<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q.txt
<DESCRIPTION>FORM 10-Q
<TEXT>
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 March 31, 2001
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 April 30, 2001
is 9,574,596 shares.
<PAGE>
SANDY SPRING BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
March 31, 2001 and December 31, 2000 ........................................................................... 1
Consolidated Statements of Income for the Three
Month Periods Ended March 31, 2001 and 2000 .................................................................... 2
Consolidated Statements of Cash Flows for
the Three Month Periods Ended March 31, 2001 and 2000 .......................................................... 3
Consolidated Statements of Changes in Stockholders' Equity for the
Three Month Periods Ended March 31, 2001 and 2000 .............................................................. 5
Notes to Consolidated Financial Statements ..................................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................................................. 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................................................................. 13
SIGNATURES ............................................................................................................ 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands, except per share data) 2001 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 44,325 $ 39,394
Federal funds sold 5,519 6,935
Interest-bearing deposits with banks 13,524 507
Residential mortgage loans held for sale 13,152 6,371
Investments available-for-sale (at fair value) 613,448 517,861
Investments held-to-maturity -- fair value of $125,207 (2001) and
$135,121 (2000) 122,534 134,879
Other equity securities 16,929 14,187
Total Loans and Leases 986,872 967,817
Less: Allowance for credit losses (11,692) (11,530)
----------- -----------
Net loans and Leases 975,180 956,287
Premises and equipment, net 31,247 31,282
Accrued interest receivable 15,282 15,124
Goodwill and other intangible assets, net 22,861 23,648
Other assets 33,461 26,526
----------- -----------
TOTAL ASSETS $ 1,907,462 $ 1,773,001
=========== ===========
LIABILITIES
Noninterest-bearing deposits $ 239,857 $ 243,339
Interest-bearing deposits 1,026,643 999,588
----------- -----------
Total Deposits 1,266,500 1,242,927
Short-term borrowings 372,788 308,314
Guaranteed preferred beneficial interests in the Company's subordinated debentures 35,000 35,000
Other long-term borrowings 79,025 49,054
Accrued interest and other liabilities 16,126 10,148
----------- -----------
TOTAL LIABILITIES 1,769,439 1,645,443
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares authorized 15,000,000; shares issued
and outstanding 9,571,097 (2001) and 9,552,672 (2000) 9,571 9,553
Surplus 23,045 22,511
Retained earnings 100,940 97,641
Accumulated other comprehensive income (loss) 4,467
(2,147)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 138,023 127,558
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,907,462 $ 1,773,001
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
(In thousands, except per share data) 2001 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans and leases $ 20,996 $ 17,611
Interest on loans held for sale 132 50
Interest on deposits with banks 20 48
Interest and dividends on securities:
Taxable 8,751 7,793
Exempt from federal income taxes 1,913 1,892
Interest on federal funds sold 307 198
-------- --------
TOTAL INTEREST INCOME 32,119 27,592
Interest Expense:
Interest on deposits 10,099 9,102
Interest on short-term borrowings 4,459 3,127
Interest on long-term borrowings 2,020 1,320
-------- --------
TOTAL INTEREST EXPENSE 16,578 13,549
-------- --------
NET INTEREST INCOME 15,541 14,043
Provision for Credit Losses 492 300
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 15,049 13,743
Noninterest Income:
Securities gains (losses) 130 (8)
Service charges on deposit accounts 1,747 1,311
Gains on sales of mortgage loans 521 169
Trust department income 435 409
Gain on sale of premises 0 1,502
Other income 2,089 1,339
-------- --------
TOTAL NONINTEREST INCOME 4,922 4,722
Noninterest Expenses:
Salaries and employee benefits 6,684 5,662
Occupancy expense of premises 1,237 1,172
Equipment expenses 816 769
Marketing 317 357
Outside data services 656 636
Intangible asset amortization 856 706
Other expenses 2,306 1,928
-------- --------
TOTAL NONINTEREST EXPENSES 12,872 11,230
-------- --------
Income Before Income Taxes 7,099 7,235
Income Tax Expense 1,794 2,215
-------- --------
NET INCOME $ 5,305 $ 5,020
======== ========
Basic Net Income Per Share $ 0.56 $ 0.52
Diluted Net Income Per Share 0.55 0.52
Dividends Declared Per Share 0.21 0.20
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2001 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 5,305 $ 5,020
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation and amortization 1,577 1,453
Provision for credit losses 492 300
Deferred income taxes 0 (442)
Origination of loans held for sale (41,668) (12,435)
Proceeds from sales of loans held for sale 35,408 13,467
Gains on sales of loans held for sale (521) (169)
Securities (gains) losses (130) 8
Gain on sale of premises 0 (1,502)
Net increase in accrued interest receivable (158) (421)
Net increase in other assets (11,182) (413)
Net increase (decrease) in accrued expenses 5,977 (967)
Other - net (299) 255
--------- ---------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (5,199) 4,154
Cash Flows from Investing Activities:
Net decrease (increase) in interest-bearing deposits with banks (13,017) 1,797
Purchases of investments held-to-maturity (3,521) (3,820)
Purchases of other equity securities (2,743) (5,038)
Purchases of investments available-for-sale (199,025) (23,001)
Proceeds from sales of investments available-for-sale 35,468 14,071
Proceeds from maturities, calls and principal payments of investments 15,885 0
held-to-maturity
Proceeds from maturities, calls and principal payments of investments 78,917 5,643
available-for-sale
Proceeds from sales of other equity securities 0 11,158
Net increase in loans and leases (19,055) (29,929)
Proceeds from sale of premises 0 2,965
Expenditures for premises and equipment (759) (1,673)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (107,850) (27,827)
Cash Flows from Financing Activities:
Net increase in deposits 23,573 54,268
Net increase (decrease) in short-term borrowings 64,374 (15,291)
Proceeds from long-term borrowings 30,071 26,436
Retirement of long-term borrowings 0 (46)
Common stock purchased and retired 0 (1,544)
Proceeds from issuance of common stock 552 559
Dividends paid (2,006) (1,929)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 116,564 27,499
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,515 3,826
Cash and Cash Equivalents at Beginning of Year 46,329 50,219
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF QUARTER* $ 49,844 $ 54,045
========= =========
</TABLE>
3
<PAGE>
Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Supplemental Disclosures:
Interest payments $16,000 $13,816
Income tax payments 177 14
Noncash Investing Activities:
Transfers from loans to other real estate owned 0 306
Reclassification of borrowings from long-term to short-term 100 100
<FN>
*Cash and cash equivalents include amounts of "Cash and due from banks" and "Federal funds sold" on the Consolidated Balance Sheets.
</FN>
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in
thousands, except per share data)
<TABLE>
<CAPTION>
Accum-
ulated
Other
Compre- TOTAL
hensive STOCK-
Common Retained Income HOLDERS'
Stock Surplus Earnings (loss) EQUITY
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 2001 $9,553 $22,511 $97,641 $ (2,147) $127,558
Comprehensive Income:
Net income 5,305 5,305
Other comprehensive income, net
of tax and reclassification
adjustment 6,614 6,614
-------------
Total comprehensive income 11,919
Cash dividends - $0.21 per share (2,006) (2,006)
Common stock issued pursuant to:
Incentive stock option plan -
1,833 shares 2 43 45
Dividend reinvestment and stock
purchase plan - 16,592 shares 16 491 507
---------- ---------- ----------- ----------- -------------
BALANCES AT MARCH 31, 2001 $9,571 $23,045 $100,940 $4,467 $138,023
========== ========== =========== =========== =============
-------------------------------------------------------------------------------------------------------------------
BALANCES AT JANUARY 1, 2000 $9,648 $24,476 $86,620 $ (12,024) $108,720
Comprehensive Income:
Net income 5,020 5,020
Other comprehensive loss,
net of tax and reclassification
adjustment (325) (325)
-------------
Total comprehensive income 4,695
Cash dividends - $0.20 per share (1,929) (1,929)
Common stock issued pursuant to:
Dividend reinvestment and stock
purchase plan - 26,687 shares 27 532 559
Stock repurchases - 75,809 shares (76) (1,468) (1,544)
---------- ---------- ----------- ----------- -------------
BALANCES AT MARCH 31, 2000 $9,599 $23,540 $89,711 $ (12,349) $110,501
========== ========== =========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The foregoing financial statements are unaudited; however, in the
opinion of Management, all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of the results of the interim
periods have been included. These statements should be read in conjunction with
the financial statements and accompanying notes included in Sandy Spring
Bancorp's 2000 Annual Report to Shareholders. The results shown in this interim
report are not necessarily indicative of results to be expected for the full
year 2001.
The accounting and reporting policies of Sandy Spring Bancorp (the
"Company") conform to accounting principles generally accepted in the United
States and to general practices 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 - PER SHARE DATA
The calculations of net income per common share for the three month
periods ended March 31 are as shown in the following table. Basic net income per
share is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding and does not include the
impact of any potentially dilutive common stock equivalents. The diluted
earnings per share calculation method is derived by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding adjusted for the dilutive effect of outstanding stock options.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
(Dollars and amounts in thousands, except per share data) 2001 2000
------ ------
<S> <C> <C>
Basic:
Net income available to common stockholders $5,305 $5,020
Average common shares outstanding 9,555 9,633
Basic net income per share $ 0.56 $ 0.52
====== ======
Diluted:
Net income available to common stockholders $5,305 $5,020
Average common shares outstanding 9,555 9,633
Stock option adjustment 75 28
------ ------
Average common shares outstanding - diluted 9,630 9,661
Diluted net income per share $ 0.55 $ 0.52
====== ======
</TABLE>
NOTE 3 - CONTINGENCES
In the normal course of business, the Company entered into an agreement
with Diebold Incorporated ("Diebold") for cash replenishment and other services
for some of the Company's off-site ATMs. Diebold subcontracted this ATM cash
replenishment service to another company, Tri-State Armored Services, Inc.
("Tri-State") that subsequently filed for bankruptcy protection on March 2,
2001. The assets of Tri-State have been seized by the Bankruptcy Trustee,
including presumably some of the Company's funds that had been wired to
Tri-State as part of the ATM cash replenishment service. The investigation is
ongoing and the Company intends to vigorously pursue recovery through all
available channels. Pending further proceedings, the Company cannot reasonably
estimate the amount of the loss, if any, it may incur as a result of these
events. Therefore, no accrual for any potential loss has been reflected in the
accompanying financial statements. The maximum exposure to the Company is
$628,000.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This management's discussion and analysis contains forward looking
statements, including: statements of goals, intentions and expectations;
estimates of risks and of future costs and benefits; assessments of probable
loan and lease losses and market risk; 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, which, by their nature, are subject to significant uncertainties.
Because of these uncertainties, the actual future results may be materially
different from those indicated. In addition, the Company's past results of
operations do not necessarily indicate its future results.
THE COMPANY
The Company is the registered bank holding company for Sandy Spring
National Bank of Maryland (the "Bank"), headquartered in Olney, Maryland. The
Bank operates twenty-nine community offices in Montgomery, Howard, Prince
George's and Anne Arundel Counties in Maryland, together with an insurance
subsidiary and a leasing company.
The Company offers a broad range of financial services to consumers and
businesses in this market area. Through March 31, 2001, year-to-date average
commercial and commercial real estate loans and leases accounted for
approximately 45% of the Company's loan and lease portfolio, and year-to-date
average consumer and residential real estate loans accounted for approximately
55%. Based upon the most recent data available, consumer deposits account for
approximately 80% of total average deposits while approximately two-thirds of
the Company's revenues are derived from consumer loans, consumer deposits and
other services. The Company has established a strategy of independence, and
intends to establish or acquire additional offices, banking organizations and
nonbanking organizations as appropriate opportunities may arise.
A. FINANCIAL CONDITION
The Company's total assets were $1,907,462,000 at March 31, 2001,
compared to $1,773,001,000 at December 31, 2000, increasing $134,461,000 or 7.6%
during the first three months of 2001. Earning assets increased $123,421,000 or
7.5% to $1,771,978,000 at March 31, 2001, from $1,648,557,000 at December 31,
2000.
Total loans and leases rose 2.0% or $19,055,000 during the first
quarter of 2001, to $986,872,000. During this period, commercial loans and
leases increased $9,470,000 (up 2.1%), reflecting fairly balanced growth in
commercial, commercial real estate and commercial construction credits, while
residential real estate loans rose $8,449,000 (up 2.7%), reflecting sharply
higher residential construction lending, largely offset by a decline in
residential mortgages. Smaller growth was achieved for consumer loans, which
increased by $1,136,000 (up 0.5%), attributable to an increase in student loans
accompanied by declines in most other categories. Residential mortgage loans
held for sale increased by $6,781,000 from December 31, 2000 to $13,152,000 at
March 31, 2001.
Analysis of Loans and Leases
The following table presents the trends in the composition of the loan and lease
portfolio at the dates indicated:
<TABLE>
<CAPTION>
(In thousands) March 31, 2001 % December 31, 2000 %
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential real estate $ 319,038 32% $ 310,589 32%
Commercial loans and leases 452,857 46 443,387 46
Consumer 214,977 22 213,841 22
--------- ---- --------- -----
Total Loans and Leases 986,872 100% 967,817 100%
========= =========
Less: Allowance for credit losses (11,692) (11,530)
--------- ---------
NET LOANS AND LEASES $ 975,180 $ 956,287
========= =========
</TABLE>
7
<PAGE>
The investment portfolio, consisting of available-for-sale,
held-to-maturity and other equity securities, increased $85,984,000 or 12.9%
from December 31, 2000 to March 31, 2001. Most of this change was due to higher
available-for-sale securities as the Company increased its holdings of U. S.
Agency securities primarily through investment of borrowed funds under its
leverage programs. The aggregate of federal funds sold and interest-bearing
deposits with banks increased by $11,601,000 during the first three months of
2001, reaching $19,043,000 at March 31, 2001.
Total deposits were $1,266,500,000 at March 31, 2001, increasing
$23,573,000 or 1.9% from $1,242,927,000 at December 31, 2000. Growth in money
market savings accounts provided the majority of the overall increase, up 5.0%
or $16,932,000. A similar percentage increase, but smaller growth in dollar
terms, was recorded for regular savings and for time deposits of $100,000 or
more, while other major categories showed changes of less than 2%. Total
borrowings rose 24.1% or $94,445,000 from December 31, 2000 to March 31, 2001,
reflective of $69,900,000 higher short-term and long-term advances from the
Federal Home Loan Bank of Atlanta, along with a $25,000,000 borrowing in the
form of a short-term reverse repurchase agreement. The Company borrowed these
funds primarily for the purpose of investing them in securities under its
leverage programs.
Analysis of Deposits
The following table presents the trends in the composition of deposits at the
dates indicated:
<TABLE>
<CAPTION>
(In thousands) March 31, 2001 % December 31, 2000 %
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing Deposits $ 239,857 19% $ 243,339 20%
Interest-bearing Deposits:
Demand 154,683 12 156,266 12
Money market savings 354,464 28 337,532 27
Regular savings 105,308 8 98,592 8
Time deposits less than $100,000 312,526 25 311,871 25
Time deposits $100,000 or more 99,662 8 95,327 8
--------------------------------------------------------------------
Total Interest-bearing 1,026,643 81 999,588 80
--------------------------------------------------------------------
TOTAL DEPOSITS $1,266,500 100% $1,242,927 100%
====================================================================
</TABLE>
MARKET RISK MANAGEMENT
By employing simulation analysis through use of computer models, the
Company intends to effectively manage the potential adverse impacts that
changing interest rates may have on its short-term earnings, long term value,
and liquidity. The simulation model captures optionality factors such as call
features and interest rate caps and floors imbedded in investment and loan
portfolio contracts. Measured at March 31, 2001, the simulation analysis
indicates that net interest income would decline by 4% over a twelve month
period given an increase in interest rates of 200 basis points, compared to a
policy limit of 15%. In terms of equity capital on a fair value basis, a 200
basis point increase in interest rates is estimated to reduce the fair value of
capital (as computed) by 13%, as compared to a policy limit of 25%.
LIQUIDITY
Liquidity is measured using an approach designed to take into account
the Company's growth, mortgage banking activities and leverage programs. Also
considered are the sophistication of investment activities and changes in the
liquidity of the investment portfolio due to fluctuations in interest rates.
Under this approach, implemented by the funds management committee under formal
policy guidelines, the Company's liquidity position is measured weekly, looking
forward thirty, sixty and ninety days. The measurement is based upon the
asset-liability management model's projection of a funds sold or purchased
position, along with ratios and trends developed to measure dependence on
purchased funds, leverage limitations and core growth. Resulting projections as
of March 31, 2001, show short-term investments exceeding short-term borrowings
by
8
<PAGE>
$18,237,000 (the figure was $12,369,000 at December 31, 2000) over the next 90
days. This excess of liquidity over projected requirements for funds indicates
that the Company can continue to increase its loans and other earning assets
without incurring additional borrowing.
In addition, the Company has external sources of funds, which can be
drawn upon when funds are required. The main source of external liquidity is an
available line of credit for $529,633,000 with the Federal Home Loan Bank of
Atlanta, of which approximately $301,225,000 was outstanding at March 31, 2001.
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 $258,400,000 at March 31, 2001, against which there were
outstandings of approximately $30,000,000. Based upon its liquidity analysis,
including external sources of liquidity available, management believes the
liquidity position is appropriate at March 31, 2001.
CAPITAL MANAGEMENT
The Company recorded a total risk-based capital ratio of 13.60% at
March 31, 2001, compared to 13.73% at December 31, 2000; a tier 1 risk-based
capital ratio of 12.55%, compared to 12.69%; and a capital leverage ratio of
8.11%, compared to 8.21%. Capital adequacy, as measured by these ratios, was
well above regulatory requirements. Management believes the level of capital at
March 31, 2001 is appropriate.
Stockholders' equity for March 31, 2001 totaled $138,023,000 (including
$4,467,000 reported for accumulated other comprehensive income), representing an
increase of 8.2% from $127,558,000 at December 31, 2000 (net of $2,147,000
reported for accumulated other comprehensive loss). Excluding accumulated other
comprehensive income (loss), the increase was 3.0%. The Company's accumulated
other comprehensive income (loss) category is comprised of net unrealized gains
and losses on available-for-sale securities. Internal capital generation (net
income less dividends) added $3,299,000 to equity during the first three months
of 2001, representing an annualized rate (when considered as a percentage of
average total stockholders' equity) of 10.2% versus 9.9% for the year ended
December 31, 2000.
External capital formation resulting from stock issuances under the
dividend reinvestment and stock purchase plan and, to a much lesser degree, from
exercises of stock options, totaled $552,000 during the first three months of
2001. There were no share repurchases over the period.
Dividends for the first three months of the year were $0.21 per share
in 2001, compared to $0.20 per share in 2000, for dividend payout ratios
(dividends declared per share to diluted net income per share) of 38.18% and
38.46%, respectively.
B. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Net income for the first three months of the year increased $285,000 or
5.7% in 2001 over 2000, to $5,305,000 from $5,020,000. Diluted earnings per
share after three months were $0.55 in 2001 compared to $0.52 in 2000. The
annualized returns on average equity for the three month periods ended March 31
were 16.41% in 2001 and 18.90% in 2000. The annualized return on average assets
for the same three month periods were 1.18% and 1.27% in 2001 and 2000,
respectively. Excluding nonoperating items of income and expense, net income for
the first three months of the year was $5,743,000 ($0.59 per diluted share) or
26.4% above the $4,544,000 ($0.47 per diluted share) earned in 2000, for returns
on average equity of 17.76% and 17.10%, respectively, and returns on average
assets of 1.28% and 1.15%, respectively. The most significant nonoperating item
was the $908,000 after-tax gain on the sale of a building which occurred in the
first quarter of 2000. Nonoperating items also included gains (losses) on
security transactions and the non-cash amortization of intangible assets.
Comparing the three month periods ended March 31, the net interest
margin decreased by 15 basis points, to 4.00% in 2001 from 4.15% in 2000, while
the net interest spread decreased by 25 basis points, to 3.36% from 3.61%. The
smaller decline in net interest margin reflected the favorable impact of an
increase in the percentage of earning assets funded from noninterest-bearing
sources during the first three months of 2001, compared to the same period of
2000.
9
<PAGE>
Sandy Spring Bancorp and Subsidiaries
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands and tax equivalent)
<TABLE>
<CAPTION>
For the three months ended March 31,
2001 2000
---------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
---------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Total loans and leases $ 982,263 8.69% $ 839,661 8.45%
========= ===== ========= =====
Total securities 679,388 7.01 624,116 7.03
Other earning assets 24,048 5.45 15,060 6.55
---------- ----------
TOTAL EARNING ASSETS 1,685,699 7.97% 1,478,837 7.83%
Nonearning assets 133,533 114,948
---------- ----------
Total Assets $1,819,232 $1,593,785
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits $ 150,085 1.04% $ 156,421 1.13%
Money market savings deposits 344,508 4.19 279,661 3.74
Regular savings deposits 101,487 1.74 106,186 2.00
Time deposits 406,233 5.71 434,163 5.12
---------- ----------
Total interest-bearing deposits 1,002,313 4.09 976,431 3.75
Short-term borrowings 337,894 5.30 236,549 5.28
Long-term borrowings 111,382 7.25 73,959 7.14
---------- ----------
Total interest-bearing liabilities 1,451,589 4.61 1,286,939 4.22
---------- ----------
Noninterest-bearing demand deposits 226,135 203,961
Other noninterest-bearing liabilities 10,378 (3,964)
Stockholders' equity 131,130 106,849
---------- ----------
Total Liabilities & Stockholders' Equity $1,819,232 $1,593,785
========== ==========
Interest Rate Spread 3.36% 3.61%
===== =====
Net Interest Margin (1) 4.00% 4.15%
===== =====
Ratio of average earning assets to
average interest-bearing liabilities 116.13% 114.91%
========== ==========
<FN>
(1) Net interest margin = net interest income / total interest-earning assets
</FN>
</TABLE>
10
<PAGE>
NET INTEREST INCOME
Net interest income for the first three months of the year was
$15,541,000 in 2001, an increase of 10.7% over $14,043,000 in 2000, reflecting a
higher volume of average earning assets. On a tax-equivalent basis, net interest
income increased 8.9% to $16,619,000 in 2001, from $15,265,000 in 2000. The
effects of average balances, yields and rates are presented in the table on page
10.
For the first three months, tax-equivalent interest income increased
$4,383,000 or 15.2% in 2001, compared to 2000. Average earning assets rose 14.0%
over the prior year period, while the average yield earned on those assets
increased 14 basis points to 7.97% from 7.83%. Comparing the first three months
of 2001, versus 2000, average loans grew 17.0% to $982,263,000 (58.3% of average
earning assets, versus 56.8% a year ago), while the average yield on loans and
leases increased 24 basis points to 8.69% from 8.45%. The majority of the
increase in average yield between the periods was attributable to the impact of
relatively high yielding leases acquired in December, 2000. Average commercial
loans increased 18.8%, average residential real estate loans increased 17.4%,
and average consumer loans increased 12.8%. Average total securities rose 8.9%
to $679,388,000 (40.3% of average earning assets, versus 42.2% a year ago),
while the average yield remained essentially level at 7.01% versus 7.03% for the
first quarters of 2001 and 2000, respectively.
Interest expense for the first three months of the year increased
$3,029,000 or 22.4% in 2001, over 2000, due to the combined effects of 12.8% or
$164,650,000 higher average interest-bearing liabilities and a 39 basis point
increase in the average rate paid for those funds to 4.61% from 4.22%. Average
time, regular savings and interest-bearing demand deposits declined, while
average money market savings deposits grew by $64,847,000 or 23.2% over the
period.
CREDIT RISK MANAGEMENT
During the first three months of the year, the provision for credit
losses was $492,000 in 2001, compared to $300,000 in 2000. Net charge-offs of
$330,000 were recorded for the three month period ended March 31, 2001, while
there were net charge-offs of $131,000 for the same period a year earlier.
The Company regularly analyzes the sufficiency of its allowance for
credit losses through a methodology consisting of several key elements, which
include the formula allowance, based upon historical loss experience, specific
allowances for problem graded credits, and the unallocated allowance, based upon
management's quarterly review of various conditions. Such conditions include
general economic and business conditions affecting key lending areas, credit
quality trends (including trends in delinquencies and nonperforming loans
expected to result from existing conditions), loan and lease volumes and
concentrations, specific industry conditions within portfolio categories, recent
loss experience in particular loan and lease categories, duration of the current
business cycle, bank regulatory examination results, findings of internal credit
examiners, and management's judgment with respect to various other conditions
including credit administration and management, and the quality of risk
identification systems. During the first quarter of 2001, there were no changes
in estimation methods or assumptions that affected the allowance methodology.
The allowance for credit losses was 1.18% of total loans and leases at March 31,
2001, and 0.98% at December 31, 2000. Management believes that the allowance for
credit losses is adequate.
Nonperforming loans and leases, and nonperforming assets each increased
by $280,000, to $2,773,000 and $3,153,000, respectively, from December 31, 2000
to March 31, 2001. Expressed as a percentage of total assets, nonperforming
assets remained essentially level, being 0.17% at March 31, 2001, and 0.16% at
December 31, 2000. The allowance for credit losses represented 422% of
nonperforming loans and leases at March 31, 2001, compared to similar coverage
of 462% at December 31, 2000. Significant variation in this coverage ratio may
occur from period to period because the amount of nonperforming loans and leases
depends largely on the condition of a small number of individual credits and
borrowers relative to the total loan and lease portfolio. Other real estate
owned totaled approximately $380,000 at March 31, 2001, and at December 31,
2000. The balance of impaired loans at March 31, 2001 was $672,000, with
reserves against those loans totaling $100,000, versus a balance at December 31,
2000 of $613,000, also with reserves of $100,000.
11
<PAGE>
ANALYSIS OF CREDIT RISK
(Dollars in thousands)
Activity in the allowance for credit losses is shown below:
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, 2001 December 31, 2000
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 11,530 $ 8,231
Provision for credit losses 492 2,690
Allowance acquired 0 1,300
Loan charge-offs:
Residential real estate (18) (220)
Commercial loans and leases (269) (246)
Consumer (49) (303)
-------- --------
Total charge-offs (336) (769)
Loan recoveries:
Residential real estate 0 0
Commercial loans and leases 4 36
Consumer 2 42
-------- --------
Total recoveries 6 78
-------- --------
Net charge-offs (330) (691)
-------- --------
BALANCE, PERIOD END $ 11,692 $ 11,530
======== ========
Net charge-offs to average loans and leases
(annual basis) 0.14% 0.08%
Allowance to total loans and leases 1.18% 1.19%
</TABLE>
The following table presents nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
March 31 December 31,
2001 2000
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans and leases $ 879 $ 684
Loans and leases 90 days past due 1,894 1,809
Restructured loans and leases 0 0
-------- --------
Total Nonperforming Loans and leases* 2,773 2,493
Other real estate owned 380 380
-------- --------
TOTAL NONPERFORMING ASSETS $ 3,153 $ 2,873
======== ========
Nonperforming assets to total assets 0.17% 0.16%
<FN>
---------------------------------------------------------------------------------------------------------------------------
* Those performing credits considered potential problem credits, as defined and identified by management, amounted to approximately
$9,843,000 at March 31, 2001, compared to $9,576,000 at December 31, 2000. Although these are credits where known information about
the borrowers' possible credit problems causes management to have doubts as to their ability to comply with the present repayment
terms, most are well collateralized and are not believed to present significant risk of loss.
</FN>
</TABLE>
12
<PAGE>
NONINTEREST INCOME AND EXPENSES
Noninterest income increased by 4.2% or $200,000 during the three
months ended March 31, 2001, versus the same period of 2000. Excluding
non-operating items, principally the $1,502,000 gain on the sale of a building
in the first quarter of 2000, the increase in noninterest income was 48.5% or
$1,564,000. This change was largely attributable to higher gains on sales of
mortgage loans, growth in return check charges, a component of service charges
on deposit accounts, and increases in fees from sales of investment products and
in income from bank owned life insurance, which are classified as other
noninterest income.
For the three months ended March 31, noninterest expenses increased
14.6% or $1,642,000 to $12,872,000 in 2001, from $11,230,000 in 2000. The
Company incurs additional costs in order to enter new markets, provide new
services, and support the growth of the Company. Management controls its
operating expenses, however, with the goal of maximizing profitability over
time. The increase in noninterest expenses from first quarter 2000, to first
quarter 2001, reflected higher salaries and benefits related primarily to merit
increases and incentive compensation, the rise in amortization of acquisition
intangibles, and an increase in consulting services costs. Average full-time
equivalent employees decreased by 31 persons (representing a 7.0% reduction), to
445 during the first three months of 2001, compared to 476 during the first
three months of 2000. With the exclusion of nonoperating items of income and
expense from earnings, the first quarter ratio of net income per average
full-time-equivalent employee rose in 2001, to $12,900 from $9,500 in 2000.
INCOME TAXES
The effective tax rate for the year-to-date as of March 31 was 25.3% in
2001, compared to 30.6% in 2000, reflecting in part an increase in the ratio of
nontaxable income to income before taxes.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Financial Condition - Market Risk Management" in Management's
Discussion and Analysis of Financial Condition and Results of Operations, above.
Management has determined that no additional disclosures are necessary to assess
changes in information about market risk that have occurred since December 31,
2000.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None
(b) Reports on Form 8-K.
On March 14, 2001, the Company filed a Current Report on Form 8-K
reporting, under Item 5, its intention to distribute a letter to shareholders on
or about March 15, 2001.
On March 29, 2001, the Company filed a Current Report on Form 8-K
reporting, under Item 5, that its Board of Directors had authorized the
repurchase of up to an additional 5% of the Company's outstanding shares of
common stock.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SANDY SPRING BANCORP, INC.
(Registrant)
By: /s/ HUNTER R. HOLLAR
----------------------------------------------------
Hunter R. Hollar
President and Chief Executive Officer
Date: May 8, 2001
By: /s/ JAMES H. LANGMEAD
----------------------------------------------------
James H. Langmead
Executive Vice President and Chief Financial Officer
Date: May 8, 2001
14
</TEXT>
</DOCUMENT>