<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, 1997
-------------
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 25, 1997 is
4,903,697 shares.
<PAGE>
SANDY SPRING BANCORP
INDEX
PAGE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996.................... 1
Consolidated Statements of Income for the
the Three and Six Month Periods Ended
June 30, 1997 and 1996................................. 2
Consolidated Statements of Cash Flows for
the Six Month Periods Ended June 30, 1997 and 1996..... 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
</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)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 38,934 $ 32,899
Federal funds sold 17,980 23,278
Interest-bearing deposits with banks 1,410 861
Residential mortgage loans held for sale 4,880 7,985
Investments available-for-sale (at fair value) 289,595 234,423
Investments held-to-maturity -- fair value of $119,428 (1997) and
$123,067 (1996) 118,343 122,272
Other equity securities 8,475 5,111
Total Loans (net of unearned income) 546,039 523,166
Less: Allowance for credit losses (6,431) (6,391)
---------- ------------
Net loans 539,608 516,775
Premises and equipment 23,782 20,211
Accrued interest receivable 8,845 7,917
Other real estate owned 500 0
Other assets 10,500 6,863
---------- ------------
TOTAL ASSETS $1,062,852 $978,595
========== ============
LIABILITIES
Noninterest-bearing deposits $ 138,222 $117,052
Interest-bearing deposits 703,552 689,289
---------- ------------
Total deposits 841,774 806,341
Short-term borrowings 112,127 68,127
Long-term borrowings 4,704 4,820
Accrued interest and other liabilities 2,598 2,726
---------- ------------
TOTAL LIABILITIES 961,203 882,014
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares authorized 15,000,000; shares
issued and outstanding 4,910,490 (1997) and 4,902,113 (1996) 4,910 4,902
Surplus 33,713 33,474
Retained earnings 61,832 57,669
Net unrealized gain on investments available-for-sale 1,194 536
---------- ------------
TOTAL STOCKHOLDERS' EQUITY 101,649 96,581
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,062,852 $978,595
========== ============
</TABLE>
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 Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $12,458 $11,530 $24,393 $22,881
Interest on loans held for sale 62 48 116 81
Interest on deposits with banks 15 76 42 99
Interest and dividends on securities:
Taxable 5,005 3,550 9,465 7,057
Nontaxable 832 849 1,622 1,694
Interest on federal funds sold 321 326 647 730
-------- -------- ------- -------
TOTAL INTEREST INCOME 18,693 16,379 36,285 32,542
Interest expense:
Interest on deposits 7,226 6,933 14,212 13,905
Interest on short-term borrowings 1,143 451 1,950 849
Interest on long-term borrowings 80 66 160 155
-------- -------- ------- -------
TOTAL INTEREST EXPENSE 8,449 7,450 16,322 14,909
-------- -------- ------- -------
NET INTEREST INCOME 10,244 8,929 19,963 17,633
Provision for Credit Losses 125 25 225 208
-------- -------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 10,119 8,904 19,738 17,425
Noninterest Income:
Securities gains (losses) 112 4 132 (50)
Service charges on deposit accounts 789 740 1,578 1,388
Gains on mortgage sales 255 246 524 443
Other income 858 721 1,609 1,431
-------- -------- ------- -------
TOTAL NONINTEREST INCOME 2,014 1,711 3,843 3,212
Noninterest Expenses:
Salaries and employee benefits 4,147 3,634 7,887 7,028
Occupancy expense of premises 568 497 1,085 1,034
Equipment expenses 532 526 1,051 1,051
Other expenses 2,071 1,626 3,926 2,918
-------- -------- ------- -------
TOTAL NONINTEREST EXPENSES 7,318 6,283 13,949 12,031
-------- -------- ------- -------
Income Before Income Taxes 4,815 4,332 9,632 8,606
Income Tax Expense 1,695 1,429 3,309 2,827
-------- -------- ------- -------
NET INCOME $ 3,120 $ 2,903 $ 6,323 $ 5,779
======== ======== ======= =======
PER SHARE DATA:
Net Income $0.64 $0.60 $1.29 $1.20
Dividends Declared 0.23 0.19 0.44 0.37
</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,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 6,323 $ 5,779
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,037 888
Provision for credit losses 225 208
Deferred income taxes (2) 130
Origination of loans held for sale (29,500) (28,065)
Proceeds from sales of loans held for sale 33,129 29,964
Gains on sales of loans held for sale (524) (444)
Securities (gains) losses (132) 50
Net change in:
Accrued interest receivable (928) (633)
Accrued income taxes (55) (333)
Other accrued expenses (74) (875)
Other -- net (4,008) 1,782
--------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 5,491 8,451
Cash Flows from Investing Activities:
Net increase in interest-bearing deposits with banks (549) (5,194)
Purchases of investments held-to-maturity (6,155) (19,967)
Purchases of other equity securities (3,364) 0
Purchases of investments available-for-sale (145,714) (61,984)
Proceeds from sales of investments available-for-sale 46,245 8,802
Proceeds from maturities, calls and principal payments of investments held-to-maturity 10,201 16,581
Proceeds from maturities, calls and principal payments of investments available-for-sale 45,258 32,481
Proceeds from sales of loans 0 291
Proceeds from sales of other real estate owned 0 250
Net increase in loans receivable (23,438) (19,946)
Expenditures for premises and equipment (4,642) (944)
--------- --------
NET CASH USED BY INVESTING ACTIVITIES (82,158) (49,630)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and savings accounts 17,763 14,901
Net increase in time and other deposits 17,670 15,177
Net increase in short-term borrowings 43,900 6,962
Proceeds from long-term borrowings 0 2,000
Retirement of long-term borrowings (16) (15)
Net decrease in balance due to banks 0 (1,378)
Common stock purchased and retired (723) 0
Proceeds from issuance of common stock 970 1,037
Dividends paid (2,160) (1,716)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 77,404 36,968
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 737 (4,211)
Cash and Cash Equivalents at Beginning of Quarter 56,177 60,435
--------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER* $ 56,914 $ 56,224
========= ========
</TABLE>
3
<PAGE>
Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Supplemental Disclosures: $15,272 $14,454
Interest payments
Income tax payments 4,140 2,850
Noncash Investing Activities:
Transfers from loans to other real estate owned 565 93
Reclassification of borrowings from long-term to short-term 100 2,000
Unrealized gain on investments available-for-sale
net of deferred tax effect of $414 in 1997 and $(929) in 1996 658 (1,477)
</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
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
1996 Annual Report to Shareholders. The results shown in this interim report
are not necessarily indicative of results to be expected for the full year 1997.
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.
Financial data for 1996 has been restated under pooling of interests
accounting for the Annapolis Bancshares, Inc. merger consummated August 29,
1996.
NOTE 2 - STOCKHOLDERS' EQUITY
On April 16, 1997, the Company announced that its Board of Directors had
authorized the repurchase of up to 5%, or 246,042 shares, of Bancorp's
outstanding common stock, par value $1.00 per share, in connection with shares
expected to be issued pursuant to Bancorp's dividend reinvestment, stock option,
and employee benefit plans and for other corporate purposes. The share
repurchases would be made on the open market and in privately negotiated
transactions, from time to time until March 31, 1999, or earlier termination of
the program by the Board. At June 30, 1997, 20,830 shares had been purchased
under this program.
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, 4,915,739 in 1997 and 4,875,667
in 1996 and, for the first six months, 4,911,088 in 1997 and 4,854,625 in 1996.
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. Because of these uncertainties and the assumptions
on which statements in this report are based, the actual future results may
differ materially from those indicated in this report.
In the following discussion, all financial information pertaining to the first
two quarters of 1996 except dividends per share have been retroactively restated
for the Annapolis Bancshares, Inc. merger completed in the third quarter of
1996.
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 nineteen banking offices in Montgomery, Howard, and Anne Arundel
Counties in Maryland. On April 16, 1997, the Company announced that its Board
of Directors had authorized the repurchase of up to 5%, or 246,042 shares, of
its outstanding common stock, par value $1.00 per share, in connection with
shares expected to be issued under the Company's dividend reinvestment, stock
option, and employee benefit plans and for other corporate purposes. The share
repurchases are expected to be made primarily on the open market from time to
time until March 31, 1999, or earlier termination of the repurchase program by
the Board. Repurchases under the program will be made at the discretion of
management based upon market, business, legal, accounting and other factors.
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 $1,062,852 at June 30, 1997, compared to
$978,595 at December 31, 1996, increasing $84,257 or 8.6% during the first half
of 1997. Earning assets increased $69,626 or 7.6% to $986,722 at June 30, 1997
from $917,096 at December 31, 1996.
Total loans rose 4.4% or $22,873 during the first half of 1997 to $546,039.
Commercial loans showed significant growth, rising $6,859 or 10.0%, as did
construction loans, which increased $5,165 or 10.8% due to growth in residential
construction loans. Real estate mortgages increased $11,203 or 3.0% during the
first half of 1997, while consumer loans decreased $348 or 1.1%.
The investment portfolio, consisting of available-for-sale, held-to-maturity
and other equity securities, is the other significant category of earning
assets. Total investments increased $54,607 or 15.1% from December 31, 1996 to
June 30, 1997.
Total deposits were $841,774 at June 30, 1997, increasing $35,433 or 4.4% from
$806,341 at December 31, 1996. Interest-bearing deposits increased by $14,263
or 2.1% while noninterest-bearing demand deposits rose $21,170 or 18.1%. Growth
in commercial and small business checking accounts was the primary cause of the
increase in noninterest-bearing demand deposits. Federal Home Loan Bank of
Atlanta advances were largely responsible for the $44,000 or 64.6% increase in
short-term borrowings.
6
<PAGE>
LIQUIDITY AND INTEREST RATIO SENSITIVITY
The Company's liquidity position, considering both internal and external
sources available, exceeded anticipated short and long term funding needs at
June 30, 1997.
In assessing liquidity, management considers operating requirements, the
seasonality of loan and deposit flows, investment, loan, borrowing and deposit
maturities, expected fundings of loans, deposit withdrawals, and the market
values of available-for-sale investments.
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 change in the fair value of the
Company's net assets is 25%. Simulation modeling measured from June 30, 1997
indicated impacts of 11% on net interest income and 21% on the fair value of
capital, both within the policy limits. The simulation model captures
optionality factors such as call features and interest rate caps and floors
imbedded in investment and loan portfolio contracts.
CAPITAL MANAGEMENT
The Company recorded a total risk-based capital ratio of 17.61% at June 30,
1997, compared to 17.56% at December 31, 1996; a tier 1 risk-based capital ratio
of 16.54%, compared to 16.44%; and a capital leverage ratio of 9.80%, compared
to 10.38%. Capital adequacy, as measured by these ratios, was well above
regulatory requirements.
Stockholders' equity totaled $101,649 (including a net unrealized gain of
$1,194 on investments available-for-sale) at June 30, 1997, an increase of 5.3%
from $96,581 (including a net unrealized gain of $536) at December 31, 1996.
Internal capital generation (net income less dividends) provided $4,163 in
additional equity during the first six months of 1997, representing an
annualized rate (when considered as a percentage of average total stockholders'
equity) of 8.6% versus 8.7% for the year ended December 31, 1996. External
capital formation amounted to $970 for the six months ended June 30, 1997,
resulting from issuance of 19,865 shares under the Company's dividend
reinvestment plan and 9,358 shares from employee purchases through 401K benefit
plans. Share repurchases began in the second quarter of 1997 and resulted in
the retirement of 20,830 shares at an aggregate purchase price of $723.
First half dividends were $2,160 or $0.44 per share in 1997, compared to
$1,617 or $0.37 per share in 1996, for dividend payout ratios of 34.11% and
30.83%, respectively.
B. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net income for the first six months of the year rose $544 or 9.4% in 1997, to
$6,323 ($1.29 per share) from the $5,779 ($1.20 per share) earned in the first
half of 1996. The first half return on average assets was 1.28% in 1997
compared to 1.31% in 1996, first half returns on average equity were 13.03% and
13.18% in 1997 and 1996, respectively.
NET INTEREST INCOME
First half net interest income was $19,963 in 1997, an increase of 13.2% over
$17,633 in 1996, reflecting a higher volume of average earning assets, along
with a 6 basis point increase in net interest margin to 4.48% from 4.42%.
First half tax-equivalent interest income increased $3,796 or 11.3% in 1997,
compared to 1996. Average earning assets rose 11.1% over the prior year period
while the average yield earned on those assets remained essentially constant.
Comparing the first half of 1997 versus 1996, average loans grew 7.0% to
$533,315 (57.4% of average earning assets) while the average yield on loans
remained essentially constant. Commercial mortgage, residential construction
and commercial loans were responsible for most of the rise in total loans.
Average total securities
7
<PAGE>
increased 20.6% to $366,737 (39.5% of average earning assets) and recorded an 18
basis point increase in average yield.
First half interest expense increased $1,413 or 9.5%, as a net result of 11.2%
higher average interest-bearing liabilities and a 5 basis point decrease in
average rate paid.
CREDIT RISK MANAGEMENT
The first half provision for credit losses was $225 in 1997 compared to $208
in 1996. Net charge-offs of $185 were recorded for the six month period ended
June 30, 1997 while there were net charge-offs of $27 for the same period a year
earlier.
Nonperforming loans decreased by $27 while total nonperforming assets
increased by $473, from December 31, 1996 to June 30, 1997. Expressed as a
percentage of total assets, nonperforming assets were 0.48% at June 30, 1997 and
at December 31, 1996. Because the loan portfolio includes a significant number
of loans with large individual balances, the unexpected deterioration of one or
a few such loans may cause a significant increase in nonperforming loans and
assets or in potential problem loans. The total balance of impaired loans was
$1,317 at June 30, 1997 and the reserve on those loans was $338 compared to
$1,280 with a reserve of $127 at December 31, 1996.
The Company regularly analyzes the sufficiency of its allowance for credit
losses based upon a number of factors, including lending risks associated with
growth and entry into new markets, loss allocations for specific problem
credits, the level of the allowance to nonperforming loans, historical loss
experience, economic conditions, portfolio trends and credit concentrations, and
changes in the size and character of the loan portfolio. 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. At June 30, 1997, the allowance for credit losses was 1.18% of total
loans versus 1.22% at December 31, 1996. Coverage of risk in the loan portfolio
may be evaluated using a ratio of the allowance for credit losses to
nonperforming loans. Significant variation in this coverage ratio may occur
from period to period because the amount of nonperforming loans depends largely
upon the condition of a small number of individual loans and borrowers relative
to the total loan portfolio. At June 30, 1997, the allowance for credit losses
represented 139% of nonperforming loans compared to 137% at December 31, 1996.
Management believes the allowance for credit losses at June 30, 1997 was
adequate.
NONINTEREST INCOME AND EXPENSES
First half noninterest income, excluding nonrecurring securities gains and
losses, profits on the sale of real estate owned and losses on the disposition
of capital assets, rose $566 or 18.0% in 1997, compared to 1996. The primary
causes for the change were increases in gains on mortgage sales as well as
higher return check charges, trust department fees, Visa check fees and ATM
surcharge fees.
First half noninterest expenses increased $1,918 or 15.9% to $13,949 in 1997
from $12,031 in 1996. Income statement categories that increased most
significantly were salaries and employee benefits, which rose $859 or 12.2%, and
other expenses, which rose $1,008 or 34.5%. The increase in compensation
expenses reflected a larger staff and an expanded branch network. The rise in
other expenses included higher marketing and outside service costs and increased
amortization of intangibles relating to a purchase of deposits in 1996.
The ratio of net income to average full-time-equivalent (FTE) employees was
$17 for the six month periods ended June 30, 1997 and 1996, although the number
of average FTE employees rose to 378 from 343.
INCOME TAXES
The first half effective tax rate was 34.4% in 1997, compared to 32.8%
in 1996 due primarily to increased amortization of intangibles.
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, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Balance, January 1 $6,391 $6,597
Provision for credit losses 225 308
Loan charge-offs:
Real estate-mortgage (60) (3)
Real estate-construction (79) 0
Consumer (54) (143)
Commercial (40) (469)
-------- --------
Total charge-offs (233) (615)
Loan recoveries:
Real estate-mortgage 0 0
Real estate-construction 0 0
Consumer 25 37
Commercial 23 64
-------- --------
Total recoveries 48 101
-------- --------
Net charge-offs (185) (514)
-------- --------
BALANCE, PERIOD END $6,431 $6,391
======== ========
Net charge-offs to average loans
(annual basis) 0.07% 0.10%
Allowance to total loans 1.18% 1.22%
</TABLE>
Balance sheet risk inherent in the lending function is presented as follows at
the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Non-accrual loans $1,672 $1,291
Loans 90 days past due 2,933 3,337
Restructured loans 23 27
Total Nonperforming Loans* 4,628 4,655
Other real estate owned 500 0
======== ========
TOTAL NONPERFORMING ASSETS $5,128 $4,655
Nonperforming assets to total assets 0.48% 0.48%
-------- --------
</TABLE>
* Those performing loans considered potential problem loans, as defined and
identified by management, amounted to approximately $5,890 at June 30, 1997,
compared to $3,440 at December 31, 1996. 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 1997 AND 1996
Second quarter earnings of $3,120 ($0.64 per share) in 1997 were above the
second quarter of 1996's $2,903 ($0.60 per share) by $217 or 7.5%.
Tax-equivalent net interest income rose 14.2% during the second quarter of
1997 compared to the same three month period of 1996, showing the effect of an
11.9% increase in the earning asset base and a 9 basis point rise in net
interest spread.
The provision for credit losses was $125 and $25 for the second quarters of
1997 and 1996, respectively, reflecting favorable asset quality. There were net
charge-offs of $81 and $27 in the two quarterly periods.
Noninterest income for the second quarter increased 17.7% in 1997, compared to
1996, with the largest contributors being higher return check charges, trust
department fees, Visa check fees and ATM surcharge fees. Noninterest expenses
rose 16.5%, reflecting a larger staff, higher marketing and outside service
costs and increased amortization of intangibles.
The second quarter effective tax rate was 35.2% in 1997 versus 33.0% shown in
1996.
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 16, 1997, the
shareholders of the Company elected Susan D. Goff, Robert L. Mitchell, Robert L.
Orndorff, Jr., and David E. Rippeon 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 except
for David E. Rippeon. Other directors continuing in office are Solomon Graham,
Charles F. Mess, Lewis R. Schumann, W. Drew Stabler, John Chirtea, Joyce Riggs
Hawkins, Hunter R. Hollar, and Thomas O. Keech.
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
--- -------
10 Trust Agreement between the Company and CG Trust Company
for Company's Cash and Deferred Profit Sharing Plan.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On April 16, 1997, the Company filed a Current Report of Form 8-K reporting,
under Item 5 of such form, a stock repurchase program authorized by the Board of
Directors. The program is discussed above in Note 2 to the Consolidated
Financial Statements on page 5 and in Management's Discussion and Analysis in
the Section entitled "The Company" on page 6.
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, 1997
By: /s/ James H. Langmead
-------------------------------------
James H. Langmead
Vice President and Treasurer
Date: August 8, 1997
12
<PAGE>
Exhibit 10
THIS TRUST AGREEMENT, by and between Sandy Spring Bancorp, (hereinafter
called the "Employer"), and CG Trust Company, a trust company organized under
the laws of the State of Illinois with its principal office and place of
business in the City of Chicago, Illinois (hereinafter called the "Trustee").
WITNESSETH:
WHEREAS, the Employer has established or adopted for its eligible employees
the Sandy Spring Bancorp Cash and Deferred Profit Sharing Plan (hereinafter
called the "Plan") and serves as the Plan administrator and named fiduciary; and
WHEREAS, the Employer desires the Trustee to hold Plan funds and the
Trustee is willing to hold such funds pursuant to the terms of this Trust
Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto do hereby mutually declare and agree as follows:
Section 1: Establishment of Trust.
----------------------
(a) In order to carry out the purposes of the Plan, the Employer hereby
creates and establishes a trust to be known as the Sandy Spring Bancorp Cash and
Deferred Profit Sharing Plan Trust (hereinafter called the "Trust" or "Trust
Fund"). The Trustee accepts this Trust and agrees to act as trustee hereunder,
but only on the terms and conditions set forth in this Trust Agreement. Subject
to the terms and conditions of this Trust Agreement, all right, title and
interest in and to the estate of the Trust Fund shall be vested exclusively in
the Trustee. This trust shall be effective on July 1, 1997 or, if later, the
date executed on behalf of the Trustee.
(b) The Trust Fund shall include only those assets which the Trustee
accepts and which are identified on Exhibit A. Only assets actually received by
the Trustee will become part of the Trust Fund. The Employer acknowledges and
agrees that it is responsible for effectuating the transfer of any assets held
by a prior trustee or custodian to the Trustee. All assets so received,
together with the income therefrom and any other increment thereon, shall be
held by the Trustee pursuant to the terms of this Trust Agreement without
distinction between principal and income and without liability for the payment
of interest thereon.
Section 2: General Duties of the Employer; Indemnification.
-----------------------------------------------
(a) The Employer shall control and manage the operation of the Plan. The
Employer shall be responsible for determining benefit rights under the Plan,
instructing the Trustee in the disbursement of benefits, investment management,
1
<PAGE>
soliciting stock voting instructions from participants, directing the Trustee in
voting proxies and performing those plan administration functions specified in
the Plan.
(b) The Employer shall act as custodian with respect to promissory notes,
mortgages and related documents given in connection with Plan loans, if any, and
the Employer shall hold in safekeeping all such promissory notes, mortgages and
related documents.
(c) The Trustee shall be fully protected and shall incur no liability in
acting in reliance upon the instructions or directions of the Employer, or any
delegate of the Employer. In addition, the Trustee shall be entitled to rely on
directions given by a Plan participant, where the Plan provisions permit such
direction. The participant shall be regarded as the delegate of the Employer
for purposes of this Agreement and any reference herein to directions or to
instructions from the Employer shall include directions or instructions from any
delegate of the Employer including Plan participants.
(d) The Employer shall indemnify and hold harmless the Trustee from and
against any and all claims, losses, damages, expenses (including reasonable
counsel fees) and liability to which the Trustee may be subject by reason of any
act done or omitted to be done, except where the same is finally adjudicated to
be due to the gross negligence or willful misconduct of the Trustee.
(e) In addition to and in no way in limitation of the indemnification of
paragraph (d), the Employer hereby agrees to indemnify and hold harmless the
Trustee from and against any claims, losses, damages, expenses (including
reasonable counsel fees) and liability to which the Trustee may be subject by
reason of any act or omission of any prior, subsequent or existing trustee of
the Plan.
Section 3: General Duties of Trustee.
-------------------------
(a) The Trustee shall receive, hold, manage, invest and reinvest the Trust
Fund pursuant to the provisions of this Section and Section 4 in accordance with
the directions of the Employer. The Trustee shall take no action except
pursuant to directions received by it from the Employer, and shall have no duty
to determine any facts or the propriety of any action taken or omitted by it in
good faith pursuant to instructions from such persons.
(b) The Trustee shall be responsible only for such assets as are actually
received by it as Trustee hereunder. The Trustee shall have no duty or
authority to ascertain whether any contributions should be made to it pursuant
to the Plan or to bring any action to enforce any obligation to make any such
contribution, nor shall it have any responsibility concerning the amount of any
contribution or the application of the Plan's contribution formula.
(c) The duties and obligations of the Trustee hereunder shall be limited to
those expressly imposed upon it by this Trust Agreement notwithstanding any
reference herein to the Plan, and no further duties or obligations of the
Trustee, such as a duty to value Plan investments, determine the prudence of any
Plan investment, or diversify Plan investments, shall be implied. The Trustee
shall not
2
<PAGE>
be liable in discharging its duties hereunder if it acts in good faith and in
accordance with the terms of this Trust Agreement and in accordance with
applicable Federal or state laws, rules and regulations.
Section 4: Power and Duties of Trustee with Respect to Trust Fund. The
------------------------------------------------------
Trustee shall have the following powers and duties regarding the Trust Fund:
(a) To hold title to the assets of the Trust Fund, which may include
entering into depository arrangements for the safekeeping of records relevant to
the ownership of such assets with any bank or banks as the Trustee may choose.
Without limiting the generality of the foregoing, the Employer specifically
directs the Trustee to appoint, and the Trustee hereby appoints the Employer to
act as custodian with respect to promissory notes, mortgages and related
documents given in connection with Plan loans, if any.
(b) To invest the assets of the Trust Fund in such investment vehicles as
directed by the Employer, including Plan loans made to participants, and annuity
or insurance contracts issued by affiliates of the Trustee, in accordance with
directions received from the Employer, and to agree to amendments to such
annuity or insurance contracts, as directed by the Employer. The Trustee shall
have no duty or responsibility to determine the appropriateness of any Plan
investment, or to cause such investments to be changed. Notwithstanding any
other provision of this Agreement, all notices, proposed contract amendments,
rate or fee changes or other communications regarding all group annuity
contracts that are assets of the Plan, including any group annuity contract
issued by Connecticut General Life Insurance Company, will be sent directly by
the issuer of the contract to the Employer or forwarded by the Trustee to the
Employer, and the Trustee shall act on behalf of the Plan with respect to any
such notice, proposed amendment, change or other communication only in
accordance with the written direction of the Employer. Any rights of a
contractholder under any such group annuity contract to discontinue, amend or
otherwise modify the contract shall be exercised only upon the specific written
direction of the Employer to the issuer of the contract or by the Trustee at the
Employer's specific written direction.
(c) To make transfers among investment vehicles or disbursements from the
Trust Fund as directed by the Employer or, if applicable, Plan participants.
The Trustee shall be entitled to rely on such direction, and shall have no
responsibility to ascertain whether the Plan permits such a transfer or
disbursement.
(d) To delegate to third parties, including affiliates of the Trustee, any
or all of its duties hereunder, including recordkeeping and reporting. Also,
the Trustee may utilize the services of outside custodians to hold on the Plan's
behalf any Plan assets invested in securities.
(e) To vote securities proxies as directed by the Employer, or by another
named fiduciary or investment manager designated by the Employer.
Section 5: Payment of Taxes. The trustee shall pay out of the Trust Fund
----------------
income taxes and other taxes of any and all kinds levied or assessed under
existing
3
<PAGE>
or future laws against the Trust Fund, or against any person with an interest in
the Trust Fund.
Section 6: Disbursement of Trust Funds.
---------------------------
(a) Upon receipt of written direction of the Employer, the Trustee shall
make payments from the Trust Fund to such persons or direct Connecticut General
Life Insurance Company to make such payments from an annuity contract listed on
Exhibit A, in such manner and in such amounts as the Employer shall direct in
writing, and amounts paid pursuant to such direction shall no longer constitute
a part of the Trust Fund. Notwithstanding the foregoing, the Employer expressly
reserves the right to provide direction directly to Connecticut General Life
Insurance Company regarding payments of Plan benefits or other disbursements.
(b) At no time prior to the satisfaction of all liabilities with respect to
participants and beneficiaries under this Trust shall any part of the corpus or
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of plan participants or beneficiaries. Except as provided
in the Plan, the assets of the Trust Fund shall never inure to the benefit or
the Employer and shall be held for the exclusive purpose of providing benefits
to participants in the Plan and their beneficiaries, and defraying reasonable
expenses of administering the Plan.
Section 7: Expenses and Compensation of Trustee. The Trustee shall be
------------------------------------
compensated in accordance with the fee schedule provided to the Employer. In
addition the Trustee shall be paid its reasonable expenses, including reasonable
expenses of counsel and other agents employed by the Trustee, incurred in
conjunction with the administration of the Trust Fund. If the Trustee proposes
an amended fee schedule and the Employer fails to object thereto within ninety
(90) days of its receipt, the amended fee schedule shall be deemed accepted by
the Employer.
Section 8: Expenses of the Plan and Trust Fund. The Employer shall pay,
-----------------------------------
or, if not paid by the Employer and the Plan so permits, the Employer shall
direct the Trustee to pay from the Trust Fund, the reasonable expenses relating
to the Plan and Trust Fund. Such expenses shall include, without limitation,
actuarial, investment management, accounting, legal and Trust expenses.
Section 9: Accounts of the Trustee. The Trustee has accepted this Trust
-----------------------
on the condition that the Employer has entered or is entering into a service
agreement with Connecticut General Life Insurance Company whereby Connecticut
General Life Insurance Company will provide recordkeeping services for all Plan
assets held pursuant to this Trust Agreement. The Trustee shall be required to
forward to the Employer, or require Connecticut General Life Insurance Company
to forward to the Employer, the recordkeeping reports and related financial
information provided by Connecticut General Life Insurance Company, but the
4
<PAGE>
Trustees shall not otherwise be required to provide Trust accounts.
Section 10: Resignation, Removal and Substitution of Trustee.
------------------------------------------------
(a) The Trustee may resign at any time by giving at least 30 days' written
notice to the Employer (unless the Employer deems notice of a shorter duration
to be adequate). The Employer may remove the Trustee at any time by giving at
least 30 days' written notice to the Trustee (unless the Trustee deems notice of
a shorter duration to be adequate).
(b) The Trustee's service pursuant to this Agreement is conditioned upon
the existence of one or more contracts between the Employer or the Plan (or the
Trustee on behalf of the Employer or the Plan) and Connecticut General Life
Insurance Company providing a funding medium for the Plan and providing for full
Plan recordkeeping services. In the event the contract providing a funding
medium or providing for recordkeeping services is discontinued or terminated,
this Agreement shall be terminated as well with no further notice from either
party to the other as of the date of discontinuance or termination of the
contract providing a funding medium or providing for recordkeeping services.
(c) Any successor trustee hereunder may be either a corporation authorized
and empowered to exercise trust powers or may be one or more individuals.
(d) Upon the appointment of a successor trustee, the resigning or removed
Trustee shall execute, acknowledge and deliver all documents and written
instruments necessary to transfer and deliver the Trust Fund and all rights and
privileges therein to the successor trustee. Upon the appointment of a
successor trustee, the resigning and removed Trustee shall be discharged from
further accountability for the Trust Fund, and shall be under no further duty,
obligation or responsibility for the disposition by such successor trustee of
the Trust Fund or any part thereof.
Section 11: Amendment and Termination of Trust.
----------------------------------
(a) The Employer and the Trustee may mutually agree at any time to amend
this Trust Agreement and the Trust created hereby to any extent deemed
advisable. No amendment to this Trust Agreement shall be effective unless
mutually agreed to in writing by the Employer and the Trustee; provided,
however, that Trustee's fee schedule may be amended as provided in Section 7.
(b) The Employer may at any time revoke this Trust Agreement and terminate
the Trust hereby created. Such revocation and termination shall become
effective upon receipt by the Trustee or its delegate of a written instrument of
such revocation and termination executed by the Employer. Upon such
termination, disposition of the assets of the Trust Fund shall be governed by
the terms of the Plan; provided, however, that the Trustee shall not distribute
any portion of the Trust Fund after such termination unless the Employer first
obtains a determination from the Internal Revenue Service that such termination
will not affect adversely the qualified status of the Plan and, if required,
approval of the Pension Benefit
5
<PAGE>
Guaranty Corporation of such termination and distribution of assets. In lieu of
an Internal Revenue Service determination, assets of the Trust Fund may be
distributed if the Employer agrees in writing with the Trustee to indemnify the
Trust Fund for any taxes or other penalties which may be assessed against it as
a result of such termination or agrees to provide a bond to secure payment of
any such taxes or penalties.
Section 12: Miscellaneous Provisions.
------------------------
(a) Trust Agreement and the Trust hereby created shall be governed,
construed, administered and regulated in all respects under the law of the
United States and the State of Illinois.
(b) The titles of the Sections in this Trust Agreement are for convenience
of reference only and in case of any conflict, the text of this instrument,
rather than such titles, shall control.
(c) In case any provisions of this Trust Agreement shall be held illegal or
invalid for any reason, their illegality or invalidity shall not affect the
remaining parts of this Trust Agreement, and this Trust Agreement shall be
construed and enforced as if the illegal and invalid provisions had never been a
part of the Trust Agreement.
(d) This Trust Agreement may be executed in any number of counterparts,
each of which shall be deemed an original. The counterparts shall constitute
one and the same instrument and may be sufficiently evidenced by any one
counterpart.
(e) This Trust Agreement shall be binding upon the respective successors
and assigns of the Employer and the Trustee.
(f) Neither the gender nor the number (singular or plural) of any word
shall be construed to exclude another gender or number when a different gender
or number would be appropriate.
(g) In the event of any conflict between provisions of the Plan and those
of this Trust Agreement, this Trust Agreement shall prevail. Provisions in
other documents, including but not limited to plan documents, group annuity
contracts, and/or service agreements, that might otherwise reflect the powers,
duties, and responsibilities of the Trustee, shall in no way supersede or
replace any of the provisions contained in this Trust Agreement. This Trust
Agreement shall constitute the entire agreement between the Employer/Plan
Administrator and the Trustee.
(h) Communications to the Trustee shall be sent to the Trustee's principal
offices or such address as the Trustee may specify in writing. No communication
shall be binding upon the Trustee until it is received by the Trustee or its
delegate. Communications to the Employer shall be sent to the Employer's
principal offices or such address as the Employer may specify in writing.
IN WITNESS WHEREOF, this Trust Agreement has been executed on the dates
indicated below. The persons executing this Trust Agreement represent that
6
<PAGE>
they are duly authorized to do so.
ATTEST: EMPLOYER:
/s/ Rita J. Woodward By: /s/ James R. Farmer
- --------------------- -----------------------------------
Its Senior Vice President
Date: 6/16/97
---------------------------------
ATTEST: CG TRUST COMPANY:
/s/ Sharon Gregis By: /s/ Jeananne G. Digan
- -------------------- -----------------------------------
Its Trust Officer
Date: 6/23/97
---------------------------------
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0000824410
<NAME> Sandy Spring Bancorp, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 38,934
<INT-BEARING-DEPOSITS> 1,410
<FED-FUNDS-SOLD> 17,980
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 289,595
<INVESTMENTS-CARRYING> 118,343
<INVESTMENTS-MARKET> 119,428
<LOANS> 544,488
<ALLOWANCE> 6,431
<TOTAL-ASSETS> 1,062,852
<DEPOSITS> 841,774
<SHORT-TERM> 112,127
<LIABILITIES-OTHER> 2,598
<LONG-TERM> 4,704
<COMMON> 4,910
0
0
<OTHER-SE> 96,739
<TOTAL-LIABILITIES-AND-EQUITY> 1,062,852
<INTEREST-LOAN> 24,393
<INTEREST-INVEST> 11,087
<INTEREST-OTHER> 805
<INTEREST-TOTAL> 36,285
<INTEREST-DEPOSIT> 14,212
<INTEREST-EXPENSE> 16,322
<INTEREST-INCOME-NET> 19,963
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 132
<EXPENSE-OTHER> 13,949
<INCOME-PRETAX> 9,632
<INCOME-PRE-EXTRAORDINARY> 9,632
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,323
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 4.48
<LOANS-NON> 1,672
<LOANS-PAST> 2,933
<LOANS-TROUBLED> 23
<LOANS-PROBLEM> 5,890
<ALLOWANCE-OPEN> 6,391
<CHARGE-OFFS> 233
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 6,431
<ALLOWANCE-DOMESTIC> 2,669
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,762
</TABLE>
