1. How to make money analyzing Banks January 6, 2004 NAIC Forum On Compuserve Presented by Joe Smith Associate Director, NIA Board Vice President, New Jersey Chapter NAIC

2. Quick Review of NAIC Principles Invest a small amount of money regularly Reinvest all dividends, interest and capital gains Purchase growth stocks Diversify portfolio by size and industry Hold for the long term

3. Let’s look at Banks Some Reporting Services provide financial information in different formats Relatively simple to analyze - just need to be aware of a few ratios to provide a better analysis “the other 20%” Revenue figures should be calculated using recommended NAIC formula

4. NAIC’s Revenue formula Net Interest Income plus Non-interest Income plus Tax Equivalent Adjustment (TEA) minus Loan Loss provision = Bank’s Revenue for SSG

5. What is TEA? TEA adjusts tax free interest received by the bank to a pre-tax level

6. Differences in Reporting Some sources may report Gross Interest Income and Interest Expense ….. without mentioning Net Interest Income WHY???

7. Earnings per Share Same as manufacturing or other industries Only question is whether to use Basic or Diluted

8. Other items Most commonly used numbers are the same as usual EPS Book value Pre-tax profit Dividends Tax rates, etc.

17. Worksheet to Calculate Quarterly or Annual Revenue Figures for Banks Name of Bank:------------------ As of Date:------------------ 1. Net Interest Income: ----------------------- 2. Tax Equivalent Adjustment------------------------ 3. Non-Interest Income:------------------------ 3a. Sub total (1 + 2 + 3):------------------------ 4. Loan Loss Provision:------------------------ 5. Total (= 3a minus 4): --------------------------- Sandy Spring Bancorp 3-31-2003 3-31-2002 %change $19.125 $18.575 2.96% 2.046 1.469 39.28% 7.775 6.798 14.37% $28.946 $26.657 7.84% 0 -1.185 -100.00% $28.946 $25.657 12.82%

20. I BV NI

22. Return on Average Assets (ROAA) = Net Income / Average Assets Return on Average Equity (ROAE) = Net Income / Average Equity Net Interest Income, on a fully taxable equivalent basis - if available, as a % of average earnings assets Efficiency Ratio = Non Interest Income / (Net Interest Income + Other Income) Loans / Deposits = Loans held for investment (before reserves) as a % of total Insured Deposits Performance

23. Asset Quality Ratios NPA / Assets = Non-Performing Assets (Non-Performing Loans and Leases, Renegotiated Loans and Leases and Real Estate Owned) / Assets NCOs / Loans = Loans + Leases Charged Off, Net of Recoveries / Average Loans and Leases Reserves / Loans = Reserves for Loan Losses / Loans Before Reserves Reserves / NPAs = Loan Loss Reserves / Non-Performing Assets

24. Capital Ratios Core Capitol / Risk-Adjusted Assets (Tier 1) = Tier 1 Capitol / Total Risk Adjusted Assets Tangible Equity / Tangible Assets = Tangible Equity/ Tangible Assets Total Equity / Total Assets = GAAP Equity / GAAP Assets

25. Market Ratios Price Earnings Ratio = Current Market Price / TTM Diluted Earnings per Share Price to Book Ratio = Current Market Price / Book Value Dividend Yield = Most Recent Annualized Dividend / Current Market Price