<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
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 _______
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The number of shares of common stock outstanding as of October 26, 1999 is
9,626,090 shares.
<PAGE>
SANDY SPRING BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
- -----------------------------------------------------------------------------------------------------
<S> <C>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998................... 1
Consolidated Statements of Income for the Three and Nine Month Periods
Ended September 30, 1999 and 1998....................................................... 2
Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 1999 and 1998.................................... 3
Consolidated Statements of Changes in Stockholders' Equity for
the Nine Month Periods Ended September 30, 1999 and 1998................................ 5
Notes to Consolidated Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................. 15
PART II - OTHER INFORMATION
Item 5. Other Information..................................................................... 15
Item 6. Exhibits and Reports on Form 8-K....................................................... 17
SIGNATURES..................................................................................... 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Sandy Spring Bancorp and Subsidiaries CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) September 30, December
30, 1999 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 39,874 $ 43,616
Federal funds sold 4,369 4,582
Interest-bearing deposits with banks 4,015 1,434
Residential mortgage loans held for sale 2,214 12,832
Investments available-for-sale (at fair value) 539,711 539,642
Investments held-to-maturity -- fair value of $91,241 (1999) and
$55,764 (1998) 95,584 55,457
Other equity securities 16,705 18,480
Total Loans (net of unearned income) 774,326 624,412
Less: Allowance for credit losses (7,937) (7,350)
---------- ----------
Net loans 766,389 617,062
Premises and equipment, net 29,777 27,920
Accrued interest receivable 12,267 11,719
Other real estate owned 139 0
Other assets 35,970 10,727
---------- ----------
TOTAL ASSETS $1,547,014 $1,343,471
LIABILITIES
Noninterest-bearing deposits $ 207,764 $ 185,900
Interest-bearing deposits 959,408 768,671
---------- ----------
Total deposits 1,167,172 954,571
Short-term borrowings 221,026 257,026
Long-term borrowings 38,120 14,366
Accrued interest and other liabilities 10,704 6,571
---------- ----------
TOTAL LIABILITIES 1,437,022 1,232,534
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares authorized 15,000,000; shares issued
and outstanding 9,626,090 (1999) and 9,586,021 (1998) 9,626 9,586
Surplus 23,928 22,913
Retained earnings 84,305 76,305
Accumulated other comprehensive income (loss) (7,867) 2,133
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 109,992 110,937
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,547,014 $1,343,471
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $14,774 $13,312 $42,135 $39,079
Interest on loans held for sale 82 149 320 503
Interest on deposits with banks 23 14 148 63
Interest and dividends on securities:
Taxable 6,466 7,030 20,108 18,688
Exempt from federal income taxes 1,624 1,084 4,632 3,227
Interest on federal funds sold 154 293 549 831
-------------------------- ----------------------
TOTAL INTEREST INCOME 23,123 21,882 67,892 62,391
Interest Expense:
Interest on deposits 6,728 7,589 20,320 21,729
Interest on short-term borrowings 2,737 2,218 8,430 5,774
Interest on long-term borrowings 447 354 993 1,053
-------------------------- ----------------------
TOTAL INTEREST EXPENSE 9,912 10,161 29,743 28,556
-------------------------- ----------------------
NET INTEREST INCOME 13,211 11,721 38,149 33,835
Provision for Credit Losses 266 0 741 542
-------------------------- ----------------------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 12,945 11,721 37,408 33,293
Noninterest Income:
Securities gains 88 166 32 575
Service charges on deposit accounts 1,141 1,019 3,276 2,947
Gains on mortgage sales 335 593 1,557 1,876
Trust income 418 349 1,159 1,045
Other income 1,122 872 2,985 2,409
-------------------------- ----------------------
TOTAL NONINTEREST INCOME 3,104 2,999 9,009 8,852
Noninterest Expenses:
Salaries and employee benefits 5,644 5,122 16,362 14,515
Occupancy expense of premises 778 705 2,166 2,081
Equipment expenses 662 843 1,903 2,162
Marketing 300 143 1,108 722
Outside data services 474 369 1,399 1,102
Other expenses 1,648 1,542 5,046 4,497
-------------------------- ----------------------
TOTAL NONINTEREST EXPENSES 9,506 8,724 27,984 25,079
-------------------------- ----------------------
Income Before Income Taxes 6,543 5,996 18,433 17,066
Income Tax Expense 1,829 1,707 5,061 5,042
-------------------------- ----------------------
NET INCOME $ 4,714 $ 4,289 $13,372 $12,024
========================== ======================
Basic Net Income Per Share* $ 0.49 $ 0.45 $ 1.39 $ 1.25
Diluted Net Income Per Share* 0.49 0.44 1.39 1.24
Dividends Declared Per Share* 0.19 0.17 0.56 0.45
</TABLE>
*Per share data have been adjusted to give retroactive effect to a 2-for-1 stock
split declared on January 28, 1998.
See Notes to Consolidated Financial Statements.
2
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 13,372 $ 12,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,857 2,106
Provision for credit losses 741 542
Deferred income taxes (358) 59
Origination of loans held for sale (115,263) (145,939)
Proceeds from sales of loans held for sale 127,438 143,404
Gains on sales of loans held for sale (1,557) (1,876)
Purchases of trading securities 0 (9,376)
Proceeds from sales of trading securities 0 9,388
Securities gains (32) (575)
Net change in:
Accrued interest receivable (548) (2,097)
Accrued income taxes 130 (1,072)
Other accrued expenses 4,003 1,625
Other assets (25,163) 3,860
Other - net 6,146 (769)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,766 11,305
Cash Flows from Investing Activities:
Net increase in interest-bearing deposits with banks (2,581) (180)
Purchases of investments held-to-maturity (43,744) (3,088)
Purchases of other equity securities (4,447) (4,486)
Purchases of investments available-for-sale (303,902) (445,110)
Proceeds from sales of investments available-for-sale 54,104 14,981
Proceeds from maturities, calls and principal payments of investments held-to-maturity 3,598 18,951
Proceeds from maturities, calls and principal payments of investments available-for-sale 233,492 349,721
Redemption of Federal Home Loan Bank of Atlanta stock 6,222 3,324
Net (purchases)/proceeds from disposition of other real estate owned (90) 479
Net increase in loans receivable (116,962) (51,786)
Purchases of loans (33,014) 0
Expenditures for premises and equipment (3,435) (1,519)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (210,759) (118,713)
Cash Flows from Financing Activities:
Net increase in demand and savings accounts 157,703 12,067
Net increase in time and other deposits 54,898 48,850
Net increase (decrease) in short-term borrowings (47,200) 42,127
Proceeds from long-term borrowings 35,000 11,000
Retirement of long-term borrowings (46) (19)
Common stock purchased and retired (832) (5,164)
Proceeds from issuance of common stock 1,887 1,955
Dividends paid (5,372) (4,337)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 196,038 106,479
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,955) (929)
Cash and Cash Equivalents at Beginning of Period 48,198 48,680
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD* $ 44,243 $ 47,751
========= =========
</TABLE>
3
<PAGE>
Cont'd
<TABLE>
<S> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Disclosures:
Interest payments $ 29,410 $ 28,072
Income tax payments 4,771 6,534
Noncash Investing Activities:
Transfers from loans to other real estate owned 62 393
Reclassification of borrowings from long-term to short-term 11,200 200
</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>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accum-
ulated
Other
Compre- TOTAL
hensive STOCK-
Common Retained Income HOLDERS'
Stock Surplus Earnings (loss) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1999 $9,586 $22,913 $76,305 $ 2,133 $110,937
Comprehensive Income:
Net income 13,372 13,372
Other comprehensive income (loss), net
of tax and reclassification adjustment (10,000) (10,000)
--------
Total comprehensive income 3,372
Cash dividends - $0.56 per share (5,372) (5,372)
Common stock issued pursuant to:
Incentive stock option plan - 1,165 1 28 29
shares
Dividend reinvestment and stock
purchase plan - 68,433 shares 68 1,790 1,858
Stock repurchases - 29,529 shares (29) (803) (832)
------ ------- ------- -------- --------
BALANCES AT SEPT. 30, 1999 $9,626 $23,928 $84,305 $ (7,867) $109,992
====== ======= ======= ======== ========
BALANCES AT JANUARY 1, 1998 $4,862 $31,695 $66,261 $ 1,857 $104,675
Increase in beginning shares as a
result of 2-for-1 stock split in the
form of a stock dividend 4,863 (4,863) 0
Comprehensive Income:
Net income 12,024 12,024
Other comprehensive income, net of tax
and reclassification adjustment 1,458 1,458
--------
Total comprehensive income 13,482
Cash dividends*- $0.45 per share (4,337) (4,337)
Common stock issued pursuant to:
Incentive stock option plan - 4,502
shares 5 43 48
Dividend reinvestment and stock
purchase plan - 57,723 shares 58 1,799 1,857
Stock repurchases - 178,679 shares (179) (4,985) (5,164)
Exercise of warrants of pooled bank -
7,510 shares 7 43 50
------ ------- ------- -------- --------
BALANCES AT SEPT. 30, 1998 $9,616 $23,732 $73,948 $ 3,315 $110,611
====== ======= ======= ======== ========
</TABLE>
* Adjusted to give retroactive effect to a 2-for-1 stock split declared on
January 28, 1998.
See Notes to Consolidated Financial Statements.
5
<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 1998 Annual
Report to Shareholders. The results shown in this interim report are not
necessarily indicative of results to be expected for the full year 1999.
The accounting and reporting policies of Sandy Spring Bancorp and
Subsidiaries (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 - STOCKHOLDERS' EQUITY
On April 5, 1999, the Company announced that its Board of Directors had
authorized the repurchase of up to 5%, or approximately 480,000 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, 2001, or earlier termination of
the program by the Board. Bancorp's previous repurchase program expired on March
31, 1999.
NOTE 3 - STOCK OPTION PLAN
On April 14, 1999, the shareholders approved the Sandy Spring Bancorp 1999
Stock Option Plan (the "Option Plan"). The Option Plan, which replaces the Sandy
Spring Bancorp 1992 Stock Option Plan (the "1992 Option Plan"), provides
incentive and non-incentive stock options to the Company's directors and key
employees. The Option Plan authorizes the issuance of up to 400,000 shares of
common stock, has a term of ten years, and is administered by a committee of at
least three directors appointed by the Board of Directors. In general, the
exercise price of options may not be less than 100% of the fair market value of
the Common Stock on the date of grant and must be exercised within ten years.
NOTE 4 - ACQUISITION
On September 24, 1999, Sandy Spring National Bank of Maryland (the "Bank"),
Olney, Maryland, completed the acquisition of certain loans, fixed assets, and
leasehold improvements, and the assumption of certain deposit liabilities and
lease obligations, relating to seven branches of Mellon Bank (MD), NA
("Mellon"). Five of the acquired branches are in Montgomery County, Maryland,
one is in Anne Arundel County, Maryland, and one is in Fairfax County, Virginia.
The acquisition was accounted for under the purchase method of accounting, in
accordance with Accounting Principles Board Opinion No. 16 "Accounting for
Business Combinations" and accordingly the results of operations of the acquired
branches were included in the Company's consolidated financial statements
beginning on September 24, 1999. Under the purchase method, the assets acquired
and liabilities assumed were recorded at their fair values, and the difference
in the net fair value, adjusted for costs of the acquisition, was recorded as
goodwill. The acquisition resulted in recognition of a loan premium of
approximately $0.7 million (to be amortized into interest income over six
years), a deposit premium of approximately $4.0 million (to be amortized into
interest expense over 4 years), and goodwill of approximately $17.4 million (to
be amortized into noninterest expenses over 10 years). Reflecting these purchase
accounting adjustments, the fair value of the loans acquired was approximately
$33.9 million, and the fair value of the deposits assumed was approximately
$216.4 million. Capitalized direct acquisition costs, totaling $155,000 through
September 30, 1999, will be
6
<PAGE>
included in goodwill once all such costs have been incurred. These costs,
principally related to legal, financial and other professional fees, were
temporarily classified as prepaid expenses in other assets on the balance sheet
at September 30, 1999.
NOTE 5 - PER SHARE DATA
The calculations of net income per common share for the periods ended
September 30 were as shown in the following table. Basic net income per share is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding and does not include the impact of
any potentially dilutive common stock equivalents. The diluted earnings per
share calculation method is arrived at by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
adjusted for the dilutive effect of outstanding stock options. Data in the table
has been adjusted to give retroactive effect to a 2 for 1 stock split declared
on January 28, 1998.
<TABLE>
<CAPTION>
(Dollars and amounts in thousands, except Three Months Ended Nine Months Ended
per share data) September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Net income applicable to common stock $4,714 $4,289 $13,372 $12,024
Average common shares outstanding 9,606 9,628 9,593 9,647
Basic net income per share $ 0.49 $ 0.45 $ 1.39 $ 1.25
===========================================
Diluted:
Net income applicable to common stock $4,714 $4,289 $13,372 $12,024
Average common shares outstanding 9,606 9,628 9,593 9,647
Stock option adjustment 33 50 37 50
Warrant stock adjustment 0 0 0 1
-------------------------------------------
Diluted average common shares outstanding 9,639 9,678 9,630 9,698
Diluted net income per share $ 0.49 $ 0.44 $ 1.39 $ 1.24
===========================================
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company makes forward looking statements in this management's
discussion and analysis that are subject to risks and uncertainties. These
forward looking statements include: statements of goals, intentions and
expectations; estimates of risks and of future costs and benefits; statements of
the ability to achieve "Y2K" compliance; and statements of the ability to
achieve financial and other goals. These forward looking statements are subject
to significant uncertainties because they are based upon or are affected by:
management's estimates and projections of future interest rates and other
economic conditions; statements by suppliers of data processing equipment and
services, government agencies, and other third parties as to "Y2K" compliance
and costs; future laws and regulations; and a variety of other matters. Because
of these uncertainties, the actual future results may be materially different
from the results indicated by these forward looking statements. In addition, the
Company's past results of operations do not necessarily indicate its future
results.
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 thirty community offices in Montgomery, Howard, Prince George's
and Anne Arundel Counties in Maryland and in Fairfax County, Virginia, together
with a mortgage banking company and an insurance agency. 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 $1,547,014,000 at September 30, 1999,
compared to $1,343,471,000 at December 31, 1998, increasing $203,543,000 or
15.2% during the first nine months of 1999. Earning assets increased
$180,085,000 or 14.3% to $1,436,924,000 at September 30, 1999, from
$1,256,839,000 at December 31, 1998. The Mellon Bank transaction, consummated on
September 24, 1999, added approximately $218,000,000 to total assets and
approximately $199,000,000 to earning assets.
Total loans rose 24.0% or $149,914,000 during the first nine months of 1999
to $774,326,000. The Mellon Bank transaction was responsible for approximately
$33,900,000 of the growth in total loans. Consumer loans rose 63.7% or
$30,926,000 due largely to growth in marine loan financings. Mortgage loans
increased 25.7% or $109,002,000. The rise in mortgages reflected growth in home
equity lines and loans, up $26,894,000 due primarily to the Mellon Bank
transaction, commercial mortgages, up $28,805,000, and residential mortgages, up
$53,303,000 including $33,014,000 in purchased loans. Commercial loans increased
15.7% or $12,472,000 with the majority resulting from the Mellon Bank
transaction. Over the same period, construction loans decreased 3.5% or
$2,486,000 as a small increase in commercial construction credits was more than
offset by the decrease in residential construction credits. Also, residential
mortgage loans held for sale decreased by 82.7% or $10,618,000 from December 31,
1998 to $2,214,000 at September 30, 1999.
The investment portfolio, consisting of available-for-sale, held-to-
maturity and other equity securities, increased $38,421,000 or 6.3% from
December 31, 1998 to September 30, 1999, due to a $40,127,000 or 72.4% increase
in held-to-maturity securities. The increase in the held-to-maturity portfolio
was attributable in large part to growth in municipal securities undertaken
because they bear attractive tax-equivalent yields. During this period, core
deposit growth exceeded the funding requirements for loans. Most of the proceeds
from the Mellon Bank transaction were invested in available-for-sale agency
securities. The substantial increase in other assets was related to
approximately $17,400,000 of goodwill from the Mellon Bank transaction and to
deferred tax assets associated with the net unrealized loss on securities
available-for-sale recorded at September 30, 1999 versus deferred tax
liabilities on the net unrealized gain recorded at December 31, 1998.
8
<PAGE>
Total deposits were over $1 billion ($1,167,172,000) for the first time at
September 30, 1999, increasing $212,601,000 or 22.3% from $954,571,000 at
December 31, 1998. The Mellon Bank transaction provided deposits totaling
approximately $216,000,000, with nearly half being money market deposits. Growth
was achieved for noninterest-bearing demand deposits, up 11.8% or $21,864,000
(with approximately $16,700,000 of the overall increase attributable to the
Mellon Bank transaction). Commercial and small business checking recorded the
greatest increases. Interest-bearing deposits increased $190,737,000 or 24.8%,
with virtually all of the total increase resulting from the Mellon Bank
transaction. Categories rising the most were money market savings (up 71.7%) and
time deposits of $100,000 or more (up 36.5%). The 4.5% or $12,246,000 decline in
total borrowings reflected a decrease in short-term Federal Home Bank of Atlanta
(FHLB) advances (down 25.1%), which more than offset increases in long-term FHLB
advances (up 166.2%) and short-term repurchase agreements (up 20.2%). Repurchase
agreements are borrowings related primarily to cash management services for
commercial clients.
Market Risk Management
By employing simulation analysis through use of a computer model, the Bank
intends to effectively manage the potential adverse impacts that changing
interest rates can have on the institution's short-term earnings, long term
value, and liquidity. The simulation model captures optionality factors such as
call features and interest rate caps and floors imbedded in investment and loan
portfolio contracts. Measured from September 30, 1999, the simulation analysis
indicates that the Bank's net interest income would decline by 7% over a twelve
month period given an increase in interest rates of 200 basis points, against a
policy limit of 15%. In terms of equity capital on a fair value basis, a 200
basis point increase in interest rates is estimated to reduce the fair value of
capital (as computed) by 15%, as compared to a policy limit of 25%.
Liquidity
The Bank's liquidity position is measured monthly, looking forward ninety
days. Liquid assets, defined to include cash on hand, federal funds sold,
interest-bearing deposits with banks, loans held for sale, investments held-to-
maturity maturing within ninety days and investments available-for-sale maturing
within one year, net of projected loan growth over the following ninety days,
totaled $61,730,000 or 4.0% of total assets at September 30, 1999. This
represents a net liquidity position, which includes estimated potential cash
outflows for deposits and borrowings, of $(18,750,000) or (1.2)% of total
assets. The improvement in liquidity position compared to June 30, 1999,
primarily reflects the increase in liquid available-for-sale securities related
to the Mellon Bank transaction. Given external sources of liquidity available to
the Company, investments available-for-sale not included as liquid assets in the
computation above, and deposit growth, management believes the liquidity
position is appropriate. The Company plans to increase liquid assets and has put
in place additional borrowing facilities to cover its estimates of potential
cash outflows that could occur as January 1, 2000 approaches.
Capital Management
The Company recorded a total risk-based capital ratio of 12.13% at
September 30, 1999, compared to 15.67% at December 31, 1998; a tier 1 risk-based
capital ratio of 11.20%, compared to 14.58%; and a capital leverage ratio of
7.33%, compared to 8.50%. The effect of the Mellon Bank transaction was to
decrease the Company's regulatory capital ratios since the goodwill acquired is
a deduction from Tier 1 capital. However, capital adequacy, as measured by these
ratios, continued to exceed regulatory requirements.
Stockholders' equity totaled $109,992,000 at September 30, 1999, down 0.9%
from $110,937,000 at December 31, 1998. This decline reflects the change in
accumulated other comprehensive income, comprised of net unrealized gains and
losses on available-for-sale securities, from $2,133,000 at December 31, 1998 to
$(7,867,000) at September 30, 1999, a decrease of $10,000,000. Excluding
accumulated other comprehensive income, stockholders' equity rose $9,055,000 or
8.3%. Internal capital generation (net income less dividends) provided
$8,000,000 in additional equity during the first nine months of 1999,
representing an annualized rate (when considered as a percentage of average
total stockholders' equity) of 9.7% versus 9.4% for the year ended December 31,
1998.
9
<PAGE>
External capital formation, primarily from stock issuances under the
dividend reinvestment and stock purchase plan, totaled $1,887,000 during the
first nine months of 1999. Share repurchases amounted to $832,000 over the same
period, for a net increase in stockholders' equity from these sources of
$1,055,000.
Dividends for the first nine months were $0.56 per share in 1999, compared
to $0.45 per share in 1998, for dividend payout ratios of dividends declared per
share to diluted net income per share of 40.29% in 1999 and 36.29% in 1998. The
increase in the dividend payout ratio reflects the Board's desire to return a
higher percentage of earnings to the shareholders.
B. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income for the first nine months of the year rose $1,348,000 or 11.2%
in 1999 over 1998, to $13,372,000 from $12,024,000. Diluted earnings per share
for the first nine months were $1.39 in 1999, an increase of 12.1% over the
$1.24 recorded for the first nine months of 1998. The annualized return on
average assets for the first nine months of the year was 1.34% in 1999, compared
to 1.38% in 1998. The annualized returns on average equity for the same nine
month periods were 16.22% in 1999 and 15.14% in 1998.
Net Interest Income
Net interest income for the first nine months of the year was $38,149,000
in 1999, an increase of 12.8% over $33,835,000 in 1998, reflecting a higher
volume of average earning assets.
For the first nine months, tax-equivalent interest income increased
$5,633,000 or 8.6% in 1999, compared to 1998. Average earning assets rose 16.0%
over the prior year period while the average yield earned on those assets
decreased 51 basis points to 7.56% from 8.07%. Comparing the first nine months
of 1999 versus 1998, average loans grew 15.8% to $669,477,000 (53.4% of average
earning assets, versus virtually the same percentage a year ago), while the
average yield on loans decreased 68 basis points to 8.47% from 9.15%. The
$91,554,000 increase in average loans for the period was due mainly to increases
in commercial and residential mortgages and consumer loans. All of the other
major loan categories, except for home equity lines and loans, also increased,
but less significantly. Average total securities increased 17.5% to $565,225,000
(45.1% of average earning assets, versus 44.5% a year ago) and recorded a 33
basis point decrease in average yield to 6.56% from 6.89%. Available-for-sale
securities purchased under a leverage program were a major factor in the rise in
securities.
Interest expense for the first nine months increased $1,187,000 or 4.2%,
due to 15.6% higher average interest-bearing liabilities against a 42 basis
point decline in the average rate paid on those funds to 3.81% from 4.23%.
Growth in average volume was achieved for all major categories of deposits.
Total average deposits increased by $85,957,000 or 9.8%, resulting from a
$30,869,000 or 20.6% increase in non interest-bearing deposits and a $55,088,000
or 7.6% increase in interest-bearing deposits. The deposits acquired in the
branch acquisition had an immaterial effect on the averages for the first nine
months of 1999, because the transaction was completed near the end of the
period. Growth in Federal Home Loan Bank of Atlanta advances for leverage and
repurchase agreements for commercial customers. accounted for a majority of the
overall increase in interest-bearing liabilities.
Credit Risk Management
During the first nine months of the year, the provision for credit losses
was $741,000 in 1999, compared to $542,000 in 1998. Net charge-offs of $154,000
were recorded for the nine month period ended September 30, 1999, while there
were net charge-offs of $111,000 for the same period a year earlier.
The Company regularly analyzes the sufficiency of its allowance for credit
losses based upon a number of factors, including, among others: 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, the year 2000 issue, changes in the size and character of the
loan portfolio, and management's judgment with respect to current and expected
economic conditions and their impact on the existing loan portfolio. Management
establishes the allowance for credit losses in an amount that it
10
<PAGE>
determines, based upon these factors, is sufficient to provide for losses
inherent in the loan portfolio. The allowance for credit losses was 1.03% of
total loans at September 30, 1999 and 1.18% at December 31, 1998. Management
believes the allowance for credit losses at September 30, 1999 was adequate.
Nonperforming loans increased by $2,475,000 to $4,276,000 and total
nonperforming assets increased by $2,614,000 to $4,415,000 from December 31,
1998 to September 30, 1999. Expressed as a percentage of total assets,
nonperforming assets were 0.28% at September 30, 1999 compared to 0.13% at
December 31, 1998. The allowance for credit losses represented 186% of
nonperforming loans at September 30, 1999, compared to coverage of 408% at
December 31, 1998. Significant variation in this coverage ratio may occur 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. Other real estate owned totaled $139,000 at September
30, 1999, compared to none owned at December 31, 1998. The balance of impaired
loans was $191,000 at September 30, 1999, with reserves against those loans
totaling $59,000, and $773,000 at December 31, 1998, with no reserves.
Noninterest Income and Expenses
Noninterest income increased slightly by 1.8% or $157,000 during the nine
months ended September 30, 1999, to $9,009,000 from $8,852,000 for the nine
months ended September 30, 1998. Excluding significant non-operating items, the
increase was 9.1% or $751,000 due primarily to increased transaction based
service fees from higher transaction volumes and a larger customer base. Nearly
25% of the overall rise in noninterest income from operations was due to mutual
fund and annuity product fees, up $177,000 or 44.4%. Gains on mortgage sales
declined 17.0% or $319,000 due to higher interest rates. Non-operating items
include gains and losses on sales of securities and other real estate owned.
Most significantly, net gains on securities transactions for the first nine
months of 1999 were $543,000 less than for the same period of 1998.
For the nine months ended September 30, 1999, noninterest expenses
increased 11.6%, or $2,905,000, to $27,984,000, from $25,079,000 in 1998. The
Company incurs additional costs in order to enter new markets, provide new
services, and support the growth of the Company. Management controls its
operating expenses, however, with the goal of maximizing profitability over
time. The growth in noninterest expenses was due largely to a 12.7%, or
$1,847,000, increase in salaries and employee benefits. The increase in salaries
reflected higher compensation levels and growth in staff. Nearly half of the
increase in benefit expenses was attributable to a rise in pension costs.
Average full-time equivalent employees reached 438 during the first nine months
of 1999 compared to 417 during the first nine months of 1998. Despite the
increase in staff, the ratio of net income per average full-time-equivalent
employee increased to $30,500 from $28,800. The other significant categories of
increase were marketing expense, up $386,000 or 53.5% due primarily to image
advertising on radio and cable television in 1999, outside data services, up
$297,000 or 26.2%, and other expenses, up $549,000 or 12.2% reflecting growth of
the Company. Occupancy expenses rose slightly by 4.1% while equipment expenses
decreased by 12.0% or $259,000.
Income Taxes
The effective tax rate for the first nine months of the year was 27.5% in
1999, compared to 29.5% in 1998, due in large part to the higher level of
certain U.S. Government Agency obligations that are exempt from state income
tax.
C. RESULTS OF OPERATIONS - THIRD QUARTER 1999 AND 1998
Third quarter net income of $4,714,000 ($0.49 per share-diluted) in 1999
was $425,000 or 9.9% above net income of $4,289,000 ($0.44 per share-diluted)
shown for the same quarter of 1998.
Tax-equivalent net interest income rose 11.5% during the third quarter of
1999 compared to the like three month period of 1998, showing the positive
effects of an 11.2% increase in the average earning asset base and an 8 basis
point increase in net interest spread.
11
<PAGE>
The provision for credit losses for the September quarter was $266,000 in
1999 versus none in 1998. Net charge-offs for the September quarter were $29,000
in 1999 versus $87,000 in 1998.
Noninterest income for the third quarter, excluding significant non-
operating items, increased $195,000 or 6.9% in 1999, compared to 1998, due
primarily to increased transaction based service fees. Gains on mortgage sales
decreased by a greater percentage (43.5%) than in the year-to-date period.
Noninterest expenses rose 9.0%, attributable largely to higher salary and
marketing expenses.
The third quarter effective tax rate was 28.0% in 1999 and 28.5% in 1998.
ANALYSIS OF CREDIT RISK
(Dollars in thousands)
Activity in the allowance for credit losses is shown below:
<TABLE>
<CAPTION>
9 Months Ended 12 Months Ended
September 30, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $7,350 $7,016
Provision for credit losses 741 552
Loan charge-offs:
Real estate-mortgage (75) (40)
Real estate-construction 0 0
Consumer (131) (176)
Commercial (6) (119)
------------------ -----------------
Total charge-offs (212) (335)
Loan recoveries:
Real estate-mortgage 0 0
Real estate-construction 0 0
Consumer 30 35
Commercial 28 82
------------------ -----------------
Total recoveries 58 117
------------------ -----------------
Net charge-offs (154) (218)
------------------ -----------------
BALANCE, PERIOD END $7,937 $7,350
================== =================
Net charge-offs to average loans
(annual basis) 0.03% 0.04%
Allowance to total loans 1.03% 1.18%
</TABLE>
12
<PAGE>
Balance sheet risk inherent in the lending function is presented as follows at
the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans $ 381 $ 832
Loans 90 days past due 3,893 965
Restructured loans 2 4
----------------- ----------------
Total Nonperforming Loans* 4,276 1,801
Other real estate owned 139 0
----------------- ----------------
TOTAL NONPERFORMING ASSETS $4,415 $1,801
================= ================
Nonperforming assets to total assets 0.28% 0.13%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Those performing loans considered potential problem loans, as defined and
identified by management, amounted to approximately $5,200,000 at September 30,
1999, compared to $9,894,000 at December 31, 1998. 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.
YEAR 2000 ISSUE
Many computer programs now in use have not been designed to properly
recognize years after 1999. If not corrected, these programs could fail or
create erroneous results. This year 2000 ("Y2K") issue affects the entire
banking industry because of its reliance on computers and other equipment that
use computer chips. This problem is not limited to computer systems. Y2K issues
may affect every system that has an embedded microchip, such as automated teller
machines, elevators, vaults, heating, air conditioning, and security systems.
Y2K issues may also affect the operation of third parties with whom the Company
does business such as vendors, suppliers, utility companies, and customers.
Risks Related to Year 2000
The Y2K issue poses certain risks to the Company and its operations. Some
of these risks are present because the Company purchases technology and
information system applications from other parties who also face Y2K challenges.
Other risks are specific to the banking industry. Commercial banks may
experience a deposit base reduction if customers withdraw significant amounts of
cash in anticipation of Y2K. Such a deposit contraction could cause an increase
in interest rates, require the Company to locate alternative sources of funding
or sell investment securities or other liquid assets to meet liquidity needs,
and may reduce future earnings. To reduce customer concerns regarding Y2K
noncompliance, a customer awareness plan has been implemented which is directed
towards making deposit customers knowledgeable about the Company's Y2K
compliance efforts.
The Company lends significant amounts to businesses and individuals in its
marketing areas. If these borrowers are adversely affected by Y2K problems, they
may not be able to repay their loans in a timely manner. This increased credit
risk could adversely affect the Company's financial performance. In an effort to
identify any potential loan loss risk because of borrower Y2K noncompliance, all
loan customers with loans or commitments exceeding $500,000 were surveyed using
a Y2K questionnaire. The Company has also modified its loan underwriting
controls to ensure that potential borrowers are carefully evaluated for Y2K
compliance before any new loan is approved.
The Company's operations, like those of many other companies, can be
adversely affected by Y2K triggered failures that may be experienced by third
parties upon whom the Company relies for processing transactions. The Company
has identified all critical third-party service providers and vendors and is
monitoring their Y2K compliance programs. The Company's primary supplier of data
processing services has adopted a Y2K
13
<PAGE>
compliance plan that includes a timetable for making changes necessary to be
able to provide services in the year 2000. That supplier has provided written
assurances to the Company regarding its progress toward Y2K compliance and has
been examined for Y2K readiness by federal bank examiners. The Company's
operations may also be adversely affected by Y2K related failures of third party
providers of electricity, telecommunications services and other utility
services. Failures in these areas could impact the Company's ability to conduct
business. The Y2K compliance of these providers is largely beyond the control of
the Company.
The Company's State of Readiness
The Company has created a task force to establish a Y2K plan to prevent or
mitigate the adverse effects of the Y2K issue on the Company and its customers.
Goals of the Y2K plan include identifying Y2K risks of information systems and
equipment used by the Company, informing customers of Y2K issues and risks,
establishing a contingency plan for operating if Y2K issues cause important
systems or equipment to fail, implementing changes necessary to achieve Y2K
compliance, and verifying that these changes are effective. The Comptroller of
the Currency has examined the Company's Y2K compliance plan and the Company's
progress in implementation. In addition, the Board of Directors is carefully
monitoring progress under the plan on a monthly basis.
The Company's plan to address the Y2K issues involves several phases,
described below:
Awareness--In this phase, the Company's Y2K plan and project team were
established, the overall Y2K approach was identified, compliance standards were
defined, and responsibility for corrective action was assigned. This phase has
been completed.
Assessment--During this phase, the Company gathered and analyzed information
to determine the size and the impact of the Y2K problem and then made decisions
to modify, reengineer, or replace existing systems and programs. This phase has
been completed.
Renovation--This phase involved obtaining and implementing upgraded software
applications provided by the Company's vendors, modifying system codes,
reengineering Y2K vulnerable systems and programs, developing bridges for
systems which cannot be reengineered, and changing files and databases as
necessary. This phase has been completed.
Validation--During the validation phase, the Company tested systems and
software for Y2K compliance in an effort to identify and correct any errors
identified in the renovation phase. This phase has been completed.
Implementation--In this phase all new and revised systems will be
implemented, data exchange issues will be resolved, and back up and recovery
plans will be developed. This phase has been substantially completed.
Based on information developed to date, Company management believes that the
cost of remediation will not be material to the Company's business, operations,
liquidity, capital resources, or financial condition. The Company expects that
its total cash outlay for Y2K compliance in 1999 and future years will be less
than $1.0 million. This amount includes approximately $680,000 in costs of
software and equipment upgrades or replacements and approximately $240,000 in
consulting, legal, temporary staffing and other costs. Cash outlays totaled
approximately $210,000 during the first nine months of 1999. The Company expects
that the total effect on net income, after tax deductions, of these Y2K
expenditures in 1999 and future years will be less than $550,000, and the effect
on net income of these costs for the first nine months of 1999 was approximately
$34,000. These amounts do not include allocations of the salary and other costs
of the Company's regular personnel. The Company is funding Y2K expenditures
through continuing operations.
In the event that some or all systems experience failure, the Company has
developed a detailed contingency plan. This plan calls for manual processing of
bank transactions at designated locations supported by backup power systems.
Delays in processing transactions would result in the event that the Company is
forced to process transactions manually. These delays could disrupt normal
business activities of the Company and its customers.
14
<PAGE>
Forward Looking Statements
The discussion above regarding issues associated with Y2K includes certain
"forward looking statements." The Company's ability to predict results or
effects of issues related to the Y2K issue is inherently uncertain and is
subject to factors that may cause actual results to differ materially from those
projected. Factors that could affect the actual results include the following:
The possibility that protection procedures, contingency plans, and
remediation efforts will not operate as intended;
The Company's failure to timely or completely identify all software or
hardware applications requiring remediation;
Unexpected costs;
The uncertainty associated with the impact of Y2K issues on the banking
industry and the Company's customers, vendors, and others with whom it conducts
business; and
The general economy.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Financial Condition - Market Risk Management" in Management's
Discussion and Analysis of Financial Condition and Results of Operations, above.
Management has determined that no additional disclosures are necessary to assess
changes in information about market risk that have occurred since December 31,
1998.
PART II - OTHER INFORMATION
Item 5. Other Information
Branch Acquisition
On September 24, 1999, Sandy Spring National Bank of Maryland (the "Bank"),
completed the acquisition of certain loans, fixed assets, and leasehold
improvements, and the assumption of certain deposit liabilities and lease
obligations, relating to seven branches of Mellon Bank (MD), NA ("Mellon"). (See
Note 4 to the Consolidated Financial Statements.)
The amount of consideration paid by the Bank in the transaction was
determined by a bidding process, and was based upon, among other factors, the
market value of deposits and loans and the book value of the other assets being
transferred and liabilities being assumed. The acquisition is being accounted
for under the purchase method of accounting, in accordance with Accounting
Principles Board Opinion No. 16 "Accounting for Business Combinations" and
accordingly the results of operations of the acquired branches were included in
the company's consolidated financial statements beginning on September 24, 1999.
The following two tables provide additional information on the deposit
liabilities assumed and loans acquired. Information provided is as of September
30, 1999.
<TABLE>
<CAPTION>
Deposit Liabilities Assumed (Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
Weighted
Balance Average Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 16,670 0.00%
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing demand deposits 24,670 1.72
- -------------------------------------------------------------------------------------------------------------------------------
Regular savings and money market savings deposits 108,808 4.42
- -------------------------------------------------------------------------------------------------------------------------------
Time deposits 66,337 4.82
- -------------------------------------------------------------------------------------------------------------------------------
Total Deposit Liabilities Assumed $216,485 3.97%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Loans Acquired (Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
Weighted
Balance Average Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer loans $ 2,335 12.85%
- -------------------------------------------------------------------------------------------------------------------------------
Home equity lines and loans 23,618 8.21
- -------------------------------------------------------------------------------------------------------------------------------
Commercial loans 7,904 9.00
- -------------------------------------------------------------------------------------------------------------------------------
Total Loans Acquired $33,857 8.71%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
The following unaudited pro forma consolidated balance sheet of Bancorp
illustrates the effects of the acquisition of assets and assumption of
liabilities in the branch acquisition and the related purchase accounting
adjustments. The data for the acquired branch assets and liabilities are as of
September 24, 1999 when the transaction was completed. The other balance sheet
data are as of September 30, 1999. This unaudited pro forma balance sheet is
provided for informational purposes only.
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Balance Sheet
- ------------------------------------------------------------------------------------------------------------------------------------
Sandy Spring Assets Goodwill &
Bancorp, Inc. Acquired & Loan & Purchase Sandy Spring
without Liabilities Deposit Accounting Bancorp, Inc. with
Acquisition Assumed (1) Premium (2) Adjustments (3) Acquisition
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash & due from banks $ 39,271 $ 758 $(155) $ 39,874
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 4,369 4,369
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits 4,015 4,015
- ------------------------------------------------------------------------------------------------------------------------------------
Loans held for sale 2,214 2,214
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available-for-sale 375,012 164,699 539,711
- ------------------------------------------------------------------------------------------------------------------------------------
Other securities 112,289 112,289
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 740,469 33,135 722 774,326
- ------------------------------------------------------------------------------------------------------------------------------------
Less: provision (7,937) (7,937)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 732,532 33,135 722 766,389
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Premises & equipment 28,370 1,407 29,777
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 12,101 166 12,267
- ------------------------------------------------------------------------------------------------------------------------------------
Other real estate owned 139 139
- ------------------------------------------------------------------------------------------------------------------------------------
Goodwill 645 17,400 18,045
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets 17,770 155 17,925
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,328,727 $200,165 $18,122 $1,547,014
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities & Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits:
- ------------------------------------------------------------------------------------------------------------------------------------
Interest free DDA $ 191,094 $ 16,670 $ 207,764
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing DDA 123,605 24,670 148,275
- ------------------------------------------------------------------------------------------------------------------------------------
Savings & money market 255,281 112,843 $(4,035) 364,089
- ------------------------------------------------------------------------------------------------------------------------------------
Time 380,707 66,337 447,044
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 950,687 220,520 (4,035) 1,167,172
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowings 259,146 259,146
- ------------------------------------------------------------------------------------------------------------------------------------
Lease concession 1,289 1,289
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 8,902 513 9,415
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,218,735 222,322 (4,035) 1,437,022
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 109,992 109,992
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & $1,328,727 $222,322 $(4,035) $1,547,014
STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(1) Represents the assets acquired and liabilities assumed in the acquisition.
Net cash received in the settlement of the transaction is shown as
investments available-for-sale.
(2) Represents the tax-deductible loan premium of 8.97% of the principal amount
of the loans transferred and a deposit premium of 8.70% of the deposits on
September 24, 1999. The amount above the estimated fair value of loans and
deposits is shown as goodwill.
(3) Represents the capitalized direct acquisition costs included in the cost of
acquisition. These will be moved to goodwill once all such costs have been
incurred.
16
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following is a list of Exhibits filed as part of this
Quarterly Report on Form 10-Q:
No. Exhibit
--- --------
27 Financial Data Schedule
(b) Reports on Form 8-K.
1. Current Report on Form 8-K reporting, under Item 5, that Sandy
Spring National Bank of Maryland had entered into a purchase and
assumption agreement with Mellon Bank (MD) National Association
dated as of July 21, 1999.
2. Current Report on Form 8-K reporting, under Item 5, the consummation
of the previously disclosed branch transaction on September 24,
1999.
17
<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.
Date: November 4, 1999 SANDY SPRING BANCORP, INC.
---------------- --------------------------
(Registrant)
By: /s/ HUNTER R. HOLLAR
--------------------
Hunter R. Hollar
President and Chief
Executive Officer
Date: November 4, 1999 By: /s/ JAMES H. LANGMEAD
----------------- ---------------------
James H. Langmead
Vice President and Treasurer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 39,874
<INT-BEARING-DEPOSITS> 4,015
<FED-FUNDS-SOLD> 4,369
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 539,711
<INVESTMENTS-CARRYING> 95,584
<INVESTMENTS-MARKET> 91,241
<LOANS> 768,603
<ALLOWANCE> 7,937
<TOTAL-ASSETS> 1,547,014
<DEPOSITS> 1,167,172
<SHORT-TERM> 221,026
<LIABILITIES-OTHER> 10,704
<LONG-TERM> 38,120
0
0
<COMMON> 9,626
<OTHER-SE> 100,366
<TOTAL-LIABILITIES-AND-EQUITY> 1,547,014
<INTEREST-LOAN> 42,135
<INTEREST-INVEST> 24,740
<INTEREST-OTHER> 1,017
<INTEREST-TOTAL> 67,892
<INTEREST-DEPOSIT> 20,320
<INTEREST-EXPENSE> 29,743
<INTEREST-INCOME-NET> 38,149
<LOAN-LOSSES> 741
<SECURITIES-GAINS> 32
<EXPENSE-OTHER> 27,984
<INCOME-PRETAX> 18,433
<INCOME-PRE-EXTRAORDINARY> 18,433
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,372
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 4.39
<LOANS-NON> 381
<LOANS-PAST> 3,893
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 5,200
<ALLOWANCE-OPEN> 7,350
<CHARGE-OFFS> 212
<RECOVERIES> 58
<ALLOWANCE-CLOSE> 7,937
<ALLOWANCE-DOMESTIC> 1,901
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,036
</TABLE>
