring-Delaware at the annual meeting of shareholders held on April 15,
1992 by at least a majority of all the votes entitled to be cast on the
matter.
SIXTH: Article I of the Articles of Incorporation of Sandy Spring-
Maryland is to be amended as follows as part of the merger:
ARTICLE I
Name
The name of the Corporation is Sandy Spring Bancorp, Inc. (herein the
"Corporation").
SEVENTH: The total number of shares of stock of all classes that Sandy
Spring-Maryland has authority to issue is 6,000,000 shares, all of which shares
are initially classified as Common Stock (par value $1.00 per share), with
authority in the Board of Directors to classify and reclassify any unissued
shares. The aggregate par
<PAGE>
value of all the shares of stock of all classes of Sandy Spring-Maryland is
$6,000,000. The total number of shares of stock of all classes that Sandy
Spring-Delaware has authority to issue is 6,000,000 shares, of which 1,000,000
shares are Preferred Stock (par value $1.00 per share) and 5,000,000 shares are
Common Stock (par value $1.00 per share). The aggregate par value of all the
shares of stock of all classes of Sandy Spring-Delaware is $6,000,000.
EIGHTH: The merger does not amend the charter of the successor, Sandy
Spring-Maryland, in a manner that changes any information relating to capital
stock.
NINTH: The terms and conditions of the merger, the mode of carrying the
same into effect and the manner and basis of converting or exchanging issued
stock of the merging corporations into different stock of a corporation, or
other consideration and the treatment of any issued stock of the merging
corporations not to be converted or exchanged are as follows:
(a) There will be no issued and outstanding shares of Common Stock
or Preferred Stock of Sandy Spring-Maryland prior to the effective date of
the merger.
(b) Each issued and outstanding share of Common Stock of Sandy
Spring-Delaware on the effective date of the merger shall, upon
effectiveness and without further act, be automatically converted into and
become one share of Common Stock of Sandy Spring-Maryland. Since no shares
of Preferred Stock of Sandy Spring-Delaware will be issued and outstanding
prior to the effective date of the merger, no such shares shall be
converted into shares of Preferred Stock of Sandy Spring-Maryland.
(c) Certificates representing shares of Common Stock of Sandy
Spring-Delaware before the merger will represent shares of Common Stock of
Sandy Spring-Delaware after the merger, and it will not be necessary for
shareholders of Sandy Spring-Delaware to surrender or exchange their
existing stock certificates for new stock certificates of Sandy Spring-
Maryland Common Stock.
TENTH: The merger shall become effective at 5:00 p.m. Eastern Time on
May 13, 1992.
ELEVENTH: Sandy Spring-Maryland agrees that it may be served with
process in Delaware in any proceeding for enforcement of any obligation of Sandy
Spring-Delaware, as well as for enforcement of any obligation of the surviving
or resulting corporation arising from the merger, and irrevocably appoints the
Secretary of State of the State of Delaware as its agent to accept service of
process in any such suit or other proceedings. The address to which a copy of
such process shall be mailed by the Secretary of State of the State of Delaware
is: Sandy Spring Bancorp, Inc., 17801 Georgia Avenue, Olney, Maryland 20832,
Attention: Willard H. Derrick.
IN WITNESS WHEREOF, SANDY SPRING MARYLAND BANCORP, INC. and SANDY SPRING
BANCORP, INC. have caused these presents to be signed in their respective names
and on their respective behalves by their respective presidents and witnessed by
their respective secretaries on May 1, 1992.
WITNESS: SANDY SPRING MARYLAND BANCORP, INC.
(a Maryland corporation)
/s/ Marjorie S. Cook By:/s/ Willard H. Derrick
- ----------------------- ----------------------------------
Marjorie S. Cook Willard H. Derrick
Secretary Chairman and Chief Executive Officer
WITNESS: SANDY SPRING BANCORP, INC.
(a Delaware corporation)
/s/ Marjorie S. Cook By:/s/ Willard H. Derrick
- ----------------------- -------------------------------------
Marjorie S. Cook Hunter R. Hollar
Secretary President
2
<PAGE>
THE UNDERSIGNED, Chairman and Chief Executive Officer of SANDY SPRING
MARYLAND BANCORP, INC., who executed on behalf of the Corporation the foregoing
Agreement and Articles of Merger of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said Corporation the foregoing
Agreement and Articles of Merger to be the corporate act of said Corporation and
hereby certifies that to the best of his knowledge, information and belief the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
/s/ Willard H. Derrick
---------------------------------------
Willard H. Derrick
Chairman and Chief Executive Officer
THE UNDERSIGNED, President of SANDY SPRING BANCORP, INC., who executed on
behalf of the Corporation the foregoing Agreement and Articles of Merger of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Agreement and Articles of Merger to be
the corporate act and deed of said Corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ Hunter R. Hollar
---------------------------------------
Hunter R. Hollar
President
THE UNDERSIGNED, Secretary of SANDY SPRING BANCORP, INC., hereby certifies
that, pursuant to the requirements of Sections 251(c) and 252(c) of the Delaware
General Corporation Law, a majority of the outstanding stock of Sandy Spring-
Delaware entitled to vote thereon was voted for the adoption of the Agreement
and Articles of Merger.
/s/ Marjorie S. Cook
---------------------------------------
Marjorie S. Cook
Secretary
3
<PAGE>
SANDY SPRING BANCORP, INC.
ARTICLES OF AMENDMENT
Sandy Spring Bancorp, Inc, a Maryland corporation (the "Corporation"),
having its principal office in Olney, Montgomery County, Maryland, does hereby
certify to the State Department of Assessments and Taxation that:
FIRST: The charter of the Corporation is hereby amended to cause the first
sentence of Article V thereof to read as follows:
"The aggregate number of shares of all classes of capital stock which
the corporation has authority to issue is 15,000,000 shares of capital
stock, $1.00 par value per share, amounting in aggregate par value to
$15,000,000."
SECOND: The foregoing amendment was advised by the Board of Directors of
the Corporation and approved by the shareholders of the Corporation.
THIRD: Immediately prior to adoption of the foregoing amendments the Bank
was authorized to issue six million shares of stock, par value $1.00 per share,
all of which were initially designated as common stock. Following such
amendment, the Corporation is authorized to issue fifteen million shares of
stock, par value $1.00 per share, all of which are initially designated as
common stock. The Board of Directors of the Corporation may classify and
reclassify any unissued shares of capital stock by setting or changing in any
one or more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions and dividends, qualifications or
terms or conditions of redemption of such shares of stock.
The aggregate par value of all shares of all classes of stock which the
Corporation is authorized to issue is $15,000,000.
The undersigned officers of Sandy Spring Bancorp, Inc. hereby acknowledge
under penalties of perjury that the foregoing Articles of Amendment constitute
the corporate act of said corporation.
ATTEST: [Seal]
/s/ Marjorie S. Cook /s/ Hunter R. Hollar
- ---------------------------- -------------------------------------
Marjorie S. Cook, Secretary Hunter R. Hollar
President and Chief Executive Officer
State Department of Assessments and Taxation
Approved For Record 6/18/96 at 11:05 a.m.
4
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<PAGE>
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