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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1999
Commission File Number 0-19065
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SANDY SPRING BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1532952
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17801 Georgia Avenue, Olney, Maryland 20832
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 774-6400.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's Common Stock is traded on the NASDAQ National Market under the
symbol SASR. The aggregate market value of the 9,206,591 shares of Common Stock
of the registrant issued and outstanding held by nonaffiliates on March 6, 2000
was approximately $181 million based on the closing sales price of $19.625 per
share of the registrant's Common Stock on that date. For purposes of this
calculation, the term "affiliate" refers to all directors and executive officers
of the registrant.
As of the close of business on March 6, 2000, 9,619,975 shares of the
registrant's Common Stock were outstanding.
Documents Incorporated By Reference
Parts I and II: Portions of the Annual Report to Shareholders for the year
ended December 31, 1999 (the "Annual Report").
Part III: Portions of the definitive proxy statement for the Annual
Meeting of Shareholders to be held on April 18 , 2000 (the
"Proxy Statement").
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FORWARD-LOOKING STATEMENTS
Part I and Part II of this Annual Report on Form 10-K contain 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.
PART I
ITEM 1. BUSINESS
General
Sandy Spring Bancorp, Inc. ("Bancorp") is the one-bank holding company for
Sandy Spring National Bank of Maryland (the "Bank"). Bancorp is registered as a
bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"). As such, Bancorp is subject to supervision
and regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve"). Bancorp began operating in 1988. The Bank traces its
origin to 1868, and is the oldest banking business based in Montgomery County,
Maryland. The Bank is independent, community oriented, and conducts a full-
service commercial banking business through 30 community offices located in
Montgomery, Howard, Prince George's and Anne Arundel counties in Maryland and in
Fairfax County in Virginia.. The Bank is a national bank subject to supervision
and regulation by the Office of the Comptroller of the Currency (the "OCC").
The Bank's deposit accounts are insured by the Bank Insurance Fund ("BIF")
administered by the Federal Deposit Insurance Corporation (the "FDIC") to the
maximum permitted by law.
The Bank experiences substantial competition both in attracting and retaining
deposits and in making loans. Direct competition for deposits comes from other
commercial banks, savings associations, and credit unions located in the Bank's
primary market area of Montgomery, Howard, Prince George's and Anne Arundel
Counties in Maryland. Additional significant competition for deposits comes
from mutual funds and corporate and government debt securities. Sandy Spring
Insurance Corporation, a wholly owned subsidiary of the Bank, offers annuities
as an alternative to traditional deposit accounts. Sandy Spring Mortgage
Corporation, another wholly owned subsidiary of the Bank, offers residential
construction and mortgage loan products. The primary factors in competing for
loans are interest rates, loan origination fees, and the range of services
offered by lenders. Competitors for loan originations include other commercial
banks, mortgage bankers, mortgage brokers, savings associations, and insurance
companies. Management believes the Bank is able to compete effectively in its
primary market area.
Bancorp's and the Bank's principal executive office is at 17801 Georgia
Avenue, Olney, Maryland 20832, and its telephone number is (301) 774-6400.
Regulation, Supervision, and Governmental Policy
Following is a brief summary of certain statutes and regulations that
significantly affect Bancorp and the Bank. A number of other statutes and
regulations affect Bancorp and the Bank but are not summarized below.
Bank Holding Company Regulation. Bancorp is registered as a bank holding
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company under the Holding Company Act and, as such, is subject to supervision
and regulation by the Federal Reserve. As a bank holding company, Bancorp is
required to furnish to the Federal Reserve annual and quarterly reports of its
operations and additional information and reports. Bancorp is also subject to
regular examination by the Federal Reserve.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of any class of voting securities of any bank or bank
holding company if, after the acquisition, the bank holding company would
directly or indirectly own or control more than 5% of the class; (2) acquiring
all or substantially all of the assets of another bank or bank holding company;
or (3) merging or consolidating with another bank holding company.
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Under the Holding Company Act, any company must obtain approval of the Federal
Reserve prior to acquiring control of Bancorp or the Bank. For purposes of the
Holding Company Act, "control" is defined as ownership of 25% or more of any
class of voting securities of Bancorp or the Bank, the ability to control the
election of a majority of the directors, or the exercise of a controlling
influence over management or policies of Bancorp or the Bank.
The Change in Bank Control Act and the related regulations of the Federal
Reserve require any person or persons acting in concert (except for companies
required to make application under the Holding Company Act), to file a written
notice with the Federal Reserve before the person or persons acquire control of
Bancorp or the Bank. The Change in Bank Control Act defines "control" as the
direct or indirect power to vote 25% or more of any class of voting securities
or to direct the management or policies of a bank holding company or an insured
bank.
The Holding Company Act also limits the investments and activities of bank
holding companies. In general, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of a company that is not a bank or a bank holding company or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, providing services for its subsidiaries, non-bank
activities that are closely related to banking, and other financially related
activities. The activities of Bancorp are subject to these legal and regulatory
limitations under the Holding Company Act and Federal Reserve regulations.
The Gramm Leach Bliley Act of 1999 (the "GLB Act") changed historical
restrictions on the non-bank activities of bank holding companies, and allows
affiliations between types of companies that were previously prohibited. (See
"Competition," below.) In general, bank holding companies that qualify as
financial holding companies under the GLB Act may engage in an expanded list of
non-bank activities. The GLB Act also created a new regulatory framework by
expanding the extent to which non-bank and financially related activities of
bank holding companies, including companies that become financial holding
companies under the GLB Act, are subject to regulation and oversight by
regulators other than the Federal Reserve. Many of the changes in law enacted by
the GLB Act became effective March 11, 2000, although some become effective at
later dates.
The Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity, or to terminate its ownership or control
of any subsidiary, when it has reasonable cause to believe that the continuation
of such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that holding
company.
The Federal Reserve has adopted guidelines regarding the capital adequacy of
bank holding companies, which require bank holding companies to maintain
specified minimum ratios of capital to total assets and capital to risk-weighted
assets. See "Regulatory Capital Requirements."
The Federal Reserve has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The Federal
Reserve has issued a policy statement on the payment of cash dividends by bank
holding companies, which expresses the Federal Reserve's view that a bank
holding company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash dividends and
a rate of earnings retention that is consistent with the company's capital
needs, asset quality, and overall financial condition.
Bank Regulation. As a national bank, the Bank is subject to the primary
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supervision of the OCC under the National Bank Act. The prior approval of the
OCC is required for a national bank to establish or relocate a branch office or
to engage in any merger, consolidation, or significant purchase or sale of
assets.
The OCC regularly examines the operations and condition of the Bank,
including, but not limited to, its capital adequacy, reserves, loans,
investments, and management practices. These examinations are for the
protection of the Bank's depositors and the BIF. In addition, the Bank is
required to furnish quarterly and annual reports to the OCC. The OCC's
enforcement authority includes the power to remove officers and directors and
the authority to issue cease-and-desist orders to prevent a bank from engaging
in unsafe or unsound practices or violating laws or regulations governing its
business.
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The OCC has adopted regulations regarding the capital adequacy of national
banks, which require national banks to maintain specified minimum ratios of
capital to total assets and capital to risk-weighted assets. See "Regulatory
Capital Requirements."
No national bank may pay dividends from its paid-in capital. All dividends
must be paid out of current or retained net profits, after deducting reserves
for losses and bad debts. The National Bank Act further restricts the payment
of dividends out of net profits by prohibiting a national bank from declaring a
dividend on its shares of common stock until the surplus fund equals the amount
of capital stock or, if the surplus fund does not equal the amount of capital
stock, until one-tenth of a bank's net profits for the preceding half year in
the case of quarterly or semi-annual dividends, or the preceding two half-year
periods in the case of annual dividends, are transferred to the surplus fund.
The approval of the OCC is required prior to the payment of a dividend if the
total of all dividends declared by a national bank in any calendar year would
exceed the total of its net profits for that year combined with its retained net
profits for the two preceding years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. In addition, the Bank is
prohibited by federal statute from paying dividends or making any other capital
distribution that would cause the Bank to fail to meet its regulatory capital
requirements. Further, the OCC also has authority to prohibit the payment of
dividends by a national bank when it determines that their payment would be an
unsafe and unsound banking practice.
The Bank is a member of the Federal Reserve System and its deposits are
insured by the FDIC to the legal maximum of $100,000 for each insured depositor.
Some of the aspects of the lending and deposit business of the Bank that are
subject to regulation by the Federal Reserve and the FDIC include reserve
requirements and disclosure requirements in connection with personal and
mortgage loans and deposit accounts. In addition, the Bank is subject to
numerous federal and state laws and regulations that include specific
restrictions and procedural requirements with respect to the establishment of
branches, investments, interest rates on loans, credit practices, the disclosure
of credit terms, and discrimination in credit transactions.
The Bank is subject to restrictions imposed by federal law on extensions of
credit to, and certain other transactions with, Bancorp and other affiliates,
and on investments in their stock or other securities. These restrictions
prevent Bancorp and the Bank's other affiliates from borrowing from the Bank
unless the loans are secured by specified collateral, and require those
transactions to have terms comparable to terms of arms-length transactions with
third persons. In addition, secured loans and other transactions and
investments by the Bank are generally limited in amount as to Bancorp and as to
any other affiliate to 10% of the Bank's capital and surplus and as to Bancorp
and all other affiliates together to an aggregate of 20% of the Bank's capital
and surplus. Certain exemptions to these limitations apply to extensions of
credit and other transactions between the Bank and its subsidiaries. These
regulations and restrictions may limit Bancorp's ability to obtain funds from
the Bank for its cash needs, including funds for acquisitions and for payment of
dividends, interest, and operating expenses.
Under OCC regulations, national banks must adopt and maintain written policies
that establish appropriate limits and standards for extensions of credit secured
by liens or interests in real estate or are made for the purpose of financing
permanent improvements to real estate. These policies must establish loan
portfolio diversification standards; prudent underwriting standards, including
loan-to-value limits, that are clear and measurable; loan administration
procedures; and documentation, approval, and reporting requirements. A bank's
real estate lending policy must reflect consideration of the Interagency
Guidelines for Real Estate Lending Policies (the "Interagency Guidelines")
adopted by the federal bank regulators. The Interagency Guidelines, among other
things, call for internal loan-to-value limits for real estate loans that are
not in excess of the limits specified in the Guidelines. The Interagency
Guidelines state, however, that it may be appropriate in individual cases to
originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits.
The FDIC has established a risk-based deposit insurance premium assessment
system for insured depository institutions. Under the system, the assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, based upon the
institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups -- well-capitalized, adequately
capitalized, or undercapitalized -- based on the data reported to regulators.
Well-capitalized institutions are institutions satisfying the following capital
ratio standards: (i) total risk-based capital ratio of 10.0% or greater; (ii)
Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) Tier 1 leverage
ratio of 5.0% or greater. Adequately capitalized institutions are institutions
that do not meet the standards for well-capitalized institutions but that
satisfy the following capital ratio
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standards: (i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1
risk-based capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of
4.0% or greater. Institutions that do not qualify as either well-capitalized or
adequately capitalized are deemed to be undercapitalized. Within each capital
group, institutions are assigned to one of three subgroups on the basis of
supervisory evaluations by the institution's primary supervisory authority and
such other information as the FDIC determines to be relevant to the
institution's financial condition and the risk it poses to the deposit insurance
fund. Subgroup A consists of financially sound institutions with only a few
minor weaknesses. Subgroup B consists of institutions with demonstrated
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. The
Bank has been informed that it is in the lowest assessment category for the
first assessment period of 2000.
Regulatory Capital Requirements. The Federal Reserve and the OCC have
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established guidelines for maintenance of appropriate levels of capital by bank
holding companies and national banks, respectively. The regulations impose two
sets of capital adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the
maintenance of specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve and the OCC require bank holding
companies and national banks, respectively, to maintain a minimum leverage ratio
of "Tier 1 capital" (as defined in the risk-based capital guidelines discussed
in the following paragraphs) to total assets of 3.0%. The capital regulations
state, however, that only the strongest bank holding companies and banks, with
composite examination ratings of 1 under the rating system used by the federal
bank regulators, would be permitted to operate at or near this minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. A bank or bank holding company experiencing or anticipating
significant growth is expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve has indicated that it also may
consider the level of an organization's ratio of tangible Tier 1 capital (after
deducting all intangibles) to total assets in making an overall assessment of
capital.
The risk-based capital rules of the Federal Reserve and the OCC require bank
holding companies and national banks to maintain minimum regulatory capital
levels based upon a weighting of their assets and off-balance sheet obligations
according to risk. The risk-based capital rules have two basic components: a
core capital (Tier 1) requirement and a supplementary capital (Tier 2)
requirement. Core capital consists primarily of common stockholders' equity,
certain perpetual preferred stock (noncumulative perpetual preferred stock with
respect to banks), and minority interests in the equity accounts of consolidated
subsidiaries; less all intangible assets, except for certain mortgage servicing
rights and purchased credit card relationships. Supplementary capital elements
include, subject to certain limitations, the allowance for losses on loans and
leases; perpetual preferred stock that does not qualify as Tier 1 capital; long-
term preferred stock with an original maturity of at least 20 years from
issuance; hybrid capital instruments, including perpetual debt and mandatory
convertible securities; subordinated debt, intermediate-term preferred stock,
and up to 45% of pre-tax net unrealized gains on available for sale equity
securities.
In November 1999, Sandy Spring Capital Trust I, a statutory business trust and
consolidated subsidiary of Bancorp, sold 1.4 million trust preferred securities
having a liquidation price of $25 each for a total price of $35 million. These
trust preferred securities meet the Federal Reserves regulatory criteria for
Tier 1 capital, subject to Federal Reserve guidelines that limit the amount of
trust preferred (and any cumulative perpetual preferred stock) that may be
included in Tier 1 capital to an aggregate of 25% of Tier 1 capital. Any excess
may be included as supplementary capital. See note 10 to the Consolidated
Financial Statements on page 34 of the Annual Report. Funds from the issuance of
the trust preferred securities were used for general corporate purposes,
including investment in subordinated debt of the Bank.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-
weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to
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total risk-weighted assets of 8%, with at least 4% as core capital. For the
purpose of calculating these ratios: (i) supplementary capital is limited to no
more than 100% of core capital; and (ii) the aggregate amount of certain types
of supplementary capital is limited. In addition, the risk-based capital
regulations limit the allowance for loan losses that may be included in capital
to 1.25% of total risk-weighted assets.
The federal bank regulatory agencies, including the OCC, have established a
joint policy regarding the evaluation of commercial banks' capital adequacy for
interest rate risk. Under the policy, the OCC's assessment of a bank's capital
adequacy includes an assessment of the bank's exposure to adverse changes in
interest rates. The OCC has determined to rely on its examination process for
such evaluations rather than on standardized measurement systems or formulas.
The OCC may require banks that are found to have a high level of interest rate
risk exposure or weak interest rate risk management systems to take corrective
actions. Management believes its interest rate risk management systems and its
capital relative to its interest rate risk are adequate.
Federal banking regulations also require banks with significant trading assets
or liabilities to maintain supplemental risk-based capital based upon their
levels of market risk. The Bank did not have significant levels of trading
assets or liabilities during 1999, and was not required to maintain such
supplemental capital.
The OCC has established regulations that classify national banks by capital
levels and provide for the OCC to take various "prompt corrective actions" to
resolve the problems of any bank that fails to satisfy the capital standards.
Under these regulations, a well-capitalized bank is one that is not subject to
any regulatory order or directive to meet any specific capital level and that
has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based capital
ratio of 6% or more, and a leverage ratio of 5% or more. An adequately
capitalized bank is one that does not qualify as well-capitalized but meets or
exceeds the following capital requirements: a total risk-based capital ratio of
8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i)
4% or (ii) 3% if the bank has the highest composite examination rating. A bank
that does not meet these standards is categorized as undercapitalized,
significantly undercapitalized, or critically undercapitalized, depending on its
capital levels. A national bank that falls within any of the three
undercapitalized categories established by the prompt corrective action
regulation is subject to severe regulatory sanctions. As of December 31, 1999,
the Bank was well-capitalized as defined in the OCC's regulations.
For information regarding Bancorp's and the Bank's compliance with their
respective regulatory capital requirements, see "Management's Discussion and
Analysis -- Capital Management on page 18 of the Annual Report and "Note 21 -
Regulatory Matters" of the Notes to the Consolidated Financial Statements on
page 44 of the Annual Report.
Supervision and Regulation of Mortgage Banking Operations
Bancorp's mortgage banking business is subject to the rules and regulations of
the U.S. Department of Housing and Urban Development ("HUD"), the Federal
Housing Administration ("FHA"), the Veterans' Administration ("VA"), and FNMA
with respect to originating, processing, selling and servicing mortgage loans.
Those rules and regulations, among other things, prohibit discrimination and
establish underwriting guidelines which include provisions for inspections and
appraisals, require credit reports on prospective borrowers, and fix maximum
loan amounts. Lenders such as Bancorp are required annually to submit to FNMA,
FHA and VA audited financial statements, and each regulatory entity has its own
financial requirements. Bancorp's affairs are also subject to examination by
the Federal Reserve, FNMA, FHA and VA at all times to assure compliance with the
applicable regulations, policies and procedures. Mortgage origination
activities are subject to, among others, the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act, Fair Housing Act, Fair Credit Reporting Act, the
National Flood Insurance Act and the Real Estate Settlement Procedures Act and
related regulations that prohibit discrimination and require the disclosure of
certain basic information to mortgagors concerning credit terms and settlement
costs. Bancorp's mortgage banking operations also are affected by various state
and local laws and regulations and the requirements of various private mortgage
investors.
Competition
The Bank's principal competitors for deposits are other financial
institutions, including other banks, credit unions, and savings institutions.
Competition among these institutions is based primarily on interest rates and
other terms offered, service charges imposed on deposit accounts, the quality of
services rendered, and the convenience of banking facilities. Additional
competition for depositors'
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funds comes from U.S. Government securities, private issuers of debt obligations
and suppliers of other investment alternatives for depositors, such as
securities firms. Competition from credit unions has intensified in recent years
as historical federal limits on membership have been relaxed. Because federal
law subsidizes credit unions by giving them a general exemption from federal
income taxes, credit unions have a significant cost advantage over banks and
savings associations, which are fully subject to federal income taxes. Credit
unions may use this advantage to offer rates that are highly competitive with
those offered by banks and thrifts.
The banking business in Maryland generally, and the Bank's primary service
areas specifically, are highly competitive with respect to both loans and
deposits. As noted above, the Bank competes with many larger banking
organizations that have offices over a wide geographic area. These larger
institutions have certain inherent advantages, such as the ability to finance
wide-ranging advertising campaigns and promotions and to allocate their
investment assets to regions offering the highest yield and demand. They also
offer services, such as international banking, that are not offered directly by
the Bank (but are available indirectly through correspondent institutions), and,
by virtue of their larger total capitalization, such banks have substantially
higher legal lending limits, which are based on bank capital, than does the
Bank. The Bank can arrange loans in excess of its lending limit, or in excess
of the level of risk it desires to take, by arranging participations with other
banks. Other entities, both governmental and in private industry, raise capital
through the issuance and sale of debt and equity securities and indirectly
compete with the Bank in the acquisition of deposits.
In addition to competing with other commercial banks, credit unions and
savings associations, commercial banks such as the Bank compete with nonbank
institutions for funds. For instance, yields on corporate and government debt
and equity securities affect the ability of commercial banks to attract and hold
deposits. Commercial banks also compete for available funds with mutual funds.
These mutual funds have provided substantial competition to banks for deposits,
and it is anticipated they will continue to do so in the future.
The Holding Company Act permits the Federal Reserve to approve an application
of an adequately capitalized and adequately managed bank holding company to
acquire control of, or acquire all or substantially all of the assets of, a bank
located in a state other than that holding company's home state. The Federal
Reserve may not approve the acquisition of a bank that has not been in existence
for the minimum time period (not exceeding five years) specified by the
statutory law of the host state. The Holding Company Act also prohibits the
Federal Reserve from approving an application if the applicant (and its
depository institution affiliates) controls or would control more than 10% of
the insured deposits in the United States or 30% or more of the deposits in the
target bank's home state or in any state in which the target bank maintains a
branch. The Holding Company Act does not affect the authority of states to
limit the percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding company to the extent such limitation does
not discriminate against out-of-state banks or bank holding companies.
Federal banking laws also authorize the federal banking agencies to approve
interstate merger transactions without regard to whether such transactions are
prohibited by the law of any state, unless the home state of one of the banks
expressly prohibits merger transactions involving out-of-state banks. The State
of Maryland allows out-of-state financial institutions to merge with Maryland
banks and to establish branches in Maryland, subject to certain limitations.
The GLB Act permits the creation of a new type of regulated entity, the
financial holding company, that can offer a broad range of financial products.
These new financial holding companies may engage in banking as well as types of
securities, insurance, and other financial activities that had been prohibited
for bank holding companies under prior law. The GLB Act also permits banks with
or without holding companies to establish and operate financial subsidiaries
that may engage in most financial activities in which financial holding
companies may engage. Competition may increase as bank holding companies and
other large financial service companies take advantage of the new activities and
provide a wider array of products. By removing historical restrictions on
affiliations between banks and certain types of companies, the GLB Act expands
the number of potential acquirors of existing banks and bank holding companies,
and makes it possible for bank holding companies to acquire new types of
existing businesses.
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Employees
As of January 31, 2000, Bancorp and the Bank employed 512 persons, including
executive officers, loan and other banking and trust officers, branch personnel,
and others. None of Bancorp's or the Bank's employees is represented by a union
or covered under a collective bargaining agreement. Management of Bancorp and
the Bank consider their employee relations to be excellent.
Executive Officers
The following table sets forth information regarding the executive officers of
Bancorp and the Bank who are not directors.
<TABLE>
<CAPTION>
Name Age (1) Principal Position(s)
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<S> <C> <C>
James R. Farmer 48 Senior Vice President of the Bank
Ronald E. Kuykendall 47 Vice President and Secretary of Bancorp and
Senior Vice President and General Counsel of the Bank
James H. Langmead 50 Vice President and Treasurer of Bancorp and
Executive Vice President and Chief Financial Officer of the Bank
Lawrence T. Lewis 51 Executive Vice President of the Bank
Stanley L. Merson 43 President, Sandy Spring Mortgage Corporation and
Senior Vice President of the Bank
Frank H. Small 53 Executive Vice President of the Bank
Sara E. Watkins 43 Senior Vice President of the Bank
</TABLE>
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(1) At March 22, 2000.
The principal occupation(s) and business experience of each executive officer
who is not a director for the last five years are set forth below.
James R. Farmer became a Senior Vice President of the Bank in 1994. Prior to
that, Mr. Farmer was Vice President of the Bank. Mr. Farmer has been employed
by the Bank since 1979.
Ronald E. Kuykendall became Vice President and Secretary of Bancorp and Senior
Vice President and General Counsel of the Bank in January 2000. Before joining
the Bank, Mr. Kuykendall was Associate General Counsel, Crestar Financial
Corporation from 1998 to 1999, Senior Corporate Counsel, First Union Corporation
in 1997 and, prior to that, Senior Corporate Counsel, Signet Banking
Corporation.
James H. Langmead, CPA, became Vice President and Treasurer of Bancorp, Senior
Vice President and Chief Financial Officer of the Bank in 1995, and Executive
Vice President in 1997. Prior to that, Mr. Langmead was a Senior Vice President
of the Bank (from January 1994), and Vice President and Controller of the Bank.
Prior to joining the Bank in 1992, Mr. Langmead was Executive Vice President of
the Bank of Baltimore.
Lawrence T. Lewis began his employment with the Bank in 1996 as Senior Vice
President, and became Executive Vice President in 1997. From January 1984 to
December 1995, Mr. Lewis was a managing director of Clark Melvin Securities
Corporation.
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Stanley L. Merson has been a Senior Vice President of the Bank since 1991 and
was Vice President of the Commercial Loan Department prior to becoming Senior
Vice President. He became President of Sandy Spring Mortgage Corporation upon
its formation in 1997. Mr. Merson has been employed by the Bank since 1982.
Frank H. Small became a Senior Vice President of the Bank in 1994, and
Executive Vice President in 1997. Prior to that, Mr. Small was Vice President
of the Bank. Before joining the Bank in 1990, Mr. Small was Vice President in
charge of branch operations at Equitable Bank, N.A.
Sara E. Watkins became a Senior Vice President of the Bank in 1997. Prior to
that, Ms. Watkins was Vice President and Branch Administrator of the Bank (from
June 1994) and Vice President and Region Manager of the Bank (from April 1992).
Tabular Financial Information
Loan Maturity Table. The following table sets forth information as of
December 31, 1999, regarding the loan maturities and interest rate sensitivity
for real estate-construction and commercial loans (dollars in thousands).
<TABLE>
<CAPTION>
Years
--------------------------------------
1 or Less Over 1-5 Over 5 Total
--------- -------- ------- --------
<S> <C> <C> <C> <C>
Real Estate - Construction.. $ 74,490 $ 2,487 $ 0 $ 76,977
Commercial.................. 56,026 30,425 6,223 92,674
-------- ------- ------ --------
Total..................... $130,516 $32,912 $6,223 $169,651
======== ======= ====== ========
Rate Terms:
Fixed..................... $ 37,587 $30,301 $6,223 $ 74,111
Variable or adjustable.... 92,929 2,611 0 95,540
-------- ------- ------ --------
Total................... $130,516 $32,912 $6,223 $169,651
======== ======= ====== ========
</TABLE>
8
<PAGE>
Credit Loss Allowance Table. The following table presents the allocation of
the allowance for credit losses for the past five years, along with the
percentage of total loans in each category (dollars in thousands).
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ ------------------
Amount Loan Mix Amount Loan Mix Amount Loan Mix Amount Loan Mix Amount Loan Mix
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount applicable to:
Real estate--mortgage $ 766 57% $1,095 58% $1,213 58% $ 425 60% $ 512 61%
Real estate-- 331 9 210 12 224 11 745 9 10 9
construction
Consumer 335 22 201 18 215 18 193 18 181 18
Commercial 637 12 706 12 774 13 1,015 13 907 12
Unallocated 6,162 5,138 4,590 4,013 4,987
------ ------ ------ ------ ------
Total allowance for $8,231 $7,350 $7,016 $6,391 $6,597
Credit losses ====== ====== ====== ====== ======
</TABLE>
The Company's policies and practices regarding the allowance for credit
losses, including factors regularly analyzed by management in evaluating the
sufficiency of the allowance, are disclosed in the discussion of Credit Risk
Management on pages 19 and 20 in Notes 1 and 6 of the Notes to the Consolidated
Financial Statements beginning on page 28 of the Annual Report. (See also the
discussion of loan portfolio composition and trends on pages 16 and 17 of the
Annual Report.) The amount of unallocated allowance for credit losses increased
to 74.9% of the total allowance at December 31, 1999, from 69.9% a year earlier.
The percentage was 65.4% at December 31, 1997. The size of the unallocated
reserve at December 31, 1999 reflects management's assessment of actual loss
residing in the loan portfolio which has not been specifically attributed to any
category of loans.
The tabular financial information set forth on pages 9 through 23 of the
Annual Report is incorporated herein by reference.
ITEM 2. DESCRIPTION OF PROPERTY
Page 7 of the Annual Report (listing executive and community offices) is
hereby incorporated by reference.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Note 18 on page 40 of the Annual Report ("Litigation") is hereby incorporated
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1999, through solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The sections titled "Recent Stock Prices and Dividends" and "Quarterly Stock
Information" on page 9 of the Annual Report is hereby incorporated by reference.
For information regarding regulatory restrictions on the Bank's and,
therefore, Bancorp's payment of dividends, see Note 11 -- "Stockholders' Equity"
on page 35 of the Annual Report, which is hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table titled "Historical Trends in Financial Data 1995 - 1999" on page 11
of the Annual Report is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pages 10 through 23 of the Annual Report are hereby incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The section titled "Market Risk Management" on pages 21 and 22 of the Annual
Report is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 24 through 46 of the Annual Report are hereby incorporated by reference.
The remaining information appearing in the Annual Report to Shareholders is not
deemed to be filed as part of this Report, except as expressly provided herein.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and nominees for directors of Bancorp and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is included
under the captions titled "Election of Directors -- Information as to Nominees
and Continuing Directors" on pages 3 through 5 of the Proxy Statement, and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page
14 of the Proxy Statement, and is hereby incorporated by reference.
Information concerning the executive officers of Bancorp is included under the
caption titled "Item 1. Business -- Executive Officers" of this report and is
hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of Bancorp's directors and executive
officers is included under the captions "Corporate Governance and Other
Matters," "Executive Compensation," "Report of the Human Resources Committee,"
and "Stock Performance Comparisons" on pages 4 through 13 of the Proxy
Statement, and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of Bancorp's common stock by
certain beneficial owners and directors and executive officers of Bancorp is
included under the caption "Stock Ownership of Management" on page of the
Proxy Statement and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
management is included under the caption "Transactions and Relationships with
Management" on page 2 of the Proxy Statement and is hereby incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of Bancorp included in the
Annual Report to Shareholders for the year ended December 31, 1999, are
incorporated herein by reference in Item 8 of this Report. The remaining
information appearing in the Annual Report to Shareholders is not deemed to
be filed as part of this Report, except as expressly provided herein.
The following financial statements are filed as a part of this report:
Consolidated Balance Sheets at December 31, 1998 and 1999
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997,
11
<PAGE>
1998 and 1999
Notes to the Consolidated Financial Statements
Report of Independent Auditors
All financial statement schedules have been omitted as the required
information is either inapplicable or included in the consolidated financial
statements or related notes.
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated by Reference to:
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3(a) Articles of Incorporation of Sandy Spring Exhibit 3.1 to Form 10-Q for the Quarter
Bancorp, Inc., as Amended ended June 30, 1996, SEC File No. 0-19065.
3(b) Bylaws of Sandy Spring Bancorp, Inc. Exhibit 3.2 to Form 8-K dated May 13, 1992,
SEC File No. 0-19065.
10(a)* Amended and Restated Sandy Spring Bancorp, Inc., Exhibit 10(a) to Form 10-Q for the Quarter
Cash and Deferred Profit Sharing Plan and Trust ended September 30, 1997, SEC File No.
0-19065.
10(b)* Sandy Spring Bancorp, Inc. 1982 Incentive Stock Exhibit 10(c) to Form 10-Q for the quarter
Option Plan ended June 30, 1990, SEC File No. 0-19065.
10(c)* Sandy Spring Bancorp, Inc. 1992 Stock Option Plan Exhibit 10(i) to Form 10-K for the year
ended December 31, 1991, SEC File No.
0-19065.
10(d)* Sandy Spring Bancorp, Inc. Amended and Restated Exhibit 4 to Registration Statement on Form
Stock Option Plan for Employees of Annapolis S-8, Registration Statement No. 333-11049.
Bancshares, Inc.
10(e)* Sandy Spring Bancorp, Inc. 1999 Stock Option Plan Exhibit 4 to Registration Statement on Form
S-8, Registration Statement No. 333-81249.
10(f)* Sandy Spring National Bank of Maryland Executive Exhibit 10(g) to Form 10-K for the year
Health Insurance Plan ended December 31, 1991, SEC File No.
0-19065.
10(g)* Sandy Spring National Bank of Maryland Executive Exhibit 10(k) to Form 10-K for the year
Health Expense Reimbursement Plan ended December 31, 1991, SEC File No.
0-19065.
10(h)* Form of Director Fee Deferral Agreement, Exhibit 10(b) to Form 10-Q for the Quarter
August 26, 1997 ended September 30, 1997, SEC File No.
0-19065.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Incorporated by Reference to:
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(i)* Supplemental Executive Retirement Agreement by Exhibit 10(c) to Form 10-Q for the Quarter
and Between Sandy Spring National Bank of ended September 30, 1997, SEC File No.
Maryland and Hunter R. Hollar 0-19065.
10(j)* Form of Supplemental Executive Retirement Exhibit 10(d) to Form 10-Q for the Quarter
Agreement by and between Sandy Spring National ended September 30, 1997, SEC File No.
Bank of Maryland and each of James H. Langmead, 0-19065.
Lawrence T. Lewis, Stanley L. Merson, Frank H.
Small, and Sara E. Watkins
10(k)* Employment Agreement by and among Sandy Spring Exhibit 10(e) to Form 10-Q for the Quarter
Bancorp, Inc., Sandy Spring National Bank of ended September 30, 1997, SEC File No.
Maryland, and Hunter H. Hollar 0-19065.
10(l)* Employment Agreement by and among Sandy Spring Exhibit 10(f) to Form 10-Q for the Quarter
Bancorp, Inc., Sandy Spring National Bank of ended September 30, 1997, SEC File No.
Maryland, and James H. Langmead 0-19065.
10(m)* Employment Agreement by and among Sandy Spring Exhibit 10(g) to Form 10-Q for the Quarter
Bancorp, Inc., Sandy Spring National Bank of ended September 30, 1997, SEC File No.
Maryland, and Lawrence T. Lewis 0-19065.
10(n)* Employment Agreement by and among Sandy Spring Exhibit 10(h) to Form 10-Q for the Quarter
Bancorp, Inc., Sandy Spring National Bank of ended September 30, 1997, SEC File No.
Maryland, and Stanley L. Merson 0-19065.
10(o)* Employment Agreement by and among Sandy Spring Exhibit 10(i) to Form 10-Q for the Quarter
Bancorp, Inc., Sandy Spring National Bank of ended September 30, 1997, SEC File No.
Maryland, and Frank H. Small 0-19065.
10(p)* Employment Agreement by and among Sandy Spring Exhibit 10(o) to Form 10-K for the year
Bancorp, Inc., Sandy Spring National Bank of ended December 31, 1998, SEC File No.
Maryland, and Sara E. Watkins 0-19065.
13 1999 Annual Report to Shareholders
21 Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
* Management Contract or Compensatory Plan or Arrangement filed pursuant to
Item 14(c) of this Report.
(b) No Current Reports on Form 8-K were filed during the three-month period
ended December 31, 1999.
(c) Exhibits to this Form 10-K are attached or incorporated by reference as
stated above.
(d) None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SANDY SPRING BANCORP, INC.
(Registrant)
By: /s/ Hunter R. Hollar
--------------------
Hunter R. Hollar
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 22, 2000.
Principal Executive Officer and Principal Financial and
Director: Accounting Officer:
/s/ Hunter R. Hollar /s/ James H. Langmead
- -------------------- ---------------------
Hunter R. Hollar James H. Langmead
President and Chief Executive Officer Vice President and Treasurer
A majority of the directors of Bancorp executed a power of attorney appointing
Theresa A. Cornish as their attorney-in-fact, empowering her to sign this report
on their behalf. This power of attorney has been filed with the Securities and
Exchange Commission under Part IV, Exhibit 24 of this Form 10-K for the year
ended December 31, 1999. This report has been signed below by such attorney-in-
fact as of March 22, 2000.
Signature Title
- --------- -----
/s/ John Chirtea Director
- -----------------------------
John Chirtea
/s/ Susan D. Goff Director
- -----------------------------
Susan D. Goff
/s/ Solomon Graham Director
- -----------------------------
Solomon Graham
/s/ Gilbert L. Hardesty Director
- -----------------------------
Gilbert L. Hardesty
/s/ Joyce R. Hawkins Director
- -----------------------------
Joyce R. Hawkins
14
<PAGE>
/s/ Thomas O. Keech Director
- -----------------------------
Thomas O. Keech
/s/ Charles F. Mess Director
- -----------------------------
Charles F. Mess
Director
- -----------------------------
Robert L. Mitchell
/s/ Robert L. Orndorff, Jr. Director
- -----------------------------
Robert L. Orndorff, Jr.
/s/ David E. Rippeon Director
- -----------------------------
David E. Rippeon
/s/ Lewis R. Schumann Director
- -----------------------------
Lewis R. Schumann
/s/ W. Drew Stabler Chairman of the Board,
- ----------------------------- Director
W. Drew Stabler
By: /s/ Theresa A. Cornish
------------------------------------
Attorney-in-Fact for Majority of the
Directors of Bancorp
15
<PAGE>
EXHIBIT 13
1999 ANNUAL REPORT TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Sandy Spring Bancorp is the holding company for Sandy Spring National Bank of
Maryland, the oldest banking business native to Montgomery County. Independent
and community-oriented, Sandy Spring National Bank traces its origin to 1868 and
conducts a full-service commercial banking business through 30 community offices
located in Montgomery, Howard, Prince George's and Anne Arundel counties and
through its subsidiaries, Sandy Spring Mortgage Corporation and Sandy Spring
Insurance Corporation.
- --------------------------------------------------------------------------------
Corporate Information
Annual Meeting
The Annual Meeting of shareholders will be held at:
Indian Spring Country Club
13501 Layhill Road
Silver Spring, Maryland
on Tuesday, April 18, 2000 at 3 p.m.
Form 10-K
The Company's Form 10-K may be obtained free of charge by writing:
Ronald E. Kuykendall
Corporate Secretary
Sandy Spring Bancorp
17801 Georgia Avenue
Olney, Maryland 20832
Member Federal Deposit Insurance Corporation
Member Federal Reserve System
Equal Housing Lender
Affirmative Action/Equal Opportunity Employer
Stock Listing
Common shares of Sandy Spring Bancorp are traded on the National Association of
Security Dealers (NASDAQ) National Market under the symbol SASR. Trust preferred
securities of Sandy Spring Capital Trust I are traded on the NASDAQ National
Market under the symbol SASRP.
Transfer Agent and Registar
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
- --------------------------------------------------------------------------------
Contents
Letter to Shareholders ....................................................... 2
Financial Highlights ......................................................... 3
Board of Directors ........................................................... 7
Branch Locations ............................................................. 8
Financials ................................................................... 9
- --------------------------------------------------------------------------------
Forward-Looking Statements
The Company makes forward looking statements in this following letter to
shareholders and other portions of this Annual Report 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; 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; 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.
- --------------------------------------------------------------------------------
<PAGE>
1999 WAS A YEAR OF CONTINUED GROWTH FOR SANDY SPRING BANCORP. WE EXPANDED
THROUGH ACQUISITION, ADDING NEW BRANCHES IN STRATEGIC LOCATIONS AND BROADENING
OUR ARRAY OF SERVICES.
[PHOTO]
<PAGE>
[PHOTO]
W. Drew Stabler
Chairman of the Board of Directors
Hunter R. Hollar
President and Chief Executive Officer
Letter to Shareholders
1999 was a year of profitability and growth for Sandy Spring Bancorp,
continuing a long-standing record of consistent performance.
Now the fifth largest banking company headquartered in Maryland, Sandy Spring
Bancorp encompasses thirty community-banking offices, a solid mortgage banking
operation and a $230 million trust operation. Following the completion of four
acquisitions in the past six years, Sandy Spring Bancorp has $1.6 billion in
assets and a $260 million market capitalization at year-end 1999.
As an institution, our greatest strength lies in the relationships that we have
and which we can develop with our clients. We believe our sustained emphasis on
high levels of client service combined with a focus on increasing noninterest
income and productivity will lead to growth in revenues and net earnings in the
future.
1999 Performance:
Another good year
We accomplished a great deal in 1999. Our subsidiary, Sandy Spring National
Bank, undertook the largest acquisition in its history with the purchase of
seven branch offices from Mellon Bank Corporation. The purchase included
approximately $219 million in deposits and a portfolio of $34 million in con-
sumer and small business loans. This acquisition expands our presence in the
high-income, densely populated areas of Anne Arundel and Montgomery counties,
including Annapolis, Bethesda, and Chevy Chase, and sets the stage for further
growth in the years ahead.
Our results speak to a continuing ability to achieve high performance goals. For
1999, income before investment gains of $17.5 million was up 12 percent from
prior year's $15.6 million. Earnings for the year ended December 31, 1999, of
$1.82 per diluted share, were up 9 percent from the 1998 level of $1.66 per
diluted share.
2
<PAGE>
Return on Average Equity
percent
[GRAPH]
1995 12.37
1996 12.81
1997 13.25
1998 15.02
1999 15.91
Composition of Revenue
dollars in millions
[GRAPH]
1995 37.3
1996 42.9
1997 50.2
1998 57.6
1999 64.6
Noninterest
income
Net interest
income
Net Income
dollars in millions
[GRAPH]
1995 10.0
1996 11.5
1997 13.2
1998 16.1
1999 17.5
- --------------------------------------------------------------------------------
Financial Highlights
(Dollars in thousands, except per share data)
1999 1998 % Change
- --------------------------------------------------------------------------------
Profitability for the Year:
Net Interest Income $ 52,259 $ 45,523 15%
Provision for Credit Losses 1,216 552 120
Noninterest Income, excluding
Securities Gains 12,230 11,270 9
Securities Gains 101 853 (88)
Noninterest Expenses 39,528 34,053 16
Income before Taxes 23,846 23,041 3
Net Income 17,516 16,105 9
Return on Average Assets 1.26% 1.36%
Return on Average Equity 15.91% 15.02%
Net Interest Margin 4.35% 4.40%
Net Overhead Ratio 46.55% 45.92%
Efficiency Ratio 56.06% 56.01%
Per Share Data:
Basic Net Income Per Share $ 1.82 $ 1.67 9%
Diluted Net Income Per Share 1.82 1.66 10
Dividends Declared Per Share 0.75 0.63 19
Book Value Per Share 11.27 11.57 (3)
Tangible Book Value Per Share 9.15 11.45 (20)
At Year End:
Assets $1,591,281 $1,343,471 18%
Deposits 1,165,372 954,571 22
Loans 826,125 624,412 32
Securities 630,039 613,579 3
Stockholders' Equity 108,720 110,937 (2)
Capital and Credit Quality Ratios:
Average Equity to Average Assets 7.92% 9.02%
Total Risk-based Capital Ratio 15.23% 15.67%
Allowance for Credit Losses to Loans 1.00% 1.18%
Nonperforming Assets to Total Assets 0.13% 0.13%
Net Charge-Offs to Average Loans 0.05% 0.04%
- --------------------------------------------------------------------------------
Return on average equity increased to 15.91 percent in 1999, from 15.02 percent
in 1998. Deposits grew by a full 22 percent, buoyed by the acquisition of the
Mellon branches. Accelerated loan growth, which built momentum as the year
progressed, resulted in a 32 percent increase in outstanding balances at
year-end compared to 1998.
Revenue growth was a major contributor to earnings increases. For the year, net
interest income was up 15 percent from the prior year; and non-interest income,
excluding the impact of gains on securities transactions and non-recurring
income, increased 9 percent for the year. This was due primarily to higher
transaction-based fees related to strong growth in checking and other
transaction accounts. In addition, sales of mutual funds and annuities continued
to post healthy increases.
Sandy Spring Bancorp (including its predecessor organizations) has paid regular
dividends to shareholders for 99 consecutive years and we continued that
tradition in 1999, paying out a total of $7,201,000 in dividends to our
shareholders. Overall, these dividends were up 19 percent from prior year
levels. While the total rate of return on our stock declined during 1999, we
still compare favorably to other peer banks in the region. Financial
institutions' stock prices were adversely affected by a trend toward high
technology stocks. However, Sandy Spring Bancorp stock has performed well over
the long haul. The average annual total rate of return has been 18.8 percent
over the last five years and 21.8 percent over the last three years. Three stock
analysts recently rated us,
3
<PAGE>
OUR GOAL IS TO BE "A HIGH-PERFORMANCE BANK"--THAT IS, TO BE AMONG THE TOP 25
PERCENT OF PEER BANKS IN THE UNITED STATES.
recently rated us, "outperform," "hold," and "buy." We believe this coverage,
positive ratings, and continued strong performance will raise the awareness of
potential investors in our stock.
In November, Sandy Spring Bancorp announced the issuance of $35 million of 9.375
percent Cumulative Trust Preferred Securities. The proceeds from the sale of
these securities were used for general corporate purposes, including capital
contributions to the Bank. We were still well capitalized following the Mellon
purchase in July, but the sale of these securities gives us the ability to
respond quickly to new opportunities to expand, build new branches or make
acquisitions without reducing our capital ratios below levels we believe are
appropriate.
A leader in customer service in a growth market
Today, Sandy Spring National Bank of Maryland is a leader in customer service
within the four-county service area of Montgomery, Howard, Anne Arundel, and
Prince George's. We will continue to grow within these counties with a focus on
expanding further into western Anne Arundel County, southern Howard County and
northern Prince George's County. In the regular course of our business, we seek
to identify and evaluate possible non-bank and bank business acquisitions that
would complete our growth strategy and add to shareholder value. A new branch
office opened in Edgewater, Anne Arundel County, in February 2000. In addition,
an Annapolis area financial center, housing mortgage, business banking, and
asset and trust management personnel, also opened in February adjacent to our
current Jennifer Road branch. Finally, a 55,000 square foot facility has been
leased in the Rivers Corporate Park in the Columbia area in Howard County. This
facility, opening in the second half of 2000, will allow the relocation of
central operations, loan operations, consumer lending, the Howard County
business banking team, and our mortgage banking operation.
We operate in strong and growing markets. Our service area is one of the most
affluent and well educated in the nation. The State of Maryland boasts more
professional and technical workers than any other state; it is number one in the
rate of high school completions and number two in the percentage of college
graduates. Maryland is also second in the nation in median household income, and
all four counties that we serve--Montgomery, Howard, Anne Arundel, and Prince
George's--have higher median income levels than the state average, making these
counties among the most affluent in the nation. Over the past decade, both Anne
Arundel and Montgomery counties have experienced steady growth and Howard County
has achieved household growth in excess of 30 percent.
Our service strategy is driven, in part, by the markets we serve. Our clients
are sophisticated consumers, comfortable
4
<PAGE>
Our community banking offices in Congressional Plaza (below) and Chevy Chase
(right) allow us to expand our coverage in high income, densely populated areas
of Montgomery County.
[PHOTO] [PHOTO]
with advanced technology. A large percentage of them have personal computers and
an ever-increasing number are taking advantage of our electronic banking
services. This year we added five additional offsite ATMs and purchased a mobile
ATM to be used at community events. Our electronic banking capabilities are at
the forefront and we will continue to concentrate on expanding and updating
these delivery channels.
Our leadership in the electronic marketplace supports our goal of serving the
whole client--an initiative that demands a high-tech, high-touch approach. In
today's market, electronic banking is highly compatible with an intimate client
relationship. On the one hand, our clients want speed, convenience and
efficiency in the retail banking arena. On the other, they want a personal
relationship with their banker for other financial needs. We work to fulfill
both needs.
Major strategic initiatives
One of our major goals is to be "a high-performance bank"--that is, to be among
the top 25 percent of peer banks in the United States based on return on equity.
We are nearly there. This goal takes on great importance in achieving higher
shareholder returns. We expect to increase profitability by increasing our
non-interest income, becoming more of a full-service bank by broadening the
products we offer, and meeting the needs of a growing base of individual clients
by providing even more customized, personal service. In addition, we have a
number of productivity improvement programs in place and are continuing to
practice efficient cost control as we strive to meet this strategic objective.
Our energies as an organization are focused on three other strategic areas to
stimulate growth and ensure long-term viability--building a sales organization,
creating a decision support system, and strengthening our client relationships.
Building a sales organization. We are building a dedicated sales force
throughout the branch system. The sole purpose of this new organization is to
seek out and find ways to help existing and potential clients, including retail
customers, small- to medium-size businesses, and professionals. We have expanded
our information systems capabilities and redesigned some of our branches to
enhance our ability to better understand and meet client needs. In addition,
incentive-based compensation, employee recognition, and ongoing professional
training programs support this initiative. The net result: we are building
business by being more proactive in meeting our existing clients' needs and by
actively seeking out new relationships.
Establishing a decision support system. In 1999, we began developing methods to
analyze various components of our business, identifying those that are
profitable and why they are profitable. Understanding organizational, product,
and client profitability will enable us to
5
<PAGE>
[PHOTO]
Our Potomac office, located at
Falls and River Roads,
allows us to bring community
banking to Potomac.
improve quality and return in each of these areas. That means identifying which
areas of the bank, which products, and which segments of the market generate the
highest returns and which can generate improved returns by deepening
relationships. In 2000, we will be reviewing organizational
profitability--looking closely at each specific area of the bank to pinpoint
potential profit improvement. We will go through the same process with our
products--identifying those that are most profitable, modifying those that need
improvement, and marketing those that not only fulfill client needs and desires,
but also generate strong earnings. Finally, we'll explore which segments of the
market are most profitable, and which can be developed into mutually beneficial
long-term relationships. Today, approximately 20 percent of our relationships
provide 125 percent of profitability; so we are striving to develop ways to
build deeper relationships with a larger percentage of our customer base.
Relationship management. Sandy Spring Bancorp is becoming a more
customer-centric organization. We are using cross-functional teams to serve our
clients better and to proactively identify and meet their needs. Simultaneously,
we focus on deepening relationships with our clients, because, as an
organization, our ability to provide the best in personal service is what
distinguishes us from other area banks. We believe that, ultimately, by being
proactive in better understanding and meeting customer needs, we will increase
our revenues and productivity in the process.
In closing
This year marked the retirement of our long-time corporate secretary, Marjorie
S. Holsinger. Marjorie was with us for 25 years. She was the primary liaison
between our shareholders and the Company during this period of significant
growth. Marjorie did a remarkable job and she will be sorely missed. Ronald E.
Kuykendall, the bank's first General Counsel, will succeed her in the role of
corporate secretary. Ron has over 23 years of experience with financial
institutions and private law practice. We welcome him.
We are very proud of the past year's accomplishments. Our employees have worked
diligently to realize our goals, which included a very successful Y2K
transition. We are grateful for the continuing loyalty of our shareholders,
clients, and friends.
/s/W. Drew Stabler
W. Drew Stabler
Chairman of the Board
/s/Hunter R. Hollar
Hunter R. Hollar
President and Chief Executive Officer
6
<PAGE>
Board of Directors
W. Drew Stabler, Chairman
Partner in Pleasant Valley Farm
John Chirtea
Real Estate Consultant
Susan D. Goff
President of M.D.IPA, Inc.
Solomon Graham
President and Chief Executive Officer
of Quality Biological, Inc.
Gilbert L. Hardesty
Retired Bank Executive
Joyce Riggs Hawkins
Real Estate Agent
Hunter R. Hollar
President and Chief Executive Officer
of the Bank and Bancorp
Thomas O. Keech
Retired as Vice President of the
Bancorp and Executive
Vice President of the Bank
Charles F. Mess, M.D.
General Orthopedic Practice
Robert L. Mitchell
President and Chief Executive Officer
of C-I/Mitchell & Best Company
Robert L. Orndorff, Jr.
President of RLO Contractors, Inc.
David E. Rippeon
President and Chief Executive Officer
of Gaithersburg Farmers Supply, Inc.
Lewis R. Schumann
Partner in the law firm of
Miller, Miller and Canby, Chtd.
Directors Emeritus
Willard H. Derrick
Chairman Emeritus
Daniel Ligon
Chairman Emeritus
Samuel Riggs, IV
Chairman Emeritus
Thomas A. Ladson
Charles H. Ligon
Louisa W. Riggs
Francis Snowden
Clyde Unglesbee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Annapolis Advisory Board
[PHOTO]
left to right:
E. Steuart Chaney; Frank T. Lowman, III; Veronica T. Meneely; Gilbert L.
Hardesty; Chairman, William P. Beatson, Jr.; Leonard A. Blackshear.
<PAGE>
Branch Locations
*ATM available
[PHOTO]
Airpark*
7653 Lindbergh Drive
Gaithersburg, Maryland 20879
Annapolis West*
2051 West Street
Annapolis, Maryland 21401
Ashton*
1 Ashton Road
Ashton, Maryland 20861
Aspenwood
14400 Homecrest Road
Silver Spring, Maryland 20906
Bedford Court
3701 International Drive
Silver Spring, Maryland 20906
Bethesda*
7126 Wisconsin Avenue
Bethesda, Maryland 20814
Bethesda Metro*
7475 Wisconsin Avenue
Bethesda, Maryland 20814
Burtonsville*
3535 Spencerville Road
Burtonsville, Maryland 20866
Chevy Chase*
5418 Wisconsin Avenue
Chevy Chase, Maryland 20815
Clarksville*
12276 Clarksville Pike
Clarksville, Maryland 21029
Colesville*
13300 New Hampshire Avenue
Silver Spring, Maryland 20904
Congressional*
1647 Rockville Pike
Rockville, Maryland 20852
Damascus*
26250 Ridge Road
Damascus, Maryland 20872
East Gude Drive*
1601 East Gude Drive
Rockville, Maryland 20850
Edgewater*
116 Mitchells Chance Road
Edgewater, Maryland 21037
Gaithersburg Square*
596 A North Frederick Avenue
Gaithersburg, Maryland 20877
Jennifer Road*
166 Jennifer Road
Annapolis, Maryland 21401
Laurel Lakes*
14404 Baltimore Avenue
Laurel, Maryland 20707
Layhill*
14241 Layhill Road
Silver Spring, Maryland 20906
Leisurewood Plaza*
3801 International Drive
Suite 100
Silver Spring, Maryland 20906
Lisbon*
710-M Lisbon Centre Drive
Woodbine, Maryland 21797
Milestone Center*
20930 Frederick Avenue
Germantown, Maryland 20876
Montgomery General Hospital*
18101 Prince Philip Drive
Olney, Maryland 20832
Montgomery Village*
9921 Stedwick Road
Montgomery Village, Maryland 20886
Olney*
17801 Georgia Avenue
Olney, Maryland 20832
Potomac*
9822 Falls Road
Potomac, Maryland 20854
Rockville
611 Rockville Pike
Rockville, Maryland 20852
Sandy Spring
908 Olney-Sandy Spring Road
Sandy Spring, Maryland 20860
Tysons Corner*
Tysons Dulles Plaza II
1430 Spring Hill Road, Suite 105
McLean, Virginia 22101
Wildwood*
10329 Old Georgetown Road
Bethesda, Maryland 20814
ADDITIONAL AUTOMATED TELLER
MACHINE (ATM) SITES
Airpark Amoco Station
19230 Woodfield Road
Gaithersburg, Maryland
Bethesda-Chevy Chase Shell Station
8240 Wisconsin Avenue
Bethesda, Maryland
Flecher's Amoco Station
17901 Georgia Avenue
Olney, Maryland
Galaxic Cleaners
4965 Elm Street
Bethesda, Maryland
Gardens Ice House
13800 Old Gunpowder Road
Laurel, Maryland
Germantown Chevron Station
20510 Frederick Road
Germantown, Maryland
Lakeforest Mall
701 Russell Avenue
Gaithersburg, Maryland
Middlebrook Chevron Station
12301 Middlebrook Road
Germantown, Maryland
Montgomery County Fairgrounds
16 Chestnut Street
Gaithersburg, Maryland
Washingtonian Chevron Station
10003 Fields Road
Gaithersburg, Maryland
Wheaton Chevron Station
2204 University Boulevard
Wheaton, Maryland
Woodfield Country Market
23716 Westfield Road
Gaithersburg, Maryland
Woodmont Shell Station
1250 West Montgomery Avenue
Rockville, Maryland
SANDY SPRING MORTGAGE
CORPORATION
12501 Prosperity Drive
Suite 100
Silver Spring, Maryland 20904
(301) 680-0200
SANDY SPRING NATIONAL BANK
FINANCIAL CENTER
148 Jennifer Road
Annapolis, Maryland 21401
(410) 266-3000
HOWARD COUNTY BUSINESS
BANKING
10715 Charter Drive
Suite 170
Columbia, Maryland 21040
(410) 740-8005
<PAGE>
Index to Financial Section
Recent Stock Prices and Dividends ........................................... 9
Management's Discussion and Analysis of Operations and Financial Condition .. 10
Consolidated Financial Statements:
Balance Sheets At December 31, 1999 and 1998: ............................. 24
For the Years Ended December 31, 1999, 1998 and 1997:
Statements of Income .................................................... 25
Statements of Cash Flows ................................................ 26
Statements of Changes in Stockholders' Equity ........................... 27
Notes to the Consolidated Financial Statements .............................. 28
Management's Statement of Responsibility .................................... 46
Report of Independent Auditors .............................................. 46
Recent Stock Prices and Dividends
Shareholders received quarterly cash dividends totaling $7,201,000 in 1999 and
$6,061,000 in 1998. Regular dividends have been declared for ninety-nine
consecutive years. The Company has increased its dividends per share each year
for the past nineteen years. Since 1994, dividends per share have risen at a
compound annual growth rate of 25.6%. The increase in dividends per share was
19.0% in 1999.
The ratio of dividends per share to diluted net income per share was 41.2% in
1999, compared to 38.0% for 1998. The dividend amount is established by the
Board of Directors each quarter. In making its decision on dividends, the Board
considers operating results, financial condition, capital adequacy, regulatory
requirements, shareholder returns and other factors.
Shares issued under the dividend reinvestment and stock purchase plan totaled
90,318 in 1999 and 76,447 in 1998.
The Company adopted a new stock repurchase program in 1999 that permits the
repurchase of up to 5% (approximately 480,000 shares) of its outstanding common
stock. The new program replaces the Company's previously authorized repurchase
program. Repurchases are made in connection with shares expected to be reissued
under the Company's dividend reinvestment, stock option and benefit plans, as
well as for other corporate purposes. Total shares repurchased under these
programs were 29,529 in 1999 and 227,586 in 1998. A total of 441,715 shares have
been repurchased from 1997, when stock repurchases began, through December 31,
1999.
The number of common shareholders of record was approximately 2,400 as of
February 10, 2000 and 1999.
Sandy Spring Bancorp's common stock trades on The Nasdaq Stock Market's National
Market under the trading symbol SASR. The price information provided below
reflects annual high and low sales prices as quoted on The Nasdaq Stock Market.
Quarterly Stock Information
<TABLE>
<CAPTION> 1999 1998
Stock Price Range Per Share Stock Price Range Per Share
Quarter Low High Dividend Low High Dividend
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st $27.25 $30.63 $0.18 $25.00 $37.00 $0.13
2nd 26.50 29.25 0.19 30.00 34.88 0.15
3rd 24.88 31.00 0.19 29.31 34.06 0.17
4th 25.88 31.00 0.19 26.75 34.00 0.18
----- -----
Total $0.75 $0.63
===== =====
</TABLE>
9
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Overview
For the full year 1999, Sandy Spring Bancorp, Inc. and subsidiaries (the
"Company") achieved significant growth in both deposits and loans and continued
a trend of increasing net earnings and return on average equity (ROE). According
to the latest (September 1999) Bank Holding Company Performance Report from the
Federal Reserve, the Company's ROE was in the 73rd percentile of all US Bank
Holding companies with assets between $1-3 billion. This position is up from the
40th percentile at the end of 1994, the 53rd percentile at the end of 1996, and
the 69th percentile at the end of 1998.
Income before investment gains increased 12% in 1999 over 1998, from $15,581,569
($1.61 per diluted share) to $17,453,889 ($1.81 per diluted share) in 1999. On a
net income basis, earnings were $17,515,673 ($1.82 per diluted share) in 1999
versus $16,105,303 ($1.66 per diluted share) in 1998, a 9% increase. For the
year 1999, return on average equity increased to 15.91% from 15.02% for 1998,
while return on average assets declined from 1.36% to 1.26%, due to a lower net
interest margin and higher leverage in 1999 than in 1998.
In 1999, average deposits increased 14% as compared to a five year compound
growth rate of 8%; while total average loans increased 20% as compared to a five
year compound growth rate of 12%. This increased rate of growth over the most
recent 12 month period was due in part to the acquisition of seven banking
offices of Mellon Bank in September 1999, which contributed approximately $219
million of deposits and $34 million of loans. These offices were located
primarily in markets which have been targeted by the Company for growth and are
a natural extension of the existing four county franchise of community offices.
This growth during the past year resulted in a 15.5% increase in tax-equivalent
net interest income.
Importantly, during 1999, average noninterest bearing deposits grew by 20% as
compared to a five year compound growth rate of 16%. This continued significant
growth in noninterest funds, including gains in both commercial and retail
accounts, has allowed the Company to maintain a lower cost source of funds at a
time when competitive pressures persist in generating net interest margins.
Since margin earnings (net interest income) contributed approximately 82% of the
Company's revenues in 1999, managing the net interest margin and achieving asset
growth is significant to achieving earnings growth. For 1999, the Company's net
interest margin was 4.35%, down slightly from 4.40% for the full year 1998 as a
result of the Company's leverage program, which is intended to increase returns
on equity and earnings per share. This program uses borrowed funds to invest in
securities at positive spreads that can be lower than spreads on other earning
assets. The net interest margin was negatively impacted in 1999 by lower margins
available in the Company's leveraging portfolio. Excluding the effect of the
leverage program, the net interest margin improved in 1999 over 1998.
Noninterest income growth (exclusive of securities gains) slowed to 9% for 1999,
while the five year compound growth rate was 23%. This important category of
earnings, which amounted to 18% of revenue in 1999, saw substantially lower
income from mortgage banking activities in 1999 as compared to 1998 as gains on
loan sales amounted to $1.7 million as compared to $2.6 million in 1998.
Increasing interest rates during the latter half of 1999 had the effect of
significantly reducing mortgage loan refinancings, which had been a major
contributor to the strong residential mortgage market.
For 1999, noninterest expenses increased 16% over 1998 compared to a five year
compound growth rate of 13%. The overhead ratio, which measures the proportion
that net operating expenses bear to tax-equivalent net interest income, was
essentially stable at 47% as compared to 46% for 1998. The Company measures its
productivity effectiveness by reference to the overhead ratio as opposed to any
absolute change in noninterest expenses.
Finally, the year of 1999 was marked by continued strength in asset quality
measures. The level of net credit losses to average loans was at .05%, versus
.04% in 1998, a low level. The year-end loan loss reserve represented 4.1 times
the level of year-end non-performing loans, also a favorable position. The
additional provision for credit losses as compared to 1998 ($1.2 million versus
$.6 million) reflects the significant loan growth described above.
Changes in Diluted Net Income per Common Share
1998 to 1999 1997 to 1998
Prior Year Diluted Net Income Per Share $ 1.66 $ 1.34
Change from differences in:
Net interest income 0.53 0.34
Provision for credit losses (0.05) 0.03
Noninterest income 0.02 0.20
Noninterest expenses (0.37) (0.31)
Income Taxes 0.02 0.04
Shares outstanding 0.01 0.02
------ ------
Total 0.16 0.32
------ ------
DILUTED NET INCOME PER SHARE $ 1.82 $ 1.66
====== ======
10
<PAGE>
Historical Trends in Financial Data 1995-1999(1)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999(2) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest Income $ 94,387 $ 84,272 $ 75,565 $ 66,621 $ 62,115
Interest Expense 42,128 38,749 34,486 30,233 29,342
Net Interest Income 52,259 45,523 41,079 36,388 32,773
Provision for Credit Losses 1,216 552 986 308 180
Net Interest Income after Provision
for Credit Losses 51,043 44,971 40,093 36,080 32,593
Noninterest Income, Excluding
Securities (Gains) Losses 12,230 11,270 8,495 6,517 4,757
Securities Gains (Losses) 101 853 637 30 (279)
Noninterest Expenses 39,528 34,053 29,442 25,344 22,424
Income before Taxes 23,846 23,041 19,783 17,283 14,647
Income Tax Expense 6,330 6,936 6,588 5,789 4,653
Net Income 17,516 16,105 13,195 11,494 9,994
PER SHARE DATA:
Basic Earnings Per Share $ 1.82 $ 1.67 $ 1.35 $ 1.18 $ 1.05
Diluted Earnings Per Share 1.82 1.66 1.34 1.18 1.04
Dividends Declared 0.75 0.63 0.47 0.39 0.32
Book Value (at year end) 11.27 11.57 10.77 9.85 9.02
Tangible Book Value (at year end)(3) 9.15 11.45 10.60 9.66 8.96
FINANCIAL CONDITION (at year end):
Assets $1,591,281 $1,343,471 $1,121,333 $ 978,595 $ 876,203
Deposits 1,165,372 954,571 853,011 806,341 743,592
Loans 826,125 624,412 558,893 523,166 492,540
Securities 630,039 613,579 464,734 361,806 290,786
Stockholders' Equity 108,720 110,937 104,675 96,581 86,941
PERFORMANCE RATIOS (for the year):
Return on Average Assets 1.26% 1.36% 1.28% 1.27% 1.18%
Return of Average Equity 15.91 15.02 13.25 12.81 12.37
Net Interest Margin 4.35 4.40 4.42 4.45 4.32
Net Overhead Ratio(4) 46.55 45.92 48.30 49.67 51.02
Efficiency Ratio(4) 56.06 56.01 56.82 56.90 56.96
Dividends Declared Per Share
to Diluted Earnings Per Share 41.21 37.95 35.07 33.05 30.77
CAPITAL AND CREDIT QUALITY RATIOS:
Average Equity to Average Assets 7.92% 9.02% 9.65% 9.90% 9.57%
Allowance for Credit Losses to Loans 1.00 1.18 1.26 1.22 1.34
Nonperforming Assets to Total Assets 0.13 0.13 0.26 0.48 0.11
Net Charge-offs to Average Loans 0.05 0.04 0.07 0.10 0.05
</TABLE>
(1) Adjusted to give retroactive effect to 2-for-1 stock splits declared on
March 29, 1995 and January 28, 1998 and, except with respect to dividends
declared per share, the acquisition of Annapolis Bancshares, Inc. on August
29, 1996, which was accounted for as a pooling of interests.
(2) Reflects the acquisition of loans, deposits, and other assets and
liabilities associated with seven bank offices in September 1999 and the
issuance of trust preferred securities in November 1999. See notes 2 and 10
to the consolidated financial statements.
(3) Total stockholders' equity, net of goodwill and other intangible assets,
divided by the number of shares of common stock outstanding at year end.
(4) The Net Overhead Ratio equals net operating expenses (noninterest expenses
less noninterest income) as a percentage of tax-equivalent net interest
income. The Efficiency Ratio equals noninterest expenses as a percentage of
tax-equivalent net interest income plus noninterest income. For both
ratios, noninterest expenses exclude the amortization of intangibles and
noninterest income excludes gains and losses on sales of securities and
other real estate owned.
11
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:(2)
Real estate(3) $ 480,411 $40,529 8.44% $ 411,887 $36,945 8.97% $ 374,032 $34,239 9.15%
Consumer 137,234 11,283 8.22 102,862 9,169 8.91 98,915 8,877 8.97
Commercial 82,330 7,374 8.96 76,867 7,114 9.25 71,211 6,856 9.63
---------- ------- ---------- ------- --------- ------
Total loans 699,975 59,186 8.46 591,616 53,228 9.00 544,158 49,972 9.18
Securities:
Taxable 444,146 28,874 6.50 403,562 26,434 6.55 329,319 20,931 6.36
Nontaxable 135,952 9,575 7.04 92,168 6,733 7.31 68,198 5,053 7.41
---------- ------- ---------- ------- --------- ------
Total securities 580,098 38,449 6.63 495,730 33,167 6.69 397,517 25,984 6.54
Interest-bearing
deposits with banks 4,006 218 5.44 2,088 100 4.79 1,398 74 5.29
Federal funds sold 15,357 793 5.16 22,278 1,181 5.30 22,938 1,196 5.21
---------- ------- ---------- ------- --------- ------
TOTAL EARNING
ASSETS 1,299,436 98,646 7.59% 1,111,712 87,676 7.89 966,011 77,226 7.99
Less: allowance for
credit losses (7,590) (7,298) (6,478)
Cash and due from banks 37,234 30,061 28,602
Premises and
equipment, net 28,606 28,326 24,133
Other assets 32,823 25,445 19,277
---------- ---------- ---------
Total Assets $1,390,509 $1,188,246 $1,031,545
========== ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
demand deposits $ 134,151 $ 1,860 1.39% $ 117,217 $ 2,605 2.22% $ 103,474 $ 2,496 2.41%
Regular savings deposits 104,808 2,114 2.02 94,900 2,392 2.52 92,911 2,593 2.79
Money market
savings deposits 191,836 5,710 2.98 154,677 4,844 3.13 157,716 5,150 3.27
Time deposits 394,236 19,453 4.93 366,604 19,353 5.28 347,496 18,461 5.31
---------- ------- ---------- ------- --------- -------
Total interest-bearing
deposits 825,031 29,137 3.53 733,398 29,194 3.98 701,597 28,700 4.09
Short-term borrowings 233,600 11,249 4.82 173,354 8,722 5.03 105,544 5,438 5.15
Long-term borrowings 33,690 1,742 5.17 15,140 833 5.50 5,047 348 6.90
---------- ------- ---------- ------- --------- -------
TOTAL INTEREST-
BEARING
LIABILITIES 1,092,321 42,128 3.86 921,892 38,749 4.20 812,188 34,486 4.25
------- ------ ------- ------- ----
Net Interest Income
and Spread $56,518 3.73% $48,927 3.69% $42,740 3.74%
======= ====== ======= ===== ======= ====
Noninterest-bearing
demand deposits 186,145 154,866 117,148
Other liabilities 1,922 4,254 2,628
Stockholders' equity 110,121 107,234 99,581
---------- ---------- ---------
Total Liabilities and
Stockholders' Equity $1,390,509 $1,188,246 $1,031,545
========== ========== ==========
Interest income/
earning assets 7.59% 7.89% 7.99%
Interest expense/
earning assets 3.24 3.49 3.57
------- ----- ----
Net Interest Margin 4.35% 4.40% 4.42%
------- ------- ------
</TABLE>
(1) Income and yields are presented on a tax-equivalent basis using the
applicable federal income tax rate.
(2) Non-accrual loans are included in the average balances.
(3) Includes residential mortgage loans held for sale. Home equity loans and
lines are classified as consumer loans.
12
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Net Interest Income
The largest source of operating revenue is net interest income, which is the
difference between the interest earned on earning assets and the interest
expense paid on interest-bearing liabilities.
Net interest income for 1999 was $52,259,000, representing an increase of
$6,736,000 or 14.8% from 1998. A 10.8% increase was achieved in 1998, compared
to 1997, resulting in net interest income of $45,523,000.
For purposes of the discussion and analysis, the interest earned on tax-exempt
assets is adjusted to an amount comparable to interest subject to normal
income taxes. The result is referred to as tax-equivalent interest income and
tax-equivalent net interest income.
The analysis of net interest income performance presented in the "Consolidated
Average Balances, Yields and Rates" table shows that a slight decline in net
interest margin has been accompanied by the substantial increase in average
earning assets over the three year period. As a result, the Company was able to
achieve tax-equivalent net interest income of $56,518,000 in 1999, representing
a 15.5% annual increase, and $48,927,000 in 1998, representing a 14.5% annual
increase, preceded by $42,740,000 in 1997. The table below shows that the
increases in net interest income during 1999 and 1998, compared to each prior
year, were primarily attributable to increases in the volumes of earning assets.
Effect of Volume and Rate Changes on Net Interest Income
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Increase Due to Change Increase Due to Change
or in Average:* or in Average:*
(In thousands and tax-equivalent) (Decrease) Volume Rate (Decrease) Volume Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income from earning assets:
Loans $ 5,958 $ 9,309 $ (3,351) $ 3,256 $ 4,286 $ (1,030)
Taxable securities 2,440 2,639 (199) 5,503 4,843 660
Nontaxable securities 2,845 3,093 (248) 1,680 1,752 (72)
Other investments (273) (261) (12) 11 2 9
-------- ------
Total Interest Income 10,970 14,362 (3,392) 10,450 11,500 (1,050)
Interest expense on funding of earning assets:
Interest-bearing demand deposits (745) 337 (1,082) 109 315 (206)
Regular savings deposits (278) 233 (511) (201) 55 (256)
Money market savings deposits 866 1,116 (250) (306) (98) (208)
Time deposits 99 1,408 (1,309) 892 1,010 (118)
Borrowings 3,437 3,844 (407) 3,769 3,955 (186)
-------- ------
Total Interest Expense 3,379 6,750 (3,371) 4,263 4,615 (352)
-------- -------- --------- -------- -------- --------
Net Interest Income $ 7,591 $ 7,612 $ (21) $ 6,187 $ 6,885 $ (698)
======== ======== ========= ========= ======== ========
</TABLE>
* Variances are computed on a line-by-line basis and are non-additive.
Combined rate/volume variances, a third element of the calculation, are
allocated to the volume and rate variances based on their relative size.
Interest Income
The Company's tax-equivalent total interest income increased by 12.5%, or
$10,970,000, in 1999, compared to 1998. This improvement was primarily the
result of a 16.9%, or $187,724,000, increase in average earning assets,
partially offset by the effect of a 30 basis point decline in average yield
earned on those funds.
During 1999, average loans, yielding 8.46%, rose 18.3% to $699,975,000. While
all loan categories increased, most of the $108,359,000 increase was
attributable to growth in commercial and residential mortgages and consumer
loans. As a percentage of average earning assets, average loans increased to
53.9% in 1999 from 53.2% in 1998. Average total securities, yielding 6.63%,
increased 17.0% to $580,098,000 in 1999. They represented 44.6% of average
earning assets in 1999 and 1998. A large part of the growth in the investment
portfolio during 1999 was funded by Federal Home Loan Bank of Atlanta advances
under a leverage program. The leverage program had the effect of reducing the
net interest margin by 46 basis points while, under management's plans,
increasing the return on average equity. Tax-equivalent interest income
increased by 13.5% or $10,450,000 in 1998, compared to 1997, due to higher
average earning assets.
13
<PAGE>
Management's Discussion and Analysis of Operation and Financial
Interest Expense
Interest expense increased 8.7% or $3,379,000 in 1999, compared to 1998. The
change was attributable to 18.5% or $170,429,000 greater average
interest-bearing liabilities. The average rate paid for those funds declined by
34 basis points, to 3.86% from 4.20%.
All major categories of interest-bearing liabilities increased, with the largest
increases occurring in money market savings and time deposits, and short-term
borrowings. There was, as in 1998, an increase in leverage on the average
balance sheet. The average rate paid on interest-bearing deposits declined by 45
basis points (representing an 11.3% decline) in 1999, compared to 1998, while
the average rate for borrowings declined by 21 basis points (representing a 4.1%
decline).
Interest expense increased 12.4% or $4,263,000 in 1998, as compared to 1997, due
to a 13.5% or $109,704,000 higher average interest-bearing liabilities, while
the average rate paid for those funds declined slightly.
Interest Rate Performance
Consistent interest rate performance has been achieved for the years 1997
through 1999. Over this period, the net interest spread has declined 1 basis
point and the net interest margin has declined 7 basis points. The net interest
margin for 1999 of 4.35% declined slightly from 4.40% achieved in 1998. The
interest rate spread increased slightly to 3.73% in 1999 from 3.69% in 1998.
On an average basis, the Company experienced lower interest rates during 1999
than in 1998, and the decline was more pro- nounced for interest-bearing
liabilities than for earning assets. Thus, favorable overall interest rate
performance was achieved despite narrowing spreads for commercial loans due to
competitive pricing pressures, for consumer loans due to increased indirect
marine loan refinancings and for the Company's leverage program due to a higher
relative cost of funds. The net interest margin was adversely affected by a
decline in the ratio of interest free funding to earning assets.
Noninterest Income
Total noninterest income was $12,331,000 in 1999, a 1.7% or $208,000 increase
from 1998. An increase of 32.8% or $2,991,000 was posted for 1998 versus 1997.
The Company has made it an organizational priority to grow and diversify its
sources of noninterest income. During 1999, the large decrease in gains on
mortgage sales due to market rate conditions, coupled with the decrease in
securities gains, offset significant increases in fee generation from varied
sources such as sales of mutual fund and tax-deferred annuity products, debit
card usage, and trust services.
Securities gains were $101,000 in 1999, a decrease of $752,000 from $853,000 for
1998. Securities gains of $637,000 were recorded in 1997. During 1999, the sale
of available-for-sale debt securities generated net losses of $122,000, while
net gains of $223,000 were realized on sales of available-for-sale equity
securities.
Sales of available-for-sale debt securities generated $17,000 in net losses for
1998, compared with $419,000 in net gains on sales of available-for-sale equity
securities and $439,000 in net gains from securities calls. Also, there were
trading securities gains of $12,000 in 1998.
Service charges on deposit accounts increased 13.9% in 1999 and 18.8% in 1998. A
large part of the change in both years was attributable to increases in return
check charges from higher transaction volume and a larger customer base while
the fee charged remained the same. Commercial and small business account fees
also posted significant increases in 1999 and in 1998.
Gains on mortgage sales decreased $783,000 or 30.6% for 1999, when compared to
1998, due to rising mortgage rates and because of management's decision to
retain more loans for the Bank's portfolio. By comparison, a 105.1% increase in
gains on mortgage sales was recorded in 1998 in a low interest rate environment
which fueled strong refinance and purchase markets. During 1999, Sandy Spring
Mortgage Corporation achieved gains of $1,772,000 for the year from sales of
$145,074,000. These results compare to gains of $2,555,000 achieved on sales of
$196,589,000 for 1998 and gains of $1,246,000 from sales of $80,233,000 for
1997.
14
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Trust income amounted to $1,560,000 for 1999, an increase of $148,000 or 10.5%
over 1998. Revenues of $1,412,000 for 1998 represented an increase of $224,000
or 18.9% over 1997. These results primarily reflect higher fees attributable to
growth in assets under management.
Other income increased $1,034,000 or 31.7% to $4,293,000 for 1999, compared to
$3,259,000 for 1998. The majority of the increase during 1999 was higher
investment product fees, up $377,000 or 68.8%, and higher debit card fees, which
posted an increase of $329,000 or 64.4%.
The rise in other income was $601,000 or 22.6% in 1998, compared to 1997,
attributable primarily to higher debit card fees and to increases in other fee
based products, especially investment product fees, ATM access fees, and gains
on sales or student loans.
Noninterest Expenses
Noninterest expenses increased $5,475,000 or 16.1% in 1999 over 1998 and
$4,611,000 or 15.7% in 1998 over 1997.
The major categories of noninterest expenses include salaries and employee
benefits, occupancy and equipment expenses, market- ing expenses, outside data
services costs, intangible asset amortization and other noninterest expenses
associated with the day- to-day operations of the Company.
Cost containment has been achieved in part through management's ongoing efforts
to reduce costs through investment in tech- nology and competitive bidding.
Electronic banking has been emphasized as associated technology costs have
decreased signifi- cantly.The Company's electronic banking includes automated
teller machines, Automated Clearing House and electronic fund transfers and home
personal computer banking. These are efficient service delivery channels that
provide time/place convenience to customers for routine business after banking
hours.
Salaries and employee benefits, the largest component of noninterest expenses,
increased $2,640,000 or 13.3% in 1999 and $2,998,000 or 17.8% in 1998. Increases
in both years reflected growth in staff, branch expansion, and higher benefit
costs. The Company acquired seven branches in September 1999 and opened one new
branch in 1998. Efficient staffing is a goal of manage- ment. Staff additions
are made carefully with a view toward achieving gains in financial performance.
Average full-time equivalent employees reached 445 in 1999, representing an
increase of 6.7% from 417 in 1998, which was 5.6% above 395 recorded for 1997.
Despite the increase in staff, the ratio of net income per average full-time
equivalent employee was $39,000 in 1999 and 1998, preceded by $33,000 recorded
for 1997.
In 1999, occupancy expense rose 17.7% or $491,000. The rate of increase was
17.6% in 1998. Higher occupancy expense in both years primarily reflected
increases in rental expenses related to increases in leased premises and, in
1998, the opening of a new administrative and training center.
Equipment expenses for 1999 were 4.4% below 1998 due in part to a decrease in
depreciation charges resulting from lower tech- nology costs. Equipment expenses
increased 26.4% in 1998, as compared to 1997, reflecting the write-off of
equipment that was not year 2000 compliant.
Marketing expense increased by $552,000 or 54.6% to $1,563,000 after declining
in 1998. Much of the increase in 1999 versus 1998 was attributable to cable
television and radio advertising for name recognition and image awareness. This
advertising reached all of the Company's markets, including newer markets in
Anne Arundel County and areas served by Montgomery County branches acquired in
1999.
Outside data services costs rose 30.0% or $449,000 in 1999. The increase was
17.5% or $223,000 in 1998, as compared to 1997. Increases in both years
reflected growth in the number of customer accounts, related data processing
costs and increased use of products offered. The branch acquisition caused an
increase in these costs in the fourth quarter of 1999.
Intangible asset amortization increased by $613,000 or 165.2% to $984,000 in
1999 reflecting the branch acquisition, after being level in 1998, compared to
1997.
Other noninterest expenses of $6,647,000 were $854,000 or 14.7% above 1998 due
to expense increases related to growth of the Company and development of its
services. The 12.3% rise in other expenses in 1998 also reflected growth-related
expense increases, especially increased consulting fees, personal property taxes
and correspondent service charges.
15
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Operating Expense Performance
Management views the net overhead ratio as an important measure of overall
operating expense performance and cost manage- ment. The ratio represents the
level of net operating expenses (noninterest expenses less noninterest income)
as a percentage of tax-equivalent net interest income. Lower ratios indicate
improved productivity. The computation excludes significant non-operating items
of noninterest expense and income. These items include intangible asset
amortization and gains and losses on sales of securities and other real estate
owned.
During 1999, the Company's net overhead ratio was 46.6%, as compared to ratios
of 45.9% achieved in 1998 and 48.3% in 1997. Ratios less than 50% are considered
desirable.
Provision for Income Taxes
Income tax expense amounted to $6,330,000 in 1999, compared with $6,936,000 in
1998 and $6,588,000 in 1997. The Company's effective tax rate for 1999 was
26.5%, compared with 30.1% in 1998 and 33.3% in 1997. Improvement in the
effective tax rate was due principally to an increase in tax exempt interest
income in 1999 and 1998.
Balance Sheet Analysis
The Company's total assets reached $1,591,281,000 at December 31, 1999, an
increase of 18.4% or $247,810,000 from $1,343,471,000 at December 31, 1998. By
comparison, the growth rate for 1998 was 19.8%, an increase of $222,138,000.
Earning assets increased 16.7% or $210,366,000 in 1999, to $1,467,205,000 at
December 31, 1999 from $1,256,839,000 at the prior year end. The branch
acquisition, consummated on September 24, 1999, added approximately $221,000,000
to total assets and $196,000,000 to earning assets.
Loans
Real estate mortgage loans rose $110,234,000 or 30.4% to $473,077,000 in 1999.
Included in this category are commercial mort- gages, which increased
$27,845,000 during 1999 and totaled $237,924,000 at December 31, 1999. The
Company's commercial mortgages consist in large part of owner occupied
properties where an established banking relationship exists. Asignificant amount
of the commercial mortgages at December 31, 1999 were secured by investment
properties for warehouse, retail, and office space. These credits generally
involved established properties with a history of occupancy and cash flow.
Residential mort- gages,up $82,389,000 including $50,960,000 in purchased loans,
represented $235,153,000 of the real estate mortgage portfolio at December 31,
1999.
Real estate construction loans increased $5,029,000 or 7.0% to $76,977,000 from
1998, attributable to a rise in commercial con- struction activity. The Company
conducts its commercial construction lending in the markets it knows and
understands, works selectively with local, top-quality builders and developers,
and requires substantial equity from its borrowers.
The Sandy Spring Mortgage Corporation conducts a mortgage banking operation,
originating and selling residential real estate mortgage loans and originating
and servicing residential construction loans. The Bank, in order to build its
own portfolio, is an investor in loans originated by its mortgage banking
subsidiary.
The consumer loan portfolio rose $73,035,000 or 66.2% to $183,397,000 at
December 31, 1999. Consumer lending is an important component of the full
service community banking business the Company conducts. This category of loans
includes primarily home equity loans and lines, installment loans, credit card
and consumer lines of credit and student loans. The increase in con- sumer loans
in 1999 was due in large part to growth in installment loans and home equity
loans and lines. Consumer installment loans rose $44,014,000 due primarily to
growth in marine loan financings. Home equity loans and lines increased
$30,698,000 due largely to the branch acquisition.
The Company places significant emphasis on commercial lending. A majority of the
commercial loan portfolio represents loans to a diverse cross-section of small
and mid-size local businesses, many of which are established customers of the
Company. These types of banking relationships are a natural business for the
Company, which is experienced in serving and lending to this market segment and
has knowledge of the marketplace through its community roots and involvement.
Commercial loans increased $13,415,000 or 16.9% in 1999, with the majority
resulting from the branch acquisition.
16
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Analysis of Loans
The following table presents the trends in the composition of the loan portfolio
over the previous five years.
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate--mortgage(1) $473,007 $362,843 $326,713 $310,785 $302,006
Real estate--construction(2) 76,977 71,948 57,687 47,654 41,725
Consumer 183,397 110,362 101,969 96,233 90,683
Commercial 92,674 79,259 72,524 68,494 58,126
-------- -------- -------- -------- --------
TOTAL LOANS $826,125 $624,412 $558,893 $523,166 $492,540
======== ======== ======== ======== ========
</TABLE>
(1) Consists of fixed and adjustable rate residential first mortgage loans,
residential lot loans and commercial mortgage loans. Home equity loans and
home equity lines are classified as consumer loans.
(2) Includes both residential and commercial properties.
Securities
The investment portfolio, consisting of available-for-sale, held-to-maturity and
other equity securities, increased 2.7% or $16,460,000 to $630,039,000 at
December 31, 1999 from $613,579,000 at December 31, 1998. The Company's overall
investment goal is to maximize earnings while maintaining liquidity in
securities having minimal credit risk. The types and maturities of securities
purchased are primarily based on the Company's current and projected liquidity
requirements and interest rate sensitivity positions.
Available-for-sale securities decreased by $30,927,000 to $508,715,000 at
December 31, 1999 from $539,642,000 at December 31, 1998. The Company has a
leverage program in which available-for-sale securities are funded by Federal
Home Loan Bank of Atlanta advances. Fundings designated for the leverage program
decreased to $119,714,000 at December 31, 1999, compared to $184,700,000 at the
prior year end. This decrease in leverage was a large factor in the decline in
available-for-sale securities. The Company manages the leverage program to
obtain maximum utilization of its available capital, with the goal of increasing
the return on equity and earnings per share. Held-to-maturity securities
recorded a $49,660,000 increase in 1999 to $105,117,000 from $55,457,000 at
December 31, 1998, reflecting in large part the purchase of state and municipal
securities which bear attractive tax-equivalent yields. Other equity securities
fell $2,273,000.
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Analysis of Securities
The composition of securities at December 31 for each of the latest three fiscal
years was:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:(1)
U.S. Treasury $ 0 $ 0 $ 3,003
U.S. Agency 422,665 441,775 288,901
State and municipal 57,797 60,957 31,818
Corporate debt obligations 0 0 1,496
Mortgage-backed securities(2) 22,550 30,547 14,315
Marketable equity securities 5,703 6,363 4,725
------- ------- -------
Total 508,715 539,642 344,258
HELD-TO-MATURITY AND OTHER EQUITY:
U.S. Agency 6,538 3,346 32,294
State and municipal 98,579 52,111 49,371
Mortgage-backed securities(2) 0 0 27,326
Other equity securities 16,207 18,480 11,485
------- ------- -------
Total 121,324 73,937 120,476
------- ------- -------
TOTAL SECURITIES(3) $630,039 $613,579 $464,734
======== ======== ========
(1) At estimated fair value.
(2) Issued by a federal agency or secured by U.S. Agency collateral.
(3) The outstanding balance of no single issuer, except for U.S. Government and
U.S. Government Agency securities, exceeded ten percent of stockholders'
equity at December 31, 1999, 1998 or 1997.
17
Maturities and weighted average yields for debt securities available-for-sale
and held-to-maturity at December 31, 1999 are shown below. Amounts in the table
represent stated maturities adjusted for estimated calls.
<TABLE>
<CAPTION>
Years to Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
Within Over 1 Over 5 Over
1 through 5 through 10 10
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS AVAILABLE-
FOR-SALE: (1)
U.S. Agency $361,899 6.16% $ 78,195 6.77% $ 1,020 6.42% $ 0 0% $441,114 6.27%
State and municipal(2) 8,736 7.43 21,788 7.25 10,554 7.07 17,690 6.99 58,768 7.17
Mortgage-backed Securities 8,172 6.13 3,021 6.59 4,627 6.15 7,040 6.93 22,860 6.44
-------- ------- ------- ------- ---------
TOTAL DEBT SECURITIES
AVAILABLE-FOR-SALE $378,807 6.19% $103,004 6.87% $16,201 6.77% $24,730 6.97% $522,742 6.38%
======== ======= ======= ======= ========
INVESTMENTS HELD-
TO-MATURITY:
U.S. Agency $ 0 0% $ 6,538 7.54% $ 0 0% $ 0 0% $ 6,538 7.54%
State and municipal(2) 0 0 4,795 6.99 11,640 7.20 82,144 7.26 98,579 7.24
-------- ------- ------- ------- ---------
TOTAL DEBT SECURITIES
HELD-TO-MATURITY $ 0 0% $11,333 7.31% $11,640 7.20% $82,144 7.26% $105,117 7.26%
======== ======= ======= ======= ========
</TABLE>
(1) Amounts shown at amortized cost without market value adjustments.
(2) The yields on state and municipal securities have been calculated on a
tax-equivalent basis using the applicable federal income tax rate.
Other Earning Assets
Residential mortgage loans held for sale decreased $11,010,000 in 1999 while the
aggregate of federal funds sold and interest-bearing deposits with banks
increased $3,203,000.
Deposits and Borrowings
Total deposits were $1,165,372,000 at December 31, 1999, increasing $210,801,000
or 22.1% from $954,571,000 at December 31, 1998. The branch acquisition provided
deposits totaling approximately $219,000,000, with nearly half being money
market deposits. Growth was achieved for noninterest-bearing demand deposits, up
11.1% or $20,562,000 (with approximately $16,700,000 of the overall increase
attributable to the branch acquisition). Small business and personal checking
recorded the greatest increases. Interest-bearing deposits increased
$190,239,000 or 24.7%, with the increase attributable to the branch acquisition.
Categories increasing the most were money market savings (up 82.5%), time
deposits of $100,000 or more (up 26.7%) and interest-bearing demand deposits (up
20.7%).
Total borrowings increased by $40,704,000 or 15.0% to $312,096,000 at December
31, 1999 from $271,392,000 at December 31, 1998. Short-term borrowings decreased
by $18,050,000 as the decline in Federal Home Loan Bank of Atlanta advances
offset significant increases in federal funds purchased and repurchase
agreements. The $58,000,000 decline in Federal Home Loan Bank of Atlanta
advances reflected the $64,986,000 decrease in the leverage program discussed
above in the section entitled "Securities." The majority of the $58,754,000
increase in long-term borrowings was attributable to the long-term debt
associated with the issuance of Trust Preferred Securities in 1999 (see Note
10--Long-term Borrowings of the Notes to the Consolidated Financial Statements).
Capital Management
Management monitors historical and projected earnings, dividends and asset
growth, as well as risks associated with the various types of on- and
off-balance sheet assets and liabilities, in order to determine appropriate
capital levels. During 1999, stockholders' equity decreased 2.0% or $2,217,000
to $108,720,000 at December 31, 1999, 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 $(12,024,000) at December 31, 1999, a
decrease of $14,157,000 due to higher interest rates in the latter half of 1999.
Excluding accumulated other comprehensive income, stockholders' equity rose
$11,940,000 or 11.0%. Internal capital generation (net income less dividends)
provided $10,315,000 in additional equity during 1999, representing a rate, when
considered as a percentage of average total stockholders' equity, of 9.4% for
1999, the same as that recorded for 1998.
18
<PAGE>
Management's Discussion and Analysis Operations and Financial Condition
External capital formation, primarily from stock issuances under the dividend
reinvestment and stock purchase plan, totaled $2,458,000 during 1999. Share
repurchases amounted to $833,000 over the same period, for a net increase in
stockholders' equity from these sources of $1,625,000. The ratio of average
equity to average assets was 7.92% for 1999, as compared to 9.02% for 1998 and
9.65% for 1997.
Bank holding companies and banks are required to maintain capital ratios in
accordance with guidelines adopted by the federal bank regulators. The
guidelines are commonly known as Risk-Based Capital Guidelines. On December 31,
1999, the Company exceeded all applicable capital requirements, with a total
risk-based capital ratio of 15.23%, a tier 1 risk-based capital ratio of 14.34%,
and a leverage ratio of 8.74%. Tier 1 and total capital included $33,422,000 of
the $35,000,000 in trust preferred securities issued in November 1999, as
permitted under Federal Reserve Guidelines (see Note 10 - Long-term Borrowings
of the Notes to the Consolidated Financial Statements). As of December 31, 1999,
the Bank met the criteria for classification as a "well-capitalized" institution
under the prompt corrective action rules of the Federal Deposit Insurance Act.
Designation as a well-capitalized institution under these regulations is not a
recommendation or endorsement of the Company or the Bank by federal bank
regulators. Additional information regarding regulatory capital ratios is
included in Note 21 of the Notes to the Consolidated Financial Statements.
Credit Risk Management
The allowance for credit losses is a valuation reserve established by management
in an amount it deems adequate to provide for losses in the loan portfolio.
Management assesses the adequacy of the 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, 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.
The allowance for credit losses is increased by provisions for credit losses
charged to expense. Charge-offs of loan amounts determined by management to be
uncollectible or impaired decrease the allowance, and recoveries of previous
charge-offs are added to the allowance. The Company makes provisions for credit
losses in amounts necessary to maintain the allowance for credit losses at the
level the Company deems appropriate. The provision was $1,216,000 in 1999,
compared with $552,000 in 1998, an increase of $664,000. Net charge-offs of
$335,000, $218,000 and $361,000, were recorded in 1999, 1998 and 1997,
respectively. The ratio of net charge-offs to average loans was 0.05% in 1999,
compared to 0.04% in 1998. Although the provision exceeded net charge-offs in
1999, the ratio of the allowance for credit losses to year-end loans decreased
over the period due to loan growth. At December 31, 1999, the allowance for
credit losses was $8,231,000, or 1.00% of total loans, compared to $7,350,000,
or 1.18% of total loans, at December 31, 1998.
In establishing the level of the allowance for December 31, 1999, management
considered a number of factors, including the increased risk inherent in
commercial loans, which are viewed as entailing greater risk than certain other
categories of loans, charge-off history, and the growth of the loan portfolio
over the last several years, including growth resulting from the branch
acquisition. Management also considered other factors, including the levels of
types of credits, such as residential mortgage loans, deemed to be of relatively
low risk. Management conducted a similar analysis in order to determine the
appropriate allowance as of December 31, 1998.
At December 31, 1999, total nonperforming loans were $1,985,000, or 0.24% of
total loans, compared to $1,801,000, or 0.29% of total loans, at December 31,
1998. The allowance for credit losses represented 415% of nonperforming loans at
December 31, 1999, compared to coverage of 408% a year earlier, with the change
attributable primarily to the increase in the allowance. Significant variation
in the 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. There was
$163,000 in other real estate owned at December 31, 1999, compared to no other
real estate owned at December 31, 1998. The balance of impaired loans was
$219,000 at December 31, 1999, with reserves against those loans of $50,000,
compared to $773,000 at December 31, 1998, with no reserves.
The Company's borrowers are concentrated in four counties in the State of
Maryland and in one Virginia County. Real estate secured credits, including home
equity loans and lines, represented 68.5% of total loans at December 31, 1999,
compared to 79.5% at December 31, 1998, a significant decline. In the past, the
Company has experienced low loss levels, especially in real estate secured
loans, through various economic cycles and conditions. The risk of the Company's
real estate loan concentration is mitigated by the nature of real estate
collateral, the Company's substantial experience in most of its markets and its
lending practices.
19
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Analysis of Credit Risk
Activity in the allowance for credit losses for the five years ended December 31
is shown below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $ 7,350 $ 7,016 $ 6,391 $ 6,597 $ 6,663
Provision for credit losses 1,216 552 986 308 180
Loan charge-offs:
Real estate--mortgage (105) (20) (60) (3) 0
Real estate--construction 0 0 (79) 0 0
Consumer (225) (196) (167) (143) (242)
Commercial (85) (119) (235) (469) (507)
------- ------- ------- ------- -------
Total charge-offs (415) (335) (541) (615) (749)
Loan recoveries:
Real estate--mortgage 0 0 0 0 135
Real estate--construction 0 0 0 0 0
Consumer 48 35 39 37 48
Commercial 32 82 141 64 320
------- ------- ------- ------- -------
Total recoveries 80 117 180 101 503
------- ------- ------- ------- -------
Net charge-offs (335) (218) (361) (514) (246)
------- ------- ------- ------- -------
Balance, December 31 $ 8,231 $ 7,350 $ 7,016 $ 6,391 $ 6,597
======= ======= ======= ======= =======
Net charge-offs to average loans 0.05% 0.04% 0.07% 0.10% 0.05%
Allowance to total loans 1.00% 1.18% 1.26% 1.22% 1.34%
</TABLE>
The following table presents nonperforming assets at year end for the last five
years:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans(1) $ 275 $ 832 $ 890 $ 1,291 $ 590
Loans 90 days past due 1,710 965 1,764 3,337 272
Restructured loans 0 4 18 27 36
------- ------- ------- ------- -------
Total Nonperforming Loans(2)(3) 1,985 1,801 2,672 4,655 898
Other real estate owned, net 163 0 296 0 47
------- ------- ------- ------- -------
Total Nonperforming Assets $2,148 $1,801 $2,968 $4,655 $ 734
======= ======= ======= ======= =======
Nonperforming loans to total loans 0.24% 0.29% 0.48% 0.89% 0.18%
Allowance for loan losses to nonperforming loans 415% 408% 263% 137% 735%
Nonperforming assets to total assets 0.13% 0.13% 0.26% 0.48% 0.11%
</TABLE>
(1) Gross interest income that would have been recorded in 1999 if non-accrual
loans had been current and in accordance with their original terms was
$44,927, while interest actually recorded on such loans was $2,936.
(2) Performing loans considered potential problem loans, as defined and
identified by management, amounted to $5,401,000 at December 31, 1999.
Although these are loans where known information about the borrowers'
possible credit problems causes management to have doubts as to the
borrowers' ability to comply with the present loan repayment terms, most
are well collateralized and are not believed to present significant risk
of loss. Loans classified for regulatory purposes not included in nonper-
forming loans consist only of "other loans especially mentioned" and do
not, in management's opinion, represent or result from trends or
uncertainties reasonably expected to materially impact future operating
results, liquidity or capital resources or represent material credits
where known information about the borrowers' possible credit problems
causes management to have doubts as to the borrowers' ability to comply
with the loan repayment terms.
(3) Installment loans past due by 90 days or more are included in the totals
for the "Loans 90 days past due" line in the table above and were not
significant in amount at December 31, 1999 and 1998.
20
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
Market Risk Management
The Company's net income is largely dependent on the Bank's net interest income.
Net interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net interest income. Net interest income is also affected by changes in the
portion of interest-earning assets that are funded by interest-bearing
liabilities rather than by other sources of funds, such as noninterest-bearing
deposits and stockholders' equity.
The Bank's interest rate sensitivity, as measured by the repricing of its
interest sensitive assets and liabilities at December 31, 1999, is presented in
the following table. As indicated in the note to the table, the data was based
in part on assumptions that are regularly reviewed for propriety. The
accompanying analysis indicates a liability sensitive one-year cumulative GAP
position of (16)% of total assets based on the Bank's having approximately 32%
of rate sensitive assets and approximately 57% of rate sensitive liabilities
subject to maturity or repricing within a one-year period from December 31, 1999
(termed GAP analysis). The Bank's one year cumulative gap has widened during
1999 as the duration of the overall asset base has lengthened. This was due to a
steadily rising interest rate environment which has primarily lengthened the
average life of the Bank's investment portfolio. The investment portfolio is
composed of various securities that contain imbedded call options or prepayments
that are not likely to occur as interest rates move in an upward direction.
While the Bank's senior management, through its Asset Liability Management
Committee (ALCO), has a preference for maintaining a moderate level of interest
rate risk as measured by the repricing GAP, the Company's interest rate risk
policies are guided by results of simulation analysis which takes into account
more factors than does GAP analysis. The simulation results presented below show
that the Bank's exposure to changing interest rates is well within policy limits
for acceptable levels of risks. The ALCO analyzes balance sheet, income
statement, and margin trends monthly. A detailed quarterly interest rate risk
profile is performed for ALCO and is reviewed with the Board of Directors.
The following GAP analysis schedule sets out the time frames from December 31,
1999, in which the Bank's assets and liabilities are subject to repricing;
<TABLE>
<CAPTION>
0-90 91-365 Over 1-3 Over 3-5 Over 5
(Dollars in thousands) Days Days Years Years Years
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS (RSA):
Loans $ 300,909 $ 107,936 $ 175,809 $ 105,693 $ 135,778
Taxable securities 11,540 32,635 74,204 123,045 232,239
Nontaxable securities 2,940 6,180 16,200 12,935 118,121
Other investments 11,041 0 0 0 0
--------- --------- --------- --------- ---------
Total RSA 326,430 146,751 266,213 241,673 486,138
RATE SENSITIVE LIABILITIES (RSL):
Interest-bearing demand deposits 46,896 7,230 19,276 19,276 61,845
Regular savings deposits 4,098 12,294 32,781 32,772 23,215
Money market savings deposits 19,796 59,391 127,641 67,122 0
Time deposits 109,759 194,120 98,172 22,910 316
Short-term borrowing and other RSL 218,876 55,180 400 2,420 33,865
--------- --------- --------- --------- ---------
Total RSL 399,425 328,215 278,270 144,500 119,241
--------- --------- --------- --------- ---------
CUMULATIVE GAP* $ (72,995) $(254,459) $(266,516) $(169,343) $ 197,554
========= ========= ========= ========= =========
As a Percent of Total Assets (4.59)% (15.99)% (16.75)% (10.64)% 12.41%
CUMULATIVE RSA TO RSL 0.82 0.65 0.74 0.85 1.16
</TABLE>
* This analysis is based upon a number of significant assumptions including the
following; Loans are repaid/rescheduled by contractual maturity and
repricings. Securities, except mortgage-backed securities, are repaid
according to contractual maturity adjusted for call features. Mortgage-backed
security repricing is adjusted for estimated early paydowns. Interest-bearing
demand, regular savings, and money market savings deposits are estimated to
exhibit some rate sensitivity based on management's analysis of deposit
withdrawals. Time deposits are shown in the table based on contractual
maturity.
21
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
The Bank's Board of Directors has established a comprehensive interest rate risk
management policy, which is administered by ALCO. The policy establishes limits
of risk, which are quantitative measures of the percentage change in net
interest income and the fair value of equity capital resulting from a
hypothetical change of plus or minus 200 basis points in U.S. Treasury interest
rates for maturities from one day to thirty years. 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 floors imbedded in investment and loan portfolio contracts. As of
December 31, 1999, the Bank had the following estimated sensitivity profile for
net interest income and the fair value of equity.
<TABLE>
<CAPTION>
Immediate Change in Rates
+200 basis points -200 basis points Policy Limit
<S> <C> <C> <C>
% Change in Net Interest Income (6.29)% (4.65)% 15%
% Change in Fair Value of Equity (11.04)% 6.51% 25%
</TABLE>
As with any method of gauging interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology used by the Company. When
interest rates change, actual movements in different categories of interest-
earnings assets and interest-bearing liabilities, loan prepayments, and
withdrawals of time and other deposits, may deviate significantly from
assumptions used in the model. Finally, the methodology does not measure or
reflect the impact that higher rates may have on adjustable-rate loan customers
ability to service their debts, or the impact of rate changes on demand for loan
or deposit products.
In addition to the potential adverse impact that changing interest rates may
have on the Bank's net interest margin and operating results, potential adverse
impacts on liquidity can occur as a result of changes in the estimated cash
flows from investment, loan and deposit portfolios. The Bank manages this
inherent risk by maintaining a large portfolio of available-for-sale investments
as well as secondary sources of liquidity from Federal Home Loan Bank of Atlanta
advances and other bank borrowing arrangements.
Liquidity
Liquidity is measured by a financial institution's ability to raise funds
through loan repayments, maturing investments, deposits, borrowed funds,
capital, or the sale of highly marketable assets such as residential mortgage
loans. The Company's liquidity position, considering both internal and external
sources available, exceeded anticipated short- and long-term needs at December
31, 1999. Core deposits considered to be stable funding sources and defined to
include all deposits of $100,000 or more, equaled 72.8% of total earning assets
at December 31, 1999. In addition, loan payments, maturities, calls and paydowns
of securities, deposit growth and earnings contribute a flow of funds available
to meet liquidity requirements. In assessing liquidity, management considers
operating requirements, the seasonality of deposit flows, investment, loan and
deposit maturities and calls, expected funding of loans and deposit withdrawals,
and the market values of available-for-sale investments, so that sufficient
funds are available on short notice to meet obligations as they arise and to
ensure that the company is able to pursue new business opportunities.
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 $49,190,000 or 3.1% of total assets at December 31, 1999. This
represents a liquidity position, net of estimated potential cash outflows for
deposits and borrowings, of $(44,217,000) or (2.8)% of total assets. Given
external sources of liquidity available to the Company, investments
available-for-sale not included as liquid assets in the computation above, and
budgeted deposit growth, management believes the liquidity position at December
31, 1999 is appropriate.
22
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
The primary external source of liquidity available is a line of credit for
$308,000,000 with the Federal Home Loan Bank of Atlanta, of which $155,320,000
was outstanding at December 31, 1999. Other external sources of liquidity
available to the Company in the form of lines of credit granted by the Federal
Reserve, correspondent banks and other institutions totaled $238,400,000 at
December 31, 1999 against which there were outstanding of $27,070,000.
The Company's time deposits of $100,000 or more represented 8.4% of total
deposits at December 31,1999 and are shown by maturity in the table below.
<TABLE>
<CAPTION>
Months to Maturity
3 or Over 3 Over 6 Over
(In thousands) less to 6 to 12 12 TOTAL
<S> <C> <C> <C> <C> <C>
Time deposits--$100,000 or more $25,744 $12,963 $25,481 $33,242 $97,450
</TABLE>
Year 2000 Issue
Many computer programs now in use were not designed to properly recognize years
after 1999., If not corrected, these programs could fail or create erroneous
results.
The Company created a task force to establish a Year 2000 (Y2K) plan to prevent
or mitigate the adverse effects of the Y2K issue on the Company and its
customers. Goals of the Y2K plan included 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 were effective. The
Comptroller of Currency examined the Company's Y2K compliance plan and the
Company's progress in implementation. In addition, the Board of Directors
monitored progress under the plan on a monthly basis.
The Company has successfully managed the Y2K transition through the date of this
report. No Y2K problems have been detected in the systems used by the Company,
and the Company is not aware of any material Y2K problems encountered by its
customers that would be likely to adversely affect the Company. Although
considered unlikely, unanticipated problems in the Company's core business
processes, including problems associated with non-compliant third parties and
disruptions to the economy in general, could still occur. The Company will
continue to monitor all business processes in the year 2000 to address any
issues and ensure all processes continue to function properly.
The Company's total cash outlay for Y2K compliance in 1999 was less than
$250,000. This amount included approximately $165,000 in costs of software and
equipment upgrades or replacements and approximately $78,000 in consulting,
legal, marketing and miscellaneous costs. The Company estimates that the total
effect on net income through year-end 1999, after tax deductions, of these Y2K
expenditures and the accelerated write-off of replaced software and equipment
was less than $350,000. These amounts do not include allocations of the salary
and other costs of the Bank's regular personnel. The Company is funding Y2K
expenditures through continuing operations. Final project costs of approximately
$50,000 are expected to be incurred in 2000 for ongoing monitoring and support
activities.
23
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 44,701 $ 43,616
Federal funds sold 5,518 4,582
Interest-bearing deposits with banks 3,701 1,434
Residential mortgage loans held for sale 1,822 12,832
Investments available-for-sale (at fair value) 508,715 539,642
Investments held-to-maturity--fair value of $99,189 (1999) and $55,764 (1998) 105,117 55,457
Other equity securities 16,207 18,480
Total loans 826,125 624,412
Less: Allowance for credit losses (8,231) (7,350)
------------ ------------
Net loans 817,894 617,062
Premises and equipment, net 32,023 27,920
Accrued interest receivable 12,765 11,719
Other real estate owned 163 0
Goodwill and other intangible assets 20,479 1,208
Other assets 22,176 9,519
------------ ------------
Total Assets $ 1,591,281 $ 1,343,471
============ ============
LIABILITIES
Noninterest-bearing deposits $ 206,462 $ 185,900
Interest-bearing deposits 958,910 768,671
------------ ------------
Total deposits 1,165,372 954,571
Short-term borrowings 238,976 257,026
Guaranteed preferred beneficial interests in the Company's subordinated debentures 35,000 0
Other long-term borrowings 38,120 14,366
Accrued interest payable and other liabilities 5,093 6,571
------------ ------------
Total Liabilities 1,482,561 1,232,534
STOCKHOLDERS' EQUITY
Common stock--par value $1.00; shares authorized 15,000,000; shares issued
and outstanding 9,647,975 (1999) and 9,586,021 (1998) 9,648 9,586
Surplus 24,476 22,913
Retained earnings 86,620 76,305
Accumulated other comprehensive income (12,024) 2,133
------------ ------------
Total Stockholders' Equity 108,720 110,937
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,591,281 $ 1,343,471
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
24
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $58,822 $52,538 $49,658
Interest on loans held for sale 364 690 320
Interest on deposits with banks 218 100 74
Interest and dividends on securities:
Taxable 27,773 25,355 20,931
Exempt from federal income taxes 6,417 4,408 3,386
Interest on federal funds sold 793 1,181 1,196
------- ------- -------
TOTAL INTEREST INCOME 94,387 84,272 75,565
Interest expense:
Interest on deposits 29,137 29,194 28,700
Interest on short-term borrowings 11,249 8,722 5,438
Interest on long-term borrowings 1,742 833 348
------- ------- -------
TOTAL INTEREST EXPENSE 42,128 38,749 34,486
------- ------- -------
NET INTEREST INCOME 52,259 45,523 41,079
Provision for Credit Losses 1,216 552 986
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 51,043 44,971 40,093
Noninterest Income:
Securities gains 101 853 637
Service charges on deposit accounts 4,605 4,044 3,403
Gains on mortgage sales 1,772 2,555 1,246
Trust department income 1,560 1,412 1,188
Other income 4,293 3,259 2,658
------- ------- -------
TOTAL NONINTEREST INCOME 12,331 12,123 9,132
Noninterest Expenses:
Salaries and employee benefits 22,462 19,822 16,824
Occupancy expense of premises 3,260 2,769 2,355
Equipment expenses 2,667 2,791 2,208
Marketing 1,563 1,011 1,254
Outside data services 1,945 1,496 1,273
Intangible asset amortization 984 371 370
Other expenses 6,647 5,793 5,158
------- ------- -------
TOTAL NONINTEREST EXPENSES 39,528 34,053 29,442
------- ------- -------
Income before income taxes 23,846 23,041 19,783
Income tax expense 6,330 6,936 6,588
------- ------- -------
NET INCOME $17,516 $16,105 $13,195
======= ======= =======
BASIC NET INCOME PER COMMON SHARE $ 1.82 $ 1.67 $ 1.35
DILUTED NET INCOME PER COMMON SHARE $ 1.82 $ 1.66 $ 1.34
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 17,516 $ 16,105 $ 13,195
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,243 2,709 2,197
Provision for credit losses 1,216 552 986
Deferred income taxes (408) (126) 105
Origination of loans held for sale (132,292) (200,196) (77,672)
Proceeds from sales of loans held for sale 145,074 196,589 80,233
Gains on sales of loans held for sale (1,772) (2,555) (1,246)
Purchases of trading securities 0 (9,376) 0
Proceeds from sales of trading securities 0 9,388 0
Securities gains (101) (853) (637)
Net change in:
Accrued interest receivable (883) (1,811) (1,991)
Accrued income taxes 32 (1,092) (469)
Other accrued expenses (1,957) 3,033 1,012
Other--net (3,830) (757) (4,442)
------ ---- ------
Net Cash Provided by Operating Activities 25,838 11,610 11,271
Cash Flows from Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks (2,267) (1,047) 474
Purchases of investments held-to-maturity (56,278) (27,215) (22,897)
Purchases of other equity securities (7,561) (10,318) (7,622)
Purchases of investments available-for-sale (360,521) (758,292) (456,306)
Proceeds from sales of investments available-for-sale 83,976 20,933 86,005
Proceeds from maturities, calls and principal payments of investments held-to-maturity 6,598 29,313 36,380
Proceeds from maturities, calls and principal payments of investments available-for-sale 284,684 594,352 262,918
Proceeds from sales of other equity securities 9,833 3,324 1,248
Proceeds from sales of other real estate owned 49 745 500
Net increase in loans receivable (117,120) (65,912) (36,457)
Purchases of loans (50,960) 0 0
Acquisition of branches, net of cash acquired 165,457 0 0
Expenditures for premises and equipment (4,942) (1,790) (10,689)
------ ------ ------
Net Cash Used by Investing Activities (49,052) (215,907) (146,446)
Cash Flows from Financing Activities:
Net increase in demand and savings accounts 18,678 53,759 40,224
Net (decrease) increase in time and other deposits (27,216) 47,801 6,446
Net (decrease) increase in short-term borrowings (29,250) 101,400 77,458
Proceeds from long-term borrowings 68,645 11,000 10,000
Retirement of long-term borrowings (46) (26) (28)
Common stock purchased and retired (833) (6,614) (3,857)
Proceeds from issuance of common stock 2,458 2,556 2,038
Dividends paid (7,201) (6,061) (4,603)
------ ------ ------
Net Cash Provided by Financing Activities 25,235 203,815 127,678
------ ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 2,021 (482) (7,497)
Cash and Cash Equivalents at Beginning of Year 48,198 48,680 56,177
------ ------ ------
Cash and Cash Equivalents at End of Year* $ 50,219 $ 48,198 $ 48,680
========= ========= =========
Supplemental Disclosures:
Interest payments $ 42,031 $ 38,277 $ 33,421
Income tax payments 6,176 7,819 7,491
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 225 $ 393 $ 730
Reclassification of borrowings from long-term to short-term 11,200 11,200 200
Investment transfers from held-to-maturity to available-for-sale 0 51,515 0
Details of acquisition:
Fair value of assets acquired $ 36,188 $ 0 $ 0
Fair value of liabilities assumed (221,141) 0 0
Purchase price in excess of net assets acquired 20,254 0 0
------ - -
Cash received (164,699) 0 0
Less cash acquired 758 0 0
--- - -
Net cash received for acquisition $(165,457) $ 0 $ 0
========= ========= =========
</TABLE>
* Cash and cash equivalents include those amounts under the captions "Cash
and due from banks" and "Federal funds sold" on the Consolidated Balance
Sheets.
See Notes to Consolidated Financial Statements.
26
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated Other Total
Common Retained Comprehensive Stockholders'
Stock Surplus Earnings Income Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $4,902 $33,474 $57,669 $ 536 $ 96,581
Comprehensive Income:
Net income 13,195 13,195
Other comprehensive income, net of tax
(unrealized gains on securities of $615, net
of reclassification adjustment for losses of $706) 1,321 1,321
--------
Total comprehensive income 14,516
Cash dividends--$0.47 per share (4,603) (4,603)
Common stock issued pursuant to:
Profit sharing plan--9,358 shares 9 283 292
Dividend reinvestment and stock purchase
plan--43,327 shares 43 1,703 1,746
Stock repurchases--92,300 shares (92) (3,765) (3,857)
------- ------- ------- ------- -------
Balances at December 31, 1997 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 16,105 16,105
Other comprehensive income, net of tax
(unrealized gains on securities of $162, net
of reclassification adjustment for losses of $114) 276 276
-------
Total comprehensive income 16,381
Cash dividends--$0.63 per share (6,061) (6,061)
Common stock issued pursuant to:
Incentive stock option plan--4,502 shares 5 43 48
Dividend reinvestment and stock purchase
plan--76,447 shares 76 2,382 2,458
Stock repurchases--227,586 shares (228) (6,386) (6,614)
Exercise of warrants of pooled bank--7,510 shares 8 42 50
------- ------- ------- ------- -------
Balances at December 31, 1998 9,586 22,913 76,305 2,133 110,937
Comprehensive Income:
Net income 17,516 17,516
Other comprehensive income, net of tax
(unrealized losses on securities of $14,220, net
of reclassification adjustment for losses of $63) (14,157) (14,157)
-------
Total comprehensive income 3,359
Cash dividends--$0.75 per share (7,201) (7,201)
Common stock issued pursuant to:
Incentive stock option plan--1,165 shares 1 28 29
Dividend reinvestment and stock
purchase plan--90,318 shares 90 2,339 2,429
Stock repurchases--29,529 shares (29) (804) (833)
------- ------- ------- ------- -------
Balances at December 31, 1999 $9,648 $24,476 $86,620 $(12,024) $108,720
======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Notes to the Consolidated Financial Statements
Note 1--Significant Accounting Policies
The accounting and reporting policies of the Company, which includes Sandy
Spring Bancorp, Inc., its wholly owned subsidiary, Sandy Spring National Bank of
Maryland (the "Bank") and its subsidiaries, Sandy Spring Insurance Corporation
and Sandy Spring Mortgage Corporation, conform to generally accepted accounting
principles and to general practice within the banking industry. Certain
reclassifications have been made to amounts previously reported to conform with
the classifications made in 1999. The following is a summary of the more
significant accounting policies:
Nature of Operations
Through its subsidiary bank, the Company conducts a full-service commercial
banking, mortgage banking and trust business. Services to individuals and
businesses include accepting deposits, extending real estate, consumer and
commercial loans and lines of credit, and personal trust services. The Company
operates in the four Maryland counties of Montgomery, Howard, Prince George's
and Anne Arundel and in Fairfax County, Virginia, and continues to show a
concentration in loans secured by residential and commercial real estate.
Policy for Consolidation
The consolidated financial statements include the accounts of Sandy Spring
Bancorp and its subsidiaries. Consolidation has resulted in the elimination of
all significant intercompany balances and transactions.
The financial statements of Sandy Spring Bancorp (Parent Only) include its
investment in the Bank under the equity method of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Residential Mortgage Loans Held for Sale
The Company engages in sales of residential mortgage loans. Those loans are
originated and sold by Sandy Spring Mortgage Corporation. Loans held for sale
are carried at the lower of aggregate cost or fair value. Fair value is derived
from secondary market quotations for similar instruments. Gains and losses on
sales of these loans are recorded as a component of noninterest income in the
Consolidated Statements of Income.
When the Company retains the servicing rights to collect and remit principal and
interest payments, manage escrow account matters and handle borrower
relationships on mortgage loans sold, resulting service fee income is included
in noninterest income. The Company's current practice is to sell loans only on a
servicing released basis, and, therefore, it has no intangible asset recorded
for the value of such servicing.
Trading Securities
Trading securities are carried at fair value. Changes in fair value, as well as
realized gains and losses, are recorded as securities gains or losses. As of
December 31, 1999 and 1998, the Company had no securities classified as trading.
Investments Available-for-Sale
Marketable equity securities and debt securities not classified as
held-to-maturity or trading are classified as available-for-sale. Securities
available-for-sale are acquired as part of the Company's asset/liability
management strategy and may be sold in response to changes in interest rates,
loan demand, changes in prepayment risk and other factors. Securities
available-for-sale are carried at fair value, with unrealized gains or losses
based on the difference between amortized cost and fair value reported as
accumulated other comprehensive income, a separate component of
stockholders' equity, net of deferred tax. Realized gains and losses, using the
specific identification method, are included as a separate component of
noninterest income. Related interest and dividends are included in interest
income.
28
<PAGE>
Investments Held-to-Maturity and Other Equity Securities
Investments held-to-maturity are those securities which the Company has the
ability and positive intent to hold until maturity. Securities so classified at
time of purchase are recorded at cost. The carrying values of securities
held-to-maturity are adjusted for premium amortization and discount accretion.
Other equity securities represent Federal Reserve Bank and Federal Home Loan
Bank of Atlanta stock, which are considered restricted as to marketability.
Loans
Loans are stated at their principal balance outstanding net of any deferred fees
and costs. Interest income on loans is accrued at the contractual rate based on
the principal outstanding. The Company places loans, except for consumer loans,
on non-accrual when any portion of the principal or interest is ninety days past
due and collateral is insufficient to discharge the debt in full. Interest
accrual may also be discontinued earlier if, in management's opinion, collection
is unlikely. Generally, installment loans are not placed on non-accrual, but are
charged off when they are five months past due.
Loans are considered impaired when, based on current information, it is probable
that the Company will not collect all principal and interest payments according
to contractual terms. Generally, loans are considered impaired once principal or
interest payments become ninety days or more past due and they are placed on
non-accrual. Management also considers the financial condition of the borrower,
cash flows of the loan and the value of the related collateral. Impaired loans
do not include large groups of smaller balance homogeneous loans such as
residential real estate and consumer installment loans which are evaluated
collectively for impairment. Loans specifically reviewed for impairment are not
considered impaired during periods of "minimal delay" in payment (ninety days or
less) provided eventual collection of all amounts due is expected. The
impairment of a loan is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or the fair value
of the collateral if repayment is expected to be provided by the collateral.
Generally, the Company's impairment on such loans is measured by reference to
the fair value of the collateral. Interest income on impaired loans is
recognized on the cash basis.
Allowance for Credit Losses
The allowance for credit losses represents an amount which, in management's
judgement, will be adequate to absorb probable losses on existing loans and
other extensions of credit that may become uncollectible. The adequacy of the
allowance for credit losses is determined through careful and continuous review
and evaluation of the loan portfolio and involves the balancing of a number of
factors to establish a prudent level. Among the factors considered are lending
risks associated with growth and entry into new markets, loss allocations for
specific nonperforming credits, the level of the allowance to nonperforming
loans, historical loss experience, economic conditions, portfolio trends and
credit concentrations, 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. Allowances for
impaired loans are generally determined based on collateral values. Loans deemed
uncollectible are charged against, while recoveries are credited to, the
allowance. Management adjusts the level of the allowance through the provision
for credit losses, which is recorded as a current period operating expense.
Management believes that the allowance for credit losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, and independent consultants engaged by the Bank,
periodically review the Bank's loan portfolio and allowance for credit losses.
Such review may result in recognition of additions to the allowance based on
their judgements of information available to them at the time of their
examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization computed using the straight-line method. Premises and equipment are
depreciated over the useful lives of the assets, except for leasehold
improvements which are amortized over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. The costs of
major renewals and betterments are capitalized, while the costs of ordinary
maintenance and repairs are expensed as incurred.
29
<PAGE>
Note 1--Significant Accounting Policies (continued)
Other Real Estate Owned (OREO)
OREO comprises properties acquired in partial or total satisfaction of problem
loans. The properties are recorded at the lower of cost or fair value at the
date acquired. Losses arising at the time of acquisition of such properties are
charged against the allowance for credit losses. Subsequent write-downs that may
be required are added to a valuation reserve. Gains and losses realized from
the sale of OREO, as well as valuation adjustments, are included in noninterest
income. Expenses of operation are included in noninterest expense.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets represent the excess of the cost of assets
acquired in business combinations accounted for under the purchase method over
the fair value of the net assets at dates of acquisition and are being amortized
on the straight line method over varying periods not exceeding ten years.
Income Taxes
Income tax expense is based on the results of operations, adjusted for permanent
differences between items of income or expense reported in the financial
statements and those reported for tax purposes. Under the liability method,
deferred income taxes are determined based on the differences between the
financial statement carrying amounts and the income tax bases of assets and
liabilities and are measured at the enacted tax rates that will be in effect
when these differences reverse.
Note 2--Acquisition
In September 1999, Sandy Spring National Bank of Maryland assumed $219.3 million
of deposit liabilities, purchased $33.9 million of loans and $1.4 million of
fixed assets, and recorded $20.3 million of intangible assets, relating to seven
branches acquired from Mellon Bank (MD), NA. 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 resulted in recognition of a
core deposit premium of approximately $2.9 million (to be amortized into
noninterest expense over four years) and goodwill of approximately $17.4 million
(to be amortized into noninterest expense over ten years). The acquisition of
these branches has been accounted for under the purchase method of accounting.
Note 3--Cash and Due from Banks
Regulation D of the Federal Reserve Act requires that banks maintain reserve
balances with the Federal Reserve Bank based principally on the type and amount
of their deposits. At its option, the Company maintains additional balances to
compensate for clearing and safekeeping services. The average daily balance
maintained in 1999 was $13,445,000 and in 1998 was $8,178,000.
Note 4--Investments Available-for-Sale
The amortized cost and estimated fair values of investments available-for-sale
at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency $441,114 $ 0 $(18,449) $422,665 $441,583 $1,150 $ (958) $441,775
State and municipal 58,768 217 (1,188) 57,797 59,328 1,637 (8) 60,957
Mortgage-backed securities 22,860 50 (360) 22,550 30,462 108 (23) 30,547
-------- ------ -------- -------- -------- ------ ------- --------
Total Debt Securities 522,742 267 (19,997) 503,012 531,373 2,895 (989) 533,279
Marketable equity securities 5,566 1,018 (881) 5,703 4,794 1,670 (101) 6,363
-------- ------ -------- -------- -------- ------ ------- --------
Total Investments
Available-for-Sale $528,308 $1,285 $(20,878) $508,715 $536,167 $4,565 $(1,090) $539,642
======== ====== ======== ======== ======== ====== ======= ========
</TABLE>
30
<PAGE>
The amortized cost and estimated fair values of debt securities
available-for-sale at December 31, 1999 and 1998 by contractual maturity, except
mortgage-backed securities for which an average life is used, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $378,807 $361,127 $ 30,110 $ 30,222
Due after one year through five years 103,004 102,396 202,826 203,835
Due after five years through ten years 16,201 15,959 269,513 269,937
Due after ten years 24,730 23,530 28,924 29,285
-------- -------- -------- --------
Total Debt Securities Available-for-Sale $522,742 $503,012 $531,373 $533,279
======== ======== ======== ========
<CAPTION>
Sale of investments available-for-sale during 1999, 1998 and 1997 resulted in the following:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds $83,976 $20,933 $86,005
Gross gains 253 476 998
Gross losses 152 74 570
</TABLE>
At December 31, 1999 and 1998, investments available-for-sale with a carrying
value of $235,675,000 and $211,579,000, respectively, were pledged as collateral
for certain government deposits and for other purposes as required or permitted
by law. The outstanding balance of no single issuer, except for U.S. Government
and U.S. Government Agency securities, exceeded ten percent of
stockholders' equity at December 31, 1999 and 1998.
Note 5--Investments Held-to-Maturity and Other Equity Securities
<TABLE>
<CAPTION>
The amortized cost and estimated fair values of investments held-to-maturity at December 31 are as follows:
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency $ 6,538 $ 0 $ (142) $ 6,396 $ 3,346 $ 0 $ (3) $ 3,343
State and municipal 98,579 67 (5,853) 92,793 52,111 963 (653) 52,421
-------- --- ------- ------- ------- ---- ----- -------
Total Investments
Held-to-Maturity $105,117 $67 $(5,995) $99,189 $55,457 $963 $(656) $55,764
======== === ======= ======= ======= ==== ===== =======
</TABLE>
Upon adoption of SFAS No. 133 on July 1, 1998, as permitted by the Statement,
the Company made a one-time transfer of $51,515,000 of held-to-maturity
securities into the available-for-sale category with net unrealized losses of
$177,000.
The amortized cost and estimated fair values of debt securities held-to-maturity
at December 31 by contractual maturity, except mortgage-backed securities for
which an average life is used, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 0 $ 0 $ 347 $ 347
Due after one year through five years 11,332 11,193 4,957 5,007
Due after five years through ten years 11,641 11,571 12,921 13,322
Due after ten years 82,144 76,425 37,232 37,088
-------- ------- ------- -------
Total Debt Securities Held-to-Maturity $105,117 $99,189 $55,457 $55,764
======== ======= ======= =======
</TABLE>
31
<PAGE>
Note 5--Investments Held-to-Maturity and Other Equity Securities (continued)
At December 31, 1999 and 1998, investments held-to-maturity with a book value of
$44,610,000 and $2,998,000, respectively, were pledged as collateral for certain
government deposits and for other purposes as required or permitted by law. The
outstanding balance of no single issuer, except for U.S. Government and U.S.
Government Agency securities, exceeded ten percent of stockholders' equity at
December 31, 1999 or 1998.
Other equity securities at December 31, are as follows:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Federal Reserve Bank stock $ 1,826 $ 1,826
Federal Home Loan Bank stock 14,381 16,654
-------- --------
$ 16,207 $ 18,480
======== ========
Note 6--Loans
Major loan categories at December 31 are presented below:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Real estate--mortgage $473,077 $362,843
Real estate--construction 76,977 71,948
Consumer 183,397 110,362
Commercial 92,674 79,259
-------- --------
Total Loans 826,125 624,412
Less: Allowance for credit losses (8,231) (7,350)
-------- --------
NET LOANS $817,894 $617,062
======== ========
Real estate--mortgage does not include home equity loans and home equity lines
which are classified as consumer.
Loan fees amounting to $331,000 (1999), $352,000 (1998) and $316,000 (1997) were
included in interest and fees on loans. The servicing portfolio of mortgage
loans sold totaled $46,982,000 at December 31, 1999 and $59,138,000 at December
31, 1998. Escrow balances relating to the servicing portfolio amounted to
$895,000 and $558,000 at December 31, 1999 and 1998, respectively.
Activity in the allowance for credit losses for the preceding three years ended
December 31 is shown below:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of year $7,350 $7,016 $6,391
Provision for credit losses 1,216 552 986
Loan charge-offs (415) (335) (541)
Loan recoveries 80 117 180
------ ------ ------
Net charge-offs (335) (218) (361)
------ ------ ------
BALANCE AT END OF YEAR $8,231 $7,350 $7,016
====== ====== ======
Information with respect to impaired loans at December 31, 1999 and 1998 and for
the respective years ended is as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance $ 113 $ 0
Impaired loans without a valuation allowance 106 773
------ ------
Total impaired loans $ 219 $ 773
====== ======
Allowance for credit losses related to impaired loans $ 50 $ 0
Allowance for credit losses related to other than impaired loans 8,181 7,350
------ ------
Total allowance for credit losses $8,231 $7,350
====== ======
Average impaired loans for the year $ 410 $ 920
Interest income on impaired loans recognized on the cash basis $ 3 $ 0
</TABLE>
32
<PAGE>
Note 7--Premises and Equipment
Premises and equipment at December 31 consist of:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $ 8,665 $ 8,776
Buildings and leasehold improvements 23,512 19,124
Equipment 15,854 13,834
-------- --------
Total 48,031 41,734
Less: Accumulated depreciation and amortization (16,008) (13,814)
-------- --------
NET PREMISES AND EQUIPMENT $ 32,023 $ 27,920
======== ========
Depreciation and amortization expense for premises and equipment amounted to
$2,246,000 for 1999, $2,338,000 for 1998 and $1,825,000 for 1997.
Total rental expense (net of rental income) for premises and equipment for the
three years ended December 31 was $1,244,000 (1999), $908,000 (1998) and
$513,000 (1997). Lease commitments entered into by the Company bear initial
terms varying from 3 to 15 years, or they are 20-year ground leases, and are
associated with premises. Future minimum payments as of December 31, 1999 for
all noncancelable operating leases are:
Operating
(Dollars in thousands) Leases
- --------------------------------------------------------------------------------
2000 $ 2,522
2001 2,563
2002 2,536
2003 2,249
2004 2,294
Thereafter 17,186
--------
TOTAL MINIMUM LEASE PAYMENTS $ 29,350
========
Note 8--Deposits
Deposits outstanding at December 31 consist of:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Noninterest-bearing Deposits $ 206,462 $185,900
Interest-bearing Deposits:
Demand 154,523 128,006
Money market savings 273,950 150,073
Regular savings 105,160 98,446
Time deposits less than $100,000 327,827 315,234
Time deposits--$100,000 or more 97,450 76,912
---------- --------
Total Interest-bearing 958,910 768,671
---------- --------
TOTAL DEPOSITS $1,165,372 $954,571
========== ========
Interest expense on time deposits of $100,000 or more amounted to $4,289,000,
$3,756,000 and $3,256,000 for 1999, 1998 and 1997, respectively.
33
<PAGE>
Note 9--Short-Term Borrowings
Information relating to short-term borrowings is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Rate Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At Year-End:
Federal Home Loan Bank advances $117,200 5.27% $175,200 4.90% $ 84,200 5.27%
Repurchase agreements 94,706 4.75 74,545 4.25 58,196 4.80
Other short-term borrowings 27,070 5.44 7,281 5.00 2,030 6.44
-------- -------- --------
Total $238,976 5.08% $257,026 4.71% $144,426 5.09%
======== ======== ========
Average for the Year:
Federal Home Loan Bank advances $142,727 5.10% $104,790 5.16% $ 53,965 5.27%
Repurchase agreements 89,379 4.37 67,668 4.82 49,836 4.78
Other short-term borrowings 1,494 4.22 896 5.47 1,743 4.50
Maximum Month-end Balance:
Federal Home Loan Bank advances $186,200 $175,200 $ 84,200
Repurchase agreements 98,534 81,004 59,868
Other short-term borrowings 27,070 7,281 3,575
</TABLE>
The Company pledges U.S. Government Agency Securities, based upon their market
values, as collateral for 102% of the principal and accrued interest of its
repurchase agreements.
The Company has a line of credit arrangement with the Federal Home Loan Bank of
Atlanta (the "FHLB") under which it may borrow up to $308,000,000 at interest
rates based upon current market conditions, of which $155,320,000 was
outstanding at December 31, 1999. The Company also had lines of credit available
from the Federal Reserve, correspondent banks, and other institutions of
$238,400,000 at December 31, 1999, against which there were outstandings of
$27,070,000.
Note 10--Long-Term Borrowings
On November 29, 1999, Sandy Spring Capital Trust I, a newly formed subsidiary of
Sandy Spring Bancorp, issued 1,400,000 of its 9.375% Trust Preferred Securities
(the "Preferred Securities") in an underwritten public offering for an aggregate
price of $35,000,000. Proceeds of the Preferred Securities were invested in the
9.375% Junior Subordinated Debentures (the "Subordinated Debentures") of
Bancorp. After deducting underwriter's compensation and other expenses of the
offering, the net proceeds were available to the Company for general corporate
purposes, including capital contributions to Sandy Spring National Bank of
Maryland, and for use in investment activities and for working capital.
Sandy Spring Capital Trust I is a Delaware business trust created for the
purpose of issuing the Preferred Securities and purchasing the Subordinated
Debentures, which are its sole assets. The Company owns all of the outstanding
common securities of Sandy Spring Capital Trust I. The Company and Sandy Spring
Capital Trust I believe that, taken together, the Company's obligations under
the Junior Subordinated Debentures, the Indenture, the Trust Agreement, and the
Guarantee entered into in connection with the offering of the Preferred
Securities and the Subordinated Debentures, in the aggregate constitute a full,
irrevocable and unconditional guarantee of Sandy Spring Capital Trust I's
obligations under the Preferred Securities.
The Preferred Securities and the Subordinated Debentures each mature on November
30, 2029. If certain conditions are met, the maturity dates of the Preferred
Securities and the Subordinated Debentures may be shortened to a date not
earlier than November 30, 2004. The Preferred Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the Subordinated
Debentures at maturity. Dividend payments on the Preferred Securities may be
deferred at any time or from time to time for a period not to exceed 20
consecutive quarters in a deferral period.
The Preferred Securities may meet the regulatory criteria for tier 1 capital,
subject to Federal Reserve guidelines that limit the amount of the Preferred
Securities to an aggregate of 25% of tier 1 capital.
34
<PAGE>
The Company had other long-term borrowings at December 31 as follows:
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Other borrowings at 10% due 1999 $ 0 $ 46
FHLB 6.12% Advance due 2003 2,020 2,020
FHLB 6.45% Advance due 2006 550 650
FHLB 6.68% Advance due 2006 550 650
FHLB 5.04% Advance due 2008 0 11,000
FHLB 4.61% Advance due 2009 10,000 0
FHLB 4.50% Advance due 2009 25,000 0
------- -------
Total other long-term borrowings $38,120 $14,366
======= =======
The 2006 advances are principal reducing with payments of $50,000 semi-annually.
Interest on these instruments is generally paid monthly. FHLB advances are fully
collateralized by pledges of loans and U.S. Agency securities. The Company has
pledged, under a blanket lien, all qualifying residential mortgage loans as
collateral under the borrowing agreement with the FHLB.
The Company had outstanding mortgages with balances due of $0 at December 31,
1999 and $46,000 at December 31, 1998.
Note 11--Stockholders' Equity
Bancorp's Articles of Incorporation authorize 15,000,000 shares of capital stock
(par value $1.00 per share) which were initially classified as common stock with
the provision that remaining unissued shares may later be designated as either
common or preferred stock.
Sandy Spring Bancorp has a Dividend Reinvestment and Stock Purchase Plan which
provides shareholders with the opportunity to increase their equity ownership in
Bancorp by electing to have cash dividends automatically reinvested in
additional shares of common stock without payment of any brokerage commission
or service charge. Pursuant to the plan, shareholders are also permitted to make
optional quarterly cash purchases of stock, subject to minimum and maximum
dollar amounts. The Board has reserved 800,000 shares for issuance under the
plan.
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
and stock purchase plan, stock option plan, 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.
Bank and holding company regulations, as well as Maryland law, impose certain
restrictions on dividend payments by the Bank, as well as restricting extensions
of credit and transfers of assets between the Bank and Bancorp. At December 31,
1999, the Bank could have paid dividends to its parent company without
regulatory approval amounting to $26,813,000. In conjunction with the Sandy
Spring Capital Trust I Preferred Securities, the Bank issued a subordinated note
to Bancorp for $33,565,000 which was outstanding at December 31, 1999. There
were no loans outstanding between the Bank and Bancorp at December 31, 1998.
Note 12--Stock Option Plan
On April 14, 1999, the shareholders approved the Sandy Spring Bancorp 1999 Stock
Option Plan ("Option Plan"). The Option Plan provides for the granting of
incentive and non-qualifying stock options to the Company's directors and to
selected key employees on a periodic basis at the discretion of the Board. 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 options have an
exercise price which may not be less than 100% of the fair market value of the
common stock on the date of grant, must be exercised within ten years and vest
over a period of two years. Outstanding options granted under the expired 1982
and 1992 option plans will continue until exercise or expiration.
35
<PAGE>
Note 12--Stock Option Plan (continued)
The following is a summary of changes in shares under option for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
Number Weighted Number Weighted Number Weighted
of Average of Average of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 141,800 $20.26 116,002 $17.21 72,002 $12.67
Granted 73,350 25.82 30,300 30.50 44,000 24.63
Cancelled (1,135) 26.40 0 0 0 0
Exercised (1,165) 28.77 (4,502) 10.50 0 0
------- ------- -------
BALANCE, END OF YEAR 212,850 $22.11 141,800 $20.26 116,002 $17.21
======= ======= =======
Weighted average fair value of options
granted during the year $11.06 $15.57 $ 4.79
</TABLE>
The following table summarizes information about options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------
Weighted Average
Remaining Weighted Weighted
Range of Contractual Life Average Average
Exercise Price Number (in years) Exercise Price Number Exercise Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8.00-$12.25 45,000 3.6 $10.42 45,000 $10.42
$16.63-$18.50 22,500 6.4 17.61 22,500 17.61
$24.63-$30.50 145,350 9.2 26.42 86,653 26.30
------- -------
212,850 $22.11 154,153 $20.40
======= =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
extended binomial option-pricing model with the following weighted-average
assumptions used for grants during the three years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 3.20% 2.42% 2.14%
Expected volatility 36.26% 44.85% 20.41%
Risk-free interest rate 6.61% 4.64% 5.48%
Expected lives (in years) 10 10 10
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. No compensation
expense related to the plans was recorded during the three years ended December
31, 1999. If the Company had elected to recognize compensation cost based on the
fair value at the grant dates for awards under the plan consistent with the
method prescribed by SFAS No. 123, net income and earnings per share would have
been changed to the pro forma amounts as follows for the years ended December
31:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $17,516 $16,105 $13,195
Pro forma 17,088 15,947 12,984
Basic net income per share:
As reported $ 1.82 $ 1.67 $ 1.35
Pro forma 1.78 1.65 1.33
Diluted net income per share:
As reported $ 1.82 $ 1.66 $ 1.34
Pro forma 1.77 1.65 1.32
</TABLE>
The pro forma amounts are not representative of the effects on reported net
income for future years.
36
<PAGE>
Note 13--Pension, Profit Sharing, and Other Employee Benefit Plans
The Company has a qualified, noncontributory, defined benefit pension plan
covering substantially all employees. Benefits are based on years of service and
the employees' compensation during the last five years of employment. The
Company's funding policy is to contribute the maximum amount deductible for
federal income tax purposes. The Plan invests primarily in a diverse portfolio
of managed fixed income and equity funds. Contributions provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
The Plan's funded status as of December 31 is as follows:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Reconciliation of Benefit Obligation:
Obligation at January 1 $8,093 $5,766
Service cost 807 620
Interest cost 542 428
Actuarial (gain) loss (901) 1,443
Benefit payments (180) (164)
------ ------
Obligation at December 31 8,361 8,093
------ ------
Reconciliation of Fair Value of Plan Assets:
Fair value of plan assets at January 1 7,644 6,110
Actual return on plan assets 1,046 944
Employer contributions 908 754
Benefit payments (180) (164)
------ ------
Fair value of plan assets at December 31 9,418 7,644
------ ------
Funded Status:
Funded status at December 31 1,057 (449)
Unrecognized transition asset 0 (3)
Unrecognized prior service cost 6 7
Unrecognized loss 850 2,214
------ ------
PREPAID PENSION COST INCLUDED IN OTHER ASSETS $1,913 $1,769
====== ======
Weighted Average Assumptions as of December 31:
1999 1998 1997
- --------------------------------------------------------------------------------
Discount rate 7.50% 6.75% 7.50%
Expected return on plan assets 8.50 8.50 8.50
Rate of compensation increase 4.50 4.50 5.50
Net pension expense for the previous three years includes the following
components:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost for benefits earned $ 807 $ 620 $ 436
Interest cost on projected benefit obligation 542 428 340
Expected return on plan assets (704) (565) (455)
Amortization of prior service cost 1 1 1
Amortization of transition asset (3) (3) (3)
Recognized net actuarial loss 120 50 41
----- ----- -----
PENSION EXPENSE FOR THE YEAR $ 763 $ 531 $ 360
===== ===== =====
The Company has a qualified, noncontributory profit sharing plan that covers all
employees after ninety days of service. The Plan permits employees to purchase
shares of Sandy Spring Bancorp common stock with their profit sharing
allocations and other contributions under the Plan. Profit sharing contributions
by the Company, which are included in operating expenses, totaled $347,000 in
1999, $482,000 in 1998 and $465,000 in 1997. The Company also has a performance
based compensation benefit which provides additional incentives to employees
based on the Company's financial performance as measured against key performance
indicator goals set by management. Payments are made quarterly and total expense
under the plan amounted to $1,528,000 in 1999, $1,327,000 in 1998 and $465,000
in 1997.
37
<PAGE>
Note 13--Pension, Profit Sharing, and Other Employee Benefit Plans (continued)
The Company has Supplemental Executive Retirement Agreements (SERAs) with its
executive officers providing for retirement income benefits as well as
pre-retirement death benefits for selected executives. Retirement benefits
payable under the SERAs, if any, are integrated with other pension plan and
Social Security retirement benefits expected to be received by the executive.
The Company is accruing the present value of these benefits over the remaining
number of years to the executives'retirement dates. Benefit accruals included in
operating expenses for 1999, 1998 and 1997 were $207,000, $112,000 and $55,000,
respectively.
The Company has an Executive Health Plan that provides for payment of defined
medical and dental expenses not otherwise covered by insurance for selected
executives and their families. Benefits, which are paid during both employment
and retirement, are subject to a $5,000 limitation for each executive per year.
Expenses under the plan, covering insurance premium and out-of-pocket expense
reimbursement benefits, totaled $81,000 in 1999 and $50,000 in 1998 and 1997.
Note 14--Income Taxes
Income tax expense for the years ended December 31 consists of:
(In thousands) 1999 1998 1997
Current Income Taxes:
Federal $5,842 $6,252 $5,718
State 80 558 975
------ ------ ------
Total Current 5,922 6,810 6,693
Deferred Income Taxes (Benefit):
Federal 400 104 (86)
State 8 22 (19)
------ ------ ------
Total Deferred 408 126 (105)
------ ------ ------
TOTAL INCOME TAX EXPENSE $6,330 $6,936 $6,588
====== ====== ======
Temporary differences between the amounts reported in the financial statements
and the tax bases of assets and liabilities result in deferred taxes. Deferred
tax assets and liabilities, shown as the sum of the appropriate tax effect for
each significant type of temporary difference, are presented below for the years
ended December 31:
(In thousands) 1999 1998
Deferred Tax Assets:
Allowance for credit losses $ 2,731 $ 2,391
Deferred loan fees and costs 0 504
Net operating loss carry forward 316 355
Unrealized losses on investments available-for-sale 7,560 0
Other 275 183
------- -------
Gross Deferred Tax Assets 10,882 3,433
Deferred Tax Liabilities:
Depreciation (1,054) (1,042)
Pension plan costs (946) (967)
Unrealized gains on investments available-for-sale 0 (1,341)
Deferred loan fees and costs (241) 0
Other (365) (300)
------- -------
Gross Deferred Tax Liabilities (2,606) (3,650)
------- -------
NET DEFERRED TAX ASSET (LIABILITY) $ 8,276 $ (217)
======= =======
No valuation allowance exists with respect to deferred tax items. The Company
has a net operating loss carryforward (NOL) of $818,000 which expires in 2008.
The NOLis a result of an acquisition in 1993 and is subject to annual
limitations under IRS Code Section 382.
38
<PAGE>
A three year reconcilement of the difference between the statutory federal
income tax rate and the effective tax rate for the Company is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Federal Income Tax Rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Tax-exempt interest income (8.5) (6.7) (5.2)
State income taxes, net of federal income tax benefits .2 1.6 5.0
Other (.2) .2 (1.5)
---- ---- ----
Effective Tax Rate 26.5% 30.1% 33.3%
==== ==== ====
Note 15--Net Income per Common Share
In the following table, basic earnings per share is arrived at 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 by the weighted-average number of shares
outstanding, adjusted for the dilutive effect of outstanding stock options and
warrants.
The calculation of net income per common share for the years ended December 31
was as follows:
(In thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Basic:
Net income available to common stockholders $17,516 $16,105 $13,195
Average common shares outstanding 9,602 9,636 9,799
Basic net income per share $ 1.82 $ 1.67 $ 1.35
======= ======= =======
Diluted:
Net income available to common stockholders $17,516 $16,105 $13,195
Average common shares outstanding 9,602 9,636 9,799
Stock option adjustment 41 50 13
Warrant stock adjustment 0 1 5
------- ------- -------
Average common shares outstanding--diluted 9,643 9,687 9,817
Diluted net income per share $ 1.82 $ 1.66 $ 1.34
======= ======= =======
Note 16--Related Party Transactions
Certain directors and executive officers have loan transactions with the
Company. Such loans were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with outsiders. The following
schedule summarizes changes in amounts of loans outstanding, both direct and
indirect, to these persons during 1999 and 1998.
(In thousands) 1999 1998
Balance at January 1 $ 6,494 $ 6,426
Additions 4,899 2,686
Repayments (1,667) (2,618)
------- -------
BALANCE ATDECEMBER 31 $ 9,726 $ 6,494
======= =======
Note 17--Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company has various outstanding credit
commitments which are properly not reflected in the financial statements. These
commitments are made to satisfy the financing needs of the Company's clients.
The associated credit risk is controlled by subjecting such activity to the same
credit and quality controls as exist for the Company's lending and investment
activities. The commitments involve diverse business and consumer customers and
are generally well collateralized. Management does not anticipate that losses,
if any, which may occur as a result of these commitments would materially affect
the stockholders'equity of the Company. Since a portion of the commitments have
some likelihood of not being exercised, the amounts do not necessarily represent
future cash requirements.
Loan and credit line commitments, excluding unused portions of home equity lines
of credit, totaled $148,962,000 at December 31, 1999 and $121,171,000 at
December 31, 1998. These commitments are contingent upon continuing customer
compliance with the terms of the agreement.
39
<PAGE>
Note 17--Financial Instruments with Off-Balance Sheet Risk (continued)
Unused portions of equity lines at year end amounted to $82,904,000 in 1999 and
$63,757,000 in 1998. The Company's home equity line accounts, which are secured
by the borrower's residence, are reviewed annually.
Irrevocable letters of credit, totaling $13,862,000 at December 31, 1999 and
$4,137,000 at December 31, 1998, are obligations to make payments under certain
conditions to meet contingencies related to customers' contractual agreements.
They are primarily used to guarantee a customer's contractual and/or financial
performance, and are seldom exercised.
Note 18--Litigation
In the normal course of business, the Company may become involved in litigation
arising from banking, financial, and other activities of the Company.
Management, after consultation with legal counsel, does not anticipate that the
ultimate liability, if any, arising out of these matters will have a material
effect on the Company's financial condition, operating results or liquidity.
Note 19--Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" (SFAS No. 107), as amended by Statement of
Financial Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" (SFAS No. 119), requires
the disclosure in statement form of estimated fair values of financial
instruments. Financial instruments have been defined broadly to encompass 95.9%
of the Company's assets and 99.7% of its liabilities.
Quoted market prices, where available, are shown as estimates of fair market
values. Because no quoted market prices are available for a significant part of
the Company's financial instruments, the fair values of such instruments have
been derived based on the amount and timing of future cash flows and estimated
discount rates.
Present value techniques used in estimating the fair value of many of the
Company's financial instruments are significantly affected by the assumptions
used. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases could not be realized in
immediate cash settlement of the instrument. Additionally, the accompanying
estimates of fair values are only representative of the fair values of the
individual financial assets and liabilities and should not be considered an
indication of the fair value of the Company.
The estimated fair values of the Company's financial instruments at December 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------------
Book Estimated Book Estimated
(In thousands) Value Fair Value Value Fair Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and temporary investments(1) $ 55,742 $ 55,767 $ 62,464 $62,621
Investments available-for-sale 508,715 508,715 539,642 539,642
Investments held-to-maturity and
other equity securities 121,324 115,396 73,937 74,244
Loans, net of allowance 817,894 827,440 617,062 636,777
Accrued interest receivable and other assets(2) 21,675 21,675 11,774 11,774
FINANCIAL LIABILITIES
Deposits $1,165,372 $1,158,125 $954,571 $952,777
Short-term borrowings 238,976 236,824 257,026 258,445
Long-term borrowings 73,120 81,639 14,366 14,527
Accrued interest payable and other liabilities(2) 2,359 2,359 3,025 3,025
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Estimated Estimated
(In thousands) Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFF-BALANCE SHEET FINANCIAL ASSETS
Commitments to extend credit(3) $231,866 $(566) $184,928 $(898)
Irrevocable letters of credit 13,862 (69) 4,137 (21)
Servicing rights on mortgages sold 46,982 489 59,138 532
</TABLE>
(1) Temporary investments include interest-bearing deposits with banks, federal
funds sold and residential mortgage loans held for sale.
(2) Only financial instruments as defined in SFAS No. 107 are included in other
assets and other liabilities.
(3) Includes loan and credit line commitments and unused portions of equity
lines.
40
<PAGE>
The following methods and assumptions were used to estimate the fair value of
each category of financial instruments for which it is practicable to estimate
that value:
Cash and due from banks and federal funds sold. Carrying amount approximated
fair value.
Interest-bearing deposits with banks. The fair value was estimated by computing
the discounted value of contractual cash flows using a current interest rate for
similar instruments.
Residential mortgage loans held for sale. The fair value of mortgage loans held
for sale was derived from secondary market quotations for similar instruments.
Securities. The fair value for U.S. Treasury and Agency, state and municipal,
and corporate debt securities is based upon quoted market bids; for
mortgage-backed securities upon bid prices for similar pools of fixed and
variable rate assets, considering current market spreads and prepayment speeds;
and for equity securities upon quoted market prices.
Loans. Fair value was estimated by computing the discounted value of estimated
cash flows, adjusted for potential credit losses, for pools of loans having
similar characteristics. The discount rate was based on the current loan
origination rate for a similar loan. Nonperforming loans have an assumed
interest rate of 0%.
Accrued interest receivable. Carrying amount approximated the fair value of
accrued interest, considering the short-term nature of the receivable and its
expected collection.
Other assets. Carrying amount approximated fair value of certain accrued
commissions in other assets, considering the short-term nature of the receivable
and its expected collection.
Deposit liabilities. Under SFAS No. 107, the fair value of demand, money market
savings and regular savings deposits, which have no stated maturity, must be
considered equal to their book value, representing the amount payable on demand,
regardless of any value which may be derived from retaining those deposits for
an expected future period of time (the deposit base intangible).
The fair value of time deposits was based upon the discounted value of
contractual cash flows at current rates for deposits of similar remaining
maturity.
Short-term borrowings. Carrying amount approximated fair value of repurchase
agreements due to their variable interest rates. The fair value of Federal Home
Loan Bank advances was estimated by computing the discounted value of
contractual cash flows payable at current interest rates for obligations with
similar remaining terms.
Long-term borrowings. The fair value of these mortgage and Federal Home Loan
Bank advances was estimated by computing the discounted value of contractual
cash flows payable at current interest rates for obligations with similar
remaining terms.
Other liabilities. Carrying amount approximated fair value of accrued interest
payable, accrued dividends and premiums payable, considering their short-term
nature and expected payment.
Off-balance sheet instruments. The fair value of unused lines of credit, letters
of credit, and commitments to fund and deliver loans was estimated based upon
the amount of unamortized fees collected or paid incident to granting or
receiving the commitment. The fair value of the Bank's serviced mortgage loan
portfolio was estimated utilizing an independent appraisal which considered fees
receivable, number of loans, average loan size, delinquency data, escrow
balances, prepayment risks, and current market supply and demand factors.
41
<PAGE>
Note 20--Parent Company Financial Information
The condensed financial statements for Sandy Spring Bancorp (Parent Only)
pertaining to the periods covered by the Company's consolidated financial
statements are presented below:
Balance Sheets
December 31,
- --------------------------------------------------------------------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 2,998 $ 1,326
Investments available-for-sale (at fair value) 5,291 5,667
Investment in subsidiary 113,025 102,402
Receivable from subsidiary 33,565 0
Other assets 158 256
-------- --------
Total Assets $155,037 $109,651
======== ========
LIABILITIES
Long-term borrowings $ 33,645 $ 46
Other liabilities 816 265
-------- --------
Total Liabilities 34,461 311
STOCKHOLDERS'EQUITY
Common stock 9,648 9,586
Surplus 24,476 22,913
Retained earnings 86,620 76,305
Accumulated other comprehensive income (168) 536
-------- --------
Total Stockholders'Equity 120,576 109,340
-------- --------
Total Liabilities and Stockholders'Equity $155,037 $109,651
======== ========
<TABLE>
<CAPTION>
Statements of Income
Years Ended December 31,
- ---------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiary $ 8,177 $ 7,583 $ 4,601
Securities gains 65 0 0
Other income, principally interest 293 187 379
------- ------- -------
Total Income 8,535 7,770 4,980
Interest and other expenses 739 386 395
------- ------- -------
Income before income taxes and equity in undistributed
income of subsidiary 7,796 7,384 4,585
Income tax (benefit) expense (176) (75) 12
------- ------- -------
Income before equity in undistributed income of subsidiary 7,972 7,459 4,573
Equity in undistributed income of subsidiary 9,544 8,646 8,622
------- ------- -------
NET INCOME $17,516 $16,105 $13,195
======= ======= =======
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended December 31,
- ---------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $17,516 $16,105 $13,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income--subsidiary (9,544) (8,646) (8,622)
Securities gains (65) 0 0
Net change in other liabilities (88) (67) 8
Other--net 3 2 6
------- ------- -------
Net Cash Provided by Operating Activities 7,822 7,394 4,587
Cash Flows from Investing Activities:
Purchase of investments available-for-sale (870) (2,203) (2,126)
Proceeds from sales of investments available-for-sale 164 0 0
Purchase of receivable from subsidiary (33,565) 0 0
Disposal of premises and equipment 98 0 0
------- ------- -------
Net Cash Used by Investing Activities (34,173) (2,203) (2,126)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings 33,645 0 0
Retirement of long-term debt (46) (26) (23)
Common stock purchased and retired (832) (6,614) (3,857)
Proceeds from issuance of common stock 2,457 2,556 2,038
Dividends paid (7,201) (6,061) (4,603)
------- ------- -------
Net Cash Provided (Used) by Financing Activities 28,023 (10,145) (6,445)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 1,672 (4,954) (3,984)
Cash and Cash Equivalents at Beginning of Year 1,326 6,280 10,264
------- ------- -------
Cash and Cash Equivalents at End of Year $ 2,998 $ 1,326 $ 6,280
======= ======= =======
</TABLE>
43
<PAGE>
Note 21--Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Company's and the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that Involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain amounts and ratios (set forth in
the table below) of total and tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined). and of tier 1 capital (as defined) to average
assets (as defined). As of December 31, 1999 and 1998, the capital levels of the
Company and the Bank substantially exceed all capital adequacy requirements to
which they are subject.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, tier 1 risk-based,
and tier 1 leverage ratios as set froth in the table. There are no conditions
or events since that notification that management believes have changed the
Company's or the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to risk weighted assets):
Company $141,979 15.23% $74,596 8.00%
Sandy Spring National Bank of Maryland 133,446 14.40 74,124 8.00 $92,656 10.00%
Tier 1 Capital (to risk weighted assets):
Company 133,687 14.34 37,298 4.00
Sandy Spring National Bank of Maryland 91,465 9.87 37,062 4.00 55,594 6.00
Tier 1 Capital (to average assets):
Company 133,687 8.74 45,876 3.00
Sandy Spring National Bank of Maryland 91,465 6.00 45,703 3.00 76,171 5.00
As of December 31, 1998:
Total Capital (to risk weighted assets):
Company 115.652 15.67 59,060 8.00
Sandy Spring National Bank of Maryland 108,858 14.86 59,612 8.00 73,265 10.00
Tier 1 Capital (to risk weighted assets):
Company 107,596 14.58 29,530 4.00
Sandy Spring national Bank of Maryland 101,195 13.81 29,306 4.00 43,959 6.00
Tier 1 Capital (to average assets):
Company 107,596 8.50 37,961 3.00
Sandy Spring National Bank of Maryland 101,195 8.03 37,784 3.00 62,973 5.00
</TABLE>
44
<PAGE>
Note 22--Quarterly Financial Results (unaudited)
A summary of selected consolidated quarterly financial data for the two years
ended December 31, 1999 is reported as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Interest income $22,175 $22,594 $23,123 $26,495
Net interest income 12,092 12,846 13,211 14,110
Provision for credit losses 200 275 266 475
Income before Income taxes 5,864 6,026 6,543 5,413
Net Income 4,264 4,404 4,714 4,144
Basic net income per share $ 0.44 $ 0.46 $ 0.49 $ 0.43
Diluted net income per share 0.44 0.46 0.49 0.43
1998
Interest income $20,011 $20,498 $21,882 $21,881
Net interest income 10,904 11,210 11,721 11,688
Provision for credit losses 267 275 0 10
Income before income taxes 5,610 5,460 5,996 5,975
Net income 3,860 3,875 4,289 4,081
Basic net income per share $ 0.40 $ 0.40 $ 0.45 $ 0.42
Diluted net income per share 0.40 0.40 0.45 0.42
45
</TABLE>
<PAGE>
Sandy Spring Bancorp and Subsidiaries
Management's Statement of Responsibility
Management acknowledges its responsibility for financial reporting (both audited
and unaudited) which provides a fair representa- tion of the Company's
operations and is reliable and relevant to a meaningful appraisal of the
Company.
Management has prepared the financial statements in accordance with generally
accepted accounting principles, making appropriate use of estimates and
judgement, and considering materiality. Except for tax equivalency adjustments
made to enhance comparative analysis, all financial information is consistent
with the audited financial statements.
Oversight of the financial reporting process is provided by the Audit Committee
of the Board of Directors, which consists of outside directors. This Committee
meets on a regular basis, in private, with the internal auditor, who reports
directly to the Board of Directors, to approve the audit schedule and scope,
discuss the adequacy of the internal control system and the quality of financial
reporting, review audit reports and address problems. The Committee also reviews
the Company's annual report to shareholders and the annual report to the
Securities and Exchange Commission on Form 10-K. The Audit Committee meets at
least annually with the external auditors, and has direct and private access to
them at any time.
The independent public accounting firm of Stegman & Company has examined the
Company's financial records. The resulting opinion statement which follows is
based upon knowledge of the Company's accounting systems, as well as on tests
and other audit procedures performed in accordance with generally accepted
auditing standards.
/s/ Hunter R. Hollar /s/ James H. Langmead
Hunter R. Hollar James H. Langmead
President and Chief Executive Officer Vice President and Treasurer
Report of Independent Auditors
Stegman & Company
Certified Public Accountants
Board of Directors and Shareholders
Sandy Spring Bancorp, Inc.
Olney, Maryland
We have audited the accompanying consolidated balance sheets of Sandy Spring
Bancorp, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders'equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the management of Sandy Spring
Bancorp, Inc. and Subsidiaries. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sandy Spring
Bancorp, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Stegman & Company
Baltimore, Maryland
January 24, 2000
46
<PAGE>
Officers
Sandy Spring Bancorp
Executive Officers
Hunter R. Hollar
President and
Chief Executive Officer
James H. Langmead
Vice President and Treasurer
Corporate Secretary
Ronald E. Kuykendall
Auditor
Mark G. Shullenbarger
Sandy Spring National
Bank of Maryland
Executive Officers
Hunter R. Hollar
President and
Chief Executive Officer
James H. Langmead
Executive Vice President
and Chief Financial Officer
Lawrence T. Lewis, III
Executive Vice President
Frank H. Small
Executive Vice President
James R. Farmer
Senior Vice President
Stanley L. Merson
Senior Vice President
Sara E. Watkins
Senior Vice President
General Counsel
and Corporate Secretary
Ronald E. Kuykendall
Auditor
Mark G. Shullenbarger
Senior Vice Presidents
Frank L. Bentz
R. Louis Caceres
Carole A. Corrigan
Dennis P. Neville
Kathleen E. Pieper
Daniel J. Schrider
Vice Presidents
Steven E. Anderson
C. Louise Basore
John A. Beck, Jr.
James A. Berkey
Frederick T. Billig
Linda S. Drecchio
E. Silvia Fajardo
Lynn M. Gallagher
Victoria L. Gillespie
Chrystina M. Giorgio
Patricia M. Green
Susan N. Haybyrne
Patricia D. Hevner
Peter L. Hickling
Brian J. Hiley
Patricia M. Huber
Donna L. Lampe
Susan D. Lemmon
John G. Lipman
A. Elizabeth Lipscomb
Debra L.C. Liverpool
Ronda M. Long
Martha M. Lord
Marsha E. Maloney
Robert E. Mann
Philip J. Mantua
Tina M. Mathes
Thomas H. McDowell
David S. Miller
James P. Morison, Jr.
Nicol M. Morris
Richard M. Owens
Douglas A. Parker
Michael R. Penyak
Richard S. Prin
Pamela M. Roberts
Eric J. Schrider
Sally A. Shelton
William M. Slade
Cheryl A. Spell
Sandra B. Stocksdale
Russell R. Till
Anthony F. Topita
Janet M. Van Albert
William A. Walker, II
William C. Watkins
Debra A. Whelan
Jeffrey A. Wood
Assistant Vice Presidents
Richard A. Adamson, Jr.
Lee E. Briggs
Joseph F. Brown
Richard W. Burns
George T. Chaney, II
M. Hugh Chow
Mary Jo Clark
Wendy J. Collins
Elenore W. Cone
Shirley A. Connelly
Todd G. Ellis
Donald S. Emel
Sharon J. Fall
Eileen F. Heiss
Alison Hubbard
Laura E.C. Johnson
Deborah J. Macon
Sandra D. Maxey
Peter J. McGinnity
Matthew L. Meyer
Bratati B. Mukherjee
Susan F. Paschal
Sharon L. Rhodes
Danielle A. Riley
Marsha K. Ritter
Thomas E. Spilman
Marcia V. Street
Carla S. Taylor
Tennyson A. Townsley
John R. Unthank
Marcia M. Wong
Other Officers
Mark D. Averell
Kulley A. Bancroft
Charlette J. Bell
Gaye A. Bowers
Jennifer M. Braden
Natalie L. Burch
Diana S. Chaves
Tina L. Dasler
Carolyn S. Devan
Terri L. Ferrara
Tanya M. Ford
Glenna D. Franca
Jeffrey S. Garfinkel
Gail C. Gloyd
Anna N. Gottlieb
Christine L. Hill
Joyce C. Howes
E. Michelle Hughes
Richard E. Irvin
Maureen N. Jesuorobo
Judy D. Johnson
Brita M. Jones
Edward W. Kinsella
Silvia Kodjanian
Kenneth G. Kubu
Walter J. Laderer
Michael T. Lancaster
Eric J. Lottes
Jean M. Montgomery
Lauretta K. Morgan
Jerome C. Nicolella
Charles W. Nicolson, Jr.
Gizelle Petit
Dale W. Rice
Valerie K. Rivenbark
Lisa R. Saunders
Junnie C. Shen
Ani Simonian
Tracy L. Smith
Martin R. Smolley
Norma J. Talley-Maccow
Sheila L. Thomas
Anne E. Thommen
Teresa V. Thornton
Douglas E. Tufts
Cindy G. Watkins
David M. Welker
Tina M. Westervelt
Kenneth V. Wilhelm
George Williams, III
Shelia A. Winstead
Rita A. Woodward
Sandra S. Wright
Jacquelyn M. Yankanich
Eugene P. Zeiser
Cathryn D. Zinkgraf
Sandy Spring
Mortage Corporation
Executive Officers
Hunter R. Hollar
Chairman
Stanley L. Merson
President
James H. Langmead
Treasurer
Vice President
David W. Pulford, Jr
Vice President and Secretary
S. Lynne White
Assistant Vice Presidents
Jeffrey D. Bacigalupo
Kyle E. Becraft
Michael P. Farrell
Barbara E. Gregory
Jay T. Kaminski
Guy W. Silas
Other Officer
Karen E. Garvin
Sandy Spring Insurance
Corporation
Officers
Hunter R. Hollar
President
James H. Langmead
Vice President
Lawrence T. Lewis, III
Vice President
Sara E. Watkins
Vice President
Sandra B. Stocksdale
Secretary and Treasurer
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage State
Subsidiaries Owned of Incorporation
- ---------------------------------------- ----------- ----------------
<S> <C> <C>
Sandy Spring Capital Trust I 100% Delaware
Sandy Spring National Bank of Maryland 100% United States
Sandy Spring Insurance Corporation (1) 100% Maryland
Sandy Spring Mortgage Corporation (1) 100% Maryland
- --------------------
</TABLE>
(1) 100% owned by Sandy Spring National Bank of Maryland.
<PAGE>
EXHIBIT 23
EXHIBIT 23
Stegman & Company
Certified Public Accountants
Suite 200
405 East Joppa Road
Baltimore, Maryland 21286
(410) 823-8000
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Sandy Spring Bancorp, Inc.
We hereby consent to the incorporation by reference in the prospectuses
included in Registration Statements No. 33-29316, 33-48453 (including
Registration Statement on Form S-8 and Post Effective Amendment No. 2 to Form
S-8 with respect to Registration Statements No. 33-29316 and 33-48453 ),
33-35319, 33-56692, 333-11049, and 333-81249, each on Form S-8, and Registration
Statements No. 33-57182 and 333-39139 on Form S-3, and in the Annual Report on
Form 10-K of Sandy Spring Bancorp, Inc. for the year ended December 31, 1999, of
our report dated January 24, 2000, relating to the consolidated financial
statements of Sandy Spring Bancorp, Inc. and Subsidiaries.
/s/ Stegman & Company
------------------------
Stegman & Company
Baltimore, Maryland
March 21, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors of the Registrant, hereby severally constitute and
appoint Theresa A. Cornish our true and lawful attorney and agent, to do any and
all things in our names in the capacities indicated below which said person may
deem necessary or advisable to enable the Registrant to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
annual report on Form 10-K for the year ended December 31, 1999, including
specifically, but not limited to, power and authority to sign for us in our
names in the capacities indicated below the annual report and any amendments
thereto; and we hereby approve, ratify and confirm all that said person shall do
or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------- ---------------------- -----------------
<S> <C> <C>
/s/ John Chirtea Director February 23, 2000
- -----------------------------
John Chirtea
/s/ Susan D. Goff Director February 23, 2000
- -----------------------------
Susan D. Goff
/s/ Solomon Graham Director February 23, 2000
- -----------------------------
Solomon Graham
/s/ Gilbert L. Hardesty Director February 23, 2000
- -----------------------------
Gilbert L. Hardesty
/s/ Joyce R. Hawkins Director February 23, 2000
- -----------------------------
Joyce R. Hawkins
/s/ Thomas O. Keech Director February 23, 2000
- -----------------------------
Thomas O. Keech
/s/ Charles F. Mess Director February 23, 2000
- -----------------------------
Charles F. Mess
________________________ Director
Robert L. Mitchell
/s/ Robert L. Orndorff, Jr. Director February 23, 2000
- -----------------------------
Robert L. Orndorff, Jr.
/s/ David E. Rippeon Director February 23, 2000
- -----------------------------
David E. Rippeon
/s/ Lewis R. Schumann Director February 23, 2000
- -----------------------------
Lewis R. Schumann
/s/ W. Drew Stabler Chairman of the Board, February 23, 2000
- ----------------------------- Director
W. Drew Stabler
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 44,701
<INT-BEARING-DEPOSITS> 3,701
<FED-FUNDS-SOLD> 5,518
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 508,715
<INVESTMENTS-CARRYING> 105,117
<INVESTMENTS-MARKET> 99,187
<LOANS> 819,716
<ALLOWANCE> 8,231
<TOTAL-ASSETS> 1,591,281
<DEPOSITS> 1,165,372
<SHORT-TERM> 238,976
<LIABILITIES-OTHER> 5,093
<LONG-TERM> 73,120
0
0
<COMMON> 9,648
<OTHER-SE> 99,072
<TOTAL-LIABILITIES-AND-EQUITY> 1,591,281
<INTEREST-LOAN> 58,822
<INTEREST-INVEST> 34,190
<INTEREST-OTHER> 1,375
<INTEREST-TOTAL> 94,387
<INTEREST-DEPOSIT> 29,137
<INTEREST-EXPENSE> 42,128
<INTEREST-INCOME-NET> 52,259
<LOAN-LOSSES> 1,216
<SECURITIES-GAINS> 101
<EXPENSE-OTHER> 39,528
<INCOME-PRETAX> 23,846
<INCOME-PRE-EXTRAORDINARY> 23,846
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,516
<EPS-BASIC> 1.82
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 4.35
<LOANS-NON> 275
<LOANS-PAST> 1,710
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,401
<ALLOWANCE-OPEN> 7,350
<CHARGE-OFFS> 415
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 8,231
<ALLOWANCE-DOMESTIC> 2,069
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,162
</TABLE>
