SANDY SPRING BANCORP INC - FORM 8-K/A - EX-99.3 - EXHIBIT 99.3

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EX-23.1 - EXHIBIT 23.1 - SANDY SPRING BANCORP INC	tv488062_ex23-1.htm
8-K/A - 8-K/A - SANDY SPRING BANCORP INC	tv488062_8ka.htm

EXHIBIT 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2017, presents the pro forma consolidated financial position of Sandy Spring Bancorp, Inc. (“Sandy Spring”) giving effect to the acquisition of WashingtonFirst Bankshares, Inc. (“WashingtonFirst”) using the acquisition method of accounting assuming the acquisition was consummated on September 30, 2017. The accompanying unaudited pro forma condensed combined income statements for the periods ending December 31, 2016, and September 30, 2017, present the pro forma results of operations of Sandy Spring giving effect to the acquisition of WashingtonFirst, assuming that the acquisition became effective at the beginning of each period presented. Sandy Spring completed the acquisition of WashingtonFirst on January 1, 2018.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented. The unaudited pro forma condensed combined financial information also does not consider any expense efficiencies, increased revenue or other potential financial benefits of the merger. The fair values are estimates as of the date hereof and actual amounts are still in the process of being finalized. Fair values are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

AS OF SEPTEMBER 30, 2017

REFLECTING THE TRANSACTIONS

	As Reported							Pro Forma Adjustments
(Dollars in thousands)	Sandy Spring			WashingtonFirst				Debits			Credits		Sandy Spring and WashingtonFirst Pro Forma Combined
Assets
Cash and due from banks	$	50,076		$	3,426			$	-		$	-	$	53,502
Federal funds sold		2,838			34,523				-			-		37,361
Interest-bearing deposits with banks		49,267			100				-			-		49,367
Cash and cash equivalents		102,181			38,049				-			-		140,230
Residential mortgage loans held for sale (at fair value)		7,084			27,890				-			-		34,974
Investments available-for-sale (at fair value)		756,069			296,827				-	(a)		251		1,052,645
Other equity securities		39,853			11,239				-			-		51,092
Total loans		4,194,118			1,635,645		(b),(c)		20,154	(b)		29,668		5,820,249
Less: allowance for loan losses		(44,924	)		(14,137	)	(d)		14,137			-		(44,924	)
Net loans		4,149,194			1,621,508				34,291			29,668		5,775,325
Premises and equipment, net		54,108			6,012				-	(e)		1,029		59,091
Other real estate owned		1,448			636				-			-		2,084
Accrued interest receivable		16,045			6,224				-			-		22,269
Goodwill		85,768			11,420		(f)		256,978	(f)		11,420		342,746
Other intangible assets, net		604			1,417		(g)		11,512	(g)		1,417		12,116
Other assets		122,434			34,254		(h),(l)		1,134	(l)		8,798		149,024
Total assets	$	5,334,788		$	2,055,476			$	303,915		$	52,583	$	7,641,596

Liabilities
Noninterest-bearing deposits	$	1,312,710		$	463,810			$	-		$	-	$	1,776,520
Interest-bearing deposits		2,643,082			1,229,480				-	(i)		3,198		3,875,760
Total deposits		3,955,792			1,693,290				-			3,198		5,652,280
Securities sold under retail repurchase agreements and federal funds purchased		146,569			6,439				-			-		153,008
Advances from FHLB		632,917			97,856				-			-		730,773
Subordinated debentures		-			32,817				-	(j)		4,686		37,503
Accrued interest payable and other liabilities		35,030			16,324		(m)		3,192	(k),(n)		3,187		51,349
Total liabilities		4,770,308			1,846,726				3,192			11,071		6,624,913

Stockholders’ Equity
Common stock		23,990			130		(o)		130	(o)		11,446		35,436
Additional paid in capital		167,455			180,257		(o)		180,257	(o)		440,757		608,212
Retained earnings		376,512			29,791		(o)		29,791			-		376,512
Accumulated other comprehensive loss		(3,477	)		(1,428	)			-	(o)		1,428		(3,477	)
Total stockholders’ equity		564,480			208,750				210,178			453,631		1,016,683
Total liabilities and stockholders’ equity	$	5,334,788		$	2,055,476			$	213,370		$	464,702	$	7,641,596

See “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” below for additional information.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

REFLECTING THE TRANSACTIONS

	As Reported
(Dollars in thousands, except per share data)	Sandy Spring		WashingtonFirst		Pro forma Adjustments				Sandy Spring and WashingtonFirst Pro Forma Combined
Interest Income:
Interest and fees on loans	$	127,134	$	58,930	$	1,967		(p)	$	188,031
Interest and dividends on investment securities		16,682		4,709		-				21,391
Interest on other		307		237		-				544
Total interest income		144,123		63,876		1,967				209,966
Interest Expense:
Interest on deposits		9,212		8,397		(400	)	(q)		17,209
Interest on borrowings		9,635		3,436		(109	)	(r)		12,962
Total interest expense		18,847		11,833		(509	)			30,171
Net interest income		125,276		52,043		2,476				179,795
Provision for loan losses		2,450		2,315		-				4,765
Net interest income after provision for loan losses		122,826		49,728		2,476				175,030
Non-interest Income:
Investment securities gains		1,275		-		-				1,275
Service charges on deposit accounts		6,121		139		-				6,260
Mortgage banking activities		2,080		13,716		-				15,796
Wealth management income		14,092		1,545		-				15,637
Other income		15,381		1,662		-				17,043
Total non-interest income		38,949		17,062		-				56,011
Non-interest Expenses:
Salaries and employee benefits		54,525		26,829		-				81,354
Occupancy and equipment		9,907		5,390		(436	)	(s)		14,861
Merger expenses		1,332		665		-				1,997
Other expenses		28,276		10,172		1,413		(t)		39,861
Total non-interest expenses		94,040		43,056		977				138,073
Income before income taxes		67,735		23,734		1,499				92,968
Income tax expense/(benefit)		22,793		8,394		525		(u)		31,712
Net income	$	44,942	$	15,340	$	974			$	61,256

Pro Forma Combined Per Share Data (Common Stock)
Basic net income per share	$	1.86						(v)	$	1.72
Diluted net income per share		1.86						(v)		1.72
Dividends declared per share		0.78								0.78
Book value		23.53						(w)		28.69
Weighted average shares outstanding
Basic		24,171,227						(v)		35,617,668
Diluted		24,201,448						(v)		35,647,889

See “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” below for additional information.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2016

REFLECTING THE TRANSACTIONS

	As Reported
(Dollars in thousands, except per share data)	Sandy Spring		WashingtonFirst		Pro forma Adjustments				Sandy Spring and WashingtonFirst Pro Forma Combined
Interest Income:
Interest and fees on loans	$	151,255	$	68,901	$	4,515		(p)	$	224,671
Interest and dividends on investment securities		19,083		4,681		-				23,764
Interest on other		218		265		-				483
Total interest income		170,556		73,847		4,515				248,918
Interest Expense:
Interest on deposits		8,161		8,727		(2,056	)	(q)		14,832
Interest on borrowings		12,843		3,744		(139	)	(r)		16,448
Total interest expense		21,004		12,471		(2,195	)			31,280
Net interest income		149,552		61,376		6,710				217,638
Provision for loan losses		5,546		3,880		-				9,426
Net interest income after provision for loan losses		144,006		57,496		6,710				208,212
Non-interest Income:
Investment securities gains		1,932		1,323		-				3,255
Service charges on deposit accounts		7,953		259		-				8,212
Mortgage banking activities		4,049		22,594		-				26,643
Wealth management income		17,805		1,835		-				19,640
Other income		19,303		1,494		-				20,797
Total non-interest income		51,042		27,505		-				78,547
Non-interest Expenses:
Salaries and employee benefits		71,354		35,183		-				106,537
Occupancy and equipment		19,843		7,370		(740	)	(s)		26,473
Merger expenses		-		30		-				30
Other expenses		31,861		14,280		2,093		(t)		48,234
Total non-interest expenses		123,058		56,863		1,353				181,274
Income before income taxes		71,990		28,138		5,357				105,485
Income tax expense/(benefit)		23,740		10,131		1,875		(u)		35,746
Net income	$	48,250	$	18,007	$	3,482			$	69,739

Pro Forma Combined Per Share Data (Common Stock)
Basic net income per share	$	2.00						(v)	$	1.96
Diluted net income per share		2.00						(v)		1.96
Dividends declared per share		0.98								0.98
Book value		22.32						(w)		27.89
Weighted average shares outstanding
Basic		24,120,062						(v)		35,566,503
Diluted		24,149,121						(v)		35,595,562

See “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” below for additional information.

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note A — Basis of Presentation

Sandy Spring acquired WashingtonFirst on January 1, 2018. At the effective time of the merger, each share of WashingtonFirst common stock converted to the right to receive 0.8713 shares of common stock of Sandy Spring. The acquisition is accounted for under the acquisition method of accounting and, accordingly, the assets and liabilities of WashingtonFirst presented in these pro forma condensed combined financial statements have been adjusted to their estimated fair values based upon conditions as of the merger date and as if the transaction had been effective on January 1, 2016 for statement of income data. Since these are pro forma statements, we cannot assure that the amounts reflected in these financial statements would have been representative of the actual amounts earned had the companies been combined at that time. The fair values are estimates as of the date hereof and actual amounts are still in the process of being finalized. Fair values are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available.

Note B — Pro Forma Financial Adjustments

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on the current valuations, estimates and assumptions that are subject to change.

(a)

To adjust investments available for sale portfolio of WashingtonFirst to approximate fair value.

(b)

A fair value adjustment was recorded to WashingtonFirst’s acquired loan portfolio. This fair value adjustment was based on (1) current market interest rates and (2) Sandy Spring’s evaluation of credit quality of WashingtonFirst’s loan portfolio. Total estimated fair value adjustment related to credit deterioration of the acquired portfolio amounted to approximately $29.7 million, which represented a mark of approximately 1.8% on WashingtonFirst’s outstanding loan portfolio. Of the $29.7 million credit mark, approximately $24.9 million is estimated to be accreted into interest income over the life of the portfolio and $4.7 million is estimated to be a non-accretable adjustment. Upward fair value adjustment related to difference in interest rates of $15.6 million was also recorded.

(c)

Adjustment reflects elimination of unamortized net deferred loan originations costs and fair value adjustment from the prior acquisition recorded by WashingtonFirst in the total amount of $4.6 million.

(d)

Adjustment reflects elimination of the allowance for loan losses of WashingtonFirst.

(e)

Adjustment reflects write-off of premises and equipment.

(f)

Adjustment reflects elimination of WashingtonFirst’s goodwill in the amount of $11.4 million and goodwill of $257.0 million resulting from the difference between the purchase price and identifiable net assets as follows:

(Unaudited, in thousands)
Purchase price:
Fair value of common shares issued (11,446,441 shares)	$	452,203
Total purchase price

Identifiable assets:
Cash and cash equivalents		38,049
Residential mortgage loans held for sale (at fair value)		27,890
Investment securities		307,815
Loans		1,626,130
Premises and equipment		4,983
Other real estate owned		636
Accrued interest receivable		6,224
Other intangible assets		11,512
Other assets		26,591
Total identifiable assets	$	2,049,830

Identifiable liabilities:
Deposits	$	1,696,488
Borrowings		141,799
Other liabilities		16,318
Total identifiable liabilities		1,854,605
Net assets acquired including identifiable intangible assets		195,225
Resulting goodwill	$	256,978

(g)

Previous other intangibles of WashingtonFirst in the amount of $1.4 million are eliminated. New amount of $11.5 million represents WashingtonFirst’s estimated fair value of (1) core deposit intangibles of $10.7 million and (2) wealth management book of business of $0.8 million. The fair value estimate of core deposit intangibles represents a 1.68% premium on WashingtonFirst’s core deposits.

(h)

Deferred taxes associated with the adjustments to record assets and liabilities of WashingtonFirst at fair value. Deferred tax was recognized using WashingtonFirst’s statutory tax rate of 35%.

(i)

Reflects an adjustment to WashingtonFirst’s interest-bearing deposit liabilities to account for current market interest rates.

(j)

Reflects a fair value adjustment to trust preferred debt acquired from WashingtonFirst in the total amount of $2.3 million. Also reflects an elimination of fair value discount on previously acquired trust preferred debt by WashingtonFirst in the total amount of $2.4 million.

(k)

Reflects a fair value adjustment for WashingtonFirst’s operating leases.

(l)

Reflects an adjustment of other assets associated with the transaction.

(m)

Reflects elimination deferred rent on acquired operating leases.

(n)

Adjustment reflects an accrual to other liabilities associated with the transaction.

(o)

Adjustment reflects the elimination of the historical equity of WashingtonFirst. Sandy Spring will issue approximately 11,446,441 share of common stock (assuming stock price of $39.5051).

(p)

To record accretion on the credit adjustment and interest rate adjustment on the acquired loan portfolio.

(q)

To record accretion on interest rate adjustment on time deposits.

(r)

To record amortization of premium on acquired trust preferred and subordinated debt securities.

(s)

To record accretion fair value premium on acquired operating leases.

(t)

To record amortization amount of the core deposit intangible and asset management list intangible.

(u)

Reflects an applicable income tax rate of 35% related to fair value pro forma adjustments.

(v)

The pro forma combined basic and diluted earnings per share for each period presented are calculated as the pro forma combined net income for the relevant period divided by the weighted average number of Sandy Spring common shares outstanding during that period, as adjusted for the assumed issuance of a total of 11,446,441 shares of Sandy Spring common stock to WashingtonFirst stockholders in connection with the Transactions, effective as of January 1, 2016. The pro forma combined earnings per share on a basic and dilutive basis were calculated using the following weighted average outstanding share amounts:

	Sandy Spring				Pro Forma with WashingtonFirst
	As of September 30, 2017		As of December 31, 2016		As of September 30, 2017		As of December 31, 2016
	(unaudited)		(audited)		(unaudited)		(unaudited)
Weighted average shares outstanding - basic		24,171,227		24,120,062		35,617,668		35,566,503
Weighted average shares outstanding - diluted		24,201,448		24,149,121		35,647,889		35,595,562

(w)

Book value per share equals the pro forma combined total stockholders’ equity as of the date presented divided by the number of shares of Sandy Spring common stock outstanding as of the date presented, as adjusted to give effect to the assumed issuance of 11,446,441 shares of Sandy Spring common stock to WashingtonFirst stockholders in connection with the Transactions, effective as of January 1, 2016.

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