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 June 30, 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 July 21, 1995 is
4,307,419 shares.
SANDY SPRING BANCORP
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
June 30, 1995 and December 31, 1994...................... 1
Consolidated Statements of Income for the Six Month
Period Ended June 30, 1995 and 1994...................... 2
Consolidated Statements of Cash Flows for
the Six Month Period Ended June 30, 1995 and 1994........ 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 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS........................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................... 11
SIGNATURES................................................... 12
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Sandy Spring Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, December 31,
1995 1994
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ASSETS
Cash and due from banks $ 30,029 $ 32,549
Interest-bearing deposits with banks 714 211
Federal funds sold 16,774 5,375
Residential mortgage loans held for sale 610 --
Investments available-for-sale (at fair value) 118,743 127,772
Investments held-to-maturity -- fair value of $167,158 (1995) and
$164,103 (1994) 167,254 172,266
Other equity securities 3,965 3,966
Total Loans 424,498 401,524
Less: Allowance for credit losses (5,982) (6,108)
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Loans, net 418,516 395,416
Premises and equipment 14,283 14,230
Accrued interest receivable 5,594 5,726
Other real estate owned 57 277
Other assets 5,223 6,347
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TOTAL ASSETS $781,762 $764,135
======== ========
LIABILITIES
Noninterest-bearing deposits $100,547 $104,663
Interest-bearing deposits 569,734 540,956
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Total deposits 670,281 645,619
Short-term borrowings 32,715 45,243
Long-term borrowings 3,166 3,180
Accrued interest and other liabilities 2,271 3,137
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TOTAL LIABILITIES 708,433 697,179
STOCKHOLDERS' EQUITY
Common stock -- par value $1.00; shares authorized 6,000,000;
shares issued and outstanding 4,307,419 (1995)
and 2,140,149 (1994) 4,307 2,140
Surplus 25,639 27,133
Retained earnings 43,994 40,970
Net unrealized loss on investments available-for-sale (611) (3,287)
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TOTAL STOCKHOLDERS' EQUITY 73,329 66,956
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $781,762 $764,135
======== ========
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 Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
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Interest income:
Interest and fees on loans $ 9,326 $ 6,490 $18,082 $12,844
Interest on loans held for sale 5 15 5 57
Interest on deposits with banks 5 4 5 33
Interest and dividends on securities:
Taxable 3,322 3,552 6,718 6,734
Nontaxable 857 1,036 1,759 2,081
Interest on federal funds sold 215 126 304 274
------- ------- ------ -------
TOTAL INTEREST INCOME 13,730 11,223 26,873 22,023
Interest expense:
Interest on deposits 5,958 4,361 11,208 8,609
Interest on short-term borrowings 504 181 1,291 355
Interest on long-term borrowings 55 36 110 71
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TOTAL INTEREST EXPENSE 6,517 4,578 12,609 9,035
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NET INTEREST INCOME 7,213 6,645 14,264 12,988
Provision for Credit Losses -- 10 -- 160
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NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 7,213 6,635 14,264 12,828
Non-Interest Income:
Securities gains (losses) 1 17 (5) 52
Service charges on deposit accounts 633 579 1,212 1,123
Gains on mortgage sales 27 9 27 164
Other income 512 457 971 907
------- ------- ------ -------
TOTAL NON-INTEREST INCOME 1,173 1,062 2,205 2,246
Non-Interest Expenses:
Salaries and employee benefits 2,808 2,724 5,500 5,618
Occupancy expense of premises 480 463 939 911
Equipment expenses 454 362 892 717
Other expenses 1,431 1,389 2,933 2,664
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TOTAL NON-INTEREST EXPENSES 5,173 4,938 10,264 9,910
------- ------- ------ -------
Income Before Income Taxes 3,213 2,759 6,205 5,164
Income Tax Expense 1,005 777 1,894 1,401
------- ------- ------ -------
NET INCOME $ 2,208 $ 1,982 $ 4,311 $ 3,763
======= ======= ======= =======
PER SHARE DATA:
Net Income $0.51 $0.47 $1.00 $0.89
Dividends Declared 0.15 0.13 0.30 0.26
See Notes to Consolidated Financial Statements.
2
Sandy Spring Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
June 30,
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1995 1994
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Cash Flows from Operating Activities:
Net Income $ 4,311 $ 3,763
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 757 676
Provision for credit losses -- 160
Deferred income taxes 67 (109)
Origination of loans held for sale (2,870) (8,508)
Proceeds from sales of loans held for sale 2,287 15,651
Gains on sales of loans held for sale (27) (164)
Securities gains (losses) 5 (52)
Net change in:
Accrued interest receivable 132 (649)
Accrued income taxes 49 (106)
Other accrued expenses (771) (951)
Other -- net (795) 332
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,145 10,043
Cash Flows from Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks (503) 11,893
Purchases of investments held-to-maturity (6,407) (43,603)
Purchases of investments available-for-sale (4,444) (57,817)
Proceeds from sales of investment available-for-sale 994 15,096
Proceeds from maturities and principal payments of investment held-to-maturity 11,668 8,269
Proceeds from maturities and principal payments of investments available-for-sale 16,451 46,941
Proceeds from sales of other real estate owned 220 1,246
Net increase in loans receivable (22,974) (7,120)
Expenditures for premises and equipment (776) (1,376)
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NET CASH USED BY INVESTING ACTIVITIES (5,771) (26,471)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and savings accounts (36,797) 15,473
Net increase (decrease) in time and other deposits 61,459 (1,797)
Net increase (decrease) in short-term borrowings (12,528) (3,413)
Retirement of long-term borrowings (14) (13)
Proceeds from issuance of common stock 673 606
Dividends paid (1,288) (1,101)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 11,505 9,755
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,879 (6,673)
Cash and Cash Equivalents at Beginning of Period 37,924 52,980
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CASH AND CASH EQUIVALENTS AT END OF PERIOD* $ 46,803 $ 46,307
======== ========
3
Sandy Spring Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
Six Months Ended
June 30,
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1995 1994
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Supplemental Disclosures
Interest payments $11,299 $ 8,637
Income tax payments $ 1,778 $ 1,632
Noncash Investing Activities
Transfers from loans to other real estate owned $ -- $ 323
Transfers from investments available-for-sale
to investments held-to-maturity $ -- $56,455
Unrealized gain (loss) on investments available-for-sale
net of deferred tax effect of $1,684 in 1995 and $(2,779) in 1994 $ 2,676 $(4,417)
* 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
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 which was, for the second quarter, 4,300,125 in 1995 and 4,240,372
in 1994 and, for the first six months, 4,293,060 in 1995 and 4,234,546 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 to business on
April 12, 1995.
5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Consolidated basis, dollars in thousands except per share data)
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
GENERAL
The Company's total assets were $781,762 at June 30, 1995, compared to
$764,135 at December 31, 1994, a $17,627 or 2.3% increase in the first half of
1995. Earning assets increased $21,444 or 3.0% to $732,558 from $711,114.
Total loans rose 5.7% or $22,974 during the first six months of 1995. Of the
major loan categories, real estate mortgages grew $13,489 or 4.4%, construction
loans increased $7,299 or 31.8% and commercial loans were up $6,815 or 15.6%
while consumer loans declined $4,607 or 16.3%. 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 $14,042 or
4.6% during the six month period ended June 30, 1995. Federal funds sold
increased $11,399 over the same period.
Total deposits were $670,281 at June 30, 1995, increasing $24,662 or 3.8%
from $645,619 at December 31, 1994. All deposit categories declined except for
certificates of deposit, which rose $61,459 or 33.5%, reflecting in part an
aggressive campaign by the Company to increase these deposits. Over the same
period, short-term borrowings declined $12,528 or 27.7%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's liquidity position, considering both internal and external
sources available, exceeded anticipated short and long term funding needs at
June 30, 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) rose by $15,805
during the first half of 1995, while loans increased $22,974.
At June 30, 1995, the Bank had an asset sensitive position cumulative to one
year of $48,163 or 6.2% of total assets, indicating the assumption of relatively
low interest rate risk.
6
CAPITAL MANAGEMENT
The Company recorded a total risk-based capital ratio of 17.78% at June 30,
1995 compared to 17.52% at December 31, 1994; a Tier 1 risk-based capital ratio
of 16.53% compared to 16.27%; and a capital leverage ratio of 9.60% compared to
9.45%. Capital adequacy, as measured by these ratios, was well above regulatory
requirements.
Stockholders' equity was $73,329 at June 30, 1995 (including a net
unrealized loss of $611 on investments available-for-sale), an increase of 9.5%
from $66,956 (including a net unrealized loss of $3,287) at December 31, 1994.
Internal capital generation (net income less dividends) provided $3,023 in
additional equity during the first six months of 1995, representing an
annualized growth rate of 8.6% versus 8.7% for the year ended December 31, 1994.
External capital formation amounted to $673 for the six month period ended June
30, 1995, resulting from issuance of 18,531 shares under the Company's dividend
reinvestment plan and 8,592 shares through employee related programs.
For the six months ended June 30, 1995, dividends were $1,288 or $0.30 per
share compared to $1,101 or $0.26 per share in 1994, for payout ratios of 29.88%
and 29.26%, respectively.
B. RESULTS OF OPERATIONS - 6 MONTHS ENDED JUNE 30, 1995 AND 1994
GENERAL
Net income for the first six months of the year rose 14.6% or $548 in 1995,
to $4,311 ($1.00 per share) from $3,763 ($0.89 per share) recorded in the first
half of 1994. During the first quarter of 1994, the Company had 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 for the six months ended June 30, 1995 equates to an annualized
return on average assets of 1.14% compared to 1.07% in 1994 and returns on
average equity of 12.26% versus 11.70% for the same periods.
NET INTEREST INCOME
For the six months ended June 30, 1995, net interest income was $14,264, an
increase of 9.8% over $12,988 in 1994, as a decline in net interest spread to
3.51% from 3.65% (down 14 basis points) was more than offset by the positive
effect of a higher volume of earning assets. Average earning assets for the
first six months of 1995 were $720,622, up $50,887 or 7.6% from the first six
months of 1994.
7
Tax-equivalent interest income increased $3,689 or 16.0% in the first six
months of 1995, compared to 1994. Average earning assets rose 7.6% over the
period while the average yield earned on those assets rose by 81 basis points.
Interest expense increased $3,574 or 39.6% for the six month period ending June
30, 1995, as a net result of 8.0% higher average interest-bearing liabilities
and a 95 basis point increase in average rate paid.
While the net interest spread declined slightly from the first six months of
1994 to the first six months of 1995, the net interest margin remained
essentially unchanged due to the positive impact of the growth of non-interest
sources of funds.
Comparing the first half of 1995 to 1994, average loans grew 27.3% to $324,364
(57.3% of average earning assets) while experiencing an 84 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
8.8% to $297,380 (41.3% of average earning assets) and recorded a 25 basis point
increase in average yield.
CREDIT RISK MANAGEMENT
Due to favorable trends in the levels of both delinquencies and potential
problem loans, there was no provision for credit losses for the first six months
of 1995 as compared to $160 for the comparable period in 1994. Net charge-offs
of $126 were recorded for the first six months of 1995 versus net charge-offs of
$117 a year earlier. At June 30, 1995, commercial construction and development
credits, considered to be a higher risk category of loans, comprised 4.0% of
total loans, while traditional first and second home mortgages, generally
considered to be a lower risk category, amounted to 37.3%.
Nonperforming assets, expressed as a percentage of total assets, were 0.10% at
June 30, 1995 compared to 0.24% at December 31, 1994.
At June 30, 1995, the allowance for credit losses was 1.41% of total loans
versus 1.52% at December 31, 1994. The allowance for credit losses covered
nonperforming loans approximately nine times at June 30, 1995. The allowance
for credit losses was nearly four times the amount of nonperforming loans at
December 31, 1994.
NON-INTEREST INCOME AND EXPENSES
Non-interest income for the first six months of 1995 declined $41 or 1.8% to
$2,205 in 1995 from $2,246 in 1994. The primary reason for the decline in total
non-interest income was a $137 decrease in gains on residential mortgage loan
sales between the periods due to generally weaker loan demand. The Company is
beginning to see results from organizational changes taken in 1995 to increase
loan originations and sales in order to generate additional income in this
category in future periods.
Securities losses of $5 were recorded during the first half of 1995 compared to
gains of $52 during the comparable period of 1994.
8
ANALYSIS OF CREDIT RISK
(Dollars in thousands)
Activity in the allowance for credit losses is shown below:
6 Months Ended 12 Months Ended
June 30, 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 (23) (135)
Real estate-construction -- --
Consumer (117) (32)
Commercial (106) (342)
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Total charge-offs (246) (509)
Loan recoveries:
Real estate-mortgage 97 16
Real estate-construction -- --
Consumer 9 40
Commercial 14 224
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Total recoveries 120 280
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Net charge-offs (126) (229)
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BALANCE, PERIOD END $5,982 $6,108
======== ========
Net charge-offs to average
loans (annual basis) 0.06% 0.07%
Allowance to total loans 1.41% 1.52%
Balance sheet risk inherent in the lending function is presented as follows
at the dates indicated:
JUNE 30, December 31,
1995 1994
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Non-accrual loans $ 417 $ 866
Loans 90 days past due 235 671
Restructured loans 40 44
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Total Nonperforming Loans* 692 1,581
Other real estate owned 57 277
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TOTAL NONPERFORMING ASSETS $ 749 $1,858
======== ========
Nonperforming assets to total assets 0.10% 0.24%
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* Those performing loans considered potential problem loans, as defined and
identified by management, amounted to $12,136 at June 30, 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 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
Service charges and other non-interest income showed modest increases
during the first half of 1995 over the same period in 1994.
First half non-interest expenses increased $354 or 3.6% to $10,264 in
1995 from $9,910 in 1994. The rate of increase was moderated due in part 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 $15 for the six month period ended June 30, 1995 compared to $13
during the first six months of 1994 as the growth in net income exceeded
proportionally the growth in average FTE employees from 283 to 293.
INCOME TAXES
The effective tax rate was 30.5% for the six month period ending June
30, 1995 compared to 27.1% for the same period in 1994 reflecting a lower amount
of tax exempt income to income before income taxes in 1995 than for 1994.
C. RESULTS OF OPERATIONS - SECOND QUARTER 1995 AND 1994
Second quarter earnings of $2,208 ($0.51 per share) in 1995 were above
the second quarter of 1994, $1,982 ($0.47 per share).
Tax-equivalent net interest income rose 6.5% during the second quarter
of 1995 compared to the same three month period of 1994 as a 7.2% increase in
the earning asset base was partially offset by a 15 basis point decline in the
interest rate spread.
During the second quarter of 1995, there was no provision for credit
losses, reflecting favorable asset quality, and there were net charge-offs of
$137. By contrast, a $10 provision was believed necessary in second quarter
1994, when net charge-offs of $146 were recorded.
Non-interest income for the second quarter increased 10.5% in 1995
compared to 1994 while non-interest expenses rose 4.8%, reflecting in both cases
the same factors discussed above for year-to-date performance.
The second quarter effective tax rate was 31.3% in 1995 versus 28.2%
shown in 1994.
10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 19, 1995, the Company held its Annual Meeting of Shareholders
at which the election of five directors was considered and voted upon. Each of
the nominees was elected as follows: Solomon Graham, Jr., Charles F. Mess,
Lewis R. Schumann, and W. Drew Stabler to three-year terms and Susan D. Goff to
a two-year term.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27. Financial Data Schedule
(b) 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: August 8, 1995
By: /s/ James H. Langmead
------------------------------------
James H. Langmead
Vice President and Treasurer
Date: August 4, 1995
12