UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

☐ 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
(Address of principal executive office)		(Zip Code)

301-774-6400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	SASR	The NASDAQ Stock Market, LLC

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 ☑No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐No ☑

The number of outstanding shares of common stock outstanding as of May 5, 2020

Common stock, $1.00 par value – 46,980,140 shares

SANDY SPRING BANCORP, INC.
TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

	Condensed Consolidated Statements of Condition - Unaudited at
	March 31, 2020 and December 31, 2019	4

	Condensed Consolidated Statements of Income - Unaudited for the Three
	Months Ended March 31, 2020 and 2019	5

	Condensed Consolidated Statements of Comprehensive Income – Unaudited for
	the Three Months Ended March 31, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows – Unaudited for the Three
	Months Ended March 31, 2020 and 2019	7

	Condensed Consolidated Statement of Changes in Stockholders’ Equity – Unaudited for
	the Three Month Ended March 31, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
	ABOUT MARKET RISK	57

Item 4. CONTROLS AND PROCEDURES		57

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS		57

Item 1A. RISK FACTORS		57

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		59

Item 3. DEFAULTS UPON SENIOR SECURITIES		59

Item 4. MINE SAFETY DISCLOSURES		59

Item 5. OTHER INFORMATION		59

Item 6. EXHIBITS		59

SIGNATURES		60

Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as other periodic reports filed with the Securities and Exchange Commission, and written or oral communications made from time to time by or on behalf of Sandy Spring Bancorp and its subsidiaries (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits.

Forward-looking statements reflect our expectation or prediction of future conditions, events or results based on information currently available. These forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These principal risks and uncertainties include, but are not limited to, the risks identified in Item 1A of the Company’s 2019 Annual Report on Form 10-K, Item 1A of Part II of this report and the following:

 risks, uncertainties and other factors relating to the COVID-19 pandemic, including the length of time that the pandemic continues, the duration of shelter in place orders and the potential imposition of further restrictions on travel in the future; the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates;

 general business and economic conditions nationally or in the markets that the Company serves could adversely affect, among other things, real estate prices, unemployment levels, and consumer and business confidence, which could lead to decreases in the demand for loans, deposits and other financial services that we provide and increases in loan delinquencies and defaults;

 changes or volatility in the capital markets and interest rates may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet as well as our liquidity;

 our liquidity requirements could be adversely affected by changes in our assets and liabilities;

 our investment securities portfolio is subject to credit risk, market risk, and liquidity risk as well as changes in the estimates we use to value certain of the securities in our portfolio;

 the effect of legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry;

 acquisition integration risks, including potential deposit attrition, higher than expected costs, customer loss, business disruption and the inability to realize benefits and costs savings from, and limit any unexpected liabilities associated with, any business combinations;

 competitive factors among financial services companies, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals;

 the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Public Company Accounting Oversight Board and other regulatory agencies; and

 the effect of fiscal and governmental policies of the United States federal government.

Forward-looking statements speak only as of the date of this report. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of this report or to reflect the occurrence of unanticipated events except as required by federal securities laws.

Part I

Item 1. FINANCIAL STATEMENTS

Sandy Spring Bancorp, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION – UNAUDITED

			March 31,		December 31,
(Dollars in thousands)			2020		2019
Assets
	Cash and due from banks		$	79,185	$	82,469
	Federal funds sold			131		208
	Interest-bearing deposits with banks			181,792		63,426
		Cash and cash equivalents		261,108		146,103
	Residential mortgage loans held for sale (at fair value)			67,114		53,701
	Investments available-for-sale (at fair value)			1,187,607		1,073,333
	Other equity securities			62,953		51,803
	Total loans			6,722,992		6,705,232
		Less: allowance for credit losses		(85,800)		(56,132)
	Net loans			6,637,192		6,649,100
	Premises and equipment, net			57,617		58,615
	Other real estate owned			1,416		1,482
	Accrued interest receivable			23,870		23,282
	Goodwill			369,708		347,149
	Other intangible assets, net			19,781		7,841
	Other assets			241,236		216,593
Total assets			$	8,929,602	$	8,629,002

Liabilities
	Noninterest-bearing deposits		$	1,939,937	$	1,892,052
	Interest-bearing deposits			4,653,937		4,548,267
		Total deposits		6,593,874		6,440,319
	Securities sold under retail repurchase agreements and federal funds purchased			125,305		213,605
	Advances from FHLB			754,061		513,777
	Subordinated debentures			199,046		209,406
	Accrued interest payable and other liabilities			140,982		118,921
		Total liabilities		7,813,268		7,496,028

Stockholders' Equity
	Common stock -- par value $ 1.00 ; shares authorized 100,000,000; shares issued and outstanding 34,164,672
	and 34,970,370 at March 31, 2020 and December 31, 2019, respectively.			34,165		34,970
	Additional paid in capital			562,891		586,622
	Retained earnings			512,934		515,714
	Accumulated other comprehensive income (loss)			6,344		(4,332)
		Total stockholders' equity		1,116,334		1,132,974
Total liabilities and stockholders' equity			$	8,929,602	$	8,629,002



The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED

				Three Months Ended March 31,
(Dollars in thousands, except per share data)				2020		2019
Interest Income:
	Interest and fees on loans			$	75,882	$	80,397
	Interest on loans held for sale				291		192
	Interest on deposits with banks				180		194
	Interest and dividends on investment securities:
		Taxable			6,132		5,685
		Exempt from federal income taxes			1,372		1,710
	Interest on federal funds sold				1		5
			Total interest income		83,858		88,183
Interest Expense:
	Interest on deposits				13,518		14,480
	Interest on retail repurchase agreements and federal funds purchased				580		398
	Interest on advances from FHLB				3,145		6,064
	Interest on subordinated debt				2,281		491
			Total interest expense		19,524		21,433
Net interest income					64,334		66,750
Provision (credit) for credit losses					24,469		(128)
			Net interest income after provision for credit losses		39,865		66,878
Non-interest Income:
	Investment securities gains				169		-
	Service charges on deposit accounts				2,253		2,307
	Mortgage banking activities				3,033		2,863
	Wealth management income				6,966		5,236
	Insurance agency commissions				2,129		1,900
	Income from bank owned life insurance				645		1,189
	Bank card fees				1,320		1,252
	Other income				1,653		2,222
			Total non-interest income		18,168		16,969
Non-interest Expenses:
	Salaries and employee benefits				28,053		25,976
	Occupancy expense of premises				4,581		5,231
	Equipment expenses				2,751		2,576
	Marketing				1,189		943
	Outside data services				1,582		1,778
	FDIC insurance				482		1,136
	Amortization of intangible assets				600		491
	Merger and acquisition expenses				1,454		-
	Professional fees and services				1,826		1,245
	Other expenses				5,228		4,816
			Total non-interest expenses		47,746		44,192
Income before income taxes					10,287		39,655
Income tax expense					300		9,338
	Net income			$	9,987	$	30,317

Net Income Per Share Amounts:
Basic net income per share				$	0.29	$	0.85
Diluted net income per share				$	0.28	$	0.85
Dividends declared per common share				$	0.30	$	0.28

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

				Three Months Ended March 31,
(In thousands)				2020		2019
Net income				$	9,987	$	30,317
	Other comprehensive income:
	Investments available-for-sale:
		Net change in unrealized gains on investments available-for-sale			14,263		8,814
			Related income tax expense		(3,624)		(2,306)
		Net investment gains reclassified into earnings			(169)		-
			Related income tax expense		42		-
			Net effect on other comprehensive income for the period		10,512		6,508

	Defined benefit pension plan:
		Recognition of unrealized loss			219		265
			Related income tax expense		(55)		(69)
			Net effect on other comprehensive income for the period		164		196
	Total other comprehensive income				10,676		6,704
Comprehensive income				$	20,663	$	37,021





























The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

			Three Months Ended March 31,
(Dollars in thousands)			2020		2019
Operating activities:
Net income			$	9,987	$	30,317
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			3,427		3,326
	Provision (credit) for credit losses			24,469		(128)
	Stock based compensation expense			754		690
	Tax benefits associated with share based compensation			28		41
	Deferred income tax expense/ (benefit)			(5,205)		1,069
	Origination of loans held for sale			(217,560)		(97,286)
	Proceeds from sales of loans held for sale			208,409		97,456
	Gains on sales of loans held for sale			(4,262)		(2,395)
	Losses on sales of other real estate owned			9		-
	Investment securities gains			(169)		-
	Net increase in accrued interest receivable			(588)		(1,573)
	Net (increase)/ decrease in other assets			(19,317)		5,191
	Net increase/(decrease) in accrued expenses and other liabilities			7,976		(10,381)
	Other – net			5,055		992
		Net cash provided by operating activities		13,013		27,319
Investing activities:
	(Purchases of)/proceeds from other equity securities			(10,582)		12,620
	Purchases of investments available-for-sale			(241,682)		(15,919)
	Proceeds from sales of investment available-for-sale			13,104		-
	Proceeds from maturities, calls and principal payments of investments available-for-sale			127,111		34,829
	Net (increase)/ decrease in loans			(17,760)		1,644
	Proceeds from the sales of other real estate owned			27		-
	Acquisition of business activity, net of cash paid			(26,925)		-
	Expenditures for premises and equipment			(696)		(1,066)
		Net cash provided by/ (used in) investing activities		(157,403)		32,108
Financing activities:
	Net increase in deposits			153,555		309,643
	Net decrease in retail repurchase agreements and federal funds purchased			(88,300)		(204,803)
	Proceeds from advances from FHLB			250,000		1,079,000
	Repayment of advances from FHLB			(9,716)		(1,201,333)
	Retirement of subordinated debt			(10,310)		-
	Proceeds from issuance of common stock			412		343
	Stock tendered for payment of withholding taxes			-		(101)
	Repurchase of common stock			(25,702)		-
	Dividends paid			(10,544)		(10,008)
		Net cash provided by/ (used in) financing activities		259,395		(27,259)
Net increase in cash and cash equivalents				115,005		32,168
Cash and cash equivalents at beginning of period				146,103		101,481
Cash and cash equivalents at end of period			$	261,108	$	133,649

Supplemental disclosures:
	Interest payments		$	17,055	$	21,455
	Income tax payments			-		-
	Transfer of investments held-to-maturity to available-for-sale			-		-
	Transfer from loans to residential mortgage loans held for sale			-		-
	Transfer from loans to other real estate owned			-		-

The accompanying notes are an integral part of these statements

SANDY SPRING BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY – UNAUDITED

								Accumulated
				Additional				Other		Total
		Common		Paid-In		Retained		Comprehensive		Stockholders’
(Dollars in thousands, except per share data)		Stock		Capital		Earnings		Income (Loss)		Equity
Balances at January 1, 2020		$	34,970	$	586,622	$	515,714	$	(4,332)	$	1,132,974
	Net income		-		-		9,987		-		9,987
	Other comprehensive income, net of tax		-		-		-		10,676		10,676
Common stock dividends - $0.30 per share			-		-		(10,544)		-		(10,544)
Stock compensation expense			-		754		-		-		754
Common stock issued pursuant to:
	Stock option plan - 6,013 shares		6		116		-		-		122
	Employee stock purchase plan - 8,617 shares		9		281		-		-		290
Adoption of ASC 326 - Financial Instruments - Credit Losses			-		-		(2,223)		-		(2,223)
Purchase of treasury shares - 820,328 shares			(820)		(24,882)		-		-		(25,702)
Balances at March 31, 2020		$	34,165	$	562,891	$	512,934	$	6,344	$	1,116,334

Balance at January 1, 2019		$	35,531	$	606,573	$	441,553	$	(15,754)	$	1,067,903
	Net income		-		-		30,317		-		30,317
	Other comprehensive income, net of tax		-		-		-		6,704		6,704
Common stock dividends - $0.28 per share			-		-		(10,008)		-		(10,008)
Stock compensation expense			-		690		-		-		690
Common stock issued pursuant to:
	Stock option plan - 6,755 shares		7		122		-		-		129
	Employee stock purchase plan - 7,662 shares		7		207		-		-		214
	Restricted stock - 11,959 shares		12		(113)		-		-		(101)
Balances at March 31, 2019		$	35,557	$	607,479	$	461,862	$	(9,050)	$	1,095,848


The accompanying notes are an integral part of these statements

Sandy Spring Bancorp, Inc. and Subsidiaries

Notes to the CONDENSED Consolidated Financial Statements - UNAUDITED

Note 1 – Significant Accounting Policies

Nature of Operations

Sandy Spring Bancorp (the “Company” or “Sandy Spring”), a Maryland corporation, is the bank holding company for Sandy Spring Bank (the “Bank”). Independent and community-oriented, Sandy Spring Bank offers a broad range of commercial banking, retail banking, mortgage and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. Sandy Spring Bank also offers a comprehensive menu of insurance and wealth management services through its subsidiaries, Sandy Spring Insurance Corporation (“Sandy Spring Insurance”), West Financial Services, Inc. (“West Financial”) and Rembert Pendleton Jackson (“RPJ”).

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”), prevailing practices within the financial services industry for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, the interim financial statements do not include all of the information and notes required for complete financial statements. The following summary of significant accounting policies of the Company is presented to assist the reader in understanding the financial and other data presented in this report. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2020. 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. Certain reclassifications have been made to prior period amounts, as necessary, to conform to the current period presentation. The Company has evaluated subsequent events through the date of the issuance of its financial statements.

These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 21, 2020. The Company adopted ASC 326 – Financial Instruments – Credit Losses during the first quarter of 2020. There have been no significant changes to any other of the Company’s accounting policies as disclosed in the 2019 Annual Report on Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sandy Spring Bank, and its subsidiaries, Sandy Spring Insurance Corporation, West Financial Services, Inc. and Rembert Pendleton Jackson. Consolidation has resulted in the elimination of all intercompany accounts and transactions.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, in addition to affecting the reported amounts of revenues earned and expenses incurred during the reporting period. Actual results could differ from those estimates. Estimates that could change significantly relate to the provision for credit losses and the related allowance, potential impairment of goodwill or other intangible assets, valuation of investment securities and the determination of whether available-for-sale debt securities with fair values less than amortized costs are impaired and require allowance for credit losses, valuation of other real estate owned, valuation of share-based compensation, the assessment that a liability should be recognized with respect to any matters under litigation, the calculation of current and deferred income taxes and the actuarial projections related to pension expense and the related liability.

Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits with banks (items with stated original maturity of three months or less).

Revenue from Contracts with Customers

The Company’s revenue includes net interest income on financial instruments and non-interest income. Specific categories of revenue are presented in the Condensed Consolidated Statements of Income. Most of the Company’s revenue is not within the scope of Accounting Standard Update (ASU) No. 2014-09 – Revenue from Contracts with Customers. For revenue within the scope of ASU 2014-09, the Company provides services to customers and has related performance obligations. The revenue from such services is recognized upon satisfaction of all contractual performance obligations. The following discusses key revenue streams within the scope of revenue recognition guidance.

Wealth Management Income

West Financial Services, Inc. and Rembert Pendleton Jackson, subsidiaries of the Bank, provide comprehensive investment management and financial planning services. Wealth management income is comprised of income for providing trust, estate and investment management services. Trust services include acting as a trustee for corporate or personal trusts. Investment management services include investment management, record-keeping and reporting of security portfolios. Fees for these services are recognized based on a contractually-agreed fixed percentage applied to net assets under management at the end of each reporting period. The Company does not charge/recognize any performance-based fees.

Insurance Agency Commissions

Sandy Spring Insurance, a subsidiary of the Bank, performs the function of an insurance intermediary by introducing the policyholder and insurer and is compensated by a commission fee for placement of an insurance policy. Sandy Spring Insurance does not provide any captive management services or any claim handling services. Commission fees are set as a percentage of the premium for the insurance policy for which Sandy Spring Insurance is a producer. Sandy Spring Insurance recognizes revenue when the insurance policy has been contractually agreed to by the insurer and policyholder (at transaction date).

Service Charges on Deposit Accounts

Service charges on deposit accounts are earned on depository accounts for consumer and commercial account holders and include fees for account and overdraft services. Account services include fees for event-driven services and periodic account maintenance activities. The obligation for event-driven services is satisfied at the time of the event when service is delivered and revenue recognized as earned. Obligation for maintenance activities is satisfied over the course of each month and revenue is recognized at month end. Obligation for overdraft services is satisfied at the time of the overdraft and revenue is recognized as earned.

Allowance for Credit Losses

The allowance for credit losses (“allowance” or “ACL”) represents an amount which, in management's judgment, is adequate to absorb the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance is measured and recorded upon the initial recognition of a financial asset. The allowance is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision or credit for credit losses, which is recorded as a current period operating expense.

Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the allowance is reviewed periodically by the Risk Committee of the board of directors and formally approved quarterly by that same committee of the board.

The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates, (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administrations, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations, and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable. The Company excludes accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income as loans are moved to non-accrual status.

Loans are pooled into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. Portfolio segments used to estimate the allowance are the same as portfolio segments used for general credit risk management purposes. Refer to Note 4 – Loans for more details on management’s discussion of the Company’s portfolio segments.

The Company applies two calculation methodologies to estimate the collective quantified component of the allowance: discounted cash flows method and weighted average remaining life method. Allowance estimates on commercial acquisition, development and construction (“AD&C) and residential construction segments are based on the weighted average remaining life method. Allowance estimates on all other portfolio segments are based on the discounted cash flows method. Segments utilizing the discounted cash flows method are further sub-segmented into risk level pools, determined either by risk rating or Beacon Scores ranges. To better manage risk and reasonably determine the sufficiency of reserves, this segregation allows the Company to monitor the allowance component applicable to higher risk loans separate from the remainder of the portfolio. Collective calculation methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. At initial adoption of the accounting standard for current expected credit losses (“CECL”), management opted for the application of the reasonable and supportable forecast period of two years under stable economic conditions. However, under the current deteriorated economic conditions, the reasonable and supportable forecast period was adjusted to one year, due to the inherent uncertainty in the future economic outlook. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include: unemployment rate, house price index and number of business bankruptcies. Contractual loan level cash flows within discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.

The collective quantified component of the allowance is supplemented by a qualitative component to address various risk characteristics of the Company’s loan portfolio including:

 trends in early delinquencies;

 changes in the risk profile related to large loans in the portfolio;

 concentrations of loans to specific industry segments;

 expected changes in economic conditions;

 changes in the Company’s credit administration and loan portfolio management processes; and

 the quality of the Company’s credit risk identification processes.

The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when the Company determines that a foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When a repayment is expected from the operation of the collateral, the Company uses the present value of expected cash flows from the operation of the collateral as the fair value. When the repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the collateral’s appraised value less estimated cost to sell. Third party appraisals used in the individual reserve assessment are conducted at least annually with underlying assumptions that are reviewed by management. Third party appraisals may be obtained on a more frequent basis if deemed necessary. Internal evaluations of collateral value are conducted quarterly to ensure any further deterioration of the collateral value is recognized on a timely basis. During the individual reserve assessment, management also considers the potential future changes in the value of the collateral over the remainder of the loan’s remaining life. The Company may receive updated appraisals which contradict the preliminary determination of fair value used to establish an individual allowance on a loan. In these instances the individual allowance is adjusted to reflect the Company’s evaluation of the updated appraised fair value. In the event a loss was previously confirmed and the loan was charged down to the estimated fair value based on a previous appraisal, the balance of partially charged-off loans are not subsequently increased but could be further decreased depending on the direction of the change in fair value. Payments on fully or partially charged-off loans are accounted for under the cost-recovery method. Under this method, all payments received are applied on a cash basis to reduce the entire outstanding principal, then to recognize a recovery of all previously charged-off amounts before any interest income may be recognized. Based on the individual reserve assessment, if the Company determines that the fair value of the collateral is less than the amortized cost basis of the loan, an individual allowance will be established measured as the difference between the fair value of the collateral (less cost to sell) and the amortized cost basis of the loan. Once a loss has been confirmed, the loan is charged-down to its estimated fair value.

Large groups of smaller non-accrual homogeneous loans are not individually evaluated for allowance and include residential permanent and construction mortgages and consumer installment loans. These portfolios are reserved for on a collective basis using historical loss rates of similar loans over the weighted average life of each pool.

Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.

The adoption of CECL guidance did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, non-accrual practices, assessment of troubled debt restructurings or charge-off policy.

Leases

The Company determines if an arrangement is a lease at inception. All of the Company’s leases are currently classified as operating leases and are included in other assets and other liabilities on the Company’s Condensed Consolidated Statements of Condition.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the expected future lease payments over the remaining lease term. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating ROU assets are adjusted for any lease payments made at or before lease commencement date, initial direct costs, any lease incentives received and any favorable or unfavorable fair value adjustments on acquired leases. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease expense is recognized on a straight line basis over the expected lease term. Lease agreements that include lease and non-lease components, such as common area maintenance charges, are accounted for separately.

Note 2 – Acquisition of revere bank

On September 23, 2019, the Company and Revere Bank (“Revere”) entered into a definitive agreement for the Company to acquire the Maryland-based Revere. The acquisition of Revere was completed on April 1, 2020. With the completion of the merger, former Revere shareholders received 1.05 shares of the Sandy Spring common stock for each share of Revere common stock they held. Based on the $22.64 per share closing price of Sandy Spring common stock on March 31, 2020, the total transaction value is approximately $287 million. Upon completion of the acquisition, Sandy Spring shareholders owned approximately 74 percent of the combined company, and former Revere shareholders owned approximately 26 percent.

As of March 31, 2020, Revere had more than $2.8 billion in assets and operated 11 full-service community banking offices throughout the Washington D.C. metropolitan region.

Note 3 – Investments

Investments available-for-sale

The amortized cost and estimated fair values of investments available-for-sale at the dates indicated are presented in the following table:

			March 31, 2020								December 31, 2019
					Gross		Gross		Estimated				Gross		Gross		Estimated
			Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(In thousands)			Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. treasuries and government agencies			$	186,184	$	1,559	$	(7,399)	$	180,344	$	260,294	$	887	$	(2,686)	$	258,495
State and municipal				271,771		6,106		(1,428)		276,449		229,309		4,377		(37)		233,649
Mortgage-backed and asset-backed				698,029		20,631		(178)		718,482		568,373		3,268		(882)		570,759
Corporate debt				12,150		182		-		12,332		9,100		452		-		9,552
Trust preferred				-		-		-		-		310		-		-		310
	Total debt securities			1,168,134		28,478		(9,005)		1,187,607		1,067,386		8,984		(3,605)		1,072,765
Marketable equity securities				-		-		-		-		568		-		-		568
		Total investments available-for-sale	$	1,168,134	$	28,478	$	(9,005)	$	1,187,607	$	1,067,954	$	8,984	$	(3,605)	$	1,073,333

Any unrealized losses in the U.S. treasuries and government agencies, state and municipal, mortgage-backed and asset-backed investment securities at March 31, 2020 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at March 31, 2020. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity.

The mortgage-backed securities portfolio at March 31, 2020 is composed entirely of either the most senior tranches of GNMA, FNMA or FHLMC collateralized mortgage obligations ($169.3 million), GNMA, FNMA or FHLMC mortgage-backed securities ($481.9 million) or SBA asset-backed securities ($67.3 million). The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time to allow for any anticipated recovery in fair value.

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in an unrealized loss position at the dates indicated are presented in the following table:

		March 31, 2020
						Continuous Unrealized
						Losses Existing for:
		Number								Total
		of				Less than		More than		Unrealized
(Dollars in thousands)		Securities		Fair Value		12 months		12 months		Losses
U.S. treasuries and government agencies			6	$	86,597	$	3,624	$	3,775	$	7,399
State and municipal			14		44,737		1,428		-		1,428
Mortgage-backed and asset-backed			8		24,981		144		34		178
	Total		28	$	156,315	$	5,196	$	3,809	$	9,005

		December 31, 2019
						Continuous Unrealized
						Losses Existing for:
		Number								Total
		of				Less than		More than		Unrealized
(Dollars in thousands)		Securities		Fair Value		12 months		12 months		Losses
U.S. treasuries and government agencies			12	$	151,132	$	2,211	$	475	$	2,686
State and municipal			3		7,227		37		-		37
Mortgage-backed and asset-backed			35		184,784		508		374		882
	Total		50	$	343,143	$	2,756	$	849	$	3,605

The estimated fair values of debt securities available-for-sale by contractual maturity at the dates indicated are provided in the following table. The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following table using the expected average life of the individual securities based on statistics provided by independent third party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

		March 31, 2020
		One Year		One to		Five to		After Ten
(In thousands)		or less		Five Years		Ten Years		Years		Total
U.S. treasuries and government agencies		$	68,673	$	25,074	$	-	$	86,597	$	180,344
State and municipal			25,296		66,226		72,676		112,251		276,449
Mortgage-backed and asset-backed			-		4,413		52,349		661,720		718,482
Corporate debt			-		-		12,332		-		12,332
Trust preferred			-		-		-		-		-
	Total available-for-sale debt securities	$	93,969	$	95,713	$	137,357	$	860,568	$	1,187,607

		December 31, 2019
		One Year		One to		Five to		After Ten
(In thousands)		or less		Five Years		Ten Years		Years		Total
U.S. treasuries and government agencies		$	69,799	$	96,709	$	-	$	91,987	$	258,495
State and municipal			33,311		76,723		75,820		47,795		233,649
Mortgage-backed and asset-backed			852		7,125		55,226		507,556		570,759
Corporate debt			-		-		9,552		-		9,552
Trust preferred			-		-		-		310		310
	Total available-for-sale debt securities	$	103,962	$	180,557	$	140,598	$	647,648	$	1,072,765

At March 31, 2020 and December 31, 2019, investments available-for-sale with a book value of $417.1 million and $424.8 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at March 31, 2020 and December 31, 2019.

Equity securities

Other equity securities at the dates indicated are presented in the following table:

(In thousands)		March 31, 2020		December 31, 2019
Federal Reserve Bank stock		$	22,581	$	22,559
Federal Home Loan Bank of Atlanta stock			39,804		29,244
Marketable equity securities			568		-
	Total equity securities	$	62,953	$	51,803

Note 4 – LOANS

Outstanding loan balances at March 31, 2020 and December 31, 2019 are net of unearned income, including net deferred loan fees of $2.2 million and $1.8 million, respectively. The loan portfolio segment balances at the dates indicated are presented in the following table:

(In thousands)		March 31, 2020		December 31, 2019
Residential real estate:
	Residential mortgage	$	1,116,512	$	1,149,327
	Residential construction		149,573		146,279
Commercial real estate:
	Commercial owner-occupied real estate		1,305,682		1,288,677
	Commercial investor real estate		2,241,240		2,169,156
	Commercial AD&C		643,114		684,010
Commercial business			813,525		801,019
Consumer			453,346		466,764
	Total loans	$	6,722,992	$	6,705,232

Portfolio Segments

The Company currently manages its credit products and the respective exposure to credit losses (credit risk) by the following specific portfolio segments (classes) which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are:

 Commercial business loans - Commercial loans are made to provide funds for equipment and general corporate needs. Repayment of a loan primarily comes from the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory.

 Commercial acquisition, development and construction loans - Commercial acquisition, development and construction loans are intended to finance the construction of commercial properties and include loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

 Commercial owner occupied real estate loans - Commercial owned-occupied real estate loans consist of commercial mortgage loans secured by owner occupied properties where an established banking relationship exists and involves a variety of property types to conduct the borrower’s operations. The primary source of repayment for this type of loan is the cash flow from the business and is based upon the borrower’s financial health and the ability of the borrower and the business to repay.

 Commercial investor real estate loans - Commercial investor real estate loans consist of loans secured by non-owner occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. This commercial real estate category contains mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale(s) to repay the loan.

 Consumer loans - This category of loans includes primarily home equity loans and lines, installment loans, personal lines of credit and marine loans. The home equity category consists mainly of revolving lines of credit to consumers which are secured by residential real estate. These loans are typically secured with second mortgages on the homes. Other consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles.

 Residential mortgage loans - The residential mortgage category contains permanent mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Loans may be either conforming or non-conforming.

 Residential construction loans - The Company makes residential real estate construction loans generally to provide interim financing on residential property during the construction period. Borrowers are typically individuals who will ultimately occupy the single-family dwelling. Loan funds are disbursed periodically as pre-specified stages of completion are attained based upon site inspections.

Note 5 – CREDIT QUALITY ASSESSMENT

The Company completed implementation of the CECL standard during the first quarter of 2020. The new guidance requires additional disclosures and introduces certain changes to definitions previously used under allowance for loan losses guidance. Accordingly, the following sections present separate disclosures compliant with the new and the legacy disclosure requirements.

Allowance for Credit Losses

Summary information on the allowance for credit loss activity for the period indicated is provided in the following table:

			Three Months Ended March 31,
(In thousands)			2020		2019
Balance at beginning of period			$	56,132	$	53,486
	Initial allowance on purchased credit deteriorated loans at adoption of ASC 326			2,762		-
	Transition impact of adopting ASC 326			2,983		-
	Provision (credit) for credit losses			24,469		(128)
	Loan charge-offs			(654)		(356)
	Loan recoveries			108		87
		Net charge-offs		(546)		(269)
Balance at period end			$	85,800	$	53,089

The following table provides summary information regarding collateral dependent loans individually evaluated for credit loss at the dates indicated:

(In thousands)		March 31, 2020		December 31, 2019
Collateral dependent loans individually evaluated for credit loss with an allowance		$	26,652	$	15,333
Collateral dependent loans individually evaluated for credit loss without an allowance			11,023		9,440
	Total individually evaluated collateral dependent loans	$	37,675	$	24,773

Allowance for credit losses related to loans evaluated individually		$	8,643	$	5,501
Allowance for credit losses related to loans evaluated collectively			77,157		50,631
	Total allowance for credit losses	$	85,800	$	56,132

The below section presents allowance for credit losses disclosures in line with the new CECL disclosure requirements.

The following table provides information on the activity in the allowance for credit losses by the respective loan portfolio segment for the period indicated:

		For the Three Months Ended March 31, 2020
				Commercial Real Estate								Residential Real Estate
								Commercial
		Commercial		Commercial		Commercial		Owner				Residential		Residential
(Dollars in thousands)		Business		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Balance at beginning of period		$	11,395	$	7,590	$	18,407	$	6,884	$	2,086	$	8,803	$	967	$	56,132
Initial allowance on purchased credit deteriorated loans at adoption of ASC 326			1,549		-		1,114		-		99		-		-		2,762
Transition impact of adopting ASC 326			2,988		2,576		(3,125)		387		820		(388)		(275)		2,983
Provision for credit losses			13,506		1,042		3,454		2,839		1,349		1,810		469		24,469
Charge-offs			(175)		-		-		-		(133)		(346)		-		(654)
Recoveries			67		-		-		-		26		13		2		108
	Net recoveries (charge-offs)		(108)		-		-		-		(107)		(333)		2		(546)
Balance at end of period		$	29,330	$	11,208	$	19,850	$	10,110	$	4,247	$	9,892	$	1,163	$	85,800

Total loans		$	813,525	$	643,114	$	2,241,240	$	1,305,682	$	453,346	$	1,116,512	$	149,573	$	6,722,992
Allowance for credit losses to total loans ratio			3.61%		1.74%		0.89%		0.77%		0.94%		0.89%		0.78%		1.28%

Balance of loans individually evaluated for credit loss		$	11,560	$	829	$	18,545	$	4,074	$	1,313	$	1,354	$	-	$	37,675
Allowance related to loans evaluated individually		$	5,659	$	132	$	2,704	$	49	$	99	$	-	$	-	$	8,643
Individual allowance to loans evaluated individually ratio			48.95%		15.92%		14.58%		1.20%		7.54%		0.00%		-		22.94%

Balance of loans collectively evaluated for credit loss		$	801,965	$	642,285	$	2,222,695	$	1,301,608	$	452,033	$	1,115,158	$	149,573	$	6,685,317
Allowance related to loans evaluated collectively		$	23,671	$	11,076	$	17,146	$	10,061	$	4,148	$	9,892	$	1,163	$	77,157
Collective allowance to loans evaluated collectively ratio			2.95%		1.72%		0.77%		0.77%		0.92%		0.89%		0.78%		1.15%

The following table presents collateral dependent loans individually evaluated for credit loss with the associated allowances for credit losses by the applicable portfolio segment:

			March 31, 2020
					Commercial Real Estate								Residential Real Estate
									Commercial
					Commercial		Commercial		Owner				Residential		Residential
(In thousands)			Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Loans individually evaluated for credit loss with an allowance

		Non-accruing	$	7,967	$	829	$	14,443	$	760	$	99	$	-	$	-	$	24,098
		Restructured accruing		579		-		-		-		-		-		-		579
		Restructured non-accruing		1,107		-		749		119		-		-		-		1,975
	Balance		$	9,653	$	829	$	15,192	$	879	$	99	$	-	$	-	$	26,652

	Allowance		$	5,659	$	132	$	2,704	$	49	$	99	$	-	$	-	$	8,643

Loans individually evaluated for credit loss without an allowance

		Non-accruing	$	362	$	-	$	2,578	$	1,486	$	850	$	7	$	-	$	5,283
		Restructured accruing		147		-		775		-		-		1,074		-		1,996
		Restructured non-accruing		1,398		-		-		1,709		364		273		-		3,744
	Balance		$	1,907	$	-	$	3,353	$	3,195	$	1,214	$	1,354	$	-	$	11,023

Total individually evaluated loans
		Non-accruing	$	8,329	$	829	$	17,021	$	2,246	$	949	$	7	$	-	$	29,381
		Restructured accruing		726		-		775		-		-		1,074		-		2,575
		Restructured non-accruing		2,505		-		749		1,828		364		273		-		5,719
	Balance		$	11,560	$	829	$	18,545	$	4,074	$	1,313	$	1,354	$	-	$	37,675

Total unpaid contractual principal balance
Total unpaid contractual principal balance			$	14,450	$	829	$	24,373	$	6,037	$	1,583	$	2,747	$	-	$	50,019

The following table presents average principal balance of the total non-accrual loans, contractual interest due and interest income recognized on a cash basis on non-accrual loans for the periods indicated below:

	March 31, 2020
			Commercial Real Estate								Residential Real Estate
							Commercial
			Commercial		Commercial		Owner					Residential		Residential
(In thousands)	Commercial		AD&C		Investor R/E		Occupied R/E		Consumer			Mortgage		Construction		Total
Average non-accrual loans for the period	$	10,912	$	829	$	17,876	$	4,111	$	5,348		$	12,470	$	-	$	51,546
Contractual interest income due on non-accrual loans during the period	$	230	$	13	$	415	$	111	$	91		$	172	$	-	$	1,032
Interest income on non-accrual loans recognized on a cash basis	$	39	$	-	$	179	$	39	$	24		$	91	$	-	$	372

Loans designated as non-accrual have all previously accrued but unpaid interest reversed from interest income. During the three months ended March 31, 2020 new loans placed on non-accrual status totaled $2.4 million and the related amount of reversed uncollected accrued interest was insignificant.

The below section presents historical allowance for loan losses disclosures in line with the legacy disclosure requirements.

The following table provides information on the activity in the allowance for loan losses by the respective loan portfolio segment for the period indicated:

		For the Year Ended December 31, 2019
				Commercial Real Estate								Residential Real Estate
								Commercial
		Commercial		Commercial		Commercial		Owner				Residential		Residential
(Dollars in thousands)		Business		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Balance at beginning of period		$	11,377	$	5,944	$	17,603	$	6,307	$	2,113	$	8,881	$	1,261	$	53,486
Provision (credit)			1,164		1,418		788		577		565		474		(302)		4,684
Charge-offs			(1,195)		-		-		-		(783)		(690)		-		(2,668)
Recoveries			49		228		16		-		191		138		8		630
	Net recoveries (charge-offs)		(1,146)		228		16		-		(592)		(552)		8		(2,038)
Balance at end of period		$	11,395	$	7,590	$	18,407	$	6,884	$	2,086	$	8,803	$	967	$	56,132

Total loans		$	801,019	$	684,010	$	2,169,156	$	1,288,677	$	466,764	$	1,149,327	$	146,279	$	6,705,232
Allowance for loan losses to total loans ratio			1.42%		1.11%		0.85%		0.53%		0.45%		0.77%		0.66%		0.84%

Balance of loans specifically evaluated for impairment		$	8,867	$	829	$	9,212	$	4,148		na.	$	1,717	$	-	$	24,773
Allowance for loans specifically evaluated for impairment		$	3,817	$	132	$	1,529	$	23		na.	$	-	$	-	$	5,501
Specific allowance to specific loans ratio			43.05%		-		16.60%		0.55%		na.		-		-		22.21%

Balance of loans collectively evaluated		$	789,613	$	683,181	$	2,150,400	$	1,284,529	$	465,771	$	1,147,602	$	146,279	$	6,667,375
Allowance for loans collectively evaluated		$	7,578	$	7,458	$	16,878	$	6,861	$	2,086	$	8,803	$	967	$	50,631
Collective allowance to collective loans ratio			0.96%		1.09%		0.78%		0.53%		0.45%		0.77%		0.66%		0.76%

Balance of loans acquired with deteriorated credit quality		$	2,539	$	-	$	9,544	$	-	$	993	$	8	$	-	$	13,084
Allowance for loans acquired with deteriorated credit quality		$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Allowance to loan acquired with deteriorated credit quality ratio			-		-		-		-		-		-		-		-

The following tables present the recorded investment with respect to impaired loans, the associated allowance by the applicable portfolio segment and the unpaid contractual principal balance of the impaired loans:

			December 31, 2019
					Commercial Real Estate								Total Recorded
									Commercial		All		Investment in
					Commercial		Commercial		Owner		Other		Impaired
(In thousands)			Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Loans
Impaired loans with a specific allowance
		Non-accruing	$	5,608	$	829	$	5,448	$	767	$	-	$	12,652
		Restructured accruing		266		-		-		-		-		266
		Restructured non-accruing		1,856		-		437		122		-		2,415
	Balance		$	7,730	$	829	$	5,885	$	889	$	-	$	15,333

	Allowance		$	3,817	$	132	$	1,529	$	23	$	-	$	5,501

Impaired loans without a specific allowance
		Non-accruing	$	114	$	-	$	2,552	$	1,522	$	-	$	4,188
		Restructured accruing		151		-		775		-		1,444		2,370
		Restructured non-accruing		872		-		-		1,737		273		2,882
	Balance		$	1,137	$	-	$	3,327	$	3,259	$	1,717	$	9,440

Total impaired loans
		Non-accruing	$	5,722	$	829	$	8,000	$	2,289	$	-	$	16,840
		Restructured accruing		417		-		775		-		1,444		2,636
		Restructured non-accruing		2,728		-		437		1,859		273		5,297
	Balance		$	8,867	$	829	$	9,212	$	4,148	$	1,717	$	24,773

Unpaid principal balance in total impaired loans			$	11,296	$	829	$	13,805	$	6,072	$	2,618	$	34,620


	December 31, 2019
			Commercial Real Estate								Total Recorded
							Commercial		All		Investment in
			Commercial		Commercial		Owner		Other		Impaired
(In thousands)	Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Loans
Average impaired loans for the period	$	7,781	$	2,052	$	7,565	$	4,390	$	1,577	$	23,365
Contractual interest income due on impaired loans during the period	$	648	$	127	$	786	$	258	$	128
Interest income on impaired loans recognized on a cash basis	$	221	$	-	$	49	$	187	$	8
Interest income on impaired loans recognized on an accrual basis	$	62	$	-	$	39	$	-	$	68

Credit Quality

The following section provides information on the credit quality of loan portfolio under the new CECL disclosure requirements:

		March 31, 2020
				Commercial Real Estate								Residential Real Estate
								Commercial
				Commercial		Commercial		Owner				Residential		Residential
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Analysis of Non-accrual Loan Activity:
	Balance at beginning of period	$	8,450	$	829	$	8,437	$	4,148	$	4,107	$	12,661	$	-	$	38,632
	Purchased credit deteriorated loans designated as non-accrual (1)		2,539		-		9,544		-		993		8		-		13,084
	Loans placed on non-accrual		1,001		-		-		-		748		620		-		2,369
	Non-accrual balances transferred to OREO		-		-		-		-		-		-		-		-
	Non-accrual balances charged-off		(175)		-		-		-		(54)		(346)		-		(575)
	Net payments or draws		(981)		-		(211)		(74)		(176)		(418)		-		(1,860)
	Non-accrual loans brought current		-		-		-		-		(22)		(254)		-		(276)
Balance at end of period		$	10,834	$	829	$	17,770	$	4,074	$	5,596	$	12,271	$	-	$	51,374
(1) Upon the adoption of CECL standard, the Company transitioned from closed pool level accounting for PCI loans during the first quarter of 2020. Non-accrual loans are determined based on the
individual loan level and aggregated for reporting.

		March 31, 2020
				Commercial Real Estate								Residential Real Estate
								Commercial
				Commercial		Commercial		Owner				Residential		Residential
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Performing loans:
	Current	$	798,856	$	632,929	$	2,208,163	$	1,298,353	$	443,320	$	1,082,513	$	148,102	$	6,612,236
	31-60 days		2,671		9,356		13,521		3,255		3,126		16,324		-		48,253
	61-90 days		438		-		1,011		-		1,304		4,322		1,471		8,546
	Total performing loans		801,965		642,285		2,222,695		1,301,608		447,750		1,103,159		149,573		6,669,035
Non-performing loans:
	Non-accrual loans		10,834		829		17,770		4,074		5,596		12,271		-		51,374
	Loans greater than 90 days past due		-		-		-		-		-		8		-		8
	Restructured loans		726		-		775		-		-		1,074		-		2,575
	Total non-performing loans		11,560		829		18,545		4,074		5,596		13,353		-		53,957
	Total loans	$	813,525	$	643,114	$	2,241,240	$	1,305,682	$	453,346	$	1,116,512	$	149,573	$	6,722,992

The following table provides information about credit quality indicators by the year of origination:

		March 31, 2020
		Term Loans by Origination Year												Revolving
(In thousands)		2020		2019		2018		2017		2016		Prior		Loans		Total
	Commercial:
	Pass	$	43,565	$	106,211	$	133,570	$	70,396	$	38,508	$	80,786	$	325,583	$	798,619
	Special Mention		-		701		26		379		304		633		499		2,542
	Substandard		322		1,104		3,384		1,082		2,166		2,835		1,471		12,364
	Doubtful		-		-		-		-		-		-		-		-
	Total	$	43,887	$	108,016	$	136,980	$	71,857	$	40,978	$	84,254	$	327,553	$	813,525

	Commercial AD&C:
	Pass	$	119,146	$	237,288	$	189,046	$	54,654	$	2,901	$	2,404	$	36,845	$	642,284
	Special Mention		-		-		-		-		-		-		-		-
	Substandard		-		-		730		100		-		-		-		830
	Doubtful		-		-		-		-		-		-		-		-
	Total	$	119,146	$	237,288	$	189,776	$	54,754	$	2,901	$	2,404	$	36,845	$	643,114

	Commercial Investor R/E:
	Pass	$	169,448	$	580,249	$	319,063	$	304,598	$	361,218	$	470,582	$	14,839	$	2,219,997
	Special Mention		-		883		980		257		-		342		-		2,462
	Substandard		347		2,658		-		-		112		15,664		-		18,781
	Doubtful		-		-		-		-		-		-		-		-
	Total	$	169,795	$	583,790	$	320,043	$	304,855	$	361,330	$	486,588	$	14,839	$	2,241,240

	Commercial Owner Occupied R/E:
	Pass	$	88,082	$	254,565	$	179,210	$	226,489	$	212,350	$	333,170	$	1,313	$	1,295,179
	Special Mention		-		1,050		878		-		-		333		-		2,261
	Substandard		-		988		454		1,176		400		5,224		-		8,242
	Doubtful		-		-		-		-		-		-		-		-
	Total	$	88,082	$	256,603	$	180,542	$	227,665	$	212,750	$	338,727	$	1,313	$	1,305,682

	Consumer:
	Beacon score:
	660-850	$	627	$	7,093	$	7,477	$	3,462	$	3,342	$	21,332	$	361,325	$	404,658
	600-659		108		771		167		185		1,039		5,748		14,705		22,723
	540-599		1		69		153		236		795		3,126		5,993		10,373
	less than 540		56		1,072		282		413		594		3,720		9,455		15,592
	Total	$	792	$	9,005	$	8,079	$	4,296	$	5,770	$	33,926	$	391,478	$	453,346

	Residential Mortgage:
	Beacon score:
	660-850	$	19,705	$	50,503	$	191,761	$	236,191	$	171,471	$	317,518	$	-	$	987,149
	600-659		202		11,096		14,850		13,690		10,053		22,938		-		72,829
	540-599		171		1,883		5,062		1,645		4,628		13,289		-		26,678
	less than 540		92		1,445		6,793		2,818		2,444		16,264		-		29,856
	Total	$	20,170	$	64,927	$	218,466	$	254,344	$	188,596	$	370,009	$	-	$	1,116,512

	Residential Construction:
	Beacon score:
	660-850	$	23,564	$	72,488	$	41,516	$	5,660	$	1,968	$	-	$	-	$	145,196
	600-659		741		3,356		280		-		-		-		-		4,377
	540-599		-		-		-		-		-		-		-		-
	less than 540		-		-		-		-		-		-		-		-
	Total	$	24,305	$	75,844	$	41,796	$	5,660	$	1,968	$	-	$	-	$	149,573

The following section provides historical information on the credit quality of the loan portfolio under the legacy disclosure requirements:

		December 31, 2019
				Commercial Real Estate								Residential Real Estate
								Commercial
				Commercial		Commercial		Owner				Residential		Residential
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Non-performing loans and assets:
	Non-accrual loans	$	8,450	$	829	$	8,437	$	4,148	$	4,107	$	12,661	$	-	$	38,632
	Loans 90 days past due		-		-		-		-		-		-		-		-
	Restructured loans		417		-		775		-		364		1,080		-		2,636
Total non-performing loans			8,867		829		9,212		4,148		4,471		13,741		-		41,268
	Other real estate owned		39		665		409		-		64		305		-		1,482
Total non-performing assets		$	8,906	$	1,494	$	9,621	$	4,148	$	4,535	$	14,046	$	-	$	42,750

			December 31, 2019
					Commercial Real Estate								Residential Real Estate
									Commercial
					Commercial		Commercial		Owner				Residential		Residential
(In thousands)			Commercial		AD&C		Investor R/E		Occupied R/E		Consumer		Mortgage		Construction		Total
Past due loans:
	31-60 days		$	908	$	-	$	932	$	316	$	2,697	$	14,853	$	280	$	19,986
	61-90 days			370		-		-		-		1,517		4,541		1,334		7,762
	> 90 days			-		-		-		-		-		-		-		-
		Total past due		1,278		-		932		316		4,214		19,394		1,614		27,748
	Non-accrual loans			8,450		829		8,437		4,148		4,107		12,661		-		38,632
	Loans acquired with deteriorated credit quality			2,539		-		9,544		-		993		8		-		13,084
	Current loans			788,752		683,181		2,150,243		1,284,213		457,450		1,117,264		144,665		6,625,768
		Total loans	$	801,019	$	684,010	$	2,169,156	$	1,288,677	$	466,764	$	1,149,327	$	146,279	$	6,705,232

		December 31, 2019
				Commercial Real Estate
								Commercial
				Commercial		Commercial		Owner
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Total
	Pass	$	783,909	$	683,181	$	2,146,971	$	1,278,337	$	4,892,398
	Special Mention		2,487		-		3,189		2,284		7,960
	Substandard		14,623		829		18,996		8,056		42,504
	Doubtful		-		-		-		-		-
Total		$	801,019	$	684,010	$	2,169,156	$	1,288,677	$	4,942,862

			December 31, 2019
					Residential Real Estate
					Residential		Residential
(In thousands)			Consumer		Mortgage		Construction		Total
	Performing		$	462,293	$	1,135,586	$	146,279	$	1,744,158
	Non-performing:
		90 days past due		-		-		-		-
		Non-accruing		4,107		12,661		-		16,768
		Restructured loans		364		1,080		-		1,444
Total			$	466,764	$	1,149,327	$	146,279	$	1,762,370

During the three months ended March 31, 2020, the Company restructured $1.4 million in loans that were designated as troubled debt restructurings. Restructured loans are subject to periodic credit reviews to determine the necessity and adequacy of an individual loan loss allowance based on the collectability of the recorded investment in the restructured loan. Loans restructured during the three months ended March 31, 2020 had individual reserves of $0.2 million. For the year ended December 31, 2019, the Company restructured $2.4 million in loans. Loans restructured during 2019 had individual reserves of $0.4 million at December 31, 2019. During both the three months ended March 31, 2020 and for the year ended December 31, 2019 modifications consisted principally of interest rate concessions, and did not result in the reduction of the recorded investment in the associated loan balances. The commitments to lend additional funds on loans that have been restructured at March 31, 2020 and December 31, 2019 were not significant.

The following table provides the amounts of the restructured loans at the date of restructuring for specific segments of the loan portfolio during the period indicated:

		For the Three Months Ended March 31, 2020
				Commercial Real Estate
								Commercial		All
				Commercial		Commercial		Owner		Other
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Total
Troubled debt restructurings:
	Restructured accruing	$	322	$	-	$	-	$	-	$	-	$	322
	Restructured non-accruing		-		-		347		760		-		1,107
Balance		$	322	$	-	$	347	$	760	$	-	$	1,429

Specific allowance		$	80	$	-	$	60	$	40	$	-	$	180

Restructured and subsequently defaulted		$	-	$	-	$	-	$	-	$	-	$	-

		For the Year Ended December 31, 2019
				Commercial Real Estate
								Commercial		All
				Commercial		Commercial		Owner		Other
(In thousands)		Commercial		AD&C		Investor R/E		Occupied R/E		Loans		Total
Troubled debt restructurings:
	Restructured accruing	$	170	$	-	$	775	$	-	$	364	$	1,309
	Restructured non-accruing		261		-		789		-		-		1,050
Balance		$	431	$	-	$	1,564	$	-	$	364	$	2,359

Specific allowance		$	196	$	-	$	205	$	-	$	-	$	401

Restructured and subsequently defaulted		$	-	$	-	$	-	$	-	$	-	$	-

Other Real Estate Owned

Other real estate owned totaled $1.4 million and $1.5 million at March 31, 2020 and December 31, 2019, respectively. There were noconsumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2020.

Note 6 – Goodwill and Other Intangible Assets

The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at the dates indicated in the following table:

		March 31, 2020						Weighted		December 31, 2019						Weighted
		Gross				Net		Average		Gross				Net		Average
		Carrying		Accumulated		Carrying		Remaining		Carrying		Accumulated		Carrying		Remaining
(Dollars in thousands)		Amount		Amortization		Amount		Life		Amount		Amortization		Amount		Life
Amortizing intangible assets:
Core deposit intangibles		$	10,678	$	(4,077)	$	6,601	7.8	years	$	10,678	$	(3,689)	$	6,989	8.0	years
Other identifiable intangibles			13,906		(726)		13,180	11.4	years		1,478		(626)		852	9.7	years
	Total amortizing intangible assets	$	24,584	$	(4,803)	$	19,781			$	12,156	$	(4,315)	$	7,841

Goodwill		$	369,708			$	369,708			$	347,149			$	347,149

The amount of goodwill by reportable segment is presented in the following table:

		Community				Investment
(In thousands)		Banking		Insurance		Management		Total
Balance December 31, 2019	$	331,173	$	6,788	$	9,188	$	347,149
Acquisition of Rembert Pendleton Jackson		-		-		22,559		22,559
Balance March 31, 2020	$	331,173	$	6,788	$	31,747	$	369,708

The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31:

(In thousands)		Amount
2020		$	2,893
2021			3,305
2022			2,939
2023			2,573
Thereafter			8,071
	Total amortizing intangible assets	$	19,781

Note 7 – Deposits

The following table presents the composition of deposits at the dates indicated:

(In thousands)				March 31, 2020		December 31, 2019
Noninterest-bearing deposits				$	1,939,937	$	1,892,052
Interest-bearing deposits:
	Demand				864,620		836,433
	Money market savings				1,806,875		1,839,593
	Regular savings				335,831		329,919
	Time deposits of less than $100,000				456,017		463,431
	Time deposits of $100,000 or more				1,190,594		1,078,891
		Total interest-bearing deposits			4,653,937		4,548,267
			Total deposits	$	6,593,874	$	6,440,319

Note 8 – SUBORDINATED DEBT

On November 5, 2019, the Company completed an offering of $175.0 million aggregate principal amount Fixed to Floating Rate Subordinated Notes due in 2029. The notes bear a fixed interest rate of 4.25% per year through November 14, 2024. Beginning November 15, 2024, the interest rate will become a floating rate equal to three month LIBOR, or an alternative benchmark rate as determined pursuant to the terms of the indenture for the notes in the event LIBOR has been discontinued by November 15, 2024, plus 262 basis points through the remaining maturity or early redemption date of the notes. The interest will be paid in arrears semi-annually during the fixed rate period and quarterly during the floating rate period. The Company incurred $2.9 million of debt issuance costs which are being amortized through the contractual life of the debt. The entire amount of subordinated debt is considered Tier 2 capital under current regulatory guidelines.

In conjunction with the acquisition of WashingtonFirst Bankshares, Inc., the Company assumed $25.0 million in non-callable subordinated debt and $10.3 million in callable junior subordinated debt securities. The associated purchase premiums at acquisition were $2.2 million and $0.1 million, respectively. The premiums are amortized over the contractual life of each obligation.

During the first quarter of 2020, the Company redeemed $10.3 million of the outstanding principal balance of callable junior subordinated debt securities.

The non-callable subordinated debt has a maturity of ten years, is due in full on October 15, 2025, is non-callable until October 15, 2020 and currently bears a fixed interest rate of 6.00% per annum, payable quarterly, subject to a reset after 5 years (on October 5, 2020) at 3 month LIBOR plus 467 basis points. The entire amount of subordinated debt is considered Tier 2 capital under current regulatory guidelines.

The following table provides information on subordinated debentures as of the date indicated:

(In thousands)		March 31, 2020		December 31, 2019
Subordinated debentures		$	200,000	$	200,000
	Add: Purchase accounting premium		1,846		1,894
	Less: Debt Issuance Costs		(2,800)		(2,885)
Trust preferred capital notes			-		10,310
	Add: Purchase accounting premium		-		87
Total subordinated debentures		$	199,046	$	209,406

Note 9 – Stockholders’ Equity

The Company’s board of directors approved a new stock repurchase plan in December 2018. The current program permits the repurchase of up to 1,800,000 shares of common stock. The Company repurchased 1,488,519 common shares for the total cost of $50.0 million under the current repurchase plan.

Note 10 – Share Based Compensation

At March 31, 2020, the Company had two share based compensation plans in existence, the 2005 Omnibus Stock Plan (“Omnibus Stock Plan”) and the 2015 Omnibus Incentive Plan (“Omnibus Incentive Plan”). The Omnibus Stock Plan expired during the second quarter of 2015 but has outstanding options that may still be exercised. The Omnibus Incentive Plan is described in the following paragraph.

The Company’s Omnibus Incentive Plan was approved on May 6, 2015 and provides for the granting of incentive stock options, non-qualifying stock options, stock appreciation rights, restricted stock grants, restricted stock units and performance awards to selected directors and employees on a periodic basis at the discretion of the board. The Omnibus Incentive Plan authorizes the issuance of up to 1,500,000 shares of common stock, of which 970,957 are available for issuance at March 31, 2020, has a term of ten years, and is administered by a committee of at least three directors appointed by the board of directors. Options granted under the plan have an exercise price which may not be less than 100% of the fair market value of the common stock on the date of the grant and must be exercised within seven to ten years from the date of grant. The exercise price of stock options must be paid for in full in cash or shares of common stock, or a combination of both. The board committee has the discretion when making a grant of stock options to impose restrictions on the shares to be purchased upon the exercise of such options. The Company generally issues authorized but previously unissued shares to satisfy option exercises.

The dividend yield is based on estimated future dividend yields. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatilities are generally based on historical volatilities. The expected term of share options granted is generally derived from historical experience.

Compensation expense is recognized on a straight-line basis over the vesting period of the respective stock option, restricted stock or restricted stock unit grant. The Company recognized compensation expense of $0.8 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively, related to the awards of stock options and restricted stock grants. The intrinsic value of stock options exercised in the three months ended March 31, 2020 and 2019 was $0.1 million during both periods. The total of unrecognized compensation cost related to stock options was approximately $0.1 million as of March 31, 2020. That cost is expected to be recognized over a weighted average period of approximately 1.0year. The total of unrecognized compensation cost related to restricted stock was approximately $9.7 million as of March 31, 2020. That cost is expected to be recognized over a weighted average period of approximately 3.3years. The fair value of the options vested during the three months ended March 31, 2020 and 2019, was not significant.

The Company granted a total of 181,186 restricted shares, restricted stock units and performance share units in the first quarter of 2020, of which 54,472 units are subject to achievement of certain performance conditions measured over a three year performance period and 126,714 shares or units subject to a three- or five-year vesting schedule. The Company did not grant any stock options during the three months ended March 31, 2020.

A summary of share option activity for the period indicated is reflected in the following table:

				Weighted
	Number	Weighted		Average	Aggregate
	of	Average		Contractual	Intrinsic
	Common	Exercise		Remaining	Value
	Shares	Share Price		Life (Years)	(in thousands)
Balance at January 1, 2020	65,279	$	31.34		$	485
Granted	-	$	-
Exercised	(6,013)	$	20.26		$	60
Forfeited	(323)	$	39.20
Expired	(426)	$	20.26
Balance at March 31, 2020	58,517	$	32.52	3.2	$	-

Exercisable at March 31, 2020	44,740	$	30.42	2.7	$	-

Weighted average fair value of options
granted during the year		$	-

A summary of the activity for the Company’s restricted stock, restricted stock units and performance share units for the period indicated is presented in the following table:

	Number	Weighted
	of	Average
	Common	Grant-Date
	Shares/Units	Fair Value
Nonvested at January 1, 2020	226,502	$	35.43
Granted	181,186	$	26.40
Vested	-	$	-
Forfeited	(7,057)	$	47.58
Nonvested at March 31, 2020	400,631	$	31.13

Note 11 – Pension, Profit Sharing, and Other Employee Benefit Plans

Defined Benefit Pension Plan

The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”). Benefits after January 1, 2005, are based on the benefit earned as of December 31, 2004, plus benefits earned in future years of service based on the employee’s compensation during each such year. All benefit accruals for employees were frozen as of December 31, 2007 based on past service and thus salary increases and additional years of service after such date no longer affect the defined benefit provided by the Plan, although additional vesting may continue to occur.

The Company's funding policy is to contribute amounts to the Plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. In addition, the Company contributes additional amounts as it deems appropriate based on benefits attributed to service prior to the date of the Plan freeze. The Plan invests primarily in a diversified portfolio of managed fixed income and equity funds.

The components of net periodic benefit cost for the periods indicated are presented in the following table:

		Three Months Ended March 31,
(In thousands)		2020		2019
Interest cost on projected benefit obligation		$	359	$	402
Expected return on plan assets			(456)		(412)
Recognized net actuarial loss			219		265
	Net periodic benefit cost	$	122	$	255

Note 12 – Net Income per Common Share

The calculation of net income per common share for the periods indicated is presented in the following table:

			Three Months Ended March 31,
(Dollars and amounts in thousands, except per share data)			2020		2019
Net income			$	9,987	$	30,317

Basic:
Basic weighted average EPS shares				34,979		35,794

		Basic net income per share	$	0.29	$	0.85

Diluted:
Basic weighted average EPS shares				34,979		35,794
Dilutive common stock equivalents				78		13
	Dilutive EPS shares			35,057		35,807

		Diluted net income per share	$	0.28	$	0.85

Anti-dilutive shares				9		12

NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income is defined as net income plus transactions and other occurrences that are the result of non-owner changes in equity. For condensed financial statements presented for the Company, non-owner changes in equity are comprised of unrealized gains or losses on available-for-sale debt securities and any minimum pension liability adjustments. The following table presents the activity in net accumulated other comprehensive income (loss) and the components of the activity for the periods indicated:

	Unrealized Gains on
	Investments		Defined Benefit
(In thousands)	Available-for-Sale		Pension Plan		Total
Balance at January 1, 2020	$	4,000	$	(8,332)	$	(4,332)
Other comprehensive income before reclassification, net of tax		10,639		-		10,639
Reclassifications from accumulated other comprehensive income, net of tax		(127)		164		37
Current period change in other comprehensive income, net of tax		10,512		164		10,676
Balance at March 31, 2020	$	14,512	$	(8,168)	$	6,344

	Unrealized Gains
	(Losses) on
	Investments		Defined Benefit
(In thousands)	Available-for-Sale		Pension Plan		Total
Balance at January 1, 2019	$	(6,630)	$	(9,124)	$	(15,754)
Other comprehensive income before reclassification, net of tax		6,508		-		6,508
Reclassifications from accumulated other comprehensive income, net of tax		-		196		196
Current period change in other comprehensive income, net of tax		6,508		196		6,704
Balance at March 31, 2019	$	(122)	$	(8,928)	$	(9,050)

The following table provides the information on the reclassification adjustments out of accumulated other comprehensive income (loss) for the periods indicated:

				Three Months Ended March 31,
(In thousands)				2020		2019
Unrealized gains on investments available-for-sale
	Affected line item in the Statements of Income:
	Investment securities gains			$	169	$	-
	Income before taxes				169		-
	Tax expense				(42)		-
	Net income			$	127	$	-

Amortization of defined benefit pension plan items
	Affected line item in the Statements of Income:
		Recognized actuarial loss⁽¹⁾		$	(219)	$	(265)
			Income before taxes		(219)		(265)
			Tax benefit		55		69
			Net loss	$	(164)	$	(196)
(1) This amount is included in the computation of net periodic benefit cost. See Note 11.

NOTE 14 – LEASES

The Company leases real estate properties for its network of bank branches, financial centers and corporate offices. All of the Company’s leases are currently classified as operating. Most lease agreements include one or more options to renew, with renewal terms that can extend the original lease term from one to twenty years or more. The Company does not sublease any of its leased real estate properties.

As March 31, 2020, ROU assets and lease liabilities totaled $67.5 million and $75.1 million, respectively. For the three months ended March 31, 2020, the Company recognized total operating lease expense in the amount of $2.7 million. Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2020 was $2.1 million and is included in net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. The Company added two locations from the acquisition of Rembert Pendleton Jackson during the current quarter. The associated new ROU asset obtained in exchange for lease obligations totaled $0.3 million.

As of March 31, 2020, the maturities of the Company’s operating lease liabilities were as follows:

(In thousands)	Amount
Maturity:
One year	$	8,136
Two years		10,421
Three years		10,101
Four years		10,120
Five years		8,402
Thereafter		42,730
Total undiscounted lease payments		89,910
Less: Present value discount		(14,786)
Lease Liability	$	75,124

As of March 31, 2020, the weighted average remaining lease term was 10.2 years and the weighted average operating discount rate used to determine the operating lease liability was 3.27%.

The Company had no additional operating or finance leases that have not yet commenced operations at March 31, 2020. The Company does not have any lease arrangements with any of its related parties as of March 31, 2020.

Note 15 – Financial Instruments with Off-balance Sheet Risk and Derivatives

The Company has entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty and, therefore, has no credit risk. The notional value of commercial loan swaps outstanding was $204.2 million with a fair value of $9.6 million as of March 31, 2020 compared to $204.7 million with a fair value of $2.5 million as of December 31, 2019. The swap positions are offset to minimize the potential impact on the Company’s financial statements. Fair values of the swaps are carried as both gross assets and gross liabilities in the Condensed Consolidated Statements of Condition. The associated net gains and losses on the swaps are recorded in other non-interest income.

Note 16 – Litigation

The Company and its subsidiaries are subject in the ordinary course of business to various pending or threatened legal proceedings in which claims for monetary damages are asserted. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these legal matters will have a material adverse effect on the Company's financial condition, operating results or liquidity.

Note 17 – Fair Value

Generally accepted accounting principles provide entities the option to measure eligible financial assets, financial liabilities and commitments at fair value (i.e. the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes in fair value must be recorded in earnings. The Company applies the fair value option on residential mortgage loans held for sale. The fair value option on residential mortgage loans held for sale allows the recognition of gains on the sale of mortgage loans to more accurately reflect the timing and economics of the transaction.

The standard for fair value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below.

Basis of Fair Value Measurement:

Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2- Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Changes to interest rates may result in changes in the cash flows due to prepayments or extinguishments. Accordingly, changes to interest rates could result in higher or lower measurements of the fair values.

Assets and Liabilities

Mortgage loans held for sale

Mortgage loans held for sale are valued based on quotations from the secondary market for similar instruments and are classified as Level 2 of the fair value hierarchy.

Investments available-for-sale

U.S. government agencies, mortgage-backed, and asset-backed securities

Valuations are based on active market data and use of evaluated broker pricing models that vary based by asset class and includes available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, descriptive terms, and conditions databases coupled with extensive quality control programs. Multiple quality control evaluation processes review available market, credit and deal level information to support the evaluation of the security. If there is a lack of objectively verifiable information available to support the valuation, the evaluation of the security is discontinued. Additionally, proprietary models and pricing systems, mathematical tools, actual transacted prices, integration of market developments and experienced evaluators are used to determine the value of a security based on a hierarchy of market information regarding a security or securities with similar characteristics. The Company does not adjust the quoted price for such securities. Such instruments are generally classified within Level 2 of the fair value hierarchy.

State and municipal securities

Proprietary valuation matrices are used for valuing all tax-exempt municipals that can incorporate changes in the municipal market as they occur. Market evaluation models include the ability to value bank qualified municipals and general market municipals that can be broken down further according to insurer, credit support, state of issuance and rating to incorporate additional spreads and municipal curves. Taxable municipals are valued using a third party model that incorporates a methodology that captures the trading nuances associated with these bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Interest rate swap agreements

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

Assets Measured at Fair Value on a Recurring Basis

The following tables set forth the Company’s financial assets and liabilities at the dates indicated that were accounted for or disclosed at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

			March 31, 2020
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Assets
	Residential mortgage loans held for sale		$	-	$	67,114	$	-	$	67,114
	Investments available-for-sale:
		U.S. government agencies		-		180,344		-		180,344
		State and municipal		-		276,449		-		276,449
		Mortgage-backed and asset-backed		-		718,482		-		718,482
		Corporate debt		-		-		12,332		12,332
		Trust preferred		-		-		-		-
		Marketable equity securities		-		568		-		568
	Interest rate swap agreements			-		9,571		-		9,571

Liabilities
	Interest rate swap agreements		$	-	$	(9,571)	$	-	$	(9,571)

			December 31, 2019
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Assets
	Residential mortgage loans held for sale		$	-	$	53,701	$	-	$	53,701
	Investments available-for-sale:
		U.S. government agencies		-		258,495		-		258,495
		State and municipal		-		233,649		-		233,649
		Mortgage-backed and asset-backed		-		570,759		-		570,759
		Corporate debt		-		-		9,552		9,552
		Trust preferred		-		-		310		310
		Marketable equity securities		-		568		-		568
	Interest rate swap agreements			-		2,507		-		2,507

Liabilities
	Interest rate swap agreements		$	-	$	(2,507)	$	-	$	(2,507)

The following table provides a change in the fair value of assets measured in the Condensed Consolidated Statements of Condition at fair value with significant unobservable inputs (Level 3) on a recurring basis for the period indicated:

			Significant
			Unobservable
			Inputs
(In thousands)			(Level 3)
Investments available-for-sale:
	Balance at January 1, 2020		$	9,862
		Additions of Level 3 assets		3,050
		Sales of Level 3 assets		(310)
		Total unrealized loss included in other comprehensive income		(270)
	Balance at March 31, 2020		$	12,332

Assets Measured at Fair Value on a Nonrecurring Basis

The following table sets forth the Company’s financial assets subject to fair value adjustments on a nonrecurring basis at the date indicated that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

		March 31, 2020
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable
(In thousands)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Total Losses
Loans		$	-	$	-	$	6,658	$	6,658	$	(9,364)
Other real estate owned			-		-		1,416		1,416		(311)
	Total	$	-	$	-	$	8,074	$	8,074	$	(9,675)

		December 31, 2019
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable
(In thousands)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Total Losses
Loans		$	-	$	-	$	6,886	$	6,886	$	(6,299)
Other real estate owned			-		-		1,482		1,482		(281)
	Total	$	-	$	-	$	8,368	$	8,368	$	(6,580)

At March 31, 2020, loans totaling $37.7 million were written down to fair value of $29.0 million as a result of individual credit loss allowances of $8.7 million associated with the collateral dependent loans. Loans totaling $24.8 million were written down to fair value of $19.3 million at December 31, 2019 as a result of individual credit loss allowances of $5.5 million associated with the collateral dependent loans.

Fair value of the collateral dependent loans is measured based on the loan’s observable market price or the fair value of the collateral (less estimated selling costs). Collateral may be real estate and/or business assets such as equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical experience, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional individual reserve and adjusted accordingly, based on the factors identified above.

Other real estate owned (“OREO”) is adjusted to fair value upon acquisition of the real estate collateral. Subsequently, OREO is carried at the lower of carrying value or fair value. The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less cost to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a non-recurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.

Fair Value of Financial Instruments

The Company discloses fair value information, based on the exit price notion, of financial instruments that are not measured at fair value in the financial statements. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists.

Quoted market prices, where available, are shown as estimates of fair market values. Because no quoted market prices are available for a significant portion of the Company's financial instruments, the fair value of such instruments has been derived based on the amount and timing of future cash flows and estimated discount rates based on observable inputs (“Level 2”) or unobservable inputs (“Level 3”).

Present value techniques used in estimating the fair value of many of the Company's financial instruments are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate cash settlement of the instrument. Additionally, the accompanying estimates of fair values are only representative of the fair values of the individual financial assets and liabilities, and should not be considered an indication of the fair value of the Company. Management utilizes internal models used in asset liability management to determine the fair values disclosed below.

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented in the following table:

					Fair Value Measurements
	March 31, 2020				Quoted Prices in
			Estimated		Active Markets for		Significant Other		Significant
	Carrying		Fair		Identical Assets		Observable Inputs		Unobservable Inputs
(In thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Other equity securities	$	62,953	$	62,953	$	-	$	62,953	$	-
Loans, net of allowance		6,637,192		6,721,435		-		-		6,721,435
Other assets (1)		113,817		113,817		-		113,817		-

Financial Liabilities
Time deposits	$	1,646,611	$	1,663,576	$	-	$	1,663,576	$	-
Securities sold under retail repurchase agreements and
Federal funds purchased		125,305		125,305		-		125,305		-
Advances from FHLB		754,061		770,511		-		770,511		-
Subordinated debentures		199,046		183,857		-		-		183,857

(1) Includes bank owned life insurance products.

					Fair Value Measurements
	December 31, 2019				Quoted Prices in
			Estimated		Active Markets for		Significant Other		Significant
	Carrying		Fair		Identical Assets		Observable Inputs		Unobservable Inputs
(In thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Other equity securities	$	51,803	$	51,803	$	-	$	51,803	$	-
Loans, net of allowance		6,649,100		6,628,054		-		-		6,628,054
Other assets (1)		113,171		113,171		-		113,171		-

Financial Liabilities
Time deposits	$	1,542,322	$	1,547,116	$	-	$	1,547,116	$	-
Securities sold under retail repurchase agreements and
Federal funds purchased		213,605		213,605		-		213,605		-
Advances from FHLB		513,777		520,729		-		520,729		-
Subordinated debentures		209,406		200,864		-		-		200,864

(1) Includes bank owned life insurance products.

Note 18 - Segment Reporting

Currently, the Company conducts business in three operating segments - Community Banking, Insurance and Investment Management. Each of the operating segments is a strategic business unit that offers different products and services. The Insurance and Investment Management segments were businesses that were acquired in separate transactions where management of the acquired business was retained. The accounting policies of the segments are the same as those of the Company. However, the segment data reflects inter-segment transactions and balances.

The Community Banking segment is conducted through Sandy Spring Bank and involves delivering a broad range of financial products and services, including various loan and deposit products, to both individuals and businesses. Parent company income is included in the Community Banking segment, as the majority of parent company functions is related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, trust income fees and service charges on deposit accounts. Expenses include personnel, occupancy, marketing, equipment and other expenses. Non-cash charges associated with amortization of intangibles were $0.4 million for both the three months ended March 31, 2020 and 2019, respectively.

The Insurance segment is conducted through Sandy Spring Insurance Corporation, a subsidiary of the Bank. Sandy Spring Insurance Corporation operates Sandy Spring Insurance, a general insurance agency located in Annapolis, Maryland, and Neff and Associates, located in Ocean City, Maryland. Major sources of revenue are insurance commissions from commercial lines, personal lines, and medical liability lines. Expenses include personnel and support charges. Non-cash charges associated with amortization of intangibles were not significant for the three months ended March 31, 2020 and 2019, respectively.

The Investment Management segment is conducted through West Financial Services, Inc. and Rembert Pendleton Jackson, subsidiaries of the Bank. These asset management and financial planning firms, located in McLean, Virginia and Falls Church, Virginia, provide comprehensive investment management and financial planning to individuals, families, small businesses and associations, including cash flow analysis, investment review, tax planning, retirement planning, insurance analysis and estate planning. West Financial and RPJ had approximately $2.6 billion in assets under management as of March 31, 2020. Major revenue sources include non-interest income earned on the above services. Expenses include personnel and support charges. Non-cash charges associated with amortization of intangibles were $0.2 million for the three months ended March 31, 2020 and were not significant for the same period in the prior year.

Information for the operating segments and reconciliation of the information to the condensed consolidated financial statements for the periods indicated is presented in the following tables:

	Three Months Ended March 31, 2020
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Mgmt.		Elimination		Total
Interest income	$	83,857	$	3	$	2	$	(4)	$	83,858
Interest expense		19,528		-		-		(4)		19,524
Provision for credit losses		24,469		-		-		-		24,469
Noninterest income		13,977		2,129		2,266		(204)		18,168
Noninterest expense		44,655		1,464		1,831		(204)		47,746
Income before income taxes		9,182		668		437		-		10,287
Income tax expense		1		185		114		-		300
Net income	$	9,181	$	483	$	323	$	-	$	9,987


Assets	$	8,917,849	$	10,887	$	55,657	$	(54,791)	$	8,929,602

	Three Months Ended March 31, 2019
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Mgmt.		Elimination		Total
Interest income	$	88,183	$	1	$	2	$	(3)	$	88,183
Interest expense		21,436		-		-		(3)		21,433
Provision (credit) for credit losses		(128)		-		-		-		(128)
Non-interest income		12,707		1,904		2,525		(167)		16,969
Non-interest expense		41,211		1,420		1,728		(167)		44,192
Income before income taxes		38,371		485		799		-		39,655
Income tax expense		8,993		135		210		-		9,338
Net income	$	29,378	$	350	$	589	$	-	$	30,317


Assets	$	8,326,141	$	11,519	$	20,564	$	(30,324)	$	8,327,900

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company

Sandy Spring Bancorp, Inc. (the “Company") is the bank holding company for Sandy Spring Bank (the "Bank"). The Company is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. At March 31, 2020, the Company had $8.9 billion in assets that will increase by approximately $2.8 billion subsequent to the April 1, 2020 acquisition of Revere Bank . The Company, which began operating in 1988, is registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. As such, the Company is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve").

The Bank traces its origin to 1868, making it among the oldest institutions in the region. Independent and community-oriented, Sandy Spring Bank offers a broad range of commercial banking, retail banking, mortgage and trust services throughout central Maryland, Northern Virginia, and the greater Washington, D.C. market. Through its subsidiaries, Sandy Spring Insurance Corporation, West Financial Services, Inc. and Rembert Pendleton and Jackson, Sandy Spring Bank also offers a variety of comprehensive insurance and wealth management services. The Bank is a state chartered bank subject to supervision and regulation by the Federal Reserve and the State of Maryland. The Bank's deposit accounts are insured by the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (the "FDIC") to the maximum amount permitted by law. The Bank is a member of the Federal Reserve System and is an Equal Housing Lender. The Company, the Bank, and its other subsidiaries are Affirmative Action/Equal Opportunity Employers.

Beginning in 2018, the Company has completed a series of strategic acquisitions in its market area. The Company completed the acquisition of WashingtonFirst Bankshares, Inc., the parent company for WashingtonFirst Bank (collectively referred to as “WashingtonFirst”), during 2018. At the date of acquisition, WashingtonFirst had more than $2.1 billion in assets, loans of $1.7 billion and deposits of $1.6 billion. The all-stock transaction resulted in the issuance of 11.4 million common shares valued at approximately $447 million. On February 1, 2020 the Company closed the acquisition of Rembert Pendleton and Jackson (“RPJ”) a wealth advisory firm located in Falls Church, Virginia with approximately $1.5 billion in assets under management. On April 1, 2020, the Company successfully closed the acquisition of Revere Bank (“Revere”) in a transaction valued at approximately $287 million. The acquisition of Revere, headquartered in Rockville, Maryland resulted in the addition of 11 banking offices and more than $2.8 billion in assets as of March 31, 2020. Results of operations and the acquisition will be reflected prospectively in periods subsequent to March 31, 2020.

Current State and Response

The widespread outbreak of the novel coronavirus ("COVID-19" or “pandemic”) late in the first quarter of 2020 has profoundly affected, and will likely continue to adversely effect the Company’s business, financial condition, and results of operations. This pandemic has resulted in negative impacts on economic and commercial activity and financial markets, both globally and within the United States. Within our market area, the governors of Maryland and Virginia and the mayor of the District of Columbia have issued directives that, among other things, require residents to stay in their homes and permit them to leave only to conduct certain essential activities or to travel to work, closed all non-essential businesses to the general public, and closed certain businesses such as senior centers, churches, restaurants, bars, fitness centers and shopping malls. These stay-at-home directives and travel restrictions – and similar directives imposed across the United States to restrict the spread of COVID-19 – have resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and layoffs and furloughs. Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term interest rates, such as those announced by the Federal Reserve during the first fiscal quarter of 2020, have a negative impact on our results, as we have certain assets and liabilities that are sensitive to changes in interest rates. Management continually monitors developments, evaluates strategic and tactical initiatives and solutions and allocates the necessary resources to mitigate the negative impact of this significant market disruption caused by the pandemic. For a description of the potential impacts of COVID-19 on the Company, see “Item 1A-Risk Factors.”

As an essential business, the Company has implemented business continuity plans and continues to provide financial services to clients. In response to COVID-19, the Company began implementing our business continuity plan in early March, which led to the implementation of numerous actions to address the health and safety of employees and clients. Specifically, the Company:

 In mid-March, suspended all business-related travel, limited in-person meetings with outside parties, requested that employees postpone non-essential personal travel, and began transitioning employees to working remotely.

 Established an enhanced personal leave benefit that provides additional paid time off to employees who are unable to work for reasons related to COVID-19 – including having to care for children whose school has been closed – and who cannot work from home.

 Implemented enhanced cleaning and disinfecting procedures for our facilities.

 On March 18, closed our branch lobbies to the public, established procedures for clients to schedule appointments in the branches for critical needs, such as safe deposit box access, and enhanced procedures to permit a wider range of transaction to be conducted through drive-thru facilities.

 Notified clients of reduced access to branch facilities, promoted the use of online and mobile banking, and increased the staff in the customer service center to assist clients over the telephone.

 Established regular communications to employees to keep them apprised of the steps we are taking to support employee and client safety and the benefits available to them.

 Successfully transitioned approximately 85% of our non-branch personnel to working remotely.

 Developed comprehensive guidance for responding to any COVID-19 diagnoses or exposures in facilities or operations.

 On March 30, closed the majority of branches that do not have drive-thru facilities.

 Provided branch personnel and support staff whose responsibilities do not permit them to work remotely with a bonus of up to $1,200 per employee.

These measures enabled the Company to continue to effectively serve the needs of clients.

The Company has taken several steps to ease the financial burden of the COVID-19 pandemic on our clients:

 Waived Sandy Spring Bank fees for clients using an ATM, regardless of location.

 Waived certain penalties for early certificate of deposit withdrawals less than $10,000.

 Eliminated fees for mobile check deposits by business clients.

 Worked with clients who are experiencing financial hardship to provide fee waivers and structure loan payment deferrals or other accommodations.

The Company is participating in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), which provides forgivable loans to small businesses to enable them to maintain payroll, hire back employees who have been laid off, and cover applicable overhead. After the program was announced, the Company quickly mobilized to maximize the ability of clients to access this program. Over 150 employees have supported the Company’s participation in the program. The Company simultaneously utilized technology vendors to implement software solutions to speed the intake of client applications and submission to the SBA. As of April 30, 2020, when the SBA announced that all of the funds appropriated for the program had been allocated. The Company had processed over 4,500 PPP loans for a total of $1.1 billion to businesses with more than an estimated 104,000 employees. The Company anticipates/is funding most/substantially all of its PPP loans with borrowings through the Federal Reserve’s Paycheck Protection Program Liquidity Facility “(PPPLF”). Loans under the PPP have an interest rate of 1.00% while the borrowings under the PPPLF bear interest at a rate of 0.35%. The Company estimates that it will receive processing fees of approximately $34 million from the SBA. These fees will be recognized over the life of the PPP loans.

As a further relief to qualified commercial and mortgage/consumer loan customers, the Company has developed guidelines to provide for deferment of certain loan payments up to 90 days. From March through April 30, the Company (including Revere) had granted approvals for payment modifications/deferrals on nearly 1,775 loans with an aggregate balance of $1.4 billion.

Current Quarter Financial Overview

Net income for the first quarter of 2020 totaled $10.0 million ($0.28 per diluted share) compared to net income of $30.3 million ($0.85 per diluted share) for the first quarter of 2019 and net income of $28.5 million ($0.80 per diluted share) for the fourth quarter of 2019. Current quarter earnings included the negative impact of the $24.5 million provision for credit losses. Although the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) would permit the Company to delay the adoption of the accounting standard for current expected credit losses (“CECL”), the Company has elected to adopt CECL as planned, effective January 1, 2020. The provision for credit losses was significantly impacted by the negative projected impact of COVID-19 on specific economic metrics used in the Company’s CECL model. Excluding the effect of the significant deterioration in the economic outlook late in the first quarter, the provision for credit losses was projected to have been approximately $4.1 million. The results for the current quarter were further negatively impacted by $1.5 million in merger and acquisition expense associated with the acquisition of RPJ, which closed on February 1, 2020, and the acquisition of Revere, which was closed on April 1, 2020.

The first quarter’s results reflect the following events:

 Total assets grew 7% and loans grew 2%, compared to the prior year. During this period, the impact of the 8% growth in commercial loans was offset by the 11% decline in the mortgage loan portfolio. The decline of the mortgage loan portfolio was the result of the impact of mortgage refinance activity driven by the low interest rate environment, in addition to the strategic decision to sell the majority of new mortgage loan production.

 Total deposits grew 6% from the first quarter of 2019 and 2% compared to the end of 2019. Deposit growth reduced the loan-to-deposit ratio from 104% at year-end 2019 to 102% at the end of the current quarter. Compared to the prior year quarter, deposit growth included a 7% increase in noninterest-bearing deposits and a 5% increase in interest-bearing deposits.

 The net interest margin was 3.29% for the first quarter of 2020, compared to 3.60% for the first quarter of 2019 and 3.38% for the fourth quarter of 2019. The net interest margin for the first quarter of 2019 was 3.52%, after excluding recovered interest income on acquired credit impaired loans.

 The Company proceeded with the adoption of CECL effective January 1, 2020, resulting in an increase to the allowance for credit losses of $5.7 million. Exclusive of the $2.8 million reclassification to the allowance for credit losses related to acquired credit impaired loans, the impact to retained earnings at transition date was $2.2 million.

 The provision for credit losses for the first quarter of $24.5 million was significantly impacted by the specific economic metrics applied in the modeling for expected credit losses. Prior to the significant deterioration in the economic outlook that occurred late in the first quarter, the provision for credit losses, utilizing a forecast in early March, was projected to have been approximately $4.1 million.

 Non-interest income increased 7% from the prior year quarter driven primarily by the impact from the recent acquisition of Rembert Pendleton Jackson.

 Non-interest expense for the quarter increased to $47.7 million or 8% compared to the same quarter of the prior year. The current year’s quarter included $1.5 million in merger and acquisition expense. Excluding this expense, the current quarter’s increase was 5% driven by an increase in compensation expense as a result of annual merit increases over the preceding twelve months, commission incentives related to mortgage origination volumes and the operating cost from the recent acquisition of RPJ.

 The Company completed its stock repurchase program under which it purchased a total of 1.5 million common shares for a total of $50.0 million at an average price of $33.58 per share.

 Tangible book value remained stable at $21.09 per share at March 31, 2020 compared to $21.05 at March 31, 2019, after the completion of the stock repurchase program, an increase in the quarterly dividend to $0.30 per share in the second quarter of 2019 and the addition of $34.9 million in goodwill and intangible assets.

Total assets at March 31, 2020 increased 7% compared to March 31, 2019. This growth was driven by interest-earning asset growth as loan balances and investments at March 31, 2020 increased 2% and 27%, respectively. Deposits increased 6% compared to balances at March 31, 2019. The Company’s liquidity position continued to remain strong as a result of its operational cash flows, in addition to the available borrowing lines with the Federal Home Loan Bank of Atlanta, the Federal Reserve and other sources, and the size and composition of the available-for-sale investment portfolio. Stockholders’ equity grew 2% to $1.1 billion compared to March 31, 2019 due to earnings over the preceding twelve months. This growth occurred even as the Company repurchased $50 million in common stock and increased the dividend 7% during this period.

Non-performing loans represented 0.80% of total loans at March 31, 2020 compared to 0.61% at March 31, 2019. The Company’s non-performing loans were $54.0 million at March 31, 2020 compared to $40.1 million at March 31, 2019. The growth in non-performing loans occurred as a result of the adoption of the accounting standard for expected credit losses which required that $13.1 million of previously disclosed and accounted for purchased credit impaired loans be designated as non-accrual loans under the new standard’s guidance. New loans placed on non-accrual during the current quarter amounted to $2.4 million compared to $6.2 million for the prior year quarter and $5.4 million for the fourth quarter of 2019. The ratio of annualized net charge-offs to average loans for the current quarter was 0.03% compared to 0.02% for the prior year quarter.

Net interest income for the first quarter of 2020 decreased 4% compared to the first quarter of 2019. During this period interest income decreased $4.3 million and interest expense decreased $1.9 million resulting in a net decrease of $2.4 million in net interest income. The reduction in net interest income was primarily attributable to the decline in interest rates during this period as the decrease in interest income significantly exceeded the reduction in interest expense. The impact of the interest rate decline on net interest income was partially mitigated by growth in average interest-earning assets. For the first quarter of 2020, the net interest margin was 3.29% compared to 3.60% for the first quarter of 2019. The prior year’s margin reflected the positive impact of an interest income recovery of $1.8 million. Excluding this recovery, the prior year’s net interest margin was 3.52% and the decrease in net interest income was $0.6 million.

The provision for credit losses was $24.5 million for the first quarter of 2020 compared to a credit of $0.1 million for the first quarter of 2019. The increase in the provision during the quarter was the direct result of the projected negative impact of COVID-19 on specific economic metrics used in the Company’s expected credit loss model.

Non-interest income increased 7% for the first quarter of 2020 as compared to the first quarter of 2019. Exclusive of securities gains in 2020 and insurance mortality proceeds received in 2019, the growth in non-interest income for the quarter was 10% or $1.6 million, compared to the prior year quarter. This increase in non-interest income was driven by the significant increase in wealth management income as a result of the RPJ acquisition during the first quarter of 2020. Mortgage banking income was adversely affected by the rapid deterioration in pricing and investor demand that occurred late in the current quarter. This event significantly affected the valuations of forward sale commitments and the loans held for sale, resulting in a significant decline of mortgage banking income in the current quarter compared to recent quarters.

Non-interest expense increased 8% to $47.7 million for the first quarter of 2020 compared to $44.2 million in the first quarter of 2019. The current quarter included merger and acquisition expense of $1.5 million. Excluding this expense, non-interest expenses increased 5% compared to the first quarter of 2019 as a result of an increase in compensation expense due to annual merit increases over the preceding twelve months, commission compensation related to higher levels of residential mortgage loan originations and the additional monthly operating costs as a result of the acquisition of Rembert Pendleton Jackson.

The non-GAAP efficiency ratio was 54.76% for the current quarter as compared to 51.44% for the first quarter of 2019. The increase in the efficiency ratio (reflecting a reduction in efficiency) from the first quarter of last year to the current year was the result of the rate of growth in non-interest expense outpacing the growth in net revenues as a result of margin compression during the same time period.

Results of Operations

For the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Net income for the Company for the first quarter of 2020 totaled $10.0 million ($0.28 per diluted share) compared to net income of $30.3 million ($0.85 per diluted share) for the first quarter of 2019. Earnings for the current quarter reflect the effect of the provision for credit losses of $24.5 million, which was the result of the projected negative impact of COVID-19 on the specific economic metrics applied by the Company in determining the provision.

Net Interest Income

For the first quarter of 2020, net interest income decreased 4% to $64.3 million compared to $66.8 million for the first quarter of 2019. On a tax-equivalent basis, net interest income for the first quarter of 2020 was $65.4 million compared to $68.0 million for the first quarter of 2019. The decline in net interest income occurred despite the volume growth in interest-earning assets and interest-bearing liabilities as the impact of the volume growth was outpaced by the effect of the decline in interest rates during this period.

The net interest margin for the current quarter was 3.29%, compared to the net interest margin for the first quarter of 2019 of 3.60%. The prior year’s quarterly margin was positively impacted by an interest income recovery on acquired credit impaired loans of $1.8 million. Excluding this recovery, the prior year’s net interest margin was 3.52%. The yield on interest-earning assets declined 47 basis points in the current quarter compared to the prior year quarter, as the average yields on loans and investment securities declined 42 and 50 basis points, respectively. At March 31, 2020, total average loans comprised 84% of the average interest-earning assets as opposed to 86% at March 31, 2019. The impact of the decline in the yield on average interest-earning assets was partially mitigated by the 21 basis point decline in the average rate paid on average interest-bearing liabilities. The decline in the average rate paid was primarily a result of the 21 basis point reduction in the average rates paid on interest-bearing deposits, predominantly money market savings deposits. The average rate paid on borrowing remained essentially flat from the prior year quarter. At March 31, 2020, total average interest-bearing deposits comprised 83% of the average interest-bearing liabilities as compared to 79% at March 31, 2019. Non-interest bearing demand deposits increased 7% to $1.8 billion during this period providing further benefit to the net interest margin at March 31, 2020.

Sandy Spring Bancorp, Inc. and Subsidiaries
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES

		Three Months Ended March 31,
				2020						2019
					Annualized						Annualized
	Average		(1)		Average		Average		(1)		Average
(Dollars in thousands and tax-equivalent)	Balances		Interest		Yield/Rate		Balances		Interest		Yield/Rate
Assets
Residential mortgage loans	$	1,139,786	$	10,741	3.77	%	$	1,230,319	$	11,788	3.83	%
Residential construction loans		145,266		1,561	4.32			189,720		1,963	4.20
Total mortgage loans		1,285,052		12,302	3.83			1,420,039		13,751	3.88
Commercial AD&C loans		659,494		8,329	5.08			676,205		9,880	5.93
Commercial investor real estate loans		2,202,461		25,265	4.61			1,964,699		25,729	5.31
Commercial owner occupied real estate loans		1,285,257		15,206	4.76			1,207,799		14,386	4.83
Commercial business loans		819,133		10,177	5.00			780,318		10,808	5.62
Total commercial loans		4,966,345		58,977	4.78			4,629,021		60,803	5.33
Consumer loans		465,314		5,156	4.46			515,644		6,330	4.98
Total loans (2)		6,716,711		76,435	4.57			6,564,704		80,884	4.99
Loans held for sale		35,030		291	3.32			17,846		192	4.31
Taxable securities		972,609		6,322	2.60			768,658		5,976	3.11
Tax-exempt securities (3)		206,475		1,737	3.37			242,282		2,173	3.59
Total investment securities (4)		1,179,084		8,059	2.73			1,010,940		8,149	3.23
Interest-bearing deposits with banks		63,533		180	1.14			33,068		194	2.38
Federal funds sold		260		1	1.23			629		5	3.33
Total interest-earning assets		7,994,618		84,966	4.27			7,627,187		89,424	4.74

Less: allowance for credit losses		(61,962)						(53,095)
Cash and due from banks		69,618						62,478
Premises and equipment, net		58,346						61,722
Other assets		638,722						559,824
Total assets	$	8,699,342					$	8,258,116

Liabilities and Stockholders' Equity
Interest-bearing demand deposits	$	840,415		697	0.33	%	$	709,844		300	0.17	%
Regular savings deposits		331,119		73	0.09			331,473		93	0.11
Money market savings deposits		1,848,290		4,650	1.01			1,658,628		6,307	1.54
Time deposits		1,616,643		8,098	2.01			1,570,277		7,780	2.01
Total interest-bearing deposits		4,636,467		13,518	1.17			4,270,222		14,480	1.38
Other borrowings		236,806		580	0.99			170,660		398	0.95
Advances from FHLB		531,989		3,145	2.38			925,652		6,064	2.66
Subordinated debentures		206,794		2,281	4.41			37,412		491	5.25
Total interest-bearing liabilities		5,612,056		19,524	1.40			5,403,946		21,433	1.61

Noninterest-bearing demand deposits		1,797,227						1,682,720
Other liabilities		160,008						98,159
Stockholders' equity		1,130,051						1,073,291
Total liabilities and stockholders' equity	$	8,699,342					$	8,258,116

Net interest income and spread				65,442	2.87	%				67,991	3.13	%
Less: tax-equivalent adjustment				1,108						1,241
Net interest income			$	64,334					$	66,750

Interest income/earning assets					4.27	%					4.74	%
Interest expense/earning assets					0.98						1.14
Net interest margin					3.29	%					3.60	%

(1) Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 25.45% for both 2020 and 2019. The annualized
taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $1.1 million and $1.2 million in 2020 and 2019, respectively.
(2) Non-accrual loans are included in the average balances.
(3) Includes only investments that are exempt from federal taxes.
(4) Investments available-for-sale are presented at amortized cost.

Interest Income

The Company's total tax-equivalent interest income decreased 5% for the first quarter of 2020 compared to the prior year quarter. The previous table reflects 5% growth in average interest-earning over the prior year quarter as increases occurred in all categories of interest-earning assets. Average loans grew 2% and average investment securities grew 17%.

The increase in the average balance of the loan portfolio for the first quarter of 2020 compared to the prior year period was driven by the growth in the commercial loans. The impact of the commercial growth was partially mitigated by declines in the mortgage and consumer loan portfolios, which decreased as a result of the refinance activity that occurred in the past twelve months. The yield on average loans decreased by 42 basis points compared to the prior year quarter, which included $1.8 million in an interest income recovery. Excluding the interest recovery, the average yield on loans decreased 32 basis points compared to the prior year quarter. The average yield on total investment securities decreased 50 basis points while the average balance of the investment portfolio increased by 17% for the first quarter of 2020 compared to the first quarter of 2019. The decrease in the yield on investments was driven by the decline in yields during the year, as the securities portfolio was expanded and proceeds from maturities and calls were reinvested in securities at the lower available rates. The combined decrease in the yield on loans and the investment portfolio resulted in the 47 basis point decline in the yield on interest-earning assets from period to period. Exclusive of the prior year’s interest recovery, the yield on interest-earning assets would have decreased 39 basis points.

Interest Expense

Interest expense decreased 9% in the first quarter of 2020 compared to the first quarter of 2019. The decrease from period to period was attributable to the decline in general market rates that occurred over the previous twelve months. The main driver in the decline in interest expense was the 48% reduction in the cost of FHLB borrowings, and to a smaller degree, a 7% decline in the cost of interest-bearing deposits. The impact of these reductions was partially offset by the increase in interest expense on subordinated debt due to the issuance of $175.0 million of subordinated debt in late 2019. The decline in interest expense on FHLB borrowings was driven by a combination of the decline in market rates and the 43% decline in the average balance over the preceding year. Average interest-bearing deposits grew 9% from the first quarter of 2019 to the first quarter of 2020 primarily in interest-bearing demand and money market savings accounts. The increase in the average interest-bearing deposits and the proceeds of the subordinated debt offerings were utilized to reduce FHLB borrowings. Coupled with the impact of the reduction in borrowed funds, the 21 basis point decline in the average rate paid on interest-bearing deposits and the 7% increase in non-interest bearing deposits provided an additional benefit to the Company’s net interest margin. Overall, the impact of the growth in interest-bearing liabilities was fully offset by lower rates, resulting in a reduction of 21 basis points in the average rate paid in the first quarter of 2020 compared to the first quarter of 2019.

Effect of Volume and Rate Changes on Net Interest Income

The following table analyzes the reasons for the changes from year-to-year in the principal elements that comprise net interest income:

			2020 vs. 2019							2019 vs. 2018
			Increase						Increase
			Or		Due to Change In Average:*				Or		Due to Change In Average:*
(Dollars in thousands and tax equivalent)			(Decrease)		Volume		Rate		(Decrease)		Volume		Rate
Interest income from earning assets:
	Residential mortgage loans		$	(1,047)	$	(863)	$	(184)	$	1,407	$	1,088	$	319
	Residential construction loans			(402)		(459)		57		119		(35)		154
	Commercial AD&C loans			(1,551)		(228)		(1,323)		1,744		1,344		400
	Commercial investor real estate loans			(464)		3,051		(3,515)		2,301		(280)		2,581
	Commercial owner occupied real estate loans			820		1,012		(192)		3,808		3,153		655
	Commercial business loans			(631)		552		(1,183)		2,759		1,624		1,135
	Consumer loans			(1,174)		(567)		(607)		784		(241)		1,025
	Loans held for sale			99		151		(52)		(176)		(192)		16
	Taxable securities			346		1,419		(1,073)		709		(23)		732
	Tax exempt securities			(436)		(308)		(128)		(449)		(492)		43
	Interest-bearing deposits with banks			(14)		121		(135)		(163)		(298)		135
	Federal funds sold			(4)		(2)		(2)		(8)		(16)		8
Total interest income				(4,458)		3,879		(8,337)		12,835		5,632		7,203

Interest expense on funding of earning assets:
	Interest-bearing demand deposits			397		68		329		96		(13)		109
	Regular savings deposits			(20)		-		(20)		(208)		(70)		(138)
	Money market savings deposits			(1,657)		677		(2,334)		3,180		732		2,448
	Time deposits			318		318		-		4,453		1,112		3,341
	Other borrowings			182		164		18		290		28		262
	Advances from FHLB			(2,919)		(2,340)		(579)		986		(906)		1,892
	Subordinated debentures			1,790		1,880		(90)		23		(2)		25
Total interest expense				(1,909)		767		(2,676)		8,820		881		7,939
		Net interest income	$	(2,549)	$	3,112	$	(5,661)	$	4,015	$	4,751	$	(736)

* Variances that are the combined effect of volume and rate, but cannot be separately identified, are allocated to the volume and rate variances based on their respective relative amounts.

Non-interest Income

Non-interest income amounts and trends are presented in the following table for the periods indicated:

			Three Months Ended March 31,				2020/2019		2020/2019
(Dollars in thousands)			2020		2019		$ Change			% Change
	Securities gains		$	169	$	-	$	169		n/m	%
	Service charges on deposit accounts			2,253		2,307		(54)		(2.3)
	Mortgage banking activities			3,033		2,863		170		5.9
	Wealth management income			6,966		5,236		1,730		33.0
	Insurance agency commissions			2,129		1,900		229		12.1
	Income from bank owned life insurance			645		1,189		(544)		(45.8)
	Bank card fees			1,320		1,252		68		5.4
	Other income			1,653		2,222		(569)		(25.6)
		Total non-interest income	$	18,168	$	16,969	$	1,199		7.1

Total non-interest income increased 7% to $18.2 million for the first quarter of 2020 compared to $17.0 million for the first quarter of 2019. The current quarter included $0.2 million in securities gains and the prior year included $0.6 million in life insurance mortality proceeds. Exclusive of these proceeds and securities gains, growth in non-interest income for the quarter was 10% or $1.6 million compared to the prior year quarter. This increase was driven by the increase in wealth management income as a result of the acquisition of Rembert Pendleton Jackson during the current quarter. Further detail by type of non-interest income follows:

 Income from mortgage banking activities increased by $0.2 million in the first quarter of 2020 as compared to the first quarter of 2019. While the decline in residential mortgage lending rates during the quarter led to a significant increase in loan originations, lower investor demand, in addition to a reduction in pricing, adversely affected the valuations of the forward commitments and loans held for sale for the current quarter and resulted in a significant decline in mortgage banking income as compared to recent quarters.

 Wealth management income increased 33% in the first quarter of 2020 as compared to the first quarter of 2019 reflecting the impact of the February 2020 acquisition of RPJ. Revenue from wealth management is comprised of income from trust and estate services earned by the Bank and investment management fees earned by West Financial Services and RPJ, the Company’s investment management subsidiaries. Investment management fees increased 43% for the first quarter of 2020 compared to the same period of 2019, driven primarily by the addition of two months of revenue generated from February’s acquisition of RPJ. Trust and estate services income increased 24% for the first quarter of 2020 compared to the same period of 2019, as a result of post-mortem estate management fees earned in the current quarter. Overall total assets under management increased to $4.1 billion at March 31, 2020 compared to $3.1 billion at March 31, 2019 as a result of the acquisition of RPJ. Growth of assets under management was partially offset by the negative market movements that occurred in late March of the current year.

 Insurance agency commissions increased 12% in the first quarter of 2020 compared to the first quarter of 2019 as contingency fee income increased $0.1 million in the current quarter compared to the prior year quarter.

 Income from bank owned life insurance policies declined $0.5 million in the first quarter of 2020, compared to the first quarter of 2019, as the first quarter of the prior year contained $0.6 million in mortality proceeds, typically an infrequent event.

 Bank card fees remained relatively flat in the first quarter of 2020, compared to the first quarter of 2019.

 Other non-interest income decreased 26% or $0.6 million for the first of 2020 compared to the same quarter of the prior year as a result of credit related fees that are sporadic in their timing.

Non-interest Expense

Non-interest expense amounts and trends are presented in the following table for the periods indicated:

		Three Months Ended March 31,				2020/2019		2020/2019
(Dollars in thousands)		2020		2019		$ Change			% Change
Salaries and employee benefits		$	28,053	$	25,976	$	2,077		8.0	%
Occupancy expense of premises			4,581		5,231		(650)		(12.4)
Equipment expenses			2,751		2,576		175		6.8
Marketing			1,189		943		246		26.1
Outside data services			1,582		1,778		(196)		(11.0)
FDIC insurance			482		1,136		(654)		(57.6)
Amortization of intangible assets			600		491		109		22.2
Merger and acquisition expenses			1,454		-		1,454		n/m
Professional fees and services			1,826		1,245		581		46.7
Other expenses			5,228		4,816		412		8.6
	Total non-interest expense	$	47,746	$	44,192	$	3,554		8.0

Non-interest expense increased 8% to $47.7 million for the first quarter of 2020 compared to $44.2 million in the first quarter of 2019. The current year’s quarter included $1.5 million in merger and acquisition expense. Exclusive of this expense, non-interest expense for the current quarter increased 5%. Further detail by category of non-interest expense follows:

 Salaries and employee benefits, the largest component of non-interest expense, increased 8% in the first quarter of 2020 compared to the prior year quarter as a result of the combination of higher compensation expense from annual merit increases over the preceding twelve months, commission compensation related to higher levels of residential mortgage loan originations and the additional monthly operating costs as a result of the acquisition of Rembert Pendleton Jackson in February of the current year. The average number of full-time equivalent employees increased to 943 in the first quarter of 2020 compared to 910 in the first quarter of 2019 as a result of the RPJ acquisition and the various additions to complement.

 Occupancy and equipment expense decreased 6% as a result of a reduction in rent, a decline in building maintenance and the effects of a milder weather on the cost of grounds maintenance in the first quarter of 2020 as compared to the prior year’s first quarter.

 Enhanced advertising initiatives resulted in a 26% increase in advertising costs.

 Outside data services declined 11% for the first quarter of 2020 compared to the first quarter of 2019 due to an improvement in the contractual terms with the Company’s core data service provider over the past year.

 Professional fees and services grew 47% from the prior year quarter due to the greater utilization of various consulting and professional services, including in connection with the Company’s strategic growth initiatives.

 FDIC insurance declined 58% due to the impact of the additional capital contribution from the Company to the Bank, as a result of the Company’s issuance of the subordinated debt late in 2019.

Income Taxes

The Company had income tax expense of $0.3 million in the first quarter of 2020, compared to income tax expense of $9.3 million in the first quarter of 2019. The resulting effective tax rate decreased to 2.9% for the first quarter of 2020 compared to 23.5% for the first quarter of 2019. The effective tax rate for the current quarter was significantly lower than prior periods due to the impact of a certain tax provisions contained within the recently enacted CARES Act. The CARES Act expands the time permitted to utilize previous net operating losses. The Company was able to apply this change in conjunction with the 2018 acquisition of WashingtonFirst to realize a tax benefit of $1.8 million for the current quarter.

Operating Expense Performance

Management views the GAAP efficiency ratio as an important financial measure of expense performance and cost management. The ratio expresses the level of non-interest expense as a percentage of total revenue (net interest income plus total non-interest income). Lower ratios may indicate improved productivity as the growth rate in revenue streams exceeds the growth in operating expenses.

Non-GAAP Financial Measures

The Company also uses a traditional efficiency ratio that is a non-GAAP financial measure of operating expense control and efficiency of operations. Management believes that its traditional efficiency ratio better focuses attention on the operating performance of the Company over time than does a GAAP efficiency ratio, and is highly useful in comparing period-to-period operating performance of the Company’s core business operations. It is used by management as part of its assessment of its performance in managing non-interest expenses. However, this measure is supplemental, and is not a substitute for an analysis of performance based on GAAP measures. The reader is cautioned that the non-GAAP efficiency ratio used by the Company may not be comparable to GAAP or non-GAAP efficiency ratios reported by other financial institutions.

In general, the efficiency ratio is non-interest expenses as a percentage of net interest income plus non-interest income. Non-interest expenses used in the calculation of the non-GAAP efficiency ratio exclude merger and acquisition expense, the amortization of intangibles, and other non-recurring expenses (if any). Income for the non-GAAP efficiency ratio includes the favorable effect of tax-exempt income, and excludes securities gains and losses, which vary widely from period to period without appreciably affecting operating expenses, and other non-recurring gains (if any). The measure is different from the GAAP efficiency ratio, which also is presented in this report. The GAAP measure is calculated using non-interest expense and income amounts as shown on the face of the Condensed Consolidated Statements of Income. The GAAP efficiency ratio in the first quarter of 2020 was 57.87% compared to 52.79% for the first quarter of 2019, as non-interest expense increased and net revenues decreased. The GAAP and non-GAAP efficiency ratios are reconciled and provided in the following table. The non-GAAP efficiency ratio was 54.76% in the first quarter of 2020 compared to 51.44% in the first quarter of 2019. The increase in the efficiency ratio (reflecting a reduction in efficiency) from the first quarter of last year to the current year was the result of growth in non-interest expense and compression of net revenues during the same time period.

In addition to efficiency ratios, the Company uses pre-tax, pre-provision income, excluding merger and acquisition expense, as a measure of the level of recurring income before taxes. Management believes this provides financial statement users with a useful metric of the run-rate of revenues and expenses which is readily comparable to other financial institutions. This measure is calculated by adding the provision for credit losses, merger and acquisition expense and the provision for income taxes back to net income. This metric decreased for the first quarter of 2020 compared to the first quarter of 2019 as a result of the compression of net interest income and the rise in non-interest expense, excluding merger and acquisition expense.

			Three Months Ended
			March 31,
(Dollars in thousands)			2020		2019
Pre-tax pre-provision pre-merger income:
Net income			$	9,987	$	30,317
	Plus non-GAAP adjustments:
		Merger and acquisition expenses		1,454		-
		Income taxes		300		9,338
		Provision (credit) for credit losses		24,469		(128)
Pre-tax pre-provision pre-merger income			$	36,210	$	39,527

Efficiency ratio - GAAP basis:
Non-interest expense			$	47,746	$	44,192

Net interest income plus non-interest income			$	82,502	$	83,719

Efficiency ratio - GAAP basis				57.87%		52.79%

Efficiency ratio - Non-GAAP basis:
Non-interest expense			$	47,746	$	44,192
	Less non-GAAP adjustments:
		Amortization of intangible assets		600		491
		Merger and acquisition expenses		1,454		-
Non-interest expense - as adjusted			$	45,692	$	43,701

Net interest income plus non-interest income			$	82,502	$	83,719
	Plus non-GAAP adjustment:
		Tax-equivalent income		1,108		1,241
	Less non-GAAP adjustment:
		Securities gains		169		-
	Net interest income plus non-interest income - as adjusted		$	83,441	$	84,960

	Efficiency ratio - Non-GAAP basis			54.76%		51.44%

FINANCIAL CONDITION

The Company’s total assets grew to $8.9 billion at March 31, 2020, as compared to $8.6 billion at December 31, 2019 primarily as a result of a $125.4 million increase in investment securities and $115.0 increase in cash and interest-bearing deposits with banks. The loan portfolio at March 31, 2020, remained level at $6.7 billion compared to December 31, 2019, as commercial loans grew 1%, while the mortgage loan portfolio declined. Newly funded commercial loan production during this period was $288.5 million and the total of unfunded commitments as of March 31, 2020 totaled $124.9 million. The growth of the commercial loan portfolio during the previous three months was limited due to the attrition attributable to the competitive forces in the regional economy. The 2% reduction in the mortgage loan portfolio has been the result of heavy mortgage loan refinance activity driven by the low interest rate environment and the strategic decision to sell the majority of new mortgage loan production. Consumer loans also declined as borrowers eliminated their home equity borrowings through the refinancing of their mortgage loans.

Deposit growth was 2% from December 31, 2019 to March 31, 2020, as interest-bearing deposits experienced growth of 2% and noninterest-bearing deposits grew 3%. The growth in deposits resulted in the loan to deposit ratio improving to 101.96% at March 31, 2020, from 104.11% at December 31, 2019.

Analysis of Loans

A comparison of the loan portfolio at the dates indicated is presented in the following table:

		March 31, 2020				December 31, 2019				Period-to-Period Change
(Dollars in thousands)		Amount		%		Amount		%		Amount		%
Residential real estate:
	Residential mortgage	$	1,116,512	16.6	%	$	1,149,327	17.1	%	$	(32,815)	(2.9)	%
	Residential construction		149,573	2.2			146,279	2.2			3,294	2.3
Commercial real estate:
	Commercial owner occupied real estate		1,305,682	19.4			1,288,677	19.2			17,005	1.3
	Commercial investor real estate		2,241,240	33.3			2,169,156	32.4			72,084	3.3
	Commercial AD&C		643,114	9.6			684,010	10.2			(40,896)	(6.0)
Commercial business			813,525	12.1			801,019	11.9			12,506	1.6
Consumer			453,346	6.8			466,764	7.0			(13,418)	(2.9)
	Total loans	$	6,722,992	100.0	%	$	6,705,232	100.0	%	$	17,760	0.3

Analysis of Investment Securities

The composition of investment securities at the periods indicated is presented in the following table:

			March 31, 2020				December 31, 2019				Period-to-Period Change
(Dollars in thousands)			Amount		%		Amount		%		Amount		%
Investments available-for-sale:
	U.S. treasuries and government agencies		$	180,344	14.4	%	$	258,495	23.0	%	$	(78,151)	(30.2)	%
	State and municipal			276,449	22.1			233,649	20.8			42,800	18.3
	Mortgage-backed and asset-backed			718,482	57.5			570,759	50.7			147,723	25.9
	Corporate debt			12,332	1.0			9,552	0.8			2,780	29.1
	Trust preferred			-	-			310	-			(310)	(100.0)
	Marketable equity securities			-	-			568	0.1			(568)	(100.0)
		Total available-for-sale securities		1,187,607	95.0			1,073,333	95.4			114,274	10.6

Other equity securities:
	Other equity securities			62,953	5.0			51,803	4.6			11,150	21.5
		Total other equity securities		62,953	5.0			51,803	4.6			11,150	21.5
Total securities			$	1,250,560	100.0	%	$	1,125,136	100.0	%	$	125,424	11.1

The investment portfolio consists primarily of U.S. Treasuries, U.S. Agency securities, U.S. Agency mortgage-backed securities, U.S. Agency collateralized mortgage obligations, asset-backed securities and state and municipal securities. The portfolio is monitored on a continuing basis with consideration given to interest rate trends and the structure of the yield curve and with a frequent assessment of economic projections and analysis. At March 31, 2020, 98% of the investment portfolio was invested in Aa/AA or Aaa/AAA-rated securities. The composition and size of the portfolio at March 31, 2020 shifted from U.S. Treasuries and U.S. government Agencies to mortgage-backed and municipal securities compared to the prior year-end to take advantage of investment spreads that occurred late in the first quarter as a result of the interest rate dislocation in the markets. The duration of the portfolio is monitored to ensure the adequacy and ability to meet liquidity demands. At March 31, 2020 the duration of the portfolio was 3.3 years compared to 3.5 years at December 31, 2019. The decrease in the duration is attributable to the declining interest rate environment during the first quarter of 2020. The portfolio possesses low credit risk that could provide the liquidity necessary to meet loan and operational demands.

Other Earning Assets

Residential mortgage loans held for sale increased to $67 million at March 31, 2020, compared to $54 million at December 31, 2019 as a result of the increased volume of loan originations during the period and the decision to continue to sell the majority of the Company’s mortgage loan production. The aggregate of interest-bearing deposits with banks and federal funds increased by $118 million at March 31, 2020 compared to December 31, 2019 due to the timing of cash flows.

Deposits

The composition of deposits at the periods indicated is presented in the following table:

			March 31, 2020				December 31, 2019				Period-to-Period Change
(Dollars in thousands)			Amount		%		Amount		%		Amount		%
Noninterest-bearing deposits			$	1,939,937	29.4	%	$	1,892,052	29.4	%	$	47,885	2.5	%
Interest-bearing deposits:
	Demand			864,620	13.1			836,433	13.0			28,187	3.4
	Money market savings			1,806,875	27.4			1,839,593	28.5			(32,718)	(1.8)
	Regular savings			335,831	5.1			329,919	5.1			5,912	1.8
	Time deposits of less than $100,000			456,017	6.9			463,431	7.2			(7,414)	(1.6)
	Time deposits of $100,000 or more			1,190,594	18.1			1,078,891	16.8			111,703	10.4
		Total interest-bearing deposits		4,653,937	70.6			4,548,267	70.6			105,670	2.3
Total deposits			$	6,593,874	100.0	%	$	6,440,319	100.0	%	$	153,555	2.4

Deposits and Borrowings

Total deposits increased by 2% from $6.4 billion at December 31, 2019 to $6.6 billion at March 31, 2020. The majority of this increase occurred in interest-bearing deposits within the time deposit categories, specifically brokered time deposits. The distribution of interest-bearing versus noninterest-bearing deposits remained stable as interest-bearing deposits represented 71% of deposits with the remaining 29% in noninterest-bearing balances both at March 31, 2020 and December 31, 2019, respectively. Total borrowings increased 15% at March 31, 2020 compared to December 31, 2019, primarily in advances from the FHLB and overnight funding. Short-term borrowings increased to enhance the Company’s liquidity position in preparation of the Revere acquisition and also in response to the COVID-19 pandemic.

Capital Management

Management monitors historical and projected earnings, dividends, and asset growth, as well as risks associated with the various types of on and off-balance sheet assets and liabilities, in order to determine appropriate capital levels. Total stockholders' equity was $1.1 billion at March 31, 2020 and December 31, 2019. During the current quarter the Company repurchased $25.7 million of common stock. The ratio of average equity to average assets remained stable at 12.99% for the three months ended March 31, 2020, as compared to 13.00% for the first three months of 2019.

Risk-Based Capital Ratios

Bank holding companies and banks are required to maintain capital ratios in accordance with guidelines adopted by the federal bank regulators. These guidelines are commonly known as risk-based capital guidelines. The actual regulatory ratios and required ratios for capital adequacy are summarized for the Company in the following table.

			Minimum
	Ratios at		Regulatory
	March 31, 2020	December 31, 2019	Requirements
Total capital to risk-weighted assets	14.09%	14.85%	8.00%

Tier 1 capital to risk-weighted assets	10.23%	11.21%	6.00%

Common equity tier 1 capital	10.23%	11.06%	4.50%

Tier 1 leverage	8.78%	9.70%	4.00%

As of March 31, 2020, the most recent notification from the Bank’s primary regulator categorized the Bank as a "well-capitalized" institution under the prompt corrective action rules of the Federal Deposit Insurance Act. Designation as a well-capitalized institution under these regulations is not a recommendation or endorsement of the Company or the Bank by federal bank regulators.

The minimum capital level requirements applicable to the Company and the Bank are: (1) a common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6%; (3) a total capital ratio of 8%; and (4) a Tier 1 leverage ratio of 4%. The rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The decline in the ratios at March 31, 2020 to December 31, 2019 was the attributable to the effects of lower net income as a result of the provision for credit losses recorded in the current quarter and the impact of the previously mentioned stock repurchase program. During the quarter, the Company elected to apply the provisions of the CECL deferral transition in the determination of its risk based capital ratios. The impact of the application of this deferral transition on the ratios was not significant.

Tangible Common Equity

Tangible equity, tangible assets and tangible book value per share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity and tangible assets exclude the balances of goodwill and other intangible assets from total stockholders’ equity and total assets, respectively. Management believes that this non-GAAP financial measure provides information to investors that may be useful in understanding our financial condition. Because not all companies use the same calculation of tangible equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies.

Tangible common equity totaled $720.5 million at March 31, 2020, compared to $782.3 million at December 31, 2019. At March 31, 2020, the ratio of tangible common equity to tangible assets has decreased to 8.44% compared to 9.46% at December 31, 2019. The decrease in tangible common equity was the result of the repurchase of $25.7 million in common stock and the addition of $34.9 million in goodwill and intangibles from the wealth advisory firm acquisition during the current quarter.

A reconciliation of total stockholders’ equity to tangible equity and total assets to tangible assets along with tangible book value per share, book value per share and related non-GAAP ratio are provided in the following table:

Tangible Common Equity Ratio – Non-GAAP

(Dollars in thousands, except per share data)		March 31, 2020		December 31, 2019
Tangible common equity ratio:
Total stockholders' equity		$	1,116,334	$	1,132,974
	Accumulated other comprehensive income (loss)		(6,344)		4,332
	Goodwill		(369,708)		(347,149)
	Other intangible assets, net		(19,781)		(7,841)
Tangible common equity		$	720,501	$	782,316

Total assets		$	8,929,602	$	8,629,002
	Goodwill		(369,708)		(347,149)
	Other intangible assets, net		(19,781)		(7,841)
Tangible assets		$	8,540,113	$	8,274,012

Tangible common equity ratio			8.44%		9.46%
Tangible book value per share			$ 21.09		$ 22.37
Book value per share			$ 32.68		$ 32.40

Credit Risk

The fundamental lending business of the Company is based on understanding, measuring and controlling the credit risk inherent in the loan portfolio. The Company’s loan portfolio is subject to varying degrees of credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. The Company’s credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. Typically, each consumer and residential lending product has a generally predictable level of credit losses based on historical loss experience. Residential mortgage and home equity loans and lines generally have the lowest credit loss experience. Loans secured by personal property, such as auto loans, generally experience medium credit losses. Unsecured loan products, such as personal revolving credit, have the highest credit loss experience and, for that reason, the Company has chosen not to engage in a significant amount of this type of lending. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Inconsistent economic conditions may have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.

Loans acquired as a part of an acquisition transaction with evidence of more-than-insignificant credit deterioration since their origination as of the date of the acquisition (“purchased credit deteriorated” or “PCD” loans) are recorded at their initial fair values. The identification of loans that have experienced a more-than-insignificant deterioration in credit quality since their origination requires a judgment and assessment of a number of factors, including:

 Loan’s delinquency history, risk rating history and non-accrual status;

 Borrower’s ability to make scheduled interest or principal payments;

 Borrower’s financial condition, credit rating or credit score;

 Value of the underlying collateral;

 Legal, regulatory or technological environment impacting the borrower.

An initial allowance for credit losses, as of the acquisition date is added to the purchase price or fair value to determine the initial amortized cost basis of the loan. Any non-credit discount or premium based on current market interest rates is allocated to individual assets and accreted into interest income over the remaining life of the PCD loan on a level-yield basis. PCD loans are managed and monitored in the same manner and using the same techniques and strategies as organically generated loans.

To control and manage credit risk, management has a credit process in place to reasonably ensure that credit standards are maintained along with an in-house loan administration accompanied by oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks and involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include the monitoring of portfolio credit quality, early identification of potential problem credits and the proactive management of problem credits.

The Company recognizes a lending relationship as non-performing when either the loan becomes 90 days delinquent or as a result of factors (such as bankruptcy, interruption of cash flows, etc.) considered at the monthly credit committee meeting. Classification as a non-accrual loan is based on a determination that the Company may not collect all principal and/or interest payments according to contractual terms. When a loan is placed on non-accrual status all accrued but unpaid interest is reversed from interest income. Typically, all payments received on non-accrual loans are first applied to the remaining principal balance of the loans. Any additional recoveries are credited to the allowance up to the amount of all previous charge-offs.

The level of non-performing loans to total loans increased to 0.80% at March 31, 2020, compared to 0.61% at March 31, 2019 and 0.62% at December 31, 2019. At March 31, 2020, non-performing loans totaled $54.0 million, compared to $40.1 million at March 31, 2019, and $41.3 million at December 31, 2019. The growth in non-performing loans occurred as a result of the adoption of the accounting standard for current expected credit losses, which required that $13.1 million of previously disclosed and accounted for purchased credit impaired loans be designated as non-accrual loans under the new standard’s guidance. New loans placed on non-accrual during the current quarter amounted to $2.4 million compared to $6.2 million for the prior year quarter and $5.4 million for the fourth quarter of 2019. Non-performing loans include accruing loans 90 days or more past due and restructured loans.

While the diversification of the lending portfolio among different commercial, residential and consumer product lines along with different market conditions of the D.C. suburbs, Northern Virginia and Baltimore metropolitan area has mitigated some of the risks in the portfolio, local economic conditions and levels of non-performing loans may continue to be influenced by the conditions being experienced in various business sectors of the economy on both a regional and national level. As noted, risks, uncertainties and various other factors related to the COVID-19 pandemic includes the impact on the economy and the businesses of our borrowers and their ability to remit contractual payments on their obligations to the Company in a timely manner. The current ability to predict the outcome or impact of the remedial actions and stimulus measures adopted by the government on the economic well-being of our borrowers and the manifestations of all these factors including the future performance aspect of the credit portfolio remains uncertain.

The Company’s methodology for evaluating whether a loan shall be placed on non-accrual status begins with risk-rating credits on an individual basis and includes consideration of the borrower’s overall financial condition, payment record and available cash resources that may include the sufficiency of collateral value and, in a select few cases, verifiable support from financial guarantors. In measuring a specific allowance, the Company looks primarily to the value of the collateral (adjusted for estimated costs to sell) or projected cash flows generated by the operation of the collateral as the primary sources of repayment of the loan. The Company may consider the existence of guarantees and the financial strength and wherewithal of the guarantors involved in any loan relationship. Guarantees may be considered as a source of repayment based on the guarantor’s financial condition and payment capacity. Accordingly, absent a verifiable payment capacity, a guarantee alone would not be sufficient to avoid classifying the loan as non-accrual.

Management has established a credit process that dictates that structured procedures be performed to monitor these loans between the receipt of an original appraisal and the updated appraisal. These procedures include the following:

 An internal evaluation is updated periodically to include borrower financial statements and/or cash flow projections.

 The borrower may be contacted for a meeting to discuss an updated or revised action plan which may include a request for additional collateral.

 Re-verification of the documentation supporting the Company’s position with respect to the collateral securing the loan.

 At the monthly credit committee meeting the loan may be downgraded and a specific allowance may be decided upon in advance of the receipt of the appraisal.

 Upon receipt of the updated appraisal (or based on an updated internal financial evaluation) the loan balance is compared to the appraisal and a specific allowance is decided upon for the particular loan, typically for the amount of the difference between the appraised value (adjusted for estimated costs to sell) and the loan balance.

 Evaluation of whether adverse changes in the value of the collateral are expected over the remainder of the loan’s expected life.

 The Company will individually assess the allowance for credit losses based on the fair value of the collateral for any collateral dependent loans where borrower is experiencing financial difficulty or when the Company determines that the foreclosure is probable. The Company will charge-off the excess of the loan amount over the fair value of the collateral adjusted for the estimated selling costs.

Loans considered to be troubled debt restructurings (“TDRs”) are loans that have their terms restructured (e.g., interest rates, loan maturity date, payment and amortization period, etc.) in circumstances that provide payment relief to a borrower experiencing financial difficulty. All restructured collateral-dependent loans are individually assessed for allowance for credit losses and may either be in accruing or non-accruing status. Non-accruing restructured loans may return to accruing status provided doubt has been removed concerning the collectability of principal and interest as evidenced by a sufficient period of payment performance in accordance with the restructured terms. Loans may be removed from the restructured category if the borrower is no longer experiencing financial difficulty, a re-underwriting event took place and the revised loan terms of the subsequent restructuring agreement are considered to be consistent with terms that can be obtained in the credit market for loans with comparable risk.

The Company may extend the maturity of a performing or current loan that may have some inherent weakness associated with the loan. However, the Company generally follows a policy of not extending maturities on non-performing loans under existing terms. Maturity date extensions only occur under revised terms that clearly place the Company in a position to increase the likelihood of or assure full collection of the loan under the contractual terms and/or terms at the time of the extension that may eliminate or mitigate the inherent weakness in the loan. These terms may incorporate, but are not limited to additional assignment of collateral, significant balance curtailments/liquidations and assignments of additional project cash flows. Guarantees may be a consideration in the extension of loan maturities. As a general matter, the Company does not view extension of a loan to be a satisfactory approach to resolving non-performing credits. On an exception basis, certain performing loans that have displayed some inherent weakness in the underlying collateral values, an inability to comply with certain loan covenants which are not affecting the performance of the credit or other identified weakness may be extended.

The Company typically sells a substantial portion of its fixed-rate residential mortgage originations in the secondary mortgage market. Concurrent with such sales, the Company is required to make customary representations and warranties to the purchasers about the mortgage loans and the manner in which they were originated. The related sale agreements grant the purchasers recourse back to the Company, which could require the Company to repurchase loans or to share in any losses incurred by the purchasers. This recourse exposure typically extends for a period of six to twelve months after the sale of the loan although the time frame for repurchase requests can extend for an indefinite period. Such transactions could be due to a number of causes including borrower fraud or early payment default. The Company has seen a very limited number of repurchase and indemnity demands from purchasers for such events and routinely monitors its exposure in this regard. The Company maintains a liability of $0.7 million for probable losses due to repurchases.

The Company periodically engages in whole loan sale transactions of its residential mortgage loans as a part its interest rate risk management strategy. There were no whole loan sales of mortgage loans from the portfolio during the current quarter.

Mortgage loan servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The amortized cost of the Company's mortgage loan servicing rights remained at $1.0 million at March 31, 2020 and December 31, 2019, respectively. The Company did not incur any impairment losses during the current period.

Analysis of Credit Risk

The following table presents information with respect to non-performing assets and 90-day delinquencies for the periods indicated:

(Dollars in thousands)			March 31, 2020		December 31, 2019
Non-accrual loans:
Residential real estate:
	Residential mortgage		$	12,271	$	12,661
	Residential construction			-		-
Commercial real estate:
	Commercial investor			17,770		8,437
	Commercial owner occupied			4,074		4,148
	Commercial AD&C			829		829
Commercial business				10,834		8,450
Consumer				5,596		4,107
		Total non-accrual loans		51,374		38,632

Loans 90 days past due:
Residential real estate:
	Residential mortgage			8		-
	Residential construction			-		-
Commercial real estate:
	Commercial investor			-		-
	Commercial owner occupied			-		-
	Commercial AD&C			-		-
Commercial business				-		-
Consumer				-		-
	Total 90 days past due loans			8		-

Restructured loans (accruing)				2,575		2,636
	Total non-performing loans			53,957		41,268
Other real estate owned, net				1,416		1,482
	Total non-performing assets		$	55,373	$	42,750


Non-performing loans to total loans				0.80%		0.62%
Non-performing assets to total assets				0.62%		0.50%
Allowance for credit losses to non-performing loans				159.02%		136.02%

Allowance for Credit Losses

As a part of the credit oversight and review process, the Company maintains an allowance for credit losses (the “allowance”). The following allowance section should be read in conjunction with “Allowance for Credit Losses” section in “Note 1 – Significant Accounting Policies” of the Notes to the Condensed Consolidated Financial Statements.

The adequacy of the allowance is determined through ongoing evaluation of the credit portfolio, and involves consideration of a number of factors. Determination of the allowance is inherently subjective and requires significant estimates, including consideration of current conditions and future economic forecasts, which may be susceptible to significant volatility. The amount of expected losses can vary significantly from the amounts actually observed. Loans deemed uncollectible are charged off against the allowance, while recoveries are credited to the allowance when received. Management adjusts the level of the allowance through provision for credit losses, which is recorded as a current period operating expense.

At December 31, 2019, the allowance for credit losses was $56.1 million as compared to $85.8 million at March 31, 2020. During the first quarter of 2020, the Company adopted ASC 326 “Financial Instruments – Credit Losses.” At the adoption date, the allowance for credit losses increased by $5.8 million or 10%. Included in this transition adjustment is the reclassification of $2.8 million to the allowance for credit losses of amounts related to the previously acquired impaired loans. The after-tax transition impact to retained earnings as a result of adopting the new standard was $2.2 million.

The provision for credit losses totaled $24.5 million for the first quarter of 2020 compared to a credit of $0.1 million for the first quarter of 2019 and $1.7 million for the fourth quarter of 2019. During the current quarter, the provision for credit losses was significantly impacted by the negative projected impact of COVID-19 on specific economic metrics used in the Company’s CECL model. The economic metrics with the greatest impact in order of magnitude were, the expected future unemployment rate, the expected level of business bankruptcies and to a lesser degree, the house price index. These expectations were based on the assessment of the impact on the Company’s market area caused by the economic disruption. The portion of the $24.5 million provision directly attributable to the significant deterioration in the economic forecast amounted to approximately $19.1 million. The remainder of the first quarter’s provision reflects the impact of changes in interest rates, existing terms, qualitative factors, portfolio composition and portfolio maturities.

The allowance for credit losses as a percent of total loans was 1.28% and 0.84% at March 31, 2020 and December 31, 2019, respectively. The allowance for credit losses represented 159% of non-performing loans at March 31, 2020 as compared to 136% at December 31, 2019. The allowance attributable to the commercial portfolio represented 1.41% of total commercial loans while the portion attributable to total combined consumer and mortgage loans was 0.89%. With respect to the total commercial portion of the allowance, 42% of this portion is allocated to the commercial business loan portfolio, resulting in the ratio of the allowance for commercial business loans to total commercial business loans of 3.61%. A similar ratio with respect to AD&C loans was 1.74% at the end of the current quarter.

The allowance for credit losses represents management’s estimate of the portion of the Company’s loans’ amortized cost basis not expected to be collected over the loans’ contractual life. The Company made an accounting policy election to exclude accrued interest from the measurement of the allowance as the Company has a non-accrual policy to reverse any accrued, uncollected interest income when loans are placed on non-accrual status.

The current methodology for assessing the appropriate allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions over a reasonable and supportable period and Company’s the prepayment and curtailment rates, (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large lending relationships, early delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations, and (3) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or where the Company determined that foreclosure is probable. Under the current methodology, the impact of the utilization of the historical default and loss experience results in 88% of the total allowance being attributable to the historical performance of the portfolio while 12% of the allowance is attributable to the collective qualitative factors applied to determine the allowance. The methodology in prior periods was dependent to a large degree on the application of qualitative factors which resulted in 85% of the total allowance being attributable to those qualitative factors with the remaining portion of the prior period’s allowance being dependent on historical loss experience.

The quantified collective portion of the allowance is determined by pooling loans into segments based on the similar risk characteristics of the underlying borrowers, in addition to consideration of collateral type, industry and business purpose of the loans. The Company selected two collective methodologies, the discounted cash flows and weighted average remaining life methodologies. Segments utilizing the discounted cash flow method are further sub-segmented based on the risk level (determined either by risk ratings or Beacon Scores). Collective calculation methodologies use the Company’s historical default and loss experience adjusted for future economic forecasts. At initial adoption of CECL, management opted for the application of the reasonable and supportable forecast period of two years under stable economic conditions. However, under the current deteriorated economic conditions, the reasonable and supportable forecast period was adjusted during the first quarter’s determination of the allowance for credit losses to one year, due to the inherent uncertainty in the future economic outlook. Following the end of the reasonable and supportable forecast period expected losses revert back to historical mean over the next two years on a straight-line basis.

Economic variables which have the most significant impact on the allowance include:

 unemployment rate;

 number of business bankruptcies; and

 house price index.

The collective quantified component of the allowance is supplemented by a qualitative component to address various risk characteristics of the Company’s loan portfolio including:

 trends in early delinquencies;

 changes in the risk profile related to large loans in the portfolio;

 concentrations of loans to specific industry segments;

 expected changes in economic conditions;

 changes in the Company’s credit administration and loan portfolio management processes; and

 the quality of the Company’s credit risk identification processes.

The individual reserve assessment is applied to collateral dependent loans where borrowers are experiencing financial difficulty or when the Company determined that foreclosure is probable. The determination of the fair value of the collateral depends on whether a repayment of the loan is expected to be from the sale or the operation of the collateral. When repayment is expected from the operation of the collateral, the Company uses the present value of expected cash flows from the operation of the collateral as the fair value. When repayment of the loan is expected from the sale of the collateral the fair value of the collateral is based on an observable market price or the appraised value less estimated cost to sell. During the individual reserve assessment, management also considers the potential future changes in the value of the collateral over the remainder of the loan’s life. The balance of collateral-dependent loans individually assessed for the allowance was $37.7 million, with individual allowances of $8.7 million against those loans at March 31, 2020.

If an updated appraisal is received subsequent to the preliminary determination of an individual allowance or partial charge-off, and it is less than the initial appraisal used in the initial assessment, an additional individual allowance or charge-off is taken on the related credit. Partially charged-off loans are not written back up based on updated appraisals and always remain on non-accrual with any and all subsequent payments first applied to the remaining balance of the loan as principal reductions. No interest income is recognized on loans that have been partially charged-off.

A current appraisal on large loans is usually obtained if the appraisal on file is more than 12 months old and there has been a material change in market conditions, zoning, physical use or the adequacy of the collateral based on an internal evaluation. The Company’s policy is to strictly adhere to regulatory appraisal standards. If an appraisal is ordered, no more than a 30 day turnaround is requested from the appraiser, who is selected by Credit Administration from an approved appraiser list. After receipt of the updated appraisal, the assigned credit officer will recommend to the Chief Credit Officer whether an individual allowance or a charge-off should be taken. The Chief Credit Officer has the authority to approve an individual allowance or charge-off between monthly credit committee meetings to ensure that there are no significant time lapses during this process. The Company's borrowers are concentrated in nine counties in Maryland, three counties in Virginia and in Washington D.C. Commercial and residential mortgages, including home equity loans and lines, represented 87% of total loans at both March 31, 2020 and December 31, 2019. Certain loan terms may create concentrations of credit risk and increase the Company’s exposure to loss. These include terms that permit the deferral of principal payments or payments that are smaller than normal interest accruals (negative amortization); loans with high loan-to-value ratios; loans, such as option adjustable-rate mortgages, that may expose the borrower to future increases in repayments that are in excess of increases that would result solely from increases in market interest rates; and interest-only loans. The Company does not make loans that provide for negative amortization or option adjustable-rate mortgages.

Summary of Loan Credit Loss Experience

The following table presents the activity in the allowance for credit losses for the periods indicated:

			Three Months Ended		Year Ended
(Dollars in thousands)			March 31, 2020		December 31, 2019
Balance, January 1			$	56,132	$	53,486
Initial allowance on purchased credit deteriorated loans at adoption of ASC 326				2,762		-
Transition impact of adopting ASC 326				2,983		-
Provision for credit losses				24,469		4,684
Loan charge-offs:
Residential real estate:
	Residential mortgage			(346)		(690)
	Residential construction			-		-
Commercial real estate:
	Commercial investor			-		-
	Commercial owner occupied			-		-
	Commercial AD&C			-		-
Commercial business				(175)		(1,195)
Consumer				(133)		(783)
	Total charge-offs			(654)		(2,668)
Loan recoveries:
Residential real estate:
	Residential mortgage			13		138
	Residential construction			2		8
Commercial real estate:
	Commercial investor			-		16
	Commercial owner occupied			-		-
	Commercial AD&C			-		228
Commercial business				67		49
Consumer				26		191
	Total recoveries			108		630
	Net charge-offs			(546)		(2,038)
		Balance, period end	$	85,800	$	56,132


Net charge-offs to average loans				0.03%		0.03%
Allowance for credit losses to loans				1.28%		0.84%

Market Risk Management

The Company's net income is largely dependent on its net interest income. Net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and stockholders' equity.

The Company’s interest rate risk management goals are (1) to increase net interest income at a growth rate consistent with the growth rate of total assets, and (2) to minimize fluctuations in net interest margin as a percentage of interest-earning assets. Management attempts to achieve these goals by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets; by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched; by maintaining a pool of administered core deposits; and by adjusting pricing rates to market conditions on a continuing basis.

The Company’s board of directors has established a comprehensive interest rate risk management policy, which is administered by management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk or “NII” at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in U.S. Treasury interest rates for maturities from one day to thirty years. The Company measures the potential adverse impacts that changing interest rates may have on its short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors embedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by the Company. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. As an example, certain types of money market deposit accounts are assumed to reprice at 40 to 100% of the interest rate change in each of the up rate shock scenarios even though this is not a contractual requirement. As a practical matter, management would likely lag the impact of any upward movement in market rates on these accounts as a mechanism to manage the Bank’s net interest margin. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

The Company prepares a current base case and multiple alternative simulations at least once a quarter and reports the analysis to the board of directors. In addition, more frequent forecasts are produced when interest rates are particularly uncertain or when other business conditions so dictate.

The statement of condition is subject to quarterly testing for eight alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, 300, and 400 basis points (“bp”), although the Company may elect not to use particular scenarios that it determines are impractical in a current rate environment. It is management’s goal to structure the statement of condition so that net interest income at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

The Company augments its quarterly interest rate shock analysis with alternative external interest rate scenarios on a monthly basis. These alternative interest rate scenarios may include non-parallel rate ramps and non-parallel yield curve twists. If a measure of risk produced by the alternative simulations of the entire statement of condition violates policy guidelines, ALCO is required to develop a plan to restore the measure of risk to a level that complies with policy limits within two quarters.

Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.

Estimated Changes in Net Interest Income
Change in Interest Rates:	+ 400 bp	+ 300 bp	+ 200 bp	+ 100 bp	- 100 bp	- 200 bp	-300 bp	-400 bp
Policy Limit	23.50%	17.50%	15.00%	10.00%	10.00%	15.00%	17.50%	23.50%
March 31, 2020	9.98%	7.79%	5.27%	2.30%	N/A	N/A	N/A	N/A
December 31, 2019	11.26%	8.71%	6.06%	3.06%	(3.47%)	N/A	N/A	N/A

The impact of these various interest movements on net interest income are reflected in the preceding table. At March 31, 2020, further interest rate declines are improbable due to the low level of existing market rates. As reflected in the table, in a rising interest rate environment, net interest income sensitivity decreased compared to December 31, 2019. The change in the net interest income at risk is the result of decreased asset sensitivity from an increase in short-term borrowings and brokered deposits during the first quarter of 2020. The impact of increases in the interest-bearing liabilities was partially mitigated by an increase in the securities portfolio and interest due from banks during the quarter. All measures remained well within prescribed policy limits.

The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of the Company’s net assets.

Estimated Changes in Economic Value of Equity
Change in Interest Rates:	+ 400 bp	+ 300 bp	+ 200 bp	+ 100 bp	- 100 bp	- 200 bp	-300 bp	-400 bp
Policy Limit	35.00%	25.00%	20.00%	10.00%	10.00%	20.00%	25.00%	35.00%
March 31, 2020	(10.44%)	(5.05%)	(0.57%)	1.99%	N/A	N/A	N/A	N/A
December 31, 2019	(9.13%)	(5.54%)	(2.34%)	(0.06%)	(0.95%)	N/A	N/A	N/A

Overall, the measure of the EVE at risk decreased in all rising rate scenarios except the 400bps shock band from December 31, 2019 to March 31, 2020. With the exception of the 400 bps shock band, the decrease in EVE at risk as rates rise is the result of the lower market values of core deposits based on a longer duration of those deposits. The decline in the EVE at risk is partially offset by lower market values on loans which contained a higher percentage of fixed rate product compared to the prior quarter.

Liquidity Management

Liquidity is measured by a financial institution's ability to raise funds through loan repayments, maturing investments, deposit growth, borrowed funds, capital and the sale of highly marketable assets such as investment securities and residential mortgage loans. In assessing liquidity, management considers operating requirements, the seasonality of deposit flows, investment, loan and deposit maturities and calls, expected funding of loans and deposit withdrawals, and the market values of available-for-sale investments, so that sufficient funds are available on short notice to meet obligations as they arise and to ensure that the Company is able to pursue new business opportunities. The Company's liquidity position, considering both internal and external sources available, exceeded anticipated short-term and long-term needs at March 31, 2020.

Liquidity is measured using an approach designed to take into account core deposits, in addition to factors already discussed above. Management considers core deposits, defined to include all deposits other than brokered and outsourced deposits and certain time deposits of $250 thousand or more, to be a relatively stable funding source. Core deposits equaled 73% of total interest-earning assets at March 31, 2020. The Company’s growth and mortgage banking activities are also additional considerations when evaluating liquidity requirements. Also considered are changes in the liquidity of the investment portfolio due to fluctuations in interest rates. Under this approach, implemented by the Funding and Liquidity Subcommittee of ALCO under formal policy guidelines, the Company’s liquidity position is measured weekly, looking forward at thirty day intervals from thirty (30) to three hundred sixty (360) days. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. At March 31, 2020, the Company’s liquidity and funds availability provides it with flexibility in funding loan demand and other liquidity demands.

The Company also has external sources of funds available that can be drawn upon when required. The main sources of external liquidity are available lines of credit with the Federal Home Loan Bank of Atlanta and the Federal Reserve. The line of credit with the Federal Home Loan Bank of Atlanta totaled $2.4 billion, all of which was available for borrowing based on pledged collateral, with $0.8 billion borrowed against it as of March 31, 2020. The secured lines of credit at the Federal Reserve and correspondent banks totaled $318 million, all of which was available for borrowing based on pledged collateral, with no borrowings against it as of March 31, 2020. In addition, the Company had unsecured lines of credit with correspondent banks of $855 million at March 31, 2020. At March 31, 2020, there were no outstanding borrowings against these lines of credit. Based upon its liquidity analysis, including external sources of liquidity available, management believes the liquidity position was appropriate at March 31, 2020.

The parent company (“Bancorp”) is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, Bancorp is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. Bancorp’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to Bancorp in any calendar year, without the receipt of prior approval from the Federal Reserve, cannot exceed net income for that year to date period plus retained net income (as defined) for the preceding two calendar years. Based on this requirement, as of March 31, 2020, the Bank could have declared a dividend of $141 million to Bancorp. At March 31, 2020, Bancorp had liquid assets of $53.1 million.

Arrangements to fund credit products or guarantee financing take the form of loan commitments (including lines of credit on revolving credit structures) and letters of credit. Approvals for these arrangements are obtained in the same manner as loans. Generally, cash flows, collateral value and risk assessment are considered when determining the amount and structure of credit arrangements.

Commitments to extend credit in the form of consumer, commercial real estate and business at the dates indicated were as follows:

			March 31,	December 31,
(In thousands)		2020		2019
Commercial real estate development and construction		$	583,409	$	571,368
Residential real estate-development and construction			91,641		89,224
Real estate-residential mortgage			157,620		74,282
Lines of credit, principally home equity and business lines			1,426,230		1,400,038
Standby letters of credit			58,048		62,065
	Total commitments to extend credit and available credit lines	$	2,316,948	$	2,196,977

Commitments to extend credit are agreements to provide financing to a customer with the provision that there are no violations of any condition established in the agreement. Commitments generally have interest rates determined by current market rates, expirations dates or other termination clauses and may require payment of a fee. Lines of credit typically represent unused portions of lines of credit that were provided and remain available as long as customers comply with the requisite contractual conditions. Commitments to extend credit are evaluated, processed and/or renewed regularly on a case by case basis, as part of the credit management process. The total commitment amount or line of credit amounts do not necessarily represent future cash requirements, as it is highly unlikely that all customers would draw on their lines of credit in full at one time.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Financial Condition - Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company becomes involved in litigation arising from the banking, financial and other activities it conducts. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results or liquidity.

Item 1A. Risk Factors

The information below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K for the year ended December 31, 2019. Except as presented below, there have been no material changes in the risk factors as discussed in our Form 10-K.

The widespread outbreak of the novel coronavirus ("COVID-19") has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.

The COVID-19 pandemic is negatively impacting economic and commercial activity and financial markets, both globally and within the United States. In our market area, the governors of Maryland and Virginia and the mayor of the District of Columbia have issued orders that, among other things, require residents to stay in their homes and permit them to leave only to conduct certain essential activities or to travel to work, close all non-essential businesses to the general public, and close certain businesses such as senior centers, restaurants, bars, fitness centers and shopping malls. These stay-at-home orders and travel restrictions – and similar orders imposed across the United States to restrict the spread of COVID-19 – have resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs.

As an essential business, we have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as transitioning most in-person customer transactions to our drive-thru facilities and limiting access to the interior of our facilities, frequent cleaning of our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.

The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. However, the extent to which COVID-19 will negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.

The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could:

 cause changes in consumer and business spending, borrowing and saving habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers;

 cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the travel, lodging, retail, and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures;

 cause the value of collateral for loans, especially real estate, to decline in value;

 reduce the availability and productivity of our employees;

 require us to increase our allowance for credit losses;

 cause our vendors and counterparties to be unable to meet existing obligations to us;

 negatively impact the business and operations of third party service providers that perform critical services for our business;

 cause a material decrease in the market value of assets of under management, which would have a negative impact on our wealth management revenues due to the fact that our wealth management fees are based on the market value of client assets;

 impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions;

 cause the value of our securities portfolio to decline; and

 cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.

Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.

Moreover, our success and profitability is substantially dependent upon the management skills of our executive officers, many of whom have held officer positions with us for many years. The unanticipated loss or unavailability of key employees due to COVID-19 could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term interest rates, such as those announced by the Federal Reserve during the first fiscal quarter of 2020, have a negative impact on our results, as we have certain assets and liabilities that are sensitive to changes in interest rates.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In December 2018, the Company’s board of directors authorized the repurchase of up to 1,800,000 shares of common stock. For the quarter ended March 31, 2020, the Company repurchased 820,328 shares of its common stock at an average price of $31.33 per share. Cumulatively under the program, as of March 31, 2020, the Company has repurchased 1,488,519 shares of its common stock at an average price of $33.58 per share.

			Total number of shares	Maximum number that
			purchased as part of	may yet be purchased
	Total number of	Average price paid	publicly announced plans	under the plans or
Period	shares purchased	per share	or programs	programs
January 1, 2020 through
January 31, 2020	48,178	$38.14	48,178	1,083,631
February 1, 2020 through
February 29, 2020	364,100	$34.55	364,100	719,531
March 1, 2020 through
March 31, 2020	408,050	$27.65	408,050	311,481

Item 3. Defaults Upon Senior Securities – None

Item 4. Mine Safety Disclosures – Not applicable

Item 5. Other Information - None

Item 6. Exhibits

Exhibit 31(a) Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit 31(b)Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit 32(a)Certification of Chief Executive Officer pursuant to 18 U.S. Section 1350

Exhibit 32(b)Certification of Chief Financial Officer pursuant to 18 U.S. Section 1350

Exhibit 101.SCHXBRL Taxonomy Extension Schema Document

Exhibit 101.CALXBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEFXBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LABXBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104Cover Page Interactive Data File (embedded within the Inline XBRL document)

Signatures

Pursuant to the requirements of Section 13 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/ Daniel J. Schrider

Daniel J. Schrider

President and Chief Executive Officer

Date: May 8, 2020

By: /s/ Philip J. Mantua

Philip J. Mantua

Executive Vice President and Chief Financial Officer

Date: May 8, 2020