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, 1995
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OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: O-19065
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Sandy Spring Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 52-1532952
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(State of incorporation) (I.R.S. Employer Identification Number)
17801 Georgia Avenue, Olney, Maryland 20832 301-774-6400
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(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
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The number of shares of common stock outstanding as of April 20, 1995 is
4,298,326 shares, reflecting a 2 for 1 stock split distributed to shareholders
of record at the close of business on April 12, 1995.
SANDY SPRING BANCORP
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994. . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for
the Three Month Periods Ended March 31, 1995 and 1994 . . . . . . . . . . 2
Consolidated Statements of Cash Flows for
the Three Month Periods Ended March 31, 1995 and 1994 . . . . . . . . . . 3
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . 5
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Sandy Spring Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, December 31,
1995 1994
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ASSETS
Cash and due from banks $29,354 $32,549
Interest-bearing deposits with banks 271 211
Federal funds sold 14,347 5,375
Investments available-for-sale (at market) 124,824 127,772
Investments held-to-maturity -- market
value of $164,465 (1995) and
$164,103 (1994) 168,327 172,266
Other equity securities 3,966 3,966
Total Loans 415,255 401,524
Less: Allowance for credit losses (6,119) (6,108)
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Loans, net 409,136 395,416
Premises and equipment 14,074 14,230
Accrued interest receivable 5,506 5,726
Other real estate owned 282 277
Other assets 6,209 6,347
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TOTAL ASSETS $776,296 $764,135
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LIABILITIES
Noninterest-bearing deposits $ 90,385 $104,663
Interest-bearing deposits 558,712 540,956
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Total deposits 649,097 645,619
Short-term borrowings 50,535 45,243
Long-term borrowings 3,173 3,180
Accrued interest and other liabilities 3,282 3,137
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TOTAL LIABILITIES 706,087 697,179
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares
authorized 6,000,000; shares issued
and outstanding 4,298,326 (1995)
and 2,140,149 (1994) 4,298 2,140
Surplus 25,416 27,133
Retained earnings 42,430 40,970
Net unrealized loss on investments
available-for-sale (1,935) (3,287)
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TOTAL STOCKHOLDERS' EQUITY 70,209 66,956
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $776,296 $764,135
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See Notes to Consolidated Financial Statements.
1
Sandy Spring Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
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1995 1994
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Interest income:
Interest and fees on loans $8,756 $6,354
Interest on loans held for sale -- 42
Interest on deposits with banks -- 29
Interest and dividends on securities:
Taxable 3,396 3,182
Nontaxable 902 1,045
Interest on federal funds sold 89 148
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TOTAL INTEREST INCOME 13,143 10,800
Interest expense:
Interest on deposits 5,250 4,248
Interest on short-term borrowings 787 174
Interest on long-term borrowings 55 35
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TOTAL INTEREST EXPENSE 6,092 4,457
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NET INTEREST INCOME 7,051 6,343
Provision for Credit Losses -- 150
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NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 7,051 6,193
Non-Interest Income:
Securities gains (losses) (6) 35
Service charges on deposit accounts 579 544
Gains on mortgage sales -- 155
Other income 459 450
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TOTAL NON-INTEREST INCOME 1,032 1,184
Non-Interest Expenses:
Salaries and employee benefits 2,692 2,894
Occupancy expense of premises 459 448
Equipment expenses 438 355
Other expenses 1,502 1,275
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TOTAL NON-INTEREST EXPENSES 5,091 4,972
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Income Before Income Taxes 2,992 2,405
Income Tax Expense 889 624
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NET INCOME $2,103 $1,781
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PER SHARE DATA:
Net Income $0.49 $0.42
Dividends Declared 0.15 0.13
See Notes to Consolidated Financial Statements.
2
Sandy Spring Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
March 31,
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1995 1994
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Cash Flows from Operating Activities:
Net Income $2,103 $1,781
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 391 305
Provision for credit losses -- 150
Deferred income taxes 46 (125)
Origination of loans held for sale (55) (6,552)
Proceeds from sales of loans held for sale 55 11,236
Gains on sales of loans held for sale -- (155)
Securities losses (gains) 6 (35)
Net change in:
Accrued interest receivable 220 (663)
Accrued income taxes 844 624
Other accrued expenses (556) (703)
Other -- net (838) (305)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,216 5,558
Cash Flows from Investing Activities:
Net (increase) decrease in interest-bearing
deposits with banks (60) 11,893
Purchases of investments held-to-maturity -- (30,206)
Purchases of investments available-for-sale (1,450) (42,915)
Proceeds from sales of investments available-
for-sale 994 8,991
Proceeds from maturities and principal
payments of investments held-to-maturity 4,065 5,869
Proceeds from maturities and principal
payments of investments available-
for-sale 5,392 27,215
Proceeds from sales of other real estate owned 8 1,132
Net (increase) decrease in loans receivable (13,731) 1,434
Expenditures for premises and equipment (219) (349)
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NET CASH USED BY INVESTING ACTIVITIES (5,001) (16,936)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and
savings accounts (35,584) 7,451
Net increase (decrease) in time and
other deposits 39,062 (489)
Net increase (decrease) in short-term
borrowings 5,292 (6,809)
Retirement of long-term borrowings (7) (6)
Proceeds from issuance of common stock 441 415
Dividends paid (643) (550)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 8,561 12
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,777 (11,366)
Cash and Cash Equivalents at Beginning of
Quarter 37,924 52,980
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CASH AND CASH EQUIVALENTS AT END OF QUARTER* $43,701 $41,614
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Supplemental Disclosures:
Interest payments $5,331 $4,635
Income tax payments $-- $--
Noncash Investing Activities:
Transfers from loans to other real estate owned $-- $155
Unrealized loss on investments available-for-sale
net of deferred tax effect of $851 in 1995
$(1,474) in 1994 $1,352 $(2,342)
<FN>
*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.
3
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
1994 Annual Report to Shareholders. The results shown in this interim report
are not necessarily indicative of results to be expected for the full year 1995.
The accounting and reporting policies of Sandy Spring Bancorp 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
Net income per common share is based on weighted average number of shares
outstanding of 4,285,918 in 1995 and 4,228,656 in 1994. All per share data have
been adjusted to give retroactive effect to a 2 for 1 stock split in the form of
a stock dividend declared by the Board of Directors on March 29, 1995, payable
to shareholders of record at the close of business on April 12, 1995.
4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Consolidated basis, dollars in thousands except per share data)
In the following discussion, per share amounts have been adjusted to
reflect a 2 for 1 stock split declared on March 29, 1995 (see Note 2).
A. FINANCIAL CONDITION
The Company's total assets were $776,296 at March 31, 1995, compared to
$764,135 at December 31, 1994, increasing $12,161 or 1.6% during the first
quarter of 1995. Earning assets increased $15,876 or 2.2% to $726,990 from
$711,114.
Total loans rose 3.4% or $13,731 during the first quarter of 1995. Of the
major loan categories, real estate mortgages grew $8,750 or 2.9%, construction
loans increased $3,672 or 16.0% and commercial loans were up $3,014 or 6.9%
while consumer loans declined $1,697 or 6.0%. The Company introduced its own
credit card in the first quarter of 1995.
The investment portfolio, which consists of investments available-for-sale
and held-to-maturity as well as other equity securities, declined $6,887 or 2.3%
during the three month period ended March 31, 1995. Federal funds sold, the
other category of earning assets carrying a significant balance, was up $8,972
over the same period.
Total deposits were $649,097 at March 31, 1995, increasing $3,478 or 0.5%
from $645,619 at December 31, 1994. All deposit categories declined except for
certificates of deposit, which rose $39,062 or 21.3%, reflecting an aggressive
campaign by the Company to increase these deposits. In funding new loans,
deposit growth was supplemented by higher short-term borrowings, which increased
$5,292 or 11.7% primarily through short-term credit extended by the Federal Home
Loan Bank of Atlanta.
LIQUIDITY AND INTEREST RATIO SENSITIVITY
The Company's liquidity position, considering both internal and external
sources available, exceeds anticipated short and long term funding needs at
March 31, 1995.
In assessing the Bank's internal liquidity, management considers the
seasonality of deposit flows, investment, loan and deposit maturities, expected
fundings and the market values of available for sale investments.
Core deposits (total deposits less CD's of $100,000 or more) declined by
$3,482 during first quarter 1994, while loans increased $13,731. The core
deposit decline reflected seasonal changes in non-interest bearing deposits,
although there was strong growth in core and other interest-bearing deposits
during the quarter.
At March 31, 1994, the Bank had an asset sensitive position cumulative to
one year of $11,872 or 1.5% of total assets, indicating the assumption of
relatively low interest rate risk.
5
CAPITAL MANAGEMENT
The Company recorded a total risk-based capital ratio of 17.61% at March
31, 1995 compared to 17.52% at December 31, 1994; a Tier 1 risk-based capital
ratio of 16.36% compared to 16.27%; and a capital leverage ratio of 9.44%
compared to 9.45%. Capital adequacy, as measured by these ratios, was well
above regulatory requirements.
Stockholders' equity totaled $70,209 (including a net unrealized loss of
$1,935 on investments available-for-sale) at March 31, 1995, an increase of 4.9%
from $66,956 (including a net unrealized loss of $3,287) at December 31, 1994.
Internal capital generation (net income less dividends) provided $1,460 in
additional equity during the first three months of 1995, representing an
annualized rate of 8.5% versus 8.7% for the year ended December 31, 1994.
External capital formation amounted to $441 for the quarter ended March 31,
1995, resulting from issuance of 4,719 shares under the Company's dividend
reinvestment plan and 4,296 shares through employee related programs.
First quarter dividends were $643 or $0.15 per share in 1995 compared to
$550 or $0.13 per share in 1994, for payout ratios of 30.58% and 30.88%,
respectively.
B. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Net income for the first three months of the year rose 18.1% or $322 in
1995, to $2,103 ($0.49 per share) from year earlier $1,781 ($0.42 per share).
First quarter results in 1994 included a non-recurring expense, after tax, of
approximately $178 ($0.04 per share) attributable to the accounting recognition
of special early retirement benefits extended to certain long term employees.
Net income equates to an annualized first quarter return on average assets
of 1.12% in 1995 compared to 1.03% in 1994 and returns on average equity of
12.21% and 11.22%, respectively.
NET INTEREST INCOME
First quarter net interest income was $7,051 in 1995, an increase of 11.2%
over $6,343 in 1994, as a 6 basis point decline in net interest spread to 3.52%
from 3.66% was more than offset by a higher volume of earning assets.
First quarter tax-equivalent interest income increased $2,272 or 20.1% in
1995, compared to 1994. Average earning assets rose 8.0% over the period while
the average yield earned on those assets increased by 77 basis points.
Comparing the first quarter of 1995 versus 1994, average loans grew 26.1% to
$407,969 (56.9% of average earning assets) while experiencing a 73 basis point
increase in average yield. Most of the increase in loans outstanding involved
the real estate-mortgage sector of the portfolio. Average total securities
decreased 3.8% to $303,309 (42.3% of average earning assets) and recorded a 24
basis point increase in average yield.
6
First quarter interest expense increased $1,635 or 36.7%, as a net result
of 8.7% higher average interest-bearing liabilities and an 83 basis point
increase in average rate paid.
While the net interest spread declined slightly from the first quarter of
1994 to the first quarter of 1995, the net interest margin remained essentially
unchanged.
CREDIT RISK MANAGEMENT
There was no first quarter provision for credit losses in 1995 compared to
$150 in 1994. Net recoveries of $11 were recorded for the three month period in
1995 versus net recoveries of $29 a year earlier. At March 31, 1995, commercial
construction and development credits, considered to be a higher risk category of
loans, comprised 3.0% of total loans, while traditional first and second home
mortgages, generally considered to be a lower risk category, amounted to 37.6%.
Nonperforming assets, expressed as a percentage of total loans plus other
real estate owned, were 0.39% at March 31, 1995 versus 0.46% at December 31,
1994.
At March 31, 1995, the allowance for credit losses was 1.47% of total loans
versus 1.52% at December 31, 1994. The allowance for credit losses covered
nonperforming loans approximately four and one-half times at March 31, 1995.
The allowance for credit losses was nearly four times greater than nonperforming
loans at December 31, 1994.
NON-INTEREST INCOME AND EXPENSES
First quarter non-interest income decreased $152 or 12.8% to $1,032 in 1995
from $1,184 in 1994. The primary reason for the decline in total non-interest
income was a $155 decrease in gains on residential mortgage loan sales between
the periods. The Company is taking steps aimed at increasing loan originations
and sales in order to generate additional income in this category in future
periods.
Securities losses of $6 were recorded during the first quarter of 1995
compared to gains of $35 during the comparable period of 1994.
Service charge and other non-interest income showed modest increases during
the first quarter of 1995 over the same period in 1994.
First quarter non-interest expenses increased $119 or 2.4% to $5,091 in
1995 from $4,972 in 1994. The rate of increase was moderated due to a non-
recurring expense in the first quarter of 1994 attributable to early retirement
benefits previously mentioned.
The ratio of net income to average full-time-equivalent (FTE) employees was
$7 for the three month period ended March 31, 1995 compared to $6 during the
first three months of 1994 as the number of average FTE employees rose to 290
from 277.
INCOME TAXES
The first quarter effective tax rate was 29.7% in 1995 compared to 25.9% in
1994 reflecting a lower amount of tax exempt income to income before income
taxes in 1995 than for 1994.
7
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, 1995 December 31, 1994
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Balance, January 1 $6,108 $6,177
Provision for credit losses -- 160
Loan charge-offs:
Real estate-mortgage -- (135)
Real estate-construction -- --
Consumer (92) (32)
Commercial (3) (342)
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Total charge-offs (95) (509)
Loan recoveries:
Real estate-mortgage 97 16
Real estate-construction -- --
Consumer 5 40
Commercial 4 224
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Total recoveries 106 280
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Net recoveries (charge-offs) 11 (229)
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BALANCE, PERIOD END $6,119 $6,108
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Net recoveries (charge-offs) to average loans
(annual basis) 0.00% (0.07)%
Allowance to total loans 1.47% 1.52%
Balance sheet risk inherent in the lending function is presented as follows at
the dates indicated:
March 31, December 31,
1995 1994
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Non-accrual loans $758 $ 866
Loans 90 days past due 563 671
Restructured loans 42 44
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Total Nonperforming Loans* 1,363 1,581
Other real estate owned 272 277
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TOTAL NONPERFORMING ASSETS $1,635 $1,858
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Nonperforming assets to total assets 0.21% 0.24%
<FN>
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* Those performing loans considered potential problem loans, as defined and
identified by management, amounted to $13,585 at March 31, 1995, compared to
$13,949 at December 31, 1994. Although these are loans where known information
about the borrowers' possible credit problems causes management to have serious
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.
8
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
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Hunter R. Hollar
President and Chief Executive Officer
Date: May 3, 1995
By: /s/ James H. Langmead
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James H. Langmead
Vice President and Treasurer
Date: May 3, 1995
11