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, 2000 -------------- OR () TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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 24, 2000 is 9,584,818 shares.
SANDY SPRING BANCORP, INC. INDEX <TABLE> <CAPTION> Page - --------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <S> <C> Consolidated Balance Sheets at March 31, 2000 and December 31, 1999........................................... 1 Consolidated Statements of Income for the Three Month Periods Ended March 31, 2000 and 1999.................................... 2 Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2000 and 1999.......................... 3 Consolidated Statements of Changes in Stockholders' Equity for the Three month Periods Ended March 31, 2000 and 1999 ............................. 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 ............................................. 11 SIGNATURES............................................................................ 12 </TABLE>
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> March 31, December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS <S> <C> <C> Cash and due from banks $ 37,752 $ 44,701 Federal funds sold 16,293 5,518 Interest-bearing deposits with banks 1,904 3,701 Residential mortgage loans held for sale 959 1,822 Investments available-for-sale (at fair value) 511,482 508,715 Investments held-to-maturity -- fair value of $104,188 (2000) and $99,189 (1999) 108,934 105,117 Other equity securities 10,087 16,207 Total Loans 855,748 826,125 Less: Allowance for credit losses (8,400) (8,231) ---------- ---------- Net loans 847,348 817,894 Premises and equipment, net 31,528 32,023 Accrued interest receivable 13,186 12,765 Other real estate owned 469 163 Goodwill and other intangible assets 19,772 20,479 Other assets 24,149 22,176 ---------- ---------- TOTAL ASSETS $1,623,863 $1,591,281 ========== ========== LIABILITIES Noninterest-bearing deposits $ 216,085 $ 206,462 Interest-bearing deposits 1,003,555 958,910 ---------- ---------- Total deposits 1,219,640 1,165,372 Short-term borrowings 223,785 238,976 Guaranteed preferred beneficial interests in the Company's subordinated debentures 35,000 35,000 Other long-term borrowings 29,456 38,120 Accrued interest payable and other liabilities 5,481 5,093 ---------- ---------- TOTAL LIABILITIES 1,513,362 1,482,561 STOCKHOLDERS' EQUITY Common stock -- par value $1.00; shares authorized 15,000,000; shares issued and outstanding 9,598,853 (2000) and 9,647,975 (1999) 9,599 9,648 Surplus 23,540 24,476 Retained earnings 89,711 86,620 Accumulated other comprehensive loss (12,349) (12,024) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 110,501 108,720 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,623,863 $1,591,281 ========== ========== </TABLE> See Notes to Consolidated Financial Statements. 1
Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------- 2000 1999 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> Interest Income: Interest and fees on loans $17,611 $13,362 Interest on loans held for sale 50 138 Interest on deposits with banks 48 75 Interest and dividends on securities: Taxable 7,793 6,955 Exempt from federal income taxes 1,892 1,442 Interest on federal funds sold 198 203 ---------------- -------------- TOTAL INTEREST INCOME 27,592 22,175 Interest Expense: Interest on deposits 9,102 6,902 Interest on short-term borrowings 3,127 3,082 Interest on long-term borrowings 1,320 99 ---------------- -------------- TOTAL INTEREST EXPENSE 13,549 10,083 ---------------- -------------- NET INTEREST INCOME 14,043 12,092 Provision for Credit Losses 300 200 ---------------- -------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 13,743 11,892 Noninterest Income: Securities (losses) gains (8) 18 Service charges on deposit accounts 1,311 1,040 Gains on mortgage sales 169 625 Trust department income 409 364 Gains on sales of premises and equipment 1,502 1 Other income 1,363 878 ---------------- -------------- TOTAL NONINTEREST INCOME 4,746 2,926 Noninterest Expenses: Salaries and employee benefits 5,662 5,182 Occupancy expense of premises 1,172 681 Equipment expenses 769 592 Marketing 357 511 Outside data services 636 467 Intangible asset amortization 706 93 Other expenses 1,952 1,428 ---------------- -------------- TOTAL NONINTEREST EXPENSES 11,254 8,954 ---------------- -------------- Income Before Income Taxes 7,235 5,864 Income Tax Expense 2,215 1,610 ---------------- -------------- NET INCOME $5,020 $4,254 ================ ============== Basic Net Income Per Share $0.52 $0.44 Diluted Net Income Per Share 0.52 0.44 Dividends Declared Per Share 0.20 0.18 See Notes to Consolidated Financial Statements. </TABLE> 2
Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Three Months Ended March 31, -------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: <S> <C> <C> Net Income $5,020 $ 4,254 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 1,453 603 Provision for credit losses 300 200 Deferred income taxes (442) (234) Origination of loans held for sale (12,435) (45,499) Proceeds from sales of loans held for sale 13,467 52,728 Gains on sales of loans held for sale (169) (625) Securities losses (gains) 8 (18) Gains on sales of premises and equipment (1,502) (1) Net change in: Accrued interest receivable (421) (248) Accrued income taxes 2,201 1,195 Other accrued expenses (3,168) (2,535) Other - net (158) 711 ---------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,154 10,531 Cash Flows from Investing Activities: Net (increase) decrease in interest-bearing deposits with banks 1,797 (164) Purchases of investments held-to-maturity (3,820) (16,565) Purchases of other equity securities (5,038) (940) Purchases of investments available-for-sale (23,001) (75,104) Proceeds from sales of investments available-for-sale 14,071 12,093 Proceeds from maturities, calls and principal payments of investments 0 3,598 held-to-maturity Proceeds from maturities, calls and principal payments of investments 5,643 107,745 available-for-sale Redemption of Federal Home Loan Bank of Atlanta Stock 11,158 71 Net increase in loans receivable (29,929) (21,004) Purchases of loans 0 (12,037) Proceeds from sales of premises and equipment 2,965 57 Expenditures for premises and equipment (1,673) (365) ---------------------------- NET CASH USED BY INVESTING ACTIVITIES (27,827) (2,615) Cash Flows from Financing Activities: Net increase in demand and savings accounts 49,047 12,330 Net increase (decrease) in time and other deposits 5,221 (2,722) Net decrease in short-term borrowings (15,291) (32,474) Proceeds from long-term borrowings 26,436 35,000 Retirement of long-term borrowings (35,000) (46) Common stock purchased and retired (1,544) (466) Proceeds from issuance of common stock 559 658 Dividends paid (1,929) (1,727) ---------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 27,499 10,553 ---------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,826 18,469 Cash and Cash Equivalents at Beginning of Quarter 50,219 48,198 ---------------------------- CASH AND CASH EQUIVALENTS AT END OF QUARTER* $54,045 $66,667 ============================ </TABLE> 3
Cont'd CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <S> <C> <C> Supplemental Disclosures: Interest payments Income tax payments $13,816 $9,993 Noncash Investing Activities: 14 91 Transfers from loans to other real estate owned 300 62 Reclassification of borrowings from long-term to short-term 100 11,100 </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
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, 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 ====== ======== ======== ========= ======== BALANCES AT JANUARY 1, 1999 $9,586 $22,913 $76,305 $ 2,133 $110,937 Comprehensive Income: Net income 4,254 4,254 Other comprehensive loss, net of tax and reclassification adjustment (3,023) (3,023) ------- Total comprehensive income 1,231 Cash dividends - $0.18 per share (1,727) (1,727) Common stock issued pursuant to: Incentive stock option plan - 332 shares 8 8 Dividend reinvestment and stock purchase plan - 23,153 shares 23 627 650 Stock repurchases - 16,286 shares (16) (450) (466) ------ -------- -------- --------- -------- BALANCES AT MARCH 31, 1999 $9,593 $23,098 $78,832 $ (890) $110,633 ====== ======== ======== ========= ======== </TABLE> See Notes to Consolidated Financial Statements. 5
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 1999 Annual Report to Shareholders. The results shown in this interim report are not necessarily indicative of results to be expected for the full year 2000. 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 - PER SHARE DATA The calculations of net income per common share for the periods ended March 31 were as shown in the following table. Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding and does not include the impact of any potentially dilutive common stock equivalents. The diluted earnings per share calculation method is arrived at by dividing net income available to common stockholders by the weighted average number of common shares outstanding adjusted for the dilutive effect of outstanding stock options. 2000 1999 ---- ---- Basic: Net income available to common stockholders $ 5,020 $ 4,254 Average common shares outstanding 9,633 9,582 Basic net income per share $ 0.52 $ 0.44 ----------------------- Diluted: Net income available to common stockholders $ 5,020 $ 4,254 Average common shares outstanding 9,633 9,582 Stock option adjustment 28 41 ----------------------- Average common shares outstanding - diluted 9,661 9,623 Diluted net income per share $ 0.52 $ 0.44 ======================= 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company makes forward looking statements in this management's discussion and analysis that are subject to risks and uncertainties. These forward looking statements include: statements of goals, intentions and expectations; estimates of risks and of future costs and benefits; and statements of the ability to achieve financial and other goals. These forward looking statements are subject to significant uncertainties because they are based upon or are affected by: management's estimates and projections of future interest rates and other economic conditions; future laws and regulations; and a variety of other matters. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward looking statements. In addition, the Company's past results of operations do not necessarily indicate its future results. THE COMPANY The Company is the registered bank holding company for Sandy Spring National Bank of Maryland (the "Bank"), headquartered in Olney, Maryland. The Bank operates thirty community offices in Montgomery, Howard, Prince George's and Anne Arundel Counties in Maryland and in Fairfax County, Virginia, together with an insurance agency. The Company has established a strategy of independence, and intends to establish or acquire additional offices or banking or nonbanking organizations as appropriate opportunities may arise. A. FINANCIAL CONDITION The Company's total assets were $1,623,863,000 at March 31, 2000, compared to $1,591,281,000 at December 31, 1999, increasing $32,582,000 or 2.0% during the first quarter of 2000. Earning assets increased $38,202,000 or 2.6% to $1,505,407,000 at March 31, 2000, from $1,467,205,000 at December 31, 1999. Total loans rose 3.6% or $29,623,000 during the first quarter of 2000 to $855,748,000. Of the major loan categories, consumer loans rose $16,770,000 (up 9.1%) due largely to growth in marine loan financings, mortgage loans increased $12,185,000 (up 2.6%) with the majority attributable to an increase in 1-4 family residential first mortgages, and commercial loans increased $1,995,000 (up 2.2%). Construction loans decreased $1,327,000 (down 1.7%) from the end of 1999 to first quarter-end 2000 reflecting a decline in residential construction loans. Also, residential mortgage loans held for sale decreased by $863,000 (down 47.4%) from December 31, 1999 to $959,000 at March 31, 2000. The investment portfolio increased slightly by $464,000 or 0.1% from December 31, 1999 to March 31, 2000, as small increases in available-for-sale and held-to-maturity securities were largely offset by a decline in other equity securities caused by the sale of excess Federal Home Loan Bank of Atlanta stock following a change in regulation. The aggregate of federal funds sold and interest-bearing deposits with banks nearly doubled, rising $8,978,000 during the quarter to $18,197,000 at March 31, 2000. Total deposits were $1,219,640,000 at March 31, 2000, increasing $54,268,000 or 4.7% from $1,165,372,000 at December 31, 1999. While all of the major categories of deposits rose, growth in interest-bearing demand deposits and money market savings accounts provided the majority of the overall increase. During this period, the increase in core deposits exceeded the amount of funds required to support the growth in total loans by more than $20,000,000. Total borrowings decreased by 7.6% or $23,855,000, reflecting the net effect of declines in federal funds purchased and short- and long-term advances from the Federal Home Loan Bank of Atlanta and an increase in repurchase agreements related primarily to commercial cash management services. Market Risk Management By employing simulation analysis through use of a computer model, the Bank intends to effectively manage the potential adverse impacts that changing interest rates can have on the institution's short-term earnings, long term value, and liquidity. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. Measured from 7
March 31, 2000, the simulation analysis indicates that the Bank's net interest income would decline by 9% over a twelve month period given an increase in interest rates of 200 basis points, against a policy limit of 15%. In terms of equity capital on a fair value basis, a 200 basis point increase in interest rates is estimated to reduce the fair value of capital (as computed) by 12%, as compared to a policy limit of 25%. Liquidity The Company's liquidity position is measured monthly, looking forward ninety days. Liquid assets, defined to include cash on hand, federal funds sold, interest-bearing deposits with banks, loans held for sale, investments held-to-maturity maturing within ninety days and investments available-for-sale maturing within one year, net of projected loan growth over the following ninety days, totaled $30,174,000 or 1.9% of total assets at March 31, 2000. This represents a liquidity position, net of estimated potential cash outflows for deposits and borrowings, of $(40,918,000) or (2.5)% of total assets. Given external sources of liquidity available to the Company, investments available-for-sale not included as liquid assets in the computations above, and budgeted deposit growth, management believes the liquidity position at March 31, 2000 is appropriate. Capital Management The Company recorded a total risk-based capital ratio of 14.92% at March 31, 2000, compared to 15.23% at December 31, 1999; a tier 1 risk-based capital ratio of 14.06%, compared to 14.34%; and a capital leverage ratio of 8.66%, compared to 8.74%. Declines were attributable to asset growth and share repurchases. Capital adequacy, as measured by these ratios, was well above regulatory requirements. Management believes the level of capital at March 31, 2000 was appropriate. Stockholders' equity for March 31, 2000 totaled $110,501,000 (net of $12,349,000 reported for accumulated other comprehensive loss), representing an increase of 1.6% from $108,720,000 at December 31, 1999 (net of $12,024,000 reported for accumulated other comprehensive loss). The Company's accumulated other comprehensive loss category is comprised of net unrealized losses on available-for-sale securities. Internal capital generation (net income less dividends) provided $3,091,000 in additional equity during the first quarter of 2000, representing an annualized rate (when considered as a percentage of average total stockholders' equity) of 11.6% versus 9.4% for the year ended December 31, 1999. When the nonrecurring gain of $908,000, after tax, on the sale of a building during the first quarter of 2000 is excluded from net income, internal capital formation was $2,183,000 at a rate of 8.2%. External capital formation, primarily from stock issuances under the dividend reinvestment and stock purchase plan, totaled $559,000 during the first quarter of 2000. However, share repurchases amounted to $1,544,000 through March 31, 2000, for a net decrease in stockholders' equity from these sources of $985,000. First quarter dividends were $0.20 per share in 2000, compared to $0.18 per share in 1999, for dividend payout ratios of dividends declared per share to diluted net income per share of 38.46% and 40.91%, respectively. B. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999 Net income for the first three months of the year rose $766,000 or 18.0% in 2000 over 1999, to $5,020,000 from $4,254,000. Diluted earnings per share for the first quarter were $0.52 in 2000 and $0.44 in 1999. The annualized return on average assets for the first three months of the year was 1.27% in 2000, compared to 1.30% in 1999. The annualized returns on average equity for the same three month periods were 18.90% and 15.54% in 2000 and 1999, respectively. Excluding significant non-operating items of noninterest income and expense, which include gains and losses on sales of securities, other real estate owned and premises and equipment as well as intangible asset amortization, first quarter net income was $4,545,000 ($0.47 per diluted share) in 2000, or 5.7% above $4,299,000 ($0.45 per diluted share) in 1999. These results primarily reflect exclusion of an after tax gain of $908,000 from the sale of a building in the first quarter of 2000, partially offset by a $371,000 after tax increase in amortization expense. The Company is amortizing its intangible assets, most of which were acquired in the third quarter of 1999, over a relatively short period of time. This charge is a non-cash item and does not affect cash earnings. 8
Net Interest Income Net interest income for the first three months of the year was $14,043,000 in 2000, an increase of 16.1% over $12,092,000 in 1999, reflecting a higher volume of average earning assets. For the first three months, tax-equivalent interest income increased $5,755,000 or 25.0% in 2000, compared to 1999. Average earning assets rose 18.7% over the prior year period while the average yield earned on those assets increased 33 basis points to 7.83% from 7.50%. Comparing the first three months of 2000 versus 1999, average loans grew 33.0% to $839,662,000 (56.8% of average earning assets, versus 50.7% a year ago), while the average yield on loans decreased 20 basis points to 8.45% from 8.65%. Except for residential construction, all major loan categories increased, with the remainder of the real estate sector, especially residential mortgages, accounting for most of the overall increase. Average consumer loans also rose significantly, due in large part to increased marine loan financings and more emphasis on selling home equity loans and lines in 2000. Average total securities increased 5.7% to $624,116,000 (42.2% of average earning assets, versus 47.4% a year ago) and recorded a 65 basis point increase in average yield to 7.03% from 6.38%. First quarter interest expense increased $3,466,000 or 34.4% in 2000 over 1999, due to the combined effects of 23.1% or $241,575,000 higher average interest-bearing liabilities and a 33 basis point increase in the average rate paid for those funds to 4.23% from 3.90%. Most of the increase in average balance was due to the acquisition of seven branch offices in the third quarter of 1999. Credit Risk Management During the first three months of the year, the provision for credit losses was $300,000 in 2000, compared to $200,000 in 1999. Net charge-offs of $131,000 were recorded for the three month period ended March 31, 2000 while there were net charge-offs of $59,000 for the same period a year earlier. The Company regularly analyzes the sufficiency of its allowance for credit losses based upon a number of factors, including, among others: lending risks associated with growth and entry into new markets, loss allocations for specific problem credits, the level of the allowance to nonperforming loans, historical loss experience, economic conditions, portfolio trends and credit concentrations, changes in the size and character of the loan portfolio, and management's judgment with respect to current and expected economic conditions and their impact on the existing loan portfolio. Management establishes the allowance for credit losses in an amount that it determines, based upon these factors, is sufficient to provide for losses inherent in the loan portfolio. The allowance for credit losses was 0.98% of total loans at March 31, 2000 and 1.10% at December 31, 1999. Management believes the allowance for credit losses at March 31, 2000 was adequate. Nonperforming loans decreased by $452,000 to $1,533,000 and total nonperforming assets decreased by $146,000 to $2,002,000 from December 31, 1999 to March 31, 2000. Expressed as a percentage of total assets, nonperforming assets were 0.12% at March 31, 2000 and 0.13% at December 31, 1999. The allowance for credit losses represented 548% of nonperforming loans at March 31, 2000, compared to coverage of 415% at December 31, 1999. Significant variation in this coverage ratio may occur from period to period because the amount of nonperforming loans depends largely on the condition of a small number of individual loans and borrowers relative to the total loan portfolio. Other real estate owned totaled $469,000 at March 31, 2000, compared to $163,000 at December 31, 1999. The balance of impaired loans at March 31, 2000 was $350,000, with reserves against those loans totalling $100,000, versus a balance at December 31, 1999 of $219,000, with reserves of $50,000. 9
ANALYSIS OF CREDIT RISK (Dollars in thousands) Activity in the allowance for credit losses is shown below: 3 Months Ended 12 Months Ended March 31, 2000 December 31, 1999 - -------------------------------------------------------------------------------- Balance, January 1 $8,231 $7,350 Provision for credit losses 300 1,216 Loan charge-offs: Real estate-mortgage (20) (105) Real estate-construction 0 0 Consumer (83) (225) Commercial (34) (85) --------------- -------------- Total charge-offs (137) (415) Loan recoveries: Real estate-mortgage 0 0 Real estate-construction 0 0 Consumer 4 48 Commercial 2 32 --------------- -------------- Total recoveries 6 80 --------------- -------------- Net charge-offs (131) (335) --------------- -------------- BALANCE, PERIOD END $8,400 $8,231 =============== ============== Net charge-offs to average loans (annual basis) 0.06% 0.05% Allowance to total loans 0.98% 1.00% Balance sheet risk inherent in the lending function is presented as follows at the dates indicated: March 31, December 31, 2000 1999 - ------------------------------------------------------------------------------ Non-accrual loans $ 409 $ 275 Loans 90 days past due 1,124 1,710 Restructured loans 0 0 --------------- -------------- Total Nonperforming Loans* 1,533 1,985 Other real estate owned 469 163 --------------- -------------- TOTAL NONPERFORMING ASSETS $2,002 $ 2,148 =============== ============== Nonperforming assets to total assets 0.12% 0.13% - ----------------------------------------------------------------------------- * Those performing loans considered potential problem loans, as defined and identified by management, amounted to approximately $6,397,000 at March 31, 2000, compared to $5,401,000 at December 31, 1999. Although these are loans where known information about the borrowers' possible credit problems causes management to have doubts as to 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
Noninterest Income and Expenses Noninterest income increased 62.3% or $1,821,000 during the three months ended March 31, 2000 versus 1999. Excluding the $1,502,000 gain on the sale of a building in the first quarter of 2000 and other non-operating items, the increase in noninterest income was 12.0% or $348,000, and was primarily attributable to growth in transaction based service fees and income from sales of investment products. First quarter gains on mortgage sales declined sharply in 2000, by 73.0% or $456,000, reflecting lower origination volumes from higher mortgage rates and the limited number of homes on the resale market. For the three months ended March 31st, noninterest expenses increased 25.7% or $2,300,000 to $11,254,000 in 2000 from $8,954,000 in 1999. 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. Excluding non-operating amortization of intangible assets, the increase in noninterest expenses was 19.0% or $1,687,000 in the first quarter of 2000 versus the same period of 1999. This increase was due in large part to higher salary, occupancy and equipment expenses resulting from the branch acquisition during 1999's third quarter along with openings of a branch office and a regional lending and sales center during 2000's first quarter. Average full-time equivalent employees increased by 43 persons (up 9.9%) to 476 during the first quarter of 2000 compared to 433 during the first quarter of 1999. With the increase in staff, the ratio of net income, excluding non-operating items, per average full-time-equivalent employee decreased to $9,500 from $9,900. Income Taxes The effective tax rate for the first quarter of the year was 30.6% in 2000, compared to 27.5% in 1999. Most of this increase was due to the fully taxable nature of the $1,502,000 gain on the sale of a building in the first quarter of 2000. 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, 1999. 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 --- ------- 10* Change in Control Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring Bank of Maryland, and Ronald E. Kuykendall dated January 10, 2000. 27 Financial Data Schedule * Compensatory agreement. (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: May 8, 2000 By: /s/ James H. Langmead ----------------------------------------- James H. Langmead Vice President and Treasurer Date: May 8, 2000 12