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, 1997 ------------------ OR () TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission File Number: 0-19065 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 October 21, 1997 is 4,880,202 shares.
SANDY SPRING BANCORP INDEX Page - -------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at September 30, 1997 and December 31, 1996.............................1 Consolidated Statements of Income for the the Three and Nine Month Periods Ended September 30, 1997 and 1996..........................................2 Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1997 and 1996.............3 Notes to Consolidated Financial Statements...........................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................6 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................11 SIGNATURES.................................................................12
PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Sandy Spring Bancorp and Subsidiaries CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) <TABLE> <CAPTION> September 30, December 31, 1997 1996 ------------ ----------- <S> <C> <C> ASSETS Cash and due from banks $ 23,194 $ 32,899 Federal funds sold 5,707 23,278 Interest-bearing deposits with banks 944 861 Residential mortgage loans held for sale 8,264 7,985 Investments available-for-sale (at fair value) 320,529 234,423 Investments held-to-maturity -- fair value of $108,016 (1997) and $123,067 (1996) 106,781 122,272 Other equity securities 9,440 5,111 Total Loans (net of unearned income) 552,389 523,166 Less: Allowance for credit losses (6,634) (6,391) ---------- --------- Net loans 545,755 516,775 Premises and equipment 25,390 20,211 Accrued interest receivable 9,384 7,917 Other real estate owned 201 0 Other assets 11,457 6,863 ---------- --------- TOTAL ASSETS $1,067,046 $ 978,595 ========== ========= LIABILITIES Noninterest-bearing deposits $ 128,325 $ 117,052 Interest-bearing deposits 689,857 689,289 ---------- --------- Total deposits 818,182 806,341 Short-term borrowings 136,886 68,127 Long-term borrowings 4,598 4,820 Accrued interest and other liabilities 3,807 2,726 ---------- --------- TOTAL LIABILITIES 963,473 882,014 STOCKHOLDERS' EQUITY Common stock -- par value $1.00; shares authorized 15,000,000; shares issued and outstanding 4,888,164 (1997) and 4,902,113 (1996) 4,888 4,902 Surplus 32,859 33,474 Retained earnings 64,171 57,669 Net unrealized gain on investments available-for-sale 1,655 536 ---------- --------- TOTAL STOCKHOLDERS' EQUITY 103,573 96,581 ---------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,067,046 $ 978,595 ========== ========= </TABLE> See Notes to Consolidated Financial Statements. 1
Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, --------------------------- -------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Interest income: Interest and fees on loans $ 12,524 $ 11,627 $ 36,917 $ 34,508 Interest on loans held for sale 90 36 206 117 Interest on deposits with banks 19 81 61 180 Interest and dividends on securities: Taxable 5,693 3,841 15,158 10,898 Nontaxable 828 831 2,450 2,525 Interest on federal funds sold 257 357 904 1,087 ---------- --------- --------- --------- TOTAL INTEREST INCOME 19,411 16,773 55,696 49,315 Interest expense: Interest on deposits 7,297 6,973 21,509 20,878 Interest on short-term borrowings 1,702 523 3,652 1,372 Interest on long-term borrowings 84 84 244 239 ---------- --------- --------- --------- TOTAL INTEREST EXPENSE 9,083 7,580 25,405 22,489 ---------- --------- --------- --------- NET INTEREST INCOME 10,328 9,193 30,291 26,826 Provision for Credit Losses 300 -- 525 208 ---------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 10,028 9,193 29,766 26,618 Noninterest Income: Securities gains (losses) 183 (16) 315 (66) Service charges on deposit accounts 856 766 2,434 2,154 Gains on mortgage sales 319 145 843 588 Trust income 331 231 850 670 Other income 843 392 1,933 1,384 ---------- --------- --------- --------- TOTAL NONINTEREST INCOME 2,532 1,518 6,375 4,730 Noninterest Expenses: Salaries and employee benefits 4,234 3,718 12,121 10,746 Occupancy expense of premises 598 525 1,683 1,559 Equipment expenses 550 582 1,601 1,633 Marketing 197 300 909 770 FDIC insurance expense 26 2 76 4 Outside data services 336 429 933 898 Other expenses 1,342 1,310 3,909 3,287 ---------- --------- --------- --------- TOTAL NONINTEREST EXPENSES 7,283 6,866 21,232 18,897 ---------- --------- --------- --------- Income Before Income Taxes 5,277 3,845 14,909 12,451 Income Tax Expense 1,763 1,372 5,072 4,199 ---------- --------- --------- --------- NET INCOME $ 3,514 $2,473 $ 9,837 $ 8,252 ========== ========= ========= ========= PER SHARE DATA: Net Income $ 0.71 $ 0.51 $ 2.00 $ 1.71 Dividends Declared 0.24 0.20 0.68 0.57 </TABLE> See Notes to Consolidated Financial Statements. 2
Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, ----------------------------------- 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows from Operating Activities: Net Income $ 9,837 $ 8,252 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,592 1,374 Provision for credit losses 525 208 Deferred income taxes (4) 152 Origination of loans held for sale (52,838) (40,134) Proceeds from sales of loans held for sale 53,402 42,348 Gains on sales of loans held for sale (843) (653) Securities (gains) losses (315) 66 Net change in: Accrued interest receivable (1,467) (491) Accrued income taxes 324 (550) Other accrued expenses 757 (172) Other -- net (5,573) 515 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,397 10,915 Cash Flows from Investing Activities: Net (increase) decrease in interest-bearing deposits with banks (83) 204 Purchases of investments held-to-maturity (9,074) (24,967) Purchases of other equity securities (4,685) (304) Purchases of investments available-for-sale (263,813) (96,434) Proceeds from sales of investments available-for-sale 58,393 14,798 Proceeds from maturities, calls and principal payments of investments 24,709 25,151 held-to-maturity Proceeds from maturities, calls and principal payments of investments 121,476 40,027 available-for-sale Proceeds from sales of loans 0 291 Proceeds from sales of other real estate owned 359 250 Net increase in loans receivable (29,755) (24,884) Expenditures for premises and equipment (6,614) (1,311) ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (109,087) (67,179) Cash Flows from Financing Activities: Net increase (decrease) in demand and savings accounts 57 21,579 Net increase (decrease) in time and other deposits 11,784 15,714 Net increase (decrease) in short-term borrowings 68,559 9,463 Proceeds from long-term borrowings 0 1,800 Retirement of long-term borrowings (22) (23) Common stock purchased and retired (1,948) 0 Proceeds from issuance of common stock 1,319 1,344 Dividends paid (3,335) (2,736) ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 76,414 47,141 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27,276) (9,123) Cash and Cash Equivalents at Beginning of Year 56,177 60,435 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,901 $51,312 ========== ========== </TABLE> 3
Cont'd CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Supplemental Disclosures: <S> <C> <C> Interest payments $ 24,237 $ 22,575 Income tax payments 5,111 4,297 Noncash Investing Activities: Transfers from loans to other real estate owned 532 210 Reclassification of borrowings from long-term to short-term 200 2,100 Unrealized gain (loss) on investments available-for-sale net of deferred tax effect of $705 in 1997 and $(499) in 1996 1,119 (793) </TABLE> *Cash and cash equivalents include amounts of "Cash and due from banks" and "Federal funds sold" on the Consolidated Balance Sheets. See Notes to Consolidated Financial Statements. 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL The foregoing financial statements are unaudited; however, in the opinion of Management, all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim periods have been included. These statements should be read in conjunction with the financial statements and accompanying notes included in Sandy Spring Bancorp's 1996 Annual Report to Shareholders. The results shown in this interim report are not necessarily indicative of results to be expected for the full year 1997. The accounting and reporting policies of Sandy Spring Bancorp (the "Company") conform to generally accepted accounting principles and to general practice within the banking industry. Certain reclassifications have been made to amounts previously reported to conform with current classifications. Consolidation has resulted in the elimination of all significant intercompany accounts and transactions. Financial data for periods prior to the merger with Annapolis Bancshares, Inc. on August 29, 1996 has been retroactively restated under pooling of interests accounting. NOTE 2 - STOCKHOLDERS' EQUITY On April 16, 1997, the Company announced that its Board of Directors had authorized the repurchase of up to 5%, or 246,042 shares, of Bancorp's outstanding common stock, par value $1.00 per share, in connection with shares expected to be issued pursuant to Bancorp's dividend reinvestment, stock option, and employee benefit plans and for other corporate purposes. The share repurchases would be made on the open market and in privately negotiated transactions, from time to time until March 31, 1999, or earlier termination of the program by the Board. Through September 30, 1997, 52,381 shares have been repurchased. NOTE 3 - PER SHARE DATA Net income per common share is based on the weighted average number of shares outstanding which was, for the third quarter, 4,893,962 in 1997 and 4,878,888 in 1996 and, for the first nine months, 4,906,633 in 1997 and 4,860,422 in 1996. 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. 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. All financial information reflected in the following discussion for periods prior to the merger with Annapolis Bancshares, Inc. on August 29, 1996 has been retroactively restated. 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 banking offices in Montgomery, Howard, Anne Arundel and Prince George's Counties in Maryland. On April 16, 1997, the Company announced that its Board of Directors had authorized the repurchase of up to 5%, or 246,042 shares, of its outstanding common stock, par value $1.00 per share, in connection with shares expected to be issued under the Company's dividend reinvestment, stock option, and employee benefit plans and for other corporate purposes. The share repurchases are expected to be made primarily on the open market from time to time until March 31, 1999, or earlier termination of the repurchase program by the Board. Repurchases under the program will be made at the discretion of management based upon market, business, legal, accounting and other factors. The Company has established a strategy of independence, and intends to establish or acquire additional offices or banking organizations as appropriate opportunities may arise. A. FINANCIAL CONDITION The Company's total assets were $1,067,046 at September 30, 1997, compared to $978,595 at December 31, 1996, increasing $88,451 or 9.0% during the first nine months of 1997. Earning assets increased $86,958 or 9.5% to $1,004,054 at September 30, 1997 from $917,096 at December 31, 1996. Total loans rose 5.6% or $29,223 during the first nine months of 1997 to $552,389. The largest percentage increase occurred in construction loans, up 20.3% or $9,694, due to growth in residential construction loans. Mortgage loans increased $14,472 or 3.8%, primarily reflecting a rise in 1-4 family residential credits. Modest growth was achieved in the other loan categories, with commercial loans up 4.0% or $2,750 and consumer loans showing a 7.5% or $2,314 rise. The investment portfolio, consisting of available-for-sale, held-to-maturity and other equity securities, is the other significant category of earning assets. Most of the $74,944 or 20.7% increase in total investments from December 31, 1996 to September 30, 1997 represents leveraging of the balance sheet. Bancorp's derivative activities are limited to the sale of covered call options associated with shares of common stocks in the Bank's investment portfolio. The options are written against equities that have a market value in excess of book value and therefore, the effect of any option being exercised by the holder would be to record a realized gain. The bank employs this practice in order to potentially enhance the yield on the portfolio. Premiums received on the sale of covered call options are deferred and included in noninterest income upon option expiration or included in the computation of realized gains upon option exercise. Total deposits were $818,182 at September 30, 1997, increasing $11,841 or 1.5% from $806,341 at December 31, 1996. Interest-bearing deposits were essentially unchanged while noninterest-bearing demand deposits rose $11,273 or 9.6%. Growth in small business checking accounts was the primary cause of the increase in noninterest-bearing demand deposits. Federal Home Loan Bank of Atlanta advances in connection with a leverage program were largely responsible for the $68,759 increase in short-term borrowings to $136,886 at September 30, 1997 from $68,127 at December 31, 1996. 6
Liquidity and Interest Ratio Sensitivity The Company's liquidity position, considering both internal and external sources available, exceeded anticipated short and long term funding needs at September 30, 1997. In assessing liquidity, management considers operating requirements, the seasonality of loan and deposit flows, investment, loan, borrowing and deposit maturities, expected fundings of loans, deposit withdrawals, and the market values of available-for-sale investments. The Company employs simulation analysis in order to assess the degree of interest rate risk inherent in its asset and liability portfolios. Such risk is monitored in accordance with board of directors' policy limits by the Bank's asset-liability committee. The limit established for the estimated twelve month period impact of a 200 basis point change in interest rates on net interest income is 15%, while the limit for the estimated change in the fair value of the Company's capital is 25%. Simulation modeling measured from September 30, 1997 indicated impacts of 6% on net interest income and 18% on the fair value of capital, both within the policy limits. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. Capital Management The Company recorded a total risk-based capital ratio of 17.49% at September 30, 1997, compared to 17.56% at December 31, 1996; a tier 1 risk-based capital ratio of 16.41%, compared to 16.44%; and a capital leverage ratio of 9.53%, compared to 10.38%. Capital adequacy, as measured by these ratios, was well above regulatory requirements. Stockholders' equity totaled $103,573 (including a net unrealized gain of $1,655 on investments available-for-sale) at September 30, 1997, an increase of 7.2% from $96,581 (including a net unrealized gain of $536) at December 31, 1996. Internal capital generation (net income less dividends) provided $6,502 in additional equity during the first nine months of 1997, representing an annualized rate (when considered as a percentage of average total stockholders' equity) of 8.8% versus 8.7% for the year ended December 31, 1996. External capital formation amounted to $1,319 for the nine months ended September 30, 1997, resulting from issuance of 29,097 shares under the Company's dividend reinvestment plan and 9,358 shares from employee purchases through 401K benefit plans. Share repurchases, begun in the second quarter of 1997, have resulted in the retirement of 52,381 shares at an aggregate purchase price of $1,948 through September 30, 1997. Dividends for the first three quarters were $0.68 per share in 1997, compared to $0.57 per share in 1996, for dividend payout ratios of 34.00% and 33.33%, respectively. B. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Net income for the first nine months of the year rose $1,585 or 19.2% in 1997, to $9,837 ($2.00 per share) from the $8,252 ($1.71 per share) earned in the first nine months of 1996. Excluding nonrecurring merger costs associated with the acquisition of Annapolis Bancshares, Inc. and recorded in third quarter 1996, the increase was 11.5%. The annualized return on average assets for the first nine months of the year was 1.29% in 1997 compared to 1.23% in 1996. The annualized returns on average equity for the same nine month periods were 13.31% and 12.35% in 1997 and 1996, respectively. Net Interest Income Net interest income for the first nine months of the year was $30,291 in 1997, an increase of 12.9% over $26,826 in 1996, reflecting a higher volume of average earning assets. For the first nine months, tax-equivalent interest income increased $6,311 or 12.5% in 1997, compared to 1996. Average earning assets rose 12.1% over the prior year period while the average yield earned on those assets increased to 7.99% from 7.95%. Comparing the first nine months of 1997 versus 1996, average loans grew 6.7% to $537,148 (56.5% of average earning assets) while the average yield on loans remained essentially constant. Commercial mortgage, residential construction and commercial loans were responsible for most of the rise in total loans. Average total securities increased 24.7% to $386,437 (40.6% of average earning assets) and recorded a 19 basis point increase in average yield. 7
Interest expense for the first nine months increased $2,916 or 13.0%, due to higher average interest-bearing liabilities. Credit Risk Management During the first nine months of the year, the provision for credit losses was $525 in 1997, compared to $208 in 1996. Net charge-offs of $282 were recorded for the nine month period ended September 30, 1997 while there were net charge-offs of $261 for the same period a year earlier. Nonperforming loans decreased by $2,169 and total nonperforming assets decreased by $1,968, from December 31, 1996 to September 30, 1997. Expressed as a percentage of total assets, nonperforming assets were 0.25% at September 30, 1997 and 0.48% at December 31, 1996. Because the loan portfolio includes a significant number of loans with large individual balances, the unexpected deterioration of one or a few such loans may cause a significant increase in nonperforming loans and assets or in potential problem loans. This occurred at September 30, 1997 in the potential problem loan category, where three loans were responsible for $3,739 of the $4,290 increase from December 31, 1996. These credits are well collateralized and are not believed to present significant risk of loss. The total balance of impaired loans was $1,136 at September 30, 1997 and the reserve on those loans was $25 compared to $1,280 with a reserve of $127 at December 31, 1996. The Company regularly analyzes the sufficiency of its allowance for credit losses based upon a number of factors, including lending risks associated with growth and entry into new markets, loss allocations for specific problem credits, the level of the allowance to nonperforming loans, historical loss experience, economic conditions, portfolio trends and credit concentrations, and changes in the size and character of the loan portfolio. Management establishes the allowance for credit losses in an amount that it determines, based upon these factors, is sufficient to provide for losses inherent in the loan portfolio. At September 30, 1997, the allowance for credit losses was 1.20% of total loans versus 1.22% at December 31, 1996. Coverage of risk in the loan portfolio may be evaluated using a ratio of the allowance for credit losses to nonperforming loans. Significant variation in this coverage ratio may occur from period to period because the amount of nonperforming loans depends largely upon the condition of a small number of individual loans and borrowers relative to the total loan portfolio. At September 30, 1997, the allowance for credit losses represented 267% of nonperforming loans compared to 137% at December 31, 1996. Management believes the allowance for credit losses at September 30, 1997 was adequate. Noninterest Income and Expenses Noninterest income of $6,375 earned during the nine month period ended September 30, 1997 represented a $1,645 or 34.8% increase over $4,730 achieved over the same time frame in the prior year. The primary categories posting increases were, in order of magnitude, nonrecurring securities gains, gains on mortgage sales, return check charges, debit card fees and trust department fees. For the nine months ended September 30, 1997, noninterest expenses increased $2,335 or 12.4% to $21,232 from $18,897 in 1996. Excluding one-time merger costs of $744 in third quarter 1996, the increase was $3,079 or 17.0%. Categories (excluding merger expenses in 1996) that most significantly impacted the change were "salaries and employee benefits", up $1,547 or 14.6%, and "other expenses", up $952 or 32.2%. The increase in compensation expenses reflected a larger staff and an expanded branch network. The rise in other expenses was primarily attributable to higher communications costs and professional fees and to increased amortization of intangibles relating to a purchase of deposits in late 1996. Outside data services also grew significantly by $234 or 33.5%. The ratio of net income to average full-time-equivalent (FTE) employees was $25 for the nine month period ended September 30, 1997 and $24 for the same period in 1996, despite a 12.8% rise in average FTE employees to 388 from 344. Income Taxes The effective tax rate through the first three quarters of the year was 34.0% in 1997, compared to 33.7% in 1996. 8
ANALYSIS OF CREDIT RISK (Dollars in thousands) Activity in the allowance for credit losses is shown below: <TABLE> <CAPTION> 9 Months Ended 12 Months Ended September 30, 1997 December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Balance, January 1 $ 6,391 $ 6,597 Provision for credit losses 525 308 Loan charge-offs: Real estate-mortgage (60) (3) Real estate-construction (79) 0 Consumer (80) (143) Commercial (126) (469) ------------------------- -------------------------- Total charge-offs (345) (615) Loan recoveries: Real estate-mortgage 0 0 Real estate-construction 0 0 Consumer 29 37 Commercial 34 64 ------------------------- -------------------------- Total recoveries 63 101 ------------------------- -------------------------- Net charge-offs (282) (514) ------------------------- -------------------------- BALANCE, PERIOD END $ 6,634 $ 6,391 ========================= ========================== Net charge-offs to average loans (annual basis) 0.07% 0.10% Allowance to total loans 1.20% 1.22% </TABLE> Balance sheet risk inherent in the lending function is presented as follows at the dates indicated: <TABLE> <CAPTION> September 30, December 31, 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Non-accrual loans $ 1,431 $ 1,291 Loans 90 days past due 1,035 3,337 Restructured loans 20 27 ------------------------- -------------------------- Total Nonperforming Loans* 2,486 4,655 Other real estate owned 201 0 ------------------------- -------------------------- TOTAL NONPERFORMING ASSETS $ 2,687 $ 4,655 ========================= ========================== Nonperforming assets to total assets 0.25% 0.48% </TABLE> - -------------------------------------------------------------------------------- * Those performing loans considered potential problem loans, as defined and identified by management, amounted to approximately $7,730 at September 30, 1997, compared to $3,440 at December 31, 1996. Although these are loans where known information about the borrowers' possible credit problems causes management to have doubts as to their ability to comply with the present loan repayment terms, most are well collateralized and are not believed to present significant risk of loss. 9
C. RESULTS OF OPERATIONS - THIRD QUARTER 1997 AND 1996 Third quarter earnings of $3,514 ($0.71 per share) in 1997 were $1,041 or 42.1% above results of $2,473 ($0.51 per share) shown for the same quarter of 1996. However, excluding non-recurring merger costs in 1996 of $570 on an after-tax basis, earnings rose $471 or 15.5%. Tax-equivalent net interest income rose 11.9% during the third quarter of 1997 compared to the like three month period of 1996, showing the net effects of a 14.6% increase in the average earning asset base and a 10 basis point decline in net interest spread. The provision for credit losses was $300 for the quarter ended September 30, 1997. No provision for credit losses was believed necessary by management for the third quarter of 1996. There were net charge-offs of $97 and $234 in the respective quarters. Noninterest income for the third quarter increased $1,014 or 66.8% in 1997 versus 1996 with the largest contributors being, in order of importance, higher fees and commissions, nonrecurring securities gains, gains on mortgage sales and service charges on deposit accounts. The increase in fees and commissions primarily related to trust services, mutual funds, debit cards and ATM surcharges. Noninterest expenses rose 6.1%. However, excluding non-recurring merger costs, the rise was 19.0%, attributable largely to the same factors as discussed above for the nine month periods. The third quarter effective tax rate was 33.4% in 1997 versus 35.7% shown in 1996. 10
PART II- OTHER INFORMATION Item 6. EXHIBIT AND REPORTS ON FORM 8-K (a) Exhibits. The following is a list of Exhibit filed as part of this Quarterly Report on Form 10-Q: <TABLE> <CAPTION> No. Exhibit - --- ------- <S> <C> *10(a) Amended and Restated Cash and Deferred Profit Sharing Plan, effective as of July 1, 1997 *10(b) Form of Director Fee Deferral Agreement, August 26, 1997 *10(c) Supplemental Executive Retirement Agreement by and between Sandy Spring National Bank of Maryland and Hunter R. Hollar *10(d) Form of Supplemental Executive Retirement Agreement by and between Sandy Spring National Bank of Maryland and each of James H. Langmead, Lawrence T. Lewis, Stanley L. Merson, and Frank H. Small *10(e) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Hunter H. Hollar *10(f) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and James H. Langmead *10(g) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Lawrence T. Lewis *10(h) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Stanley L. Merson *10(i) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Frank H. Small 27 Financial Data Schedule </TABLE> * Compensatory Plan, Contract or Arrangement. (b) Reports on Form 8-K. None. 11
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 13, 1997 By: /s/ James H. Langmead --------------------- James H. Langmead Vice President and Treasurer Date: November 13, 1997 12