-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PyqzX2BEuPb8rRcOuoekD1tNsglTyYCxxYDsMn0xL8rzCi/AxHhL3oHMwU4ZE1tH YI5sHa8e0hkN0RbBa1UZZw== 0000950109-96-007528.txt : 19961115 0000950109-96-007528.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950109-96-007528 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDY SPRING BANCORP INC CENTRAL INDEX KEY: 0000824410 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 520312970 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19065 FILM NUMBER: 96662203 BUSINESS ADDRESS: STREET 1: 17801 GEORGIA AVE CITY: OLNEY STATE: MD ZIP: 20832 BUSINESS PHONE: 3017746400 MAIL ADDRESS: STREET 1: 17801 GEORGIA AVENUE CITY: OLNEY STATE: MD ZIP: 20832 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ________________________ Commission File Number: O-19065 ------- Sandy Spring Bancorp, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 52-1532952 ------------------------ --------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 17801 Georgia Avenue, Olney, Maryland 20832 301-774-6400 ------------------------------------- ----- ------------ (Address of principal office) (Zip Code) (Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. YES X NO ------- ------- The number of shares of common stock outstanding as of November 1, 1996 is 4,886,489 shares. SANDY SPRING BANCORP INDEX
Page - ------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at September 30, 1996 and December 31, 1995.......................... 1 Consolidated Statements of Income for the Nine Month Periods Ended September 30, 1996 and 1995......................... 2 Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1996 and 1995.............. 3 Notes to Consolidated Financial Statements........................ 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 6 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 12 SIGNATURES............................................................ 13
PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Sandy Spring Bancorp and Subsidiaries CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) September 30, December 31, 1996 1995 - -------------------------------------------------------------------------------- ASSETS Cash and due from banks $34,657 $30,215 Interest-bearing deposits with banks 644 848 Federal funds sold 16,655 30,220 Residential mortgage loans held for sale 3,164 4,725 Investments available-for-sale (at market) 206,811 165,953 Investments held-to-maturity -- market value of $120,779 (1996) and $121,177 (1995) 119,048 119,886 Other equity securities 5,111 4,947 Total Loans (net of unearned income) 516,923 492,540 Less: Allowance for credit losses (6,544) (6,597) ------------ ------------ Loans, net 510,379 485,943 Premises and equipment 19,901 19,897 Accrued interest receivable 6,985 6,494 Other real estate owned, net of allowance 210 47 Other assets 4,734 7,028 ------------- ------------- TOTAL ASSETS $928,299 $876,203 ============= ============= LIABILITIES Noninterest-bearing deposits $113,512 $95,975 Interest-bearing deposits 667,373 647,617 ------------- ------------- Total deposits 780,885 743,592 Short-term borrowings 46,367 34,804 Long-term borrowings 4,828 5,151 Accrued interest and other liabilities 3,166 5,715 ------------- ------------- TOTAL LIABILITIES 835,246 789,262 STOCKHOLDERS' EQUITY Common stock -- par value $1.00; shares authorized 15,000,000 (1996) and 6,000,000 (1995); shares issued and outstanding 4,886,489 (1996) and 4,820,604 (1995) 4,887 4,821 Surplus 33,092 31,814 Retained earnings 55,454 49,893 Net unrealized gain (loss) on investments available-for-sale (380) 413 ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 93,053 86,941 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $928,299 $876,203 ============ ============ See Notes to Consolidated Financial Statements. 1 Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- --------------------------- 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $11,627 $11,528 $34,508 $32,474 Interest on loans held for sale 36 23 117 28 Interest on deposits with banks 81 27 180 39 Interest and dividends on securities: Taxable 3,841 3,468 10,898 10,331 Nontaxable 831 851 2,525 2,612 Interest on federal funds sold 357 227 1,087 624 ----------- ----------- ----------- ----------- TOTAL INTEREST INCOME 16,773 16,124 49,315 46,108 Interest expense: Interest on deposits 6,973 6,998 20,878 19,616 Interest on short-term borrowings 523 493 1,372 1,788 Interest on long-term borrowings 84 88 239 299 ----------- ----------- ----------- ----------- TOTAL INTEREST EXPENSE 7,580 7,579 22,489 21,703 ----------- ----------- ----------- ----------- NET INTEREST INCOME 9,193 8,545 26,826 24,405 Provision for Credit Losses -- 30 208 128 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 9,193 8,515 26,618 24,277 Noninterest Income: Securities losses (16) (3) (66) (8) Service charges on deposit accounts 766 642 2,154 1,872 Gains on mortgage sales 145 37 588 57 Other income 623 499 2,054 1,474 ----------- ----------- ----------- ----------- TOTAL NONINTEREST INCOME 1,518 1,175 4,730 3,395 Noninterest Expenses: Salaries and employee benefits 3,718 3,205 10,76 9,202 Occupancy expense of premises 525 468 1,559 1,384 Equipment expenses 582 503 1,633 1,436 Other expenses 2,041 1,175 4,959 4,384 ----------- ----------- ----------- ----------- TOTAL NONINTEREST EXPENSES 6,866 5,351 18,897 16,406 ----------- ----------- ----------- ----------- Income Before Income Taxes 3,845 4,339 12,451 11,266 Income Tax Expense 1,372 1,419 4,199 3,592 ----------- ----------- ----------- ----------- NET INCOME $2,473 $2,920 $8,252 $7,674 =========== =========== =========== =========== PER SHARE DATA: Net Income $0.51 $0.61 $1.70 $1.61 Dividends Declared 0.20 0.16 0.57 0.46
See Notes to Consolidated Financial Statements. 2 Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Nine Months Ended September 30, --------------------- 1996 1995 ------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income $8,252 $7,674 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,374 1,206 Provision for credit losses 208 128 Deferred income taxes 152 252 Origination of loans held for sale (40,134) (9,799) Proceeds from sales of loans held for sale 42,348 7,167 (Gains) losses on sales of loans held for sale (653) (90) Securities (gains) losses 66 8 Net change in: Accrued interest receivable (491) (131) Accrued income taxes (550) 98 Other accrued expenses (172) 81 Other -- net 515 (1,994) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,915 4,600 Cash Flows from Investing Activities: Net (increase) decrease in interest-bearing deposits with banks 204 (462) Purchases of investments held-to-maturity (24,967) (23,771) Purchases of other equity securities (304) 0 Purchases of investments available-for-sale (96,434) (19,492) Proceeds from sales of investments available-for-sale 14,798 1,998 Proceeds from maturities, calls and principal payments of investment held-to-maturity 25,151 26,888 Proceeds from maturities, calls and principal 40,027 22,877 payments of investments available-for-sale Proceeds from sales of loans 291 1,620 Proceeds from sales of other real estate owned 250 224 Net increase in loans receivable (24,884) (38,271) Purchase of loans 0 (2,827) Expenditures for premises and equipment (1,311) (1,633) ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (67,179) (32,849) Cash Flows from Financing Activities: Net increase (decrease) in demand and savings accounts 21,579 (51,001) Net increase (decrease) in time and other deposits 15,714 79,744 Net increase (decrease) in short-term borrowings 11,563 (5,398) Proceeds from long-term borrowings 1,800 0 Retirement of long-term borrowings (2,123) (21) Proceeds from issuance of common stock 1,344 2,053 Dividends paid (2,736) (2,067) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 47,141 23,310 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,123) (4,939) Cash and Cash Equivalents at Beginning of Year 60,435 40,731 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $51,312 $35,792 =========== ===========
3 Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands)
Nine Months Ended September 30, ------------------------ 1996 1995 - -------------------------------------------------------------------------------- Supplemental Disclosures Interest payments $22,575 $19,866 Income tax payments $4,297 $3,290 Noncash Investing Activities Transfers from loans to other real estate owned $210 $420 Unrealized gain (loss) on investments available- for-sale net of deferred tax effect of $(499) in 1996 and $1,932 in 1995 $(793) $3,070
*Cash and cash equivalents include amounts of "Cash and due from banks" and "Federal funds sold" on the Consolidated Balance Sheets. See Notes to Consolidated Financial Statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) NOTE 1 - GENERAL The foregoing financial statements are unaudited; however, in the opinion of Management, all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim periods have been included. These statements should be read in conjunction with the financial statements and accompanying notes included in Sandy Spring Bancorp's 1995 Annual Report to Shareholders. The results shown in this interim report are not necessarily indicative of results to be expected for the full year 1996. The accounting and reporting policies of Sandy Spring Bancorp (the "Company") conform to generally accepted accounting principles and to general practice within the banking industry. Certain reclassifications have been made to amounts previously reported to conform with current classifications. Consolidation has resulted in the elimination of all significant intercompany accounts and transactions. NOTE 2 - MERGER On August 29, 1996, the Company and its wholly owned subsidiary, Sandy Spring National Bank of Maryland, (the "Bank") merged with Annapolis Bancshares, Inc. ("ABI") and its wholly owned state trust company subsidiary, Bank of Annapolis, Annapolis, Maryland ("BOA") in a transaction accounted for as a pooling of interests. Accordingly, historical financial data for periods before the merger have been restated to include the combined results of both the Company and ABI. Based on an exchange ratio of .62585 shares of the Company's common stock for each outstanding share of ABI common stock, the Company issued 495,940 shares of common stock. ABI had consolidated total assets of approximately $80 million at date of merger, representing approximately 9% of the consolidated total assets of the Company. Pre tax merger-related expenses amounted to $744 and are included in noninterest expenses for the nine month period ended September 30, 1996. NOTE 3 - PER SHARE DATA Net income per common share is based on the weighted average number of shares outstanding for each period which was, for the third quarter, 4,878,888 in 1996 and 4,805,794 in 1995 and, for the first nine months, 4,860,422 in 1996 and 4,754,608 in 1995. 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Consolidated basis, dollars in thousands except per share data) This Management's Discussion and Analysis contains forward-looking statements, including statements of goals, intentions and expectations, regarding or based upon general economic conditions, interest rates, developments in national and local markets, and other matters, and which, by their nature, are subject to significant uncertainties. THE COMPANY The Company is the registered bank holding company for Sandy Spring National Bank of Maryland (the "Bank"), headquartered in Olney, Maryland. The Bank operates eighteen banking offices in Montgomery, Howard, and Anne Arundel Counties in Maryland. The Bank also has an office under construction in Gaithersburg, Maryland, to replace its existing leased Gaithersburg office and has entered into an agreement to acquire the Bethesda, Maryland office of Bank of Maryland, along with approximately $20 million in deposits. The acquisition is subject to regulatory approvals, and is expected to be completed in 1996. The Company has established a strategy of independence, and intends to establish or acquire additional offices or banking organizations as appropriate opportunities may arise. A. FINANCIAL CONDITION The Company's total assets were $928,299 at September 30, 1996, compared to $876,203 at December 31, 1995, increasing $52,096 or 5.9% during the first nine months of 1996. Earning assets increased $49,237 or 6.0% to $868,356 from $819,119. Total loans rose 5.0% or $24,383 during the first nine months of 1996. Of the major loan categories, commercial loans showed significant growth, rising $11,977 or 20.8%, while construction loans increased $7,152 or 17.1%, reflecting contributions from both the commercial and residential sectors. Real estate mortgages grew $5,055 or 1.4% during the period. The investment portfolio, which consists of investments available-for-sale and held-to-maturity as well as other equity securities, increased $40,184 or 13.8% during the nine month period ended September 30, 1996, reflecting the investments of funds from deposit growth and other sources not needed to support loan growth during the period. Federal funds sold and interest-bearing deposits with banks together declined $13,769 or 44.3% over the period. Residential mortgage loans held for sale recorded a $1,561 or 33.0% decrease. However, both originations and sales of these loans were much stronger during the first nine months of 1996, than in the comparable period in 1995, as reflected in the Consolidated Statements of Cash Flows. Total deposits were $780,885 at September 30, 1996, increasing $37,293 or 5.0% from $743,592 at December 31, 1995. This increase was due primarily to growth in non-interest-bearing demand deposits, which grew $17,537 or 18.3% and time deposits, which increased $15,630 or 12.6% during the period. The rise in interest free demand deposits was driven primarily by growth in commercial checking balances. This is consistent with the Company's current business plans which place major emphasis on growth in commercial banking loans and deposits. Repurchase agreements related primarily to cash management services were responsible for a majority of the $11,563 or 33.2% rise in short-term borrowings. Liquidity and Interest Rate Sensitivity The Company's liquidity position, considering both internal and external sources available, exceeded anticipated short and long term funding needs at September 30, 1996. 6 In assessing liquidity, management considers operating requirements, the seasonality of deposit flows, investment, loan and deposit maturities, expected funding of loans, deposit withdrawals, and the market values of available-for- sale investments. Using the latest information available as of September 30, 1996, the Bank has achieved an asset sensitive position, cumulative to one year, of approximately $58,852 or 6.3% of total assets, indicating the assumption of relatively low interest rate risk. The Company employs simulation analysis in order to assess the degree of interest rate risk inherent in its asset and liability portfolios. Such risk is monitored in accordance with board of directors' policy limits by the Bank's asset-liability committee. The limit established for the estimated twelve month period impact of a 200 basis point change in interest rates on net interest income is 15%, while the limit for the estimated fair value change in the net assets of the Company is 25%. Capital Management The Company recorded a total risk-based capital ratio of 17.60% at September 30, 1996 compared to 17.67% at December 31, 1995; a tier 1 risk-based capital ratio of 16.44%, compared to 16.42%; and a capital leverage ratio of 10.10% compared to 10.09%. Capital adequacy, as measured by these ratios, was well above regulatory requirements. Stockholders' equity totaled $93,053 (including a net unrealized loss of $380 on investments available-for-sale) at September 30, 1996, an increase of 7.0% from $86,941 (including a net unrealized gain of $413) at December 31, 1995. Internal capital generation (net income less dividends) provided $5,561 in additional equity during the first nine months of 1996, representing an annualized rate of 8.3% versus 8.8% for the year ended December 31, 1995. External capital formation contributed $1,274 in new equity during the first nine of 1996, including 25,276 shares issued through dividend reinvestment, 24,430 shares through exercise of stock options and 11,020 shares through 401-K benefit plans. For the nine months ended September 30, 1996, dividends per share were $0.57, compared to $0.46 a year earlier, while the dividend payout ratios computed to 32.61% and 27.04%, respectively. B. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Net income for the first nine months of the year rose $578 or 7.5% in 1996, to $8,252 ($1.70 per share) from year earlier $7,674 ($1.61 per share). Net income for the nine months ended September 30, 1996 equates to an annualized return on average assets of 1.23%, the same as in 1995, and returns on average equity of 12.35% versus 12.81% for the respective periods. Net Interest Income Net interest income for the first nine months of the year was $26,826 in 1996, an increase of 9.9% over $24,405 in 1995, reflecting a higher volume of average earning assets and a 9 basis point increase in net interest spread to 3.73% from 3.64%. For the first nine months, tax-equivalent interest income increased $3,178 or 6.7% in 1996, compared to 1995. This increase was the result of a 7.5% rise in average earning assets over the period, offset in part by a 7 basis point decline in average yield earned on those assets. The slight decrease in average yield was attributable to both changes in the composition of earning assets and in yields earned. While loans and investments decreased as a percentage of average earning assets, other components of earning assets, which generally produce lower yields than either loans or investments, increased as a percentage of average earnings assets and recorded an overall decline in average yield. 7 Comparing the first nine months of 1996 to 1995, average loans grew 5.7% to $503,390 (59.3% of average earning assets compared to 60.3% in 1995), while experiencing a small increase in average yield to 9.15%. Commercial credits of all types increased, with commercial construction up 32.8%, commercial loans rising 18.4% and commercial real estate advancing 8.0%. Although total residential lending recorded a decline over the twelve month period, home equity products increased, posting an 8.0% gain. Average total securities increased 2.7% to $309,947 (36.5% of average earning assets compared to 38.2% in 1995), while earning an average yield of 6.31% in 1996 and approximately the same in 1995. Interest expense for the first nine months rose $786 or 3.6%, as a net result of 7.4% higher average interest-bearing liabilities and a 16 basis point decrease in average rate paid. Credit Risk Management During the first nine months of 1996, the provision for credit losses was $208, compared to $128 for the like period of 1995. Net charge-offs of $261 were recorded for the period ended September 30, 1996 versus $161 a year earlier. At third quarter end 1996, commercial construction and development credits, regarded in general as having higher credit risk than most other loan types, comprised 5.8% of total loans, while traditional home construction and mortgage loans, among the best loan categories in terms of credit risk, amounted to 29.4%. By comparison, these percentages at December 31, 1995 were 5.3% and 32.4%, respectively. Nonperforming loans increased $3,770 from $898 at December 31, 1995 to $4,668 at September 30, 1996, as shown in the following table. About two-thirds of the rise in loans 90 days past due resulted from applying the Company's more stringent loan review and classification practices to credits of the newly merged bank. The vast majority of these are matured balloon loans that are still current as to principal and interest payments. However, these loans have not been formally renewed and are therefore included in delinquent status. It is anticipated that many of these past due loans, while technically classified as nonperforming at third quarter end, will be renewed by year-end 1996. The majority of the increase in nonaccruals involved loans to a single borrower which entered this status near quarter end. Nonperforming assets, expressed as a percentage of total loans plus other real estate owned, were 0.94% at September 30, 1996 versus 0.19% at December 31, 1995 for reasons discussed in the paragraph above. At September 30, 1996, the allowance for credit losses was 1.27% of total loans versus 1.34% at December 31, 1995. The allowance for credit losses covered nonperforming loans by a factor of 2.3 times at September 30, 1996. The Company regularly analyzes the sufficiency of the allowance for credit losses based upon a number of factors, including loss allocations for specific non-performing credits, historical loss experience, economic conditions, portfolio trends and credit concentrations, and changes in the size and character of the loan portfolio, among other things. Management establishes the allowance for credit losses in an amount that it determines, based upon these factors, is sufficient to provide for losses inherent in the loan portfolio. The level of the allowance to non-performing loans is only one of these factors. The amount of non-performing loans and the ratio of the allowance to nonperforming loans may vary significantly from period to period because the amount of nonperforming loans depends largely on the condition of a small number of individual loans and borrowers relative to the total loan portfolio. Noninterest Income and Expenses Non-interest income of $4,730 earned during the nine month period ended September 30, 1996 represented a $1,335 or 39.3% increase over $3,395 achieved over the same time frame in the prior year. Gains on sales of residential mortgages contributed $531 to the total increase in noninterest income. Trust fees, mutual funds and annuities, generated $266 of the increase 8 (representing a 41.8% rise) in interest income, and nonrecurring gains on sales of other real estate owned contributed $180. Finally, return check charges on deposit accounts accounted for approximately $196 of the overall increase. For the nine months ended September 30, 1996, noninterest expenses increased $2,491 or 15.2% to $18,897 from $16,406 in 1995. These results include expense savings of $742 from the industry wide reduction in FDIC insurance premiums, offset by nonrecurring pre-tax merger costs of $744 in 1996. Higher salary and benefit costs were responsible for $1,544 or 62.0% of the total increase is noninterest expenses. Principal factors here were staff additions, merit raises and an expanded incentive program. Also, data processing expenses rose, by $315 or 54.4%, reflecting the conversion to a new system with expanded capabilities in late 1995. Marketing expenses increased by $323 or 83.5%, due to the costs of an advertising program designed to increase the Company's name recognition and to promote a new checking product. The ratio of net income to average full-time-equivalent (FTE) employees was $24 for both the nine month period ended September 30, 1996 and for the same period in 1995, despite an 8.1% rise in average FTE employees to 344 in 1996 from 319. Income Taxes The effective tax rate through the first three quarters of the year was 33.7% in 1996, compared to 31.9% in 1995, reflecting a lower level of tax exempt income to total income in 1996 than in 1995. 9 ANALYSIS OF CREDIT RISK (Dollars in thousands) Activity in the allowance for credit losses is shown below:
9 Months Ended 12 Months Ended September 30, 1996 December 31, 1995 - -------------------------------------------------------------------------------- Balance, January 1 $6,597 $6,663 Provision for credit losses 208 180 Loan charge-offs: Real estate-mortgage (3) (33) Real estate-construction -- -- Consumer (109) (209) Commercial (239) (507) ----------------- ----------------- Total charge-offs (351) (749) Loan recoveries: Real estate-mortgage -- 153 Real estate-construction -- -- Consumer 35 30 Commercial 55 320 ----------------- ----------------- Total recoveries 90 503 ----------------- ----------------- Net charge-offs (261) (246) ----------------- ----------------- BALANCE, PERIOD END $6,544 $6,597 ================= ================= Net charge-offs to average loans (annual basis) 0.04% 0.07% Allowance to total loans 1.27% 1.34% Balance sheet risk inherent in the lending function is presented as follows at the dates indicated: September 30, December 31, 1996 1995 - -------------------------------------------------------------------------------- Non-accrual loans $1,609 $ 590 Loans 90 days past due 3,030 272 Restructured loans 29 36 ----------------- ----------------- Total Nonperforming Loans* 4,668 898 Other real estate owned 210 47 ----------------- ----------------- TOTAL NONPERFORMING ASSETS $4,878 $ 945 ================= ================= Nonperforming assets to total assets 0.53% 0.11% - --------------------------------------------------------------------------------
* Those performing loans considered potential problem loans, as defined and identified by management, amounted to approximately $4,111 at September 30, 1996, compared to $4,362 at December 31, 1995. Although these are loans where known information about the borrowers' possible credit problems causes management to have doubts as to their ability to comply with the present loan repayment terms, most are well collateralized and are not believed to present significant risk of loss. 10 C. RESULTS OF OPERATIONS - THIRD QUARTER 1996 AND 1995 Third quarter earnings of $2,473 ($0.51 per share) in 1996 were below results of $2,920 ($0.61 per share) shown for the same quarter of 1995, representing a decline of $447 or 15.3%. Excluding non-recurring merger expenses of $570 on an after-tax basis, earnings rose 4.2% to $3,043 ($0.62 per share). Tax-equivalent net interest income rose 7.3% during the third quarter of 1996 compared to the like three month period of 1995, showing the effects of a 9.2% increase in the earning asset base and a 5 basis point decline in net interest spread. No provision for credit losses was believed necessary by management for the third quarter of 1996 and only $30 was provided in third quarter 1995. There were net charge-offs of $234 and $35 in the respective quarters. Non-interest income for the third quarter increased 29.2% in 1996 versus 1995. The largest contributors to the rise were gains on mortgage sales, fee- based businesses and return check charges on deposit accounts. Non-interest expenses rose 28.3%. Excluding non-recurring pre-tax merger costs of $744, the rise was 14.4%, attributable largely to the same factors as discussed above for the nine month periods. The FDIC premium reduction referred to in the year-to-date comparison occurred in the third quarter of 1995. The third quarter effective tax rate was 35.7% in 1996 versus 32.7% shown in 1995. 11 PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following is a list of Exhibits filed as part of this -------- Quarterly Report on Form 10-Q: No. Exhibit --- ------- 27 Financial Data Schedule (b) Reports on Form 8-K. ------------------- On September 12, 1996, the Company filed a Current Report on Form 8-K, reporting under item 2 of such form the Acquisition by merger of Annapolis Bancshares, Inc. and its subsidiary, Bank of Annapolis, as of August 29, 1996. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized. SANDY SPRING BANCORP, INC. (Registrant) By: /s/ Hunter R. Hollar -------------------------------------------- Hunter R. Hollar President and Chief Executive Officer Date: November 8, 1996 By: /s/ James H. Langmead -------------------------------------------- James H. Langmead Vice President and Treasurer Date: November 8, 1996 13 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 34,657 644 16,655 0 206,811 119,048 120,779 513,543 (6,544) 928,299 780,885 46,367 3,166 4,828 0 0 4,887 88,166 928,299 34,508 13,423 1,384 49,315 20,878 22,489 26,826 208 (66) 18,897 12,451 12,451 0 0 8,252 1.70 1.70 3.73 1,609 3,030 29 4,111 6,597 (351) 90 6,544 2,307 0 4,237
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