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FORM 10-K

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

For the Year Ended December 31, 2003

Commission File Number 0-19065

SANDY SPRING BANCORP, INC.

Registrant’s telephone number, including area code: 301-774-6400.

Securities registered pursuant to Section 12(b) of the Act: None.

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

Common Stock, par value $1.00 per share

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 such filing requirements for the past 90 days. YES [X]   NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by a check mark if the registrant is an accelerated filer. YES [X]   NO [   ]

The registrant’s Common Stock is traded on the NASDAQ National Market under the symbol SASR. The aggregate market value of approximately 13,944,000 shares of Common Stock of the registrant issued and outstanding held by nonaffiliates on June 30, 2003, the last day of the registrant’s most recently completed second fiscal quarter, was approximately $444 million based on the closing sales price of $31.83 per share of the registrant’s Common Stock on that date. For purposes of this calculation, the term “affiliate” refers to all directors and executive officers of the registrant.

As of the close of business on February 9, 2004, approximately 14,503,000 shares of the registrant’s Common Stock were outstanding.

Documents Incorporated By Reference

Part III: Portions of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 21, 2004 (the “Proxy Statement”).

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SANDY SPRING BANCORP, INC.

FORWARD-LOOKING STATEMENTS

Sandy Spring Bancorp makes forward-looking statements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this Annual Report on Form 10-K that are subject to risks and uncertainties. These forward-looking statements include: statements of goals, intentions, and expectations; estimates of risks and of future costs and benefits; assessments of probable loan and lease losses and market risk; and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by: management’s estimates and projections of future interest rates and other economic conditions; future laws and regulations; and a variety of other matters which, by their nature, are subject to significant uncertainties. Because of these uncertainties, Sandy Spring Bancorp’s actual future results may differ materially from those indicated. In addition, the Company’s past results of operations do not necessarily indicate its future results.

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SANDY SPRING BANCORP, INC.

FORM 10-K CROSS REFERENCE SHEET OF MATERIAL INCORPORATED BY REFERENCE

The following table shows the location in this Annual Report on Form 10-K or the accompanying Proxy Statement of the information required to be disclosed by the United States Securities and Exchange Commission (“SEC”) Form 10-K. Where indicated below, information has been incorporated by reference in this Report from the Proxy Statement that accompanies it. Other portions of the Proxy Statement are not included in this Report. This Report is not part of the Proxy Statement. References are to pages in this report unless otherwise indicated.

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SANDY SPRING BANCORP, INC.

Sandy Spring Bancorp, Inc. is the holding company for Sandy Spring Bank and its principal subsidiaries, Sandy Spring Insurance Corporation and The Equipment Leasing Company. Sandy Spring Bancorp is the third largest publicly traded banking company headquartered in Maryland. Sandy Spring is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. Independent and community-oriented, Sandy Spring Bank was founded in 1868 and offers a broad range of commercial banking, retail banking and trust services through 30 community offices and 45 ATMs located in Anne Arundel, Frederick, Howard, Montgomery, and Prince George’s counties in Maryland.

ABOUT THIS REPORT

This report comprises the entire 2003 Form 10-K, other than exhibits, as filed with the SEC. The 2003 annual report to shareholders, including this report, and the annual proxy materials for the 2004 annual meeting are being distributed together to the shareholders Please see page 70 for information regarding how to obtain copies of exhibits and additional copies of the Form 10-K.

This report is provided along with the annual proxy statement for convenience of use and to decrease costs, but is not part of the proxy materials.

The SEC has not approved or disapproved this Report or passed upon its accuracy or adequacy.

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FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

(1)		Total stockholders’ equity, net of goodwill and other intangible assets, divided by the number of shares of common stock outstanding at year end.
(2)		See the discussion of the efficiency ratio in the section of Management’s Discussion and Analysis of Financial Condition and Results of Operations entitled “Operating Expense Performance.”

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SECURITIES LISTING, PRICES AND DIVIDENDS

Stock Listing

Common shares of Sandy Spring Bancorp, Inc. are traded on the National Association of Security Dealers (NASDAQ) National Market under the symbol SASR. Trust Preferred securities of Sandy Spring Capital Trust I are traded on the NASDAQ National Market under the symbol SASRP.

Transfer Agent and Registrar

American Stock Transfer and Trust Company
59 Maiden Lane
New York, New York 10038

Recent Stock Prices and Dividends

Shareholders received quarterly cash dividends totaling $10,725,000 in 2003 and $10,012,000 in 2002. Regular dividends have been declared for one hundred and three consecutive years. Sandy Spring Bancorp, Inc. (the “Company”) has increased its dividends per share each year for the past twenty-three years. Since 1998, dividends per share have risen at a compound annual growth rate of 12%. The increase in dividends per share was 7% in 2003.

The ratio of dividends per share to diluted net income per share was 34% in 2003, compared to 33% for 2002. The dividend amount is established by the Board of Directors each quarter. In making its decision on dividends, the Board considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns and other factors.

Shares issued under the employee stock purchase plan, which commenced on July 1, 2001, totaled 16,801 in 2003 and 14,841 in 2002, while issuances pursuant to the stock option plan were 49,923 and 39,529 in the respective years. The following table presents disclosure regarding equity compensation plans in existence at December 31, 2003, consisting only of the 1992 stock option plan (expired but having outstanding options that may still be exercised) and the 1999 stock option plan, both of which were approved by the shareholders (described further in Note 12 to the consolidated financial statements).

Equity Compensation Plan Information

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The Company has a stock repurchase program that permits the repurchase of up to 5% (approximately 718,000 shares) of its outstanding common stock. Repurchases are made in connection with shares expected to be issued under the Company’s stock option and benefit plans, as well as for other corporate purposes. A total of 1,057,869 shares have been repurchased since 1997, when stock repurchases began, through December 31, 2003. There were 105,460 shares repurchased in 2003. No shares were repurchased in 2002.

The number of common shareholders of record was approximately 2,277 as of February 9, 2004.

Quarterly Stock Information

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Sandy Spring Bancorp, Inc. and subsidiaries (the “Company”) achieved record earnings for the year ended December 31, 2003. In addition, according to the latest Bank Holding Company Performance Report from the Federal Reserve, the Company’s return on average equity for the nine months ended September 30, 2003, was in the 84th percentile of all U.S. bank holding companies with assets between $1-3 billion.

Net income for the year ended December 31, 2003, was $32.1 million ($2.18 per diluted share), as compared to $30.6 million ($2.08 per diluted share) for the prior year, an increase of 5%.

The Company’s results in 2003, versus 2002, reflected higher noninterest income which continued to increase, reflecting a 13% increase over the prior year. This increase was primarily due to increases in mortgage banking income, trust department income, insurance agency commissions, income from bank owned life insurance and income from early termination of a sublease. These increases were partially offset by a decrease in securities gains. Net interest income decreased by $3.6 million, or 5%, due primarily to the margin compression resulting from a decline in the net interest margin to 3.80% for the year 2003 from 4.23% for the year 2002. Expressed as a percentage of net interest income and noninterest income, noninterest income increased to 31% from 21% five years ago. With respect to operating cost management, the Company’s efficiency ratio - GAAP based increased to 61.80% in 2003 from 59.04% in 2002 and 61.75% in 2001, while the efficiency ratio - traditional also increased to 56.33% in 2003 from 54.13% in 2002 and 55.28% in 2001. For an explanation of the efficiency ratio - GAAP based, as compared to the efficiency ratio - traditional, see the section of this report entitled “Operating Expense Performance.” The return on average equity was 17.29% in 2003, as compared to 18.89% in 2002, and 16.32% in 2001.

Comparing December 31, 2003, balances to December 31, 2002, total assets remained at $2.3 billion. Total deposits increased 5% to $1.56 billion, while total loans and leases grew to $1.15 billion from $1.06 billion, an 8% increase. During the same period, stockholders’ equity increased to $193.45 million or 8% of total assets.

Asset quality, as measured by the following ratios, continued to be favorable. Non-performing assets represented 0.13% of total assets at year-end 2003, versus 0.12% at year-end 2002. The ratio of net charge-offs to average loans and leases was 0.01% in 2003, as compared to 0.05% for the prior year.

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Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability must be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

The allowance for credit losses is an estimate of the losses that may be sustained in the loan and lease portfolio. The allowance is based on two basic principles of accounting: (1) Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” which requires that losses be accrued when they are probable of occurring and estimable, and (2) SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” which requires that losses be accrued when it is probable that the Company will not collect all principal and interest payments according to the loan’s or lease’s contractual terms.

Management believes that the allowance is adequate. However, its determination requires significant judgment, and estimates of probable losses inherent in the credit portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize probable losses, future additions to the allowance may be necessary based on changes in the credits comprising the portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, and independent consultants engaged by the Company, periodically review the credit portfolio and the allowance. Such review may result in additional provisions based on their judgments of information available at the time of each examination.

The Company’s allowance for credit losses has two basic components: the formula allowance reflecting historical losses by credit category as adjusted by several factors whose effects are not reflected in historical loss ratios, and specific allowances. Each of these components, and the systematic allowance methodology used to establish them, are described in detail in Note 1 of the Notes to the Consolidated Financial Statements. The amount of the allowance is reviewed monthly by the Senior Loan Committee, and reviewed and approved quarterly by the Audit Committee and Board of Directors.

The portion of the allowance that is based upon historical loss factors, as adjusted, establishes allowances for the major loan and lease categories based upon adjusted historical loss experience over the prior eight quarters, weighted so that losses realized in the most recent quarters have the greatest effect. The use of these loss factors is intended to reduce the differences between estimated losses inherent in the loan and lease portfolio and observed losses. The factors address changes in the risk characteristics of the Company’s loan and lease portfolio that are related to (1) trends in delinquencies and other non-performing loans (2) changes in the risk portfolio related to large loans in the portfolio (3) changes in the categories of loans comprising the loan portfolio (4) concentrations of loans to specific industry segments (5) changes in economic conditions on both a local and national level (6) changes in the Company’s credit administration and loan and lease portfolio management processes and (7) quality of the Company’s credit risk identification processes. This component comprised 69% of the total allowance at December 31, 2003.

The specific allowance is used primarily to establish allowances for risk-rated credits on an individual or portfolio basis, and accounted for 25% of the total allowance at December 31, 2003. The Company has historically had favorable credit quality. The actual occurrence and severity of losses involving risk-rated credits can differ substantially from estimates, and some risk-rated credits may not be identified. A 10% decrease (increase) in risk-rated credits not specifically reserved would have resulted in a corresponding decrease (increase) of approximately $192,000 in the recommended reserve computed by the allowance methodology for December 31, 2003.

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Table 1—Consolidated Average Balances, Yields and Rates⁽¹⁾