As filed with the Securities and Exchange Commission on March 28, 2007

Registration No. 333-141163

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Sandy Spring Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

17801 Georgia Avenue

Olney, Maryland 20832

(301) 774-6400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

Ronald E. Kuykendall

Executive Vice President, General Counsel & Secretary

Sandy Spring Bancorp, Inc.

17801 Georgia Avenue

Olney, Maryland 20832

(301) 774-6400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

with copies to:

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this registration statement.

 

 

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

 

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

PROXY STATEMENT/PROSPECTUS

 

CN BANCORP, INC.
7401 Ritchie Highway
Glen Burnie, Maryland 21060

 

March 28, 2007

 

Dear Stockholder:

 

On December 13, 2006, CN Bancorp, Inc. entered into an agreement and plan of merger with Sandy Spring Bancorp, Inc., pursuant to which CNB will merge with and into Bancorp. You are invited to attend a special meeting of stockholders of CNB to be held on May 21, 2007 at 11 a.m., local time, at Michael’s Eighth Avenue, 8th Avenue and Greyburn Drive, 7220 Greyburn Drive, Glen Burnie, Maryland. At this special meeting, you will be asked to approve the merger agreement so that the merger can occur.

 

In the merger, each outstanding share of CNB common stock (other than shares as to which stockholders have properly exercised dissenters’ rights) will be converted into the right to receive either $25.00 in cash, without interest, or 0.6657 of a share of Bancorp common stock. Proration procedures set forth in the merger agreement and described in this proxy statement/prospectus provide that at least 50% but no more than 60% of the outstanding shares of CNB common stock will be converted into Bancorp common stock and at least 40% but not more than 50% of the outstanding shares of CNB common stock will be converted into cash. Although you may elect to receive cash in exchange for your shares of CNB common stock, because of the fixed allocation of the merger consideration between cash and Bancorp common stock, there is no assurance that you will receive cash that you elect with respect to all shares of CNB common stock that you hold. As of March 23, 2007, the most recent practicable trading day prior to the date of this proxy statement/prospectus, the closing sale price for one share of Sandy Spring Bancorp, Inc. common stock was $35.74. The market price of Sandy Spring Bancorp, Inc. common stock will fluctuate prior to the merger. We urge you to obtain current market information for the Sandy Spring Bancorp, Inc. common stock.

 

Your board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby are in the best interests of CNB and its stockholders, has approved and adopted the merger agreement and the transactions contemplated thereby, including the merger, and unanimously recommends that you vote “FOR” the proposal to approve the merger agreement and the merger as described in this proxy statement/prospectus and “FOR” a proposal to adjourn the special meeting if necessary to permit further solicitation of proxies if there are not sufficient votes at the special meeting to approve the merger agreement and the merger. The proposed merger requires the receipt of bank regulatory approvals and the approval of the merger agreement by holders of at least 80% of the outstanding shares of CNB common stock. Please carefully review this document, which explains the proposed merger in detail. In particular, you should carefully consider the discussion in the section entitled “Risk Factors” on page 19 of this proxy statement/prospectus.

 

Stockholders owning or controlling shares of CNB common stock representing approximately 35.5% of the outstanding shares of CNB common stock as of the date of the merger agreement have entered into a voting agreement with Bancorp in which they have agreed to vote all of such shares in favor of the proposal to approve the merger agreement and the merger.

 

Bancorp common stock is listed on the NASDAQ Global Select Market under the symbol “SASR” and CNB common stock is quoted on the OTC Bulletin Board under the symbol “CNBE.”

 

It is important that your shares are represented at the meeting, whether or not you plan to attend the meeting. Abstentions and failures to vote will have the same effect as votes against the proposal to approve the merger agreement and the merger.

 

Accordingly, please complete, date, sign and return promptly your proxy card in the enclosed postage pre-paid envelope. You may attend the meeting and vote your shares in person if you wish, even though you have previously returned your proxy.

 

Sincerely,

 

    

Jan W. Clark
President and CEO

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities to be issued under this proxy statement/prospectus, or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The shares of Sandy Spring Bancorp, Inc. common stock are not savings or deposit accounts or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

This document is dated March 28, 2007 and is first being mailed to CNB stockholders on or about April 4, 2007.

REFERENCES TO ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about Sandy Spring Bancorp, Inc. from documents that are not included in or delivered with this document. This information includes documents of Sandy Spring Bancorp, Inc. incorporated by reference in this proxy statement/prospectus, including exhibits to such documents that are specifically incorporated by reference in this proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain copies of these documents by accessing the Securities and Exchange Commission’s Internet web site maintained at www.sec.gov or by requesting them from Sandy Spring Bancorp, Inc. at the following address:

 

Sandy Spring Bancorp, Inc.
17801 Georgia Avenue
Olney, Maryland 20832
Attention: Ronald E. Kuykendall, Executive Vice President, General Counsel and Secretary
(301) 774-6400

 

If you would like to request documents, please do so by May 11, 2007, in order to receive them before the special meeting of CNB stockholders.

 

See “Where You Can Find More Information” beginning on page 71 for further information.

CN BANCORP, INC.
7401 RITCHIE HIGHWAY
GLEN BURNIE, MARYLAND 21060

 

March 28, 2007

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 2007

 

 

To the Stockholders of CN Bancorp, Inc.:

 

We will hold a special meeting of stockholders of CN Bancorp, Inc. on May 21, 2007, at 11 a.m., local time, at Michael’s 8th Avenue, 8th and Greyburn Drive, 7220 Greyburn Drive, Glen Burnie, Maryland, for the following purposes:

 

1. To consider and vote upon a proposal to approve an agreement and plan of merger, dated as of December 13, 2006, between CN Bancorp, Inc. (“CNB”) and Sandy Spring Bancorp, Inc. (“Bancorp”) and the merger contemplated thereby, pursuant to which CNB will merge with and into Bancorp upon the terms and subject to the conditions set forth in the agreement and plan of merger. This proposal is more fully described in the accompanying proxy statement/prospectus. A copy of the agreement and plan of merger, as amended, is attached as Appendix A to the accompanying proxy statement/prospectus.

 

2. To consider and vote upon a proposal, if necessary, to adjourn the special meeting to a later date or dates to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve the agreement and plan of merger and the merger contemplated thereby.

 

3. To transact any other business as may properly come before the special meeting or any adjournment or postponements of the special meeting.

 

We have fixed the close of business on March 23, 2007 as the record date for determining those CNB stockholders entitled to vote at the special meeting and any adjournments or postponements of the special meeting. Accordingly, only CNB stockholders of record on that date are entitled to notice of, and to vote at, the special meeting of CNB stockholders and any adjournments or postponements of the special meeting.

 

By order of the Board of Directors,

 

Shirley Palmer

Secretary

 

Glen Burnie, Maryland

March 28, 2007

The board of directors of CNB unanimously recommends that you vote “FOR” approval of the agreement and plan of merger and the merger contemplated thereby and “FOR” the proposal, if necessary, to adjourn the special meeting to permit the further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve the agreement and plan of merger and the merger contemplated thereby.

 

The enclosed proxy is solicited by and on behalf of the CNB board of directors. Whether you plan to attend the meeting or not, please sign and return the enclosed proxy so that CNB may be assured of the presence of a quorum at the meeting. A self-addressed envelope is enclosed for your convenience. No postage is required if mailed in the United States.

 

CNB stockholders have the right to exercise dissenters’ rights with respect to the merger and demand in writing that the surviving corporation in the merger pay the fair value of their shares of CNB common stock under applicable provisions of Maryland law. In order to exercise and perfect dissenters’ rights, CNB stockholders must give written notice of their intent to demand payment for their shares to CNB before voting on the merger at the special meeting and must not vote in favor of or consent to the merger. A copy of the applicable Maryland statutory provisions is included in the accompanying proxy statement/prospectus as Appendix C, and a description of the procedures to demand and perfect dissenters’ rights is included in the section entitled “The Merger — Dissenters’ Rights” beginning on page 41.

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

 

The Merger and the Special Meeting of CNB Stockholders

 

Q: What matters will be considered at the special meeting of stockholders?

 

A: At the special meeting, CNB’s stockholders will be asked to vote on (1) the agreement and plan of merger, as amended, by and between Sandy Spring Bancorp, Inc. (“Bancorp”) and CN Bancorp, Inc. (“CNB”), under which CNB will merge with and into Bancorp, with Bancorp surviving the merger, and (2) a proposal, if necessary, to adjourn the special meeting to a later date or dates to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve the agreement and plan of merger and the merger contemplated thereby. The agreement and plan of merger and the merger contemplated thereby are referred to in this proxy statement/prospectus as the “merger agreement” and “merger,” respectively. The merger agreement, as amended, is attached to this proxy statement/prospectus as Appendix A.

 

Q: What stockholder vote is necessary?

 

A: At the special meeting, the affirmative vote of holders of at least 80% of the shares of outstanding CNB common stock is required to approve the merger agreement and the merger and the affirmative vote of a majority of the shares present or represented at the special meeting is required to approve the proposal, if necessary, to adjourn the special meeting to permit further solicitation of proxies. CNB stockholders owning or controlling approximately 35.5% of the outstanding shares of CNB common stock as of the record date for the special meeting have entered into a voting agreement with Bancorp whereby they have agreed to vote their shares for approval of the merger agreement and the merger.

 

Q: Does CNB’s board of directors recommend that CNB stockholders approve the merger agreement and the merger and the proposal to approve, if necessary, an adjournment of the special meeting to permit further solicitation of proxies?

 

A: Yes. CNB’s board of directors unanimously recommends that its stockholders vote “FOR” approval of the merger agreement and the merger and “FOR” the proposal to approve, if necessary, an adjournment of the special meeting to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve the merger agreement and the merger.

 

Q: What do I need to do now?

 

A: After you have carefully read this proxy statement/prospectus, indicate on your proxy card how you want to vote with respect to the proposal to approve the merger agreement and the merger and the proposal, if necessary, to adjourn the special meeting to a later date to permit the further solicitation of proxies in the event there are not sufficient votes at the special meeting to approve the merger agreement and the merger. Complete, sign, date and mail the proxy card in the enclosed postage-paid return envelope as soon as possible so that your shares will be represented and voted at the special meeting. The proxy card should be mailed in accordance with the instructions provided thereon. If you want to make an election to receive cash merger consideration, complete, sign, date and mail the election form and letter of transmittal, which will be provided separately, to the exchange agent at the address listed on page 3, together with the stock certificates representing the shares of CNB common stock with respect to which you wish to make a cash election, in accordance with the instructions described in this proxy statement/prospectus. In a separate mailing you will receive an Election Form/Letter of Transmittal to use in making an election to receive cash merger consideration. Do not send your election form, letter of transmittal or stock certificates with your proxy card to CNB or Bancorp. The proxy card should be mailed in accordance with the instructions set forth thereon.

Q. How do I change my vote after I have mailed my signed proxy card?

 

A: You may change your vote at any time before your proxy is voted by revoking your proxy in any of the following three ways:

 

 

Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A: If you do not provide your broker with instructions on how to vote your shares held in “street name,” your broker will not be permitted to vote your shares on the proposal to approve the merger agreement and the merger without your instructions. You should therefore instruct your broker how to vote your shares. Your failure to instruct your broker to vote your shares will be the equivalent of voting against the approval of the merger agreement and the merger.

 

Q: What if I abstain from voting?

 

A: If you abstain from voting it will have the same effect as a vote against the merger agreement and the merger but will have no effect on the proposal, if necessary, to adjourn the special meeting to permit further solicitation of proxies.

 

Q: Am I entitled to dissenters’ rights?

 

A: Yes. Under Maryland law, you may exercise dissenters’ rights in connection with the merger. The provisions of Maryland law governing dissenters’ rights are complex, and you should study them carefully if you wish to exercise dissenters’ rights. A CNB stockholder may take actions that prevent that stockholder from successfully asserting these rights, and multiple steps must be taken to properly exercise and perfect such rights. A copy of Sections 3-201 through 3-213 of the Maryland General Corporation Law (the “MGCL”) is attached to this proxy statement/prospectus as Appendix C.

 

For a more complete description of dissenters’ rights, please refer to the section of this proxy statement/prospectus entitled “The Merger — Dissenters’ Rights” beginning on page 41.

 

Q: When do you expect to complete the merger?

 

A: We presently expect to complete the merger in the second quarter of 2007. However, we cannot assure you when or if the merger will occur. Stockholders of CNB holding at least 80% of the outstanding shares of CNB common stock must first approve the merger agreement and the merger at the special meeting and we must obtain the necessary regulatory consents and approvals.

 

Q: Is consummation of the merger subject to any conditions?

 

A: Yes. In addition to the approval of the stockholders of CNB, consummation of the merger requires the receipt of the necessary regulatory consents and approvals, and the satisfaction of other conditions specified in the merger agreement. See “The Merger — Regulatory Approvals Required for the Merger” and “The Merger Agreement — Conditions to the Completion of the Merger” beginning on pages 38 and 50 of this proxy statement/prospectus, respectively.

Merger Consideration

 

Q: What will I receive in the merger?

 

A: As a result of the merger, each share of CNB common stock (other than shares with respect to which dissenters’ rights have been properly exercised and perfected) will be converted into the right to receive either $25.00 in cash, without interest, or 0.6657 of a share of Bancorp common stock, in each case subject to the proration procedures described in this proxy statement/prospectus.

 

Q: What are the tax consequences of the merger to me?

 

A: We expect that for United States federal income tax purposes, in general, CNB stockholders who receive cash in whole or in part in exchange for their CNB common stock will recognize gain equal to the lesser of the realized gain or the cash received, in certain cases CNB stockholders who receive cash may recognize any losses realized, and the merger will not be a taxable event to those CNB stockholders who receive solely Bancorp common stock in exchange for their CNB common stock. If, however, a CNB stockholder who receives cash in the merger actually or constructively owns shares of Bancorp common stock after the merger, such stockholder might be subject to dividend treatment in certain circumstances. See “Material United States Federal Income Tax Consequences” on page 38.

 

Bancorp and CNB will have no obligation to complete the merger until they have received an opinion to the effect that the merger will be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that the merger will have certain United States federal income tax results. However, this opinion will not bind the Internal Revenue Service, which could take a different view of the transaction.

 

We urge you to consult your personal tax advisor to gain a full understanding of the tax consequences of the merger to you. Tax matters are very complicated, and in many cases, the tax consequences of the merger will depend on your particular facts and circumstances.

 

Q: How do I elect to receive cash merger consideration in the merger?

 

A: In a separate mailing, record holders of CNB common stock are being provided with an election form and letter of transmittal. The election form and letter of transmittal allow each CNB stockholder to specify the number of shares with respect to which such CNB stockholder elects to receive cash. No election is necessary if you prefer to receive Bancorp common stock. The election procedures and deadline for making elections are described in the materials accompanying the election form and letter of transmittal and also beginning on page 45 of this proxy statement/prospectus. All elections and non-elections are subject to the allocation and proration procedures described in this proxy statement/prospectus beginning on page 45. To make a valid election, record holders of shares of CNB common stock must properly complete, sign and send the election form and letter of transmittal, together with the stock certificates with respect to which an election is being made, to the exchange agent at the following address:

 

 

Do not send your election form, letter of transmittal or stock certificates with your proxy card to Bancorp or to CNB. If you make an election to receive cash merger consideration, the election form, letter of transmittal and your stock certificates should be sent to the exchange agent at the address listed above. The proxy card should be mailed in accordance with the instructions set forth thereon.

 

If you own shares of CNB common stock in “street name” through a broker or other financial institution and you wish to make an election, you will receive or should seek instructions from the institution holding your shares concerning how to make your election. “Street name” holders may be subject to an earlier election deadline than stated below. Therefore, if you are a street name holder, you should carefully read any materials

you receive from your broker. If you instruct a broker to submit an election for your shares, you must follow your broker’s directions for changing those instructions.

 

Election forms must be received by 5:00 p.m., Eastern Time on May 21, 2007 (the “election deadline”) for the election to be valid. If you do not make a valid election by the election deadline, you will receive Bancorp common stock in exchange for your shares of CNB common stock, subject to the allocation and proration procedures described in this proxy statement/prospectus, which will depend upon the elections of the other CNB stockholders. Questions related to elections to receive merger consideration and the election form should be directed to Shirley Palmer, CNB’s Secretary, at (410) 760-7000.

 

Do not return your election form or your stock certificates with your proxy card. Doing so will not constitute a valid election, and may delay your receipt of the merger consideration.

 

Q: Will I always receive the form of merger consideration I desire to receive?

 

A: No. Bancorp will pay cash for at least 40% but not more than 50% of the outstanding shares of CNB common stock and issue shares of Bancorp common stock for at least 50% but not more than 60% of the outstanding shares of CNB common stock. If the number of CNB shares for which an election to receive cash is made is higher than 50% of the outstanding shares of CNB common stock, a pro rata portion of those shares will be converted into the right to receive Bancorp common stock in order to result in a 50% cash and 50% stock allocation. If the number of CNB shares for which an election to receive cash is made is lower than 40% of the outstanding shares of CNB common stock, a pro rata portion of the shares for which no election is made will be converted into the right to receive cash in order to result in a 40% cash and 60% stock allocation. Accordingly, there is no assurance that you will receive the form of merger consideration that you desire to receive with respect to all of the shares of CNB common stock you hold. The allocation and proration procedures are described beginning on page 45 of this proxy statement/prospectus.

 

Q. What do I do if I want to revoke my election after I have mailed my signed election form?

 

A: If you are the record holder of your shares, you may revoke your election by sending a signed written notice to the exchange agent identifying the shares of CNB common stock for which you are revoking your election. For a notice of revocation to be effective, it must be received by the exchange agent prior to the election deadline. The election procedure, including revocation of an election, is described beginning on page 45 of this proxy statement/prospectus. If you hold your shares in “street name,” you must follow your broker’s instructions for revoking an election.

 

Q: When should I send in my stock certificates?

 

A: If you make an election to receive cash, you must send the stock certificates representing the shares of CNB common stock with respect to which you have made an election with your completed election form and letter of transmittal to the exchange agent at the address set forth on page 3 so that they are received by the exchange agent no later than the election deadline. If you hold your shares in “street name,” you should comply with the election deadline set by your broker, which may be earlier. If you do not make an election to receive cash, you will receive a letter of transmittal from the exchange agent after the completion of the merger with instructions for sending in your stock certificates.

 

Q: Is there other information about Bancorp I should consider that is not included in this proxy statement/prospectus?

 

A: Yes. Much of the business and financial information about Bancorp that may be important to you is not included in this proxy statement/prospectus. Instead, that information is incorporated by reference to documents separately filed by Bancorp with the Securities and Exchange Commission (the “SEC”). This means that Bancorp may satisfy its disclosure obligations to you by referring you to one or more documents separately filed by it with the SEC. See “Where You Can Find More Information” beginning on page 71 for a list of documents that Bancorp has incorporated by reference into this proxy statement/prospectus and for instructions on how to obtain copies of those documents. The documents are available to you without charge.

Q: What if there is a conflict between documents of Bancorp?

 

A: You should rely on the LATER FILED DOCUMENT. Information in this proxy statement/prospectus may update information contained in one or more of the Bancorp documents incorporated by reference. Similarly, information in documents that Bancorp may file after the date of this proxy statement/prospectus may update information contained in this proxy statement/prospectus or information in previously filed documents.

 

Q: Who can I call with questions or to obtain copies of this proxy statement/prospectus?

 

A: You may contact Shirley Palmer of CN Bancorp, Inc. at (410) 760-7000.

 

Q: What will happen to my CNB stock options?

 

A: Each option to acquire CNB stock under CNB’s stock option plan that is outstanding at the effective time of the merger will be converted into an option to purchase a number of shares of Bancorp common stock equal to 0.6657 times the number of shares of CNB stock underlying such CNB option and the exercise price of the CNB option will be ratably adjusted in accordance with such conversion. However, Bancorp, in its sole and complete discretion, may require CNB or County National to offer to cancel any CNB option immediately prior to the effective time of the merger in exchange for a cash payment in an amount equal to $25.00 minus the per share exercise price for each share of CNB stock underlying such CNB option, subject to any required withholding of taxes. Bancorp intends to require that such an offer be made to all option holders.

By Mail:		By Hand or Courier:
American Stock Transfer & Trust Company Operations Center Attn: Reorganization Department P.O. Box 2042 New York, NY 10272-2042		American Stock Transfer & Trust Company Operations Center Attn: Reorganization Department 6201 15th Ave Brooklyn, NY 11219

	•	the terms and conditions of the option plan under which the option was issued;

	•	the agreement evidencing the grant of such option to purchase CNB stock; and
	•	any other agreement between CNB and the option holder regarding such CNB stock option;

	•	that from and after the effective time of the merger, each such CNB stock option shall be exercisable only for Bancorp common stock;
	•	the number of shares of Bancorp common stock that may be acquired under such CNB stock option will be the number of shares of CNB common stock subject to such CNB stock option multiplied by 0.6657, rounded down to the nearest whole share; and
	•	the exercise price per share of such CNB stock option shall be equal to such exercise price divided by 0.6657, rounded down to the nearest cent.

	•	The per share consideration offered by Bancorp, at $25.00 cash or 0.6657 of a share of Bancorp common stock, is in line with the prices paid in comparable transactions and represents a significant premium over the market value of CNB’s common stock, which is quoted on the OTC Bulletin Board.
	•	The consideration offered by Bancorp equals or exceeds the value which CNB could reasonably expect to achieve if it maintained independent operations.

	•	Bancorp’s common stock is traded on the NASDAQ Global Select Market, and has substantially greater liquidity than CNB’s common stock, which is quoted on the OTC Bulletin Board.

	•	The opinion of Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) dated as of December 13, 2006, that the consideration to be received by CNB stockholders is fair from a financial point of view to CNB’s stockholders.
	•	The risks to stockholder value in continued independent operations, including risks relating to the inherent uncertainties about future growth and performance, management and board succession, the impact and costs of increased regulatory compliance obligations, including those related to the Sarbanes-Oxley Act, and the market for bank acquisitions.
	•	Certain interests of officers and directors that are different from, or in addition to, the interest of stockholders generally.

	•	the potential retention of CNB’s directors as members of an existing advisory board of SSB after the effective time of the merger and the fee that those individuals will receive for service on such advisory board;
	•	the receipt by certain officers and employees of CNB of change in control or severance payments;
	•	the employment of Jan W. Clark, CNB’s president and chief executive officer, with SSB upon the completion of the merger pursuant to an employment agreement between SSB and Mr. Clark; and
	•	the employment of John G. Warner, CNB’s executive vice president, with SSB upon the completion of the merger pursuant to an employment agreement between SSB and Mr. Warner.

	•	holders of shares of CNB common stock will generally not recognize any gain or loss for United States federal income tax purposes on the exchange of their shares of CNB common stock solely for Bancorp common stock in the merger;

	•	such holders will recognize gain (or dividend income) or (in certain cases) loss realized in connection with any cash received as part of the merger consideration; and
	•	the companies themselves will not recognize gain or loss as a result of the merger.

	•	deliver to CNB a written objection to the proposed transaction at or before the time the vote is taken at the special meeting;
	•	not vote their shares for approval of the merger agreement and the merger;
	•	within 20 days after the Maryland Department of Assessments and Taxation accepts the articles of merger, make a written demand on Bancorp for payment of their shares, stating the number of shares for which payment is demanded; and
	•	comply with the other procedures set forth in Sections 3-201 through 3-213 of the MGCL.

	•	the merger has not been consummated on or before September 13, 2007, except that neither Bancorp nor CNB can terminate the merger agreement for this reason if the delay was caused by its breach of a provision under the merger agreement;
	•	CNB’s stockholders fail to give the necessary approval at the special meeting of CNB stockholders, or
	•	there is a permanent legal prohibition to completing the merger.

	•	there is a breach on the part of CNB of the merger agreement that would cause certain conditions to be unsatisfied and such conditions are incapable of being satisfied by September 13, 2007;
	•	CNB fails to hold the special meeting of CNB stockholders to approve the merger agreement and the merger;
	•	CNB willfully and materially breaches its agreements to hold the special meeting of stockholders and to refrain from soliciting another acquisition proposal;

	•	CNB’s board of directors fails to make, withdraws, or modifies in a manner adverse to Bancorp its approval or recommendation of the merger agreement and the merger; or
	•	CNB enters into, or publicly announces its intention to enter into, a definitive agreement or agreement in principle with respect to a Superior Proposal (as defined on page 55 of this proxy statement/prospectus).

	•	there is a breach on the part of Bancorp of the merger agreement that would cause certain conditions to be unsatisfied and such conditions are incapable of being satisfied by September 13, 2007;
	•	CNB’s board of directors authorizes CNB to enter into an agreement concerning a Superior Proposal, and both

	•	CNB gives Bancorp at least 72 hours prior written notice of its intention to terminate to accept a Superior Proposal, and
	•	Bancorp does not make during this 72 hour period an offer that is at least as favorable to CNB’s stockholders as the Superior Proposal.

	•	the average closing price of Bancorp’s common stock during the 10 consecutive days ending on the 7th calendar day immediately prior to the effective time of the merger is less than $30.05 and Bancorp’s common stock price has underperformed the NASDAQ Bank Index by 20% or more since December 13, 2006, provided that this termination right:

	•	may only be exercised by CNB during the three-day period following the 7th calendar day prior to the effective date of the merger; and
	•	is subject to Bancorp’s right to increase the merger consideration payable to holders of CNB common stock to be converted into Bancorp common stock by issuing additional shares of Bancorp common stock and/or cash (subject to a maximum amount of cash equal to 57% of the total merger consideration, other than cash in lieu of fractional shares), in either case as necessary to cure either of the above described conditions, but only to the extent that the cure would not jeopardize the status of the merger as a tax-free reorganization for United States federal income tax purposes.

	•	Bancorp terminates the merger agreement as a result of:

	•	CNB failing to hold the special meeting of CNB stockholders to approve the merger agreement and the merger,
	•	CNB’s board failing to recommend to CNB’s stockholders the approval of the merger agreement and the merger, or withdrawing such recommendation or modifying such recommendation in a manner adverse to Bancorp, or
	•	CNB entering into or its public announcement of its intent to enter into, a definitive agreement or an agreement in principle with respect to a Superior Proposal,

	•	CNB terminates the merger agreement to enter into a written agreement concerning a Superior Proposal, but only after CNB’s compliance with its obligation to give Bancorp 72 hours advance written notice and Bancorp’s failure to make an offer during such 72 hour period that is at least as favorable to CNB’s stockholders as the Superior Proposal.

	•	the merger agreement is terminated by Bancorp due to either of the following two events:

	•	failure of Bancorp and CNB to consummate the merger by September 13, 2007 (provided that the failure of the merger to be consummated by this date was not due to a breach of any provision of the merger agreement by Bancorp); or
	•	the failure of CNB’s stockholders to approve the merger and merger agreement, in accordance with Maryland law, at the CNB stockholder meeting,

	•	CNB merges into, or is acquired, by a third party;
	•	a third party acquires more than 50% of the total assets of CNB and its subsidiaries;
	•	a third party acquires more than 50% of the outstanding CNB shares;
	•	CNB adopts or implements a plan of liquidation, recapitalization or share repurchase relating to more than 50% of the outstanding CNB shares or an extraordinary dividend relating to more than 50% of such outstanding shares or 50% of the assets of CNB and its subsidiaries; or
	•	CNB or its subsidiaries enter into a definitive agreement to do any of these.

		Bancorp				CNB
		Common				Common
Date		Stock				Stock
December 13, 2006		$	37.40			$	16.05
March 23, 2007		$	35.74			$	24.45

		As of and for the Years Ended December 31,
		2006				2005				2004				2003				2002
		(In thousands, except per share data)
Results of Operations:
Interest income		$	153,443			$	122,160			$	108,981			$	112,048			$	122,380
Interest expense			58,687				33,982				34,768				37,432				44,113
Net interest income			94,756				88,178				74,213				74,616				78,267
Provision for loan and lease losses			2,795				2,600				0				0				2,865
Net interest income after provision for loan and lease losses			91,961				85,578				74,213				74,616				75,402
Noninterest income, excluding securities gains			38,894				33,647				30,409				32,973				27,937
Securities gains			1				3,262				540				996				2,016
Noninterest expenses			85,096				77,194				92,474				67,040				63,843
Income before taxes			45,760				45,293				12,688				41,545				41,512
Income tax expense (benefit)			12,889				12,195				(1,679	)			9,479				10,927
Net income			32,871				33,098				14,367				32,066				30,585
Per Share Data:
Net income — basic		$	2.22			$	2.26			$	0.99			$	2.21			$	2.11
Net income — diluted			2.20				2.24				0.98				2.18				2.08
Dividends declared			0.88				0.84				0.78				0.74				0.69
Book value (at year end)			16.04				14.73				13.34				13.35				12.25
Tangible book value (at year end)(1)			14.48				13.09				12.16				12.03				10.76
Financial Condition (at year end):
Assets		$	2,610,457			$	2,459,616			$	2,309,343			$	2,334,424			$	2,308,486
Deposits			1,994,223				1,803,210				1,732,501				1,561,830				1,492,212
Loans and leases			1,805,579				1,684,379				1,445,525				1,153,428				1,063,853
Securities			540,908				567,432				666,108				998,205				1,046,258
Borrowings			351,540				417,378				361,535				563,381				613,714
Stockholders’ equity			237,777				217,883				195,083				193,449				178,024
Performance Ratios (for the year):
Return on average equity			14.33	%			16.21	%			7.27	%			17.29	%			18.89	%
Return on average assets			1.28				1.41				0.60				1.37				1.42
Net interest margin			4.26				4.39				3.68				3.78				4.21
Efficiency ratio — GAAP based			63.67				61.71				87.93				61.74				58.99
Efficiency ratio — traditional			58.71				58.16				62.86				56.26				54.09
Dividends declared per share to diluted net income per share			40.00				37.50				79.59				33.94				33.17

		As of and for the Years Ended December 31,
		2006				2005				2004				2003				2002
		(In thousands, except per share data)
Capital and Credit Quality Ratios:
Average equity to average assets			8.95	%			8.68	%			8.21	%			7.91	%			7.49	%
Allowance for loan and lease losses to loans and leases			1.08				1.00				1.01				1.29				1.41
Non-performing assets to total assets			0.15				0.06				0.08				0.13				0.12
Net charge-offs to average loans and leases			0.01				0.02				0.02				0.01				0.05

(1)		Total stockholders’ equity, net of goodwill and other intangible assets, divided by the number of shares of common stock outstanding at the end of the applicable period.

		As of and for the Years Ended December 31,
		2006				2005				2004				2003				2002
		(In thousands, except per share data)
Results of Operations Data:
Interest income		$	8,981			$	7,091			$	5,714			$	4,963				5,190
Interest expense			2,843				1,950				1,243				1,253				1,688
Net interest income			6,138				5,141				4,471				3,710				3,502
Provision for loan losses			163				184				151				135				125
Net interest income after provision for loan losses			5,975				4,957				4,320				3,575				3,377
Other income			1,210				1,178				950				894				829
Other expense			4,990				4,484				4,391				3,782				3,640
Income before taxes			2,195				1,651				879				687				566
Income taxes			794				567				297				222				171
Net income		$	1,401			$	1,084			$	582			$	465			$	395
Per Share Data:
Earnings per share, basic		$	0.82			$	0.76			$	0.43			$	0.48			$	0.46
Earnings per share, diluted			0.81				0.71				0.40				0.38				0.35
Cash dividends			0.35				0.25				0.21				0.12				0.15
Book value per share			11.97				11.47				11.34				11.18				10.46
Tangible book value per share			11.97				11.47				11.34				11.18				10.46
Weighted average shares outstanding, basic			1,715,073				1,435,278				1,358,954				961,686				860,000
Weighted average shares outstanding, diluted			1,738,699				1,521,542				1,462,875				1,137,135				1,114,858
Shares outstanding at end of period			1,728,011				1,664,342				1,384,565				1,264,745				860,000

		As of and for the Years Ended December 31,
		2006				2005				2004				2003				2002
		(In thousands, except per share data)
Financial Condition (at year end):
Total Assets		$	160,792			$	147,596			$	136,871			$	116,438			$	104,044
Securities available for sale, at fair value			16,279				23,881				26,214				17,506				9,090
Securities held to maturity, at cost			7,742				8,162				10,359				8,209				7,532
Loans receivable, net of unearned income			99,978				89,426				79,695				70,879				64,113
Allowance for loan losses			1,010				864				800				720				745
Premises and equipment, net			3,685				3,914				4,179				4,053				3,365
Non-interest bearing deposits			37,947				36,867				30,078				27,098				21,488
Interest bearing deposits			100,716				89,418				89,232				72,212				71,473
Total deposits			138,663				126,285				119,310				99,310				92,961
Securities sold under agreements to repurchase		$	291			$	548			$	523			$	1,453			$	988
Stockholders’ equity			20,692				19,097				15,695				14,136				8,995
Performance Ratios (for the year):
Return on average stockholders’ equity			6.96	%			6.54	%			3.82	%			4.38	%			4.52	%
Return on average assets			0.92	%			0.74	%			0.44	%			0.43	%			0.40	%
Net interest margin			4.34	%			3.80	%			3.69	%			3.69	%			3.84	%
Other income to average assets			0.79	%			0.81	%			0.73	%			0.82	%			0.83	%
Other expenses to average assets			3.27	%			3.07	%			3.35	%			3.47	%			3.66	%
Dividend payout ratio			43.04	%			35.09	%			49.14	%			26.79	%			32.66	%
Number of branches			4				4				4				3				3
Allowance for loan losses to total loans			1.01	%			0.97	%			1.00	%			1.02	%			1.16	%
Non-performing loans to total loans			0.04	%			0.07	%			0.06	%			0.16	%			0.43	%
Allowance for loan losses to non-performing loans			2,525.00	%			1,386.13	%			1,567.79	%			648.65	%			270.91	%
Applicable Company Capital Ratios:
Tier 1 risk-based capital			19.5	%			19.9	%			18.1	%			18.6	%			12.8	%
Total risk-based capital			20.5	%			20.8	%			19.0	%			19.6	%			13.9	%
Leverage capital			13.1	%			12.9	%			11.2	%			12.3	%			8.5	%
Stockholders’ equity to total assets			12.9	%			12.9	%			11.5	%			12.1	%			8.6	%

COMPARATIVE PER SHARE DATA

 

The following table shows certain historical per share data for Bancorp and CNB for the periods indicated and the equivalent per share data of CNB assuming an exchange for shares of Bancorp common stock in accordance with the exchange ratio. The information in this table is based on, and should be read together with, the historical financial information that we have included in this proxy statement/prospectus or presented in Bancorp’s and CNB’s prior filings with the SEC. See “Where You Can Find More Information” on page 71.

 

 

 

RISK FACTORS

 

In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, the following factors should be considered carefully when evaluating the proposal to approve the merger agreement and the merger at the special meeting of CNB stockholders, as well as your election or non-election to receive cash merger consideration.

 

Because the market price of Bancorp common stock may fluctuate, you cannot be sure of the value of the stock portion of the merger consideration that you may receive.

 

Upon completion of the merger, each share of CNB common stock will be converted into the right to receive merger consideration consisting of cash or shares of Bancorp common stock. Because Bancorp is issuing its shares at a fixed exchange ratio as part of the merger consideration, any change in the price of Bancorp common stock prior to completion of the merger will affect the value of any shares of Bancorp common stock you receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the respective businesses, operations and prospects of Bancorp and CNB, and regulatory considerations. Many of these factors are beyond the control of Bancorp and CNB. Accordingly, at the time of the special meeting of stockholders, you will not be able to determine the value of the Bancorp common stock you may receive upon completion of the merger.

 

The market price of the shares of Bancorp common stock may be affected by factors different from those affecting the shares of CNB common stock.

 

Upon completion of the merger, certain holders of CNB common stock will become holders of Bancorp common stock. Some of Bancorp’s current businesses and markets differ from those of CNB, and accordingly, the results of operations of Bancorp after the merger may be affected by factors different from those currently affecting the results of operations of CNB. For further information on the business of Bancorp and the factors to consider in connection with its business, see the documents incorporated by reference into this proxy statement/prospectus and referred to under “Where You Can Find More Information” on page 71. For further information on the business of CNB and the factors to consider in connection with its business, see CNB’s Form 10-KSB for the year ended December 31, 2006, which is attached as Appendix D to this proxy statement/prospectus.

 

You cannot be certain of the form of merger consideration that you will receive.

 

Bancorp will pay cash, at a price of $25.00 per share, without interest, for at least 40% but not more than 50% of the CNB common stock outstanding at the effective time of the merger and issue shares of Bancorp common stock, based upon the exchange ratio of 0.6657, for at least 50% but no more than 60% of the CNB common stock outstanding at the effective time of the merger. If the number of CNB shares for which an election to receive cash is made is higher than 50% of the outstanding shares of CNB common stock, a pro rata portion of the shares for which an election to receive cash is made will be converted into the right to receive Bancorp common stock in order to result in a 50% cash and 50% stock allocation. If the number of CNB shares for which an election to receive cash is made is lower than 40% of the outstanding shares of CNB common stock, then a pro rata portion of the shares for which no election is made will be converted into the right to receive cash in order to result in a 40% cash and 60% stock allocation. Accordingly, there is a risk that you will receive merger consideration in the form that you do not desire, which could result in, among other things, tax consequences that differ from those that would have resulted had you received your desired form of consideration, including the recognition of taxable gain or dividend income to the extent cash is received.

 

We may fail to realize the cost savings we estimate for the merger.

 

The success of the merger will depend, in part, on our ability to realize the estimated cost savings from combining the businesses of Bancorp and CNB, including the combination of the businesses of SSB and County National following the bank merger. While we believe, as of the date of this proxy statement/

prospectus, that these cost savings estimates are achievable, it is possible that the potential cost savings could turn out to be more difficult to achieve than we anticipated. Our cost savings estimates also depend on our ability to combine the businesses of Bancorp and CNB, including the combination of the businesses of SSB and County National in a manner that permits those cost savings to be realized. If our estimates turn out to be incorrect or we are not able to combine successfully these two banks, the anticipated cost savings may not be realized fully or at all or may take longer to realize than expected.

 

Combining SSB and County National may be more difficult, costly or time-consuming than we expect or could result in the loss of customers.

 

Bancorp and CNB have operated, and until the completion of the merger will continue to operate and control their respective subsidiaries independently. In particular, SSB and County National have operated, and until the completion of the bank merger, will continue to operate their respective banking businesses, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each bank’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the ability to maintain relationships with clients and employees or to achieve the anticipated benefits of the merger. There also may be disruptions that cause a loss of customers or cause customers to withdraw their deposits. There can be no assurance that customers will readily accept changes to their banking arrangements after the merger.

 

Certain officers and directors of CNB have potential conflicts of interest in the merger.

 

CNB stockholders should be aware of potential conflicts of interest and the benefits available to CNB officers and directors when considering CNB’s board of directors’ recommendation to approve the merger agreement and the merger. After the merger, directors of CNB will be offered the opportunity to become advisory board members of SSB and certain officers and employees of CNB will become officers and employees of SSB. In addition, CNB’s president and chief executive officer and CNB’s executive vice president will each be employed by SSB pursuant to an employment agreement with SSB effective as of the effective time of the merger. In addition, certain officers of CNB will receive change in control or severance payments upon or shortly after the effective date of the merger and certain officers of CNB have supplemental employee retirement plans under which they are entitled to receive certain retirement benefits, which have been restated in connection with the merger. See “Interests of Certain Persons in the Merger — Change in Control Payments” on page 60.

 

Restrictions in Bancorp’s articles of incorporation and bylaws with respect to unfriendly acquisitions could prevent a takeover of Bancorp.

 

Bancorp’s articles of incorporation and bylaws contain provisions that could discourage takeover attempts that are not approved by Bancorp’s board of directors. These provisions include supermajority provisions for the approval of certain business combinations, certain provisions relating to meetings of stockholders, a staggered board of directors and provisions authorizing the issuance of additional shares without stockholder approval. The MGCL also includes provisions that make an acquisition of Bancorp more difficult. These provisions may prevent a future takeover attempt in which Bancorp’s stockholders otherwise might receive a substantial premium for their shares over then-current market prices. See “Comparative Rights of Stockholders — Anti-Takeover Provisions” beginning on page 68.

 

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

 

This document contains information and statements about possible or assumed future results of operation or the performance of Bancorp and CNB after the merger is completed. This proxy statement/prospectus and Bancorp’s and CNB’s public documents contain forward-looking statements within the meaning of and pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. A forward-looking statement encompasses any estimate, prediction, opinion or statement of belief and the underlying management assumptions. These “forward-looking statements” can be identified by words such as “believes,”

“expects,” “anticipates,” “intends” and similar expressions, although not all forward-looking statements contain such words or expressions. Forward-looking statements appear in the discussions of matters such as the benefits of the merger between CNB and Bancorp, including future financial and operating results and cost saving enhancements to revenue that may be realized from the merger, and Bancorp’s and CNB’s plans, objectives, expectations and intentions and other statements that are not historical facts. These statements are based upon the current reasonable expectations and assessments of the respective management teams of Bancorp and CNB and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of Bancorp and CNB. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

 

In addition to factors that Bancorp and CNB have previously disclosed in their respective reports filed with the SEC and those that are referenced elsewhere in this proxy statement/prospectus, including in CNB’s Annual Report on Form 10-KSB, which is included as Appendix D to this proxy statement/prospectus, the following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

 

Forward-looking statements are made as of the date of the applicable document and, except as required by applicable law, Bancorp and CNB assume no obligation to update these forward-looking statements or to update the reasons why actual results could differ from those in the forward-looking statements. You should consider these risks and uncertainties in evaluating forward-looking statements and you should not place undue reliance on these statements.

THE SPECIAL MEETING OF CNB STOCKHOLDERS

 

CNB is providing this document to you as its proxy statement in connection with the solicitation of proxies by CNB’s board of directors to be voted at the special meeting of CNB stockholders to be held on May 21, 2007 and at any adjournments or postponements of the special meeting. Bancorp is also providing this document to you as a prospectus in connection with the offer and sale by Bancorp of its shares of common stock as a result of the proposed merger.

 

Date, Time and Place of Meeting

 

The special meeting of CNB stockholders is scheduled to be held as follows:

 

 

 

 

Purpose of the Special Meeting

 

At the special meeting, stockholders of CNB will be asked to:

 

 

Record Date and Outstanding Shares

 

CNB’s board of directors has fixed the close of business on March 23, 2007 as the record date for the special meeting of CNB stockholders and only stockholders of record of CNB common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting. Each holder of record of CNB common stock at the close of business on the record date is entitled to one vote for each share of CNB common stock then held on each matter voted on by stockholders at the special meeting. At the close of business on the record date, there were 1,728,011 shares of CNB common stock issued and outstanding and entitled to vote.

 

Vote Required to Approve the Merger Agreement and the Merger

 

The approval of the merger agreement and the merger requires the affirmative vote of holders of at least 80% of the outstanding shares of CNB common stock as of the record date (i.e., at least 1,382,409 shares of CNB common stock).

 

Vote Required to Approve the Proposal, If Necessary, to Adjourn the Special Meeting

 

The approval of the proposal to adjourn the special meeting if and to the extent necessary to permit the further solicitation of proxies in the event there are not sufficient votes at the special meeting to approve the merger agreement and the merger requires a majority vote of the shares present or represented at the special meeting and entitled to vote on the matter.

Quorum; Abstentions and Broker Non-Votes

 

Holders of a majority of the issued and outstanding shares of CNB common stock entitled to vote at the special meeting must be present in person or represented by proxy to constitute a quorum for the transaction of business at the special meeting. Accordingly, at least 864,006 shares of CNB common stock must be present at the special meeting to constitute a quorum for the conduct of business. If a share is represented for any purpose at the special meeting, it is deemed to be present for the transaction of all business. Abstentions are counted for purposes of determining whether a quorum exists.

 

Notwithstanding the foregoing, pursuant to CNB’s bylaws, the special meeting may be adjourned by a majority of the shares present or represented at the special meeting.

 

If you hold your shares of CNB common stock in “street name” through a broker, bank or other nominee, generally the nominee may only vote your CNB common stock in accordance with your instructions. However, if your nominee has not timely received your instructions, such nominee may only vote on matters for which it has discretionary voting authority. Brokers will not have discretionary voting authority to vote on the proposal to approve the merger agreement and the merger. If a nominee cannot vote on a matter because it does not have discretionary voting authority, this is a “broker non-vote” with respect to that matter. Broker shares that are not voted on any matter at the special meeting will, however, be counted as shares present or represented at the special meeting for purposes of determining whether a quorum exists. In the event that a quorum is not present at the special meeting of CNB stockholders, it is expected that the special meeting will be adjourned or postponed to permit further solicitation of proxies.

 

For purposes of the vote with respect to the merger agreement and the merger, a failure to vote, a vote to abstain and a broker non-vote will each have the same legal effect under Maryland law as a vote against approval of the merger agreement and the merger.

 

Voting by Directors and Executive Officers

 

As of the record date, CNB directors and officers beneficially owned 613,466 shares of CNB common stock, or approximately 35.5% of the shares entitled to vote at the special meeting of CNB stockholders. The directors and officers of CNB, in their capacity as stockholders of CNB, have entered into a voting agreement with Bancorp whereby each has agreed to vote their respective shares for approval of the merger agreement and the merger at the special meeting and each has granted an irrevocable proxy that enables Bancorp to vote these shares to approve the merger agreement and the merger. CNB’s directors and officers were not paid any additional consideration in connection with the voting agreement or the irrevocable proxy granted thereby. The voting agreement terminates upon any termination of the merger agreement. See “The Merger — Voting Agreement” on page 43.

 

Voting and Revocation of Proxies

 

After carefully reading and considering the information presented in this proxy statement/prospectus, you should complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-prepaid envelope so that your shares are represented at the special meeting of CNB stockholders. You can also vote at the special meeting, but we encourage you to submit your proxy now in any event.

 

All shares of CNB common stock represented by each properly executed and valid proxy received by the secretary of CNB before the special meeting will be voted in accordance with the instructions given on the proxy. If a CNB stockholder executes a proxy card without giving instructions, the shares of CNB common stock represented by that proxy card will be voted “FOR” approval of the merger agreement and the merger and “FOR” the approval of the proposal, if necessary, to adjourn the special meeting to permit the further solicitation of proxies in the event there are not sufficient votes at the special meeting to approve the merger agreement and the merger. CNB’s board of directors is not aware of any other matters to be voted on at the special meeting of CNB stockholders. If any other matter properly comes before the special meeting, the persons named on the proxy card will vote the shares represented by all properly executed proxies on those matters in their discretion.

You may revoke your proxy at any time before the proxy is voted by one of the following means:

 

 

Election to Receive Cash Merger Consideration

 

If you make an election to receive cash merger consideration, you must send the stock certificates representing the shares of CNB common stock with respect to which you have made an election with your completed election form and letter of transmittal. The completed election form and letter of transmittal and related stock certificates must be received by the exchange agent no later than 5:00 p.m. eastern time on May 21, 2007. If you do not submit stock certificates representing all of your shares of CNB common stock in connection with your election, you will receive a letter of transmittal from the exchange agent after the completion of the merger with instructions for sending in your stock certificates. See “The Merger Agreement — Procedures for Surrendering CNB Stock Certificates” beginning on page 47. You should not send your election form, letter of transmittal or CNB stock certificates with your proxy card to Bancorp or to CNB.

 

Solicitation of Proxies and Expenses

 

The accompanying proxy is being solicited by CNB’s board of directors, and CNB will pay for the entire cost of the solicitation, other than certain costs of preparing and filing this proxy statement/prospectus with the SEC, which are being borne by Bancorp. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries for forwarding the solicitation material to the beneficial owners of CNB common stock held of record by those persons, and CNB may reimburse the brokerage houses, custodians, nominees and fiduciaries for reasonable transaction and clerical expenses. In addition to the use of the mail, proxies may be solicited personally or by telephone, facsimile or other means of communication by CNB’s directors, officers and regular employees. These people will receive no additional compensation for these services, but will be reimbursed for any expenses incurred by them in connection with these services.

 

CNB may engage a proxy solicitation firm to assist it in obtaining proxies from stockholders on a timely basis and Bancorp may, in its discretion, require CNB to do so. As of the date of this proxy statement/prospectus, CNB has not engaged a firm for the purpose of soliciting proxies and Bancorp has not requested CNB to do so. However, Bancorp reserves the right, under the merger agreement, to require CNB to engage a proxy solicitation firm in connection with the special stockholders meeting or any adjournment thereof. The cost of any proxy solicitation firm engaged by CNB, whether or not at the request of Bancorp, will be paid solely by CNB.

 

Board Recommendation

 

CNB’s board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are in the best interests of CNB and its stockholders. Accordingly, CNB’s board of directors unanimously approved and adopted the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously recommends that CNB’s stockholders vote “FOR” the proposal to approve the merger agreement and the merger and “FOR” the proposal, if necessary, to approve an adjournment of the special meeting to permit the further solicitation of proxies in the event that there are not sufficient votes at the special meeting to approve the merger agreement and the merger.

The proposed merger is of great importance to the stockholders of CNB. You are urged to read and carefully consider the information presented in this proxy statement/prospectus and to complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-prepaid envelope.

 

Dissenters’ Rights

 

Under Maryland law, you may exercise dissenters’ rights in connection with the merger. The provisions of Maryland law governing dissenters’ rights are complex and you should review them carefully. A CNB stockholder may take actions that prevent that stockholder from successfully asserting these rights, and multiple steps must be taken to properly exercise and perfect these rights. A copy of Sections 3-201 through 3-213 of the MGCL (the provisions of the MGCL governing dissenters’ rights) is attached to this proxy statement/prospectus as Appendix C.

 

For a more complete description of dissenters’ rights, please refer to the section of this proxy statement/prospectus entitled “The Merger — Dissenters’ Rights” beginning on page 41.

THE COMPANIES

 

Sandy Spring Bancorp, Inc. (“Bancorp”)

 

Bancorp is the holding company for SSB and SSB’s principal subsidiaries, Sandy Spring Insurance Corporation, The Equipment Leasing Company and West Financial Services, Inc. Bancorp is the third largest publicly traded banking company headquartered in Maryland. As of December 31, 2006, Bancorp had total assets of approximately $2.60 billion, total loans and leases of approximately $1.80 billion, total deposits of approximately $1.99 billion and approximately $237.8 million in stockholders’ equity. Bancorp’s common stock is listed on the NASDAQ Global Select Market under the symbol “SASR”. Through its subsidiaries, Bancorp offers a comprehensive menu of leasing, insurance and investment management services.

 

The principal executive offices of Bancorp are located at 17801 Georgia Avenue, Olney, Maryland 20832 and Bancorp’s telephone number is (301) 774-6400.

 

Sandy Spring Bank (“SSB”)

 

SSB is a wholly owned subsidiary of Bancorp. SSB is a community banking organization that focuses its lending and other services on businesses and consumers in the Baltimore-Washington region. SSB was founded in 1868 and offers a broad range of commercial banking, retail banking and trust services through 33 community offices and 77 ATMs located throughout Maryland. SSB is affiliated with the Allpoint ATM Network, which offers free nationwide access at 34,000 ATM locations.

 

Recent Developments

 

Acquisition of Potomac Bank of Virginia

 

On February 15, 2007, Bancorp completed its acquisition of Potomac Bank of Virginia (“Potomac”). The transaction was structured as a merger of Potomac with and into SSB, with SSB as the surviving bank in the merger. The shareholders of Potomac received an aggregate of 887,146 shares of Bancorp common stock and an aggregate of $31,410,436.50 in cash as a result of the merger of Potomac into SSB.

 

The acquisition of Potomac added to SSB approximately $247 million in total assets, approximately $193 million in gross loans, approximately $192 million in total deposits, and five full service branches located in the Virginia communities of Fairfax, Lansdowne, Vienna and Chantilly.

 

CN Bancorp, Inc. (“CNB”) and County National Bank (“County National”)

 

CNB was organized in 1996 under the laws of the State of Maryland to serve as the holding company for County National. County National is a national banking association that commenced operations in December 1996. County National is engaged in a general commercial and consumer banking business, serving individuals and businesses from its main office in Glen Burnie, Maryland, and its branch offices located in Pasadena, Odenton and Millersville, Maryland. As of December 31, 2006, CN Bancorp had assets of approximately $160.8 million, total loans of approximately $100 million, total deposits of approximately $138.7 million, and total stockholders’ equity of approximately $20.7 million.

 

CNB’s principal executive offices are located at 7401 Ritchie Highway, Glen Burnie, Maryland 21060 and its telephone number is (410) 760-7000. County National’s common stock is quoted on the OTC Bulletin Board under the symbol “CNBE.”

 

Detailed information about the business and results of operations of CNB and County National is included in CNB’s Annual Report on Form 10-KSB for the year ended December 31, 2006, which is attached to this proxy statement/prospectus as Appendix D.

THE MERGER

 

General

 

The merger agreement provides for the merger of CNB with and into Bancorp, with Bancorp surviving the merger.

 

We have attached a copy of the merger agreement, as amended, as Appendix A to this proxy statement/prospectus. We urge you to read the merger agreement in its entirety because it is the legal document that governs the merger and the transactions contemplated thereby. In connection with the merger agreement, SSB, a wholly-owned subsidiary of Bancorp, and County National, a wholly-owned subsidiary of CNB, entered into a related agreement and plan of merger, under which County National will merge with and into SSB, with SSB surviving the bank merger. The bank merger will be consummated immediately after the consummation of the merger.

 

Background of and Reasons for the Merger; Recommendation of the CNB Board

 

Background of the Merger

 

Over the last several years, the board of directors of CNB has considered the future operations of CNB and County National, and the ability of CNB to maintain and increase stockholder value, particularly in light of the increasingly competitive market in which CNB and County National operate, and the advancing age of the founding management and directors of CNB and County National.

 

At a strategic planning session in late 2004, management and the board of directors of CNB determined that a path of continued independence, with an emphasis on efforts to continue to increase earnings and to expand County National’s branch network, was the appropriate course to follow, as it would lead to enhanced stockholder value in the long term. The board of directors recognized, however, that CNB faced numerous challenges. Jan Clark, President and Chief Executive Officer of CNB, and John Warner, Executive Vice President and Chief Operating Officer of CNB, were at or nearing normal retirement age and a number of the members of the board of directors of CNB and County National were beyond normal retirement age. In addition, County National faced increasing competitive challenges from other institutions in and entering its market. The increased competition for deposits was causing unfavorable margin pressure. At the same time, the increased compliance requirements of the Sarbanes-Oxley Act were expected to increase legal and accounting expenses for CNB.

 

In the fall of 2005, a banking market analyst included CNB on a list of companies which appeared to be likely merger candidates. Soon thereafter, CNB began receiving unsolicited contacts from other institutions and investors, inquiring about CNB’s interest in discussing a potential transaction with another institution. As a result of the interest expressed and the increasing competition for loans and deposits, the board of directors determined that it would be in the best interests of CNB, its stockholders and the other constituencies served by CNB and County National to investigate a potential sale.

 

During late 2005 through spring 2006, Mr. Clark, on behalf of CNB, held a series of discussions with representatives of a number of institutions regarding a potential transaction involving CNB. The discussions involved a number of alternatives, including the potential acquisition of CNB by a third party and potential “merger of equals” transactions. None of the discussions relating to potential mergers of equals resulted in an acceptably priced or structured transaction. Three of the discussions related to the acquisition of CNB resulted in preliminary indications of interest at prices of $19.00, $21.00 and $23.50 per share. As a result of the inadequate level of consideration and/or structural issues relating to the proposed transaction, none of these discussions relating to the $19.00 and $21.00 per share proposals proceeded to due diligence or negotiation of a definitive agreement.

 

During the spring and summer of 2006, CNB permitted due diligence investigations by the party offering $23.50 per share, and succeeded in negotiating an increase in the offered consideration to $24.00 per share. However, the parties were unable to agree on certain structural and management issues regarding the proposed transaction, and the board of directors terminated negotiations in early September 2006.

In August 2006, Mr. Clark was contacted by a representative of Bancorp who was known to CNB because of his former employment with one of County National’s correspondent banks. He inquired into CNB’s interest in discussing a merger transaction with Bancorp. After conferring with members of the CNB board of directors, Mr. Clark met with Hunter Hollar, President and Chief Executive Officer of Bancorp and SSB, on September 8, 2006, to discuss Bancorp’s interest in acquiring CNB, and to discuss the possible terms of a transaction. This discussion was followed by a letter from Bancorp, dated September 13, 2006, reflecting Bancorp’s non-binding expression of interest, which outlined the basic terms of a proposed merger between Bancorp and CNB.

 

On September 18, 2006 the board of directors of CNB met to discuss the indication of interest and summary of terms. SSB, as an established, successful community bank operating in and around the market in which County National operates, was well known to Mr. Clark and some of the members of the CNB and County National boards of directors. The board of directors of CNB believed that there were positive cultural similarities between County National and SSB and that an affiliation with SSB would provide: (i) excellent opportunities for most of the employees of County National; (ii) enhanced services and banking opportunities for the customers and communities served by County National; and (iii) an increase in value to the CNB stockholders. Following a discussion of the merits of the indication of interest, the reputation of Bancorp, and its merits as a potential acquiror, the CNB board of directors authorized Mr. Clark to enter into discussions toward a definitive agreement exclusively with Bancorp, and authorized Bancorp to conduct due diligence. On September 19, 2006, Bancorp and CNB entered into an exclusivity agreement, pursuant to which CNB agreed not engage in any negotiations or discussions with any third party regarding an acquisition transaction involving CNB or County National for a period of 45 days, as well as a confidentiality agreement. CNB proceeded to provide copies of documents for Bancorp’s due diligence review.

 

On September 28, 2006, Mr. Clark met with representatives of Kennedy & Baris, L.L.P. (“Kennedy & Baris”), which had been retained as special legal counsel to represent CNB in its negotiations with Bancorp, to review the terms of the proposed transaction. During October 2006, Bancorp continued its due diligence investigation, and representatives of CNB, Kennedy & Baris and Sandler O’Neill, conducted a due diligence investigation of Bancorp. Sandler O’Neill was retained to: (i) review the terms of the Bancorp expression of interest; (ii) provide appropriate materials to assist the board of directors in evaluating the potential transaction; and (iii) provide its opinion as to the fairness from a financial point of view of the consideration offered to stockholders in any transaction with Bancorp. Sandler O’Neill had previously been retained to provide similar services in connection with an earlier proposed transaction involving CNB. On November 1, 2006, CNB and Bancorp extended the term of the exclusivity agreement until November 17, 2006.

 

On November 3, 2006, CNB and its legal and financial advisors received the initial draft of the proposed definitive agreement. Counsel for CNB and Mr. Clark spoke frequently to discuss proposed revisions and additions to the draft agreement and delivered proposed changes to such agreement to Dickstein Shapiro LLP, counsel for Bancorp, on November 10, 2006. On November 15, 2006, the board of directors reviewed with Kennedy & Baris and Sandler O’Neill the initial draft of the agreement and the changes proposed by CNB.

 

Counsel to CNB led CNB’s board of directors in a discussion of the principal terms of the draft definitive agreement and the proposed changes, as well as the continuing conversations with Bancorp and its counsel. The directors of CNB discussed those issues which they believed required satisfactory changes, and other issues relating to employees and benefit plans which would have to be resolved, prior to execution of a definitive agreement. Counsel to CNB made a presentation on, and led CNB’s board of directors in a discussion of, the fiduciary obligations of the board.

 

At the November 15, 2006 meeting, a representative of Sandler O’Neill presented its analysis to date of the proposed transaction. The presentation reviewed, among other things, (i) the financial terms of the proposed transaction; (ii) Bancorp’s potential earnings and capital dilution resulting from the transaction; (iii) the pricing relative to certain comparable transactions; (iv) CNB’s historic and potential future performance given industry risks and risks peculiar to CNB; and (v) a historical analysis of Bancorp.

 

After a general discussion of the presentations, CNB’s board of directors directed Mr. Clark and Kennedy & Baris to continue discussions with Bancorp and its counsel in an effort to achieve the desired

changes, and to resolve other outstanding issues. On November 15, 2006, the term of the exclusivity agreement was extended until December 1, 2006.

 

After numerous discussions between counsel for CNB and counsel for Bancorp, counsel for Bancorp provided a revised draft of the definitive agreement on November 22, 2006. Over the course of the next four weeks, counsel to CNB, Mr. Clark and other members of management reviewed and discussed the November 22, 2006 draft of the definitive agreement, drafts of the other agreements to be executed in connection with the merger, proposed employment agreements for Mr. Clark and Mr. Warner, and the treatment of the supplemental retirement plans between CNB and certain senior management employees of CNB. Counsel to CNB, Mr. Clark and other members of management spoke frequently during the period through early December to discuss further proposed changes and Bancorp’s responses.

 

On December 13, 2006, the boards of directors of CNB and County National met in joint session to review with counsel and Sandler O’Neill a revised draft of the merger agreement. Counsel gave a presentation on the procedures carried out to date, the changes to the merger agreement since the November 15, 2006 meeting and the proposed resolution to the other issues noted by the CNB board of directors, and again reviewed with the CNB board of directors its fiduciary obligations. A representative of Sandler O’Neill reviewed its presentation and delivered its opinion that the consideration to be received in the transaction was fair from a financial point of view to CNB’s stockholders. Following extensive discussion, the board of directors of CNB unanimously approved the merger agreement and the merger and authorized Mr. Clark to execute the merger agreement on behalf of CNB. CNB and Bancorp exchanged signature pages to the merger agreement after the close of business on December 13, 2006.

 

In reaching the conclusion that the merger agreement and the merger are in the best interests of and advisable for CNB and its stockholders, and in approving the merger agreement and the merger, CNB’s board of directors considered and reviewed with management and CNB’s financial and legal advisors a number of factors, including the following:

 

 

 

 

 

The above discussion of the information and factors considered by CNB’s board of directors is not intended to be exhaustive, but indicates the material matters considered by CNB’s board of directors. In reaching its determination to approve the merger agreement and the merger, CNB’s board of directors did not quantify, rank or assign any relative or specific weight to, the foregoing factors, and individual directors may have considered various factors differently. CNB’s board of directors did not undertake to make any specific determination as to whether any factor, or particular aspect of any factor, supported or did not support its ultimate determination. Moreover, in considering the factors and information described above, individual directors may have given differing weights to different factors. CNB’s board of directors based its determination on the totality of the information presented.

 

Recommendation of CNB’s Board of Directors

 

CNB’s board of directors has unanimously approved the merger agreement and the merger and unanimously recommends that you vote “FOR” the merger agreement and the merger, and “FOR” the proposal, if necessary, to adjourn the special meeting to permit the further solicitation of proxies in the event there are not sufficient votes at the special meeting to approve the merger agreement and the merger.

 

Opinion of CNB’s Financial Advisor

 

By letter dated August 16, 2006 CNB retained Sandler O’Neill to act as its financial advisor in connection with a possible business combination with another financial institution. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

 

Sandler O’Neill acted as financial advisor to CNB in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the December 13, 2006 meeting at which CNB’s board considered and approved the merger and the merger agreement, Sandler O’Neill delivered to the board its oral opinion, subsequently confirmed in writing that, as of such date, the consideration to be received in the transaction was fair to CNB’s stockholders from a financial point of view. As a condition to CNB’s obligation to consummate the merger, Sandler O’Neill has updated its opinion by delivering to the board an updated opinion dated as of the date of this proxy statement/prospectus. In rendering its updated opinion, Sandler O’Neill confirmed the appropriateness of its reliance on the analyses used to render its earlier opinion by reviewing the assumptions upon which their analyses were based, performing procedures to update certain of their analyses and reviewing other factors considered in rendering its opinion. The full text of Sandler O’Neill’s updated opinion, is attached as Appendix B to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full opinion included as Appendix B. CNB stockholders are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to the board of CNB and is directed only to the fairness of the merger consideration to CNB stockholders from a financial point of view. It does not address the underlying business decision of CNB to engage in the merger or any other aspect of the merger and is not a recommendation to any CNB stockholder as to how such stockholder should vote at the special meeting with respect to the merger or any other matter.

 

In connection with rendering its December 13, 2006 opinion, Sandler O’Neill reviewed and considered, among other things:

 

 

Sandler O’Neill also discussed with certain members of senior management of CNB the business, financial condition, results of operations and prospects of Bancorp and held similar discussions with certain members of senior management of Bancorp regarding the business, financial condition and results of operations of Bancorp.

 

In performing its reviews and analyses and in rendering its opinion, Sandler O’Neill assumed and relied upon the accuracy and completeness of all the financial information, analyses and other information that was publicly available or otherwise provided to Sandler O’Neill by CNB and further relied on the assurances of management of CNB that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. Sandler O’Neill was not asked to and did not independently verify the accuracy or completeness of any such information and they did not assume any responsibility or liability for the accuracy or completeness of any such information. Sandler O’Neill did not make an independent evaluation or appraisal of the assets, the collateral securing assets or the liabilities, contingent or otherwise, of CNB or Bancorp or any of their respective subsidiaries, or the collectibility of any such assets, nor was it furnished with any such evaluations or appraisals. Sandler O’Neill is not an expert in the evaluation of allowances for loan losses and it did not make an independent evaluation of the adequacy of the allowance for loan losses of CNB or Bancorp, nor did it review any individual credit files relating to CNB or Bancorp. With CNB’s consent,

Sandler O’Neill assumed that the respective allowances for loan losses for both CNB and Bancorp were adequate to cover such losses.

 

Sandler O’Neill’s opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of its opinion. Sandler O’Neill assumed, in all respects material to its analysis, that all of the representations and warranties contained in the merger agreement and all related agreements are true and correct, that each party to such agreements will perform all of the covenants required to be performed by such party under such agreements and that the conditions precedent in the merger agreement are not waived. Sandler O’Neill also assumed, with CNB’s consent, that there has been no material change in CNB’s and Bancorp’s assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to it that CNB and Bancorp will remain as going concerns for all periods relevant to its analyses, and that the merger will qualify as a tax-free reorganization for United States federal income tax purposes. Finally, with CNB’s consent, Sandler O’Neill relied upon the advice that CNB received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement.

 

In rendering its December 13, 2006 opinion, Sandler O’Neill performed a variety of financial analyses. The following is a summary of the material analyses performed by Sandler O’Neill, but is not a complete description of all the analyses underlying Sandler O’Neill’s opinion. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to CNB or Bancorp and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of CNB or Bancorp and the companies to which they are being compared, which were used in Sandler O’Neill’s analyses.

 

The internal projections and estimated growth rates for CNB for the years ended December 31, 2006 and 2007 as used by Sandler O’Neill in its analysis were provided by and discussed with senior management of CNB. The consensus earnings projections used and relied upon by Sandler O’Neill in its analyses were the publicly available estimates for Bancorp as published by I/B/E/S, which were reviewed with management of Bancorp. Sandler O’Neill expressed no opinion as to such financial estimates and projections or the assumptions on which they were based. These estimates and projections, as well as all other estimates used by Sandler O’Neill in its analyses, were based on numerous variables and assumptions which are inherently uncertain and, accordingly, actual results could vary materially from those set forth in such estimates and projections.

 

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of CNB, Bancorp and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the CNB board at its December 13, 2006 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of CNB’s common stock or Bancorp’s common stock or the prices at which CNB’s or Bancorp’s common stock may be sold at any time.

Summary of Proposal.  Sandler O’Neill reviewed the financial terms of the proposed transaction. Under the terms of the merger agreement, each share of CNB common stock, par value $10.00 per share, issued and outstanding immediately prior to the merger, other than dissenters’ shares, the holders of which have perfected such rights in the manner set forth in the merger agreement, will be converted into the right to receive (a) cash in an amount equal to $25.00 per share, without interest or (b) 0.6657 of a share of common stock, par value $1.00 per share, of Bancorp, subject to the election and proration procedures set forth in the merger agreement. Based upon per-share financial information for CNB for the twelve months ended September 30, 2006, Sandler O’Neill calculated the following ratios:

 

 

 

 

The aggregate offer value was approximately $44.1 million, based upon 1,728,011 shares of CNB common stock outstanding and including the intrinsic value of options to purchase an aggregate of 97,500 shares with a weighted average strike price of $14.36 per share. Sandler O’Neill noted that the transaction value represented a 55.8% premium over the December 8, 2006 closing value of CNB’s publicly traded common stock.

 

Stock Trading History.  Sandler O’Neill reviewed the history of the reported trading prices and volume of CNB’s and Bancorp’s common stock for the one-year and three-year periods ended December 8, 2006. As described below, Sandler O’Neill then compared the relationship between the movements in the prices of CNB’s and Bancorp’s common stock to movements in the prices of the NASDAQ Bank Index, the S&P 500 Index, and the S&P Bank Index. During the one-year period ended December 8, 2006, CNB outperformed each of the indices to which it was compared; during the three-year period ended December 8, 2006, CNB underperformed each of the indices to which it was compared.

 

 

 

During the one-year and three-year periods ended December 8, 2006, Bancorp underperformed each of the indices to which it was compared.

 

 

 

Comparable Company Analysis.  Sandler O’Neill used publicly available information to compare selected financial and market trading information of CNB and Bancorp with groups of financial institutions as selected by Sandler O’Neill. The CNB Regional Peer Group consisted of the following publicly traded regional banking institutions located in Maryland, Virginia or Washington D.C., each having assets between $125 million and $175 million as of their most recent regulatory filing and excluding banks for which adequate financial data was not available:

 

Regional Comparable Group

 

The analysis compared publicly available financial information for CNB as of and for the twelve months ended September 30, 2006 with that of the CNB Regional Peer Group as of and for the twelve month period ended June 30, 2006 or September 30, 2006, depending on the date of their most recent regulatory filing. The table below sets forth the data for CNB and the median data for the CNB Regional Peer Group, with pricing data as of December 8, 2006.

 

 

Sandler O’Neill also used publicly available information to compare selected financial and market trading information for Bancorp. The Bancorp Peer Group consisted of publicly traded regional banking institutions

located in Virginia, Maryland or Washington D.C. with total assets greater than $1 billion and excluding those banks for which adequate financial information was not available:

 

Regional Comparable Group

 

The analysis compared publicly available financial information for Bancorp with that of each of the companies in the Bancorp Peer Group as of and for the twelve months ended September 30, 2006. The table below sets forth the data for Bancorp and the median data for the Bancorp peer group, with pricing data as of December 8, 2006.

 

 

Analysis of Selected Merger Transactions.  Sandler O’Neill reviewed the following three (3) categories of transactions in its analysis of precedent transactions: 1) 97 nationwide bank transactions announced between January 1, 2006 and December 8, 2006 with transaction values between $10 million — $100 million, 2) eleven (11) District of Columbia, Maryland and Virginia regional transactions announced between January 1, 2004 and December 8, 2006 with transaction values between $10 million — $1 billion and 3) 41 nationwide bank transactions announced between January 1, 2006 and December 8, 2006 with target tangible equity / tangible assets greater than 10%. Sandler O’Neill reviewed the multiples of transaction price at announcement to last twelve months’ earnings, transaction price to tangible book value, tangible book premium to core deposits, and premium to market value. The median multiples from these three (3) groups were compared to the proposed transaction ratios.

 

 

 

 

Net Present Value Analysis.  Sandler O’Neill performed an analysis that estimated the projected earnings of CNB through December 31, 2008 under various circumstances, assuming CNB performed in accordance with the earnings and growth projections reviewed with and confirmed by management of CNB. As illustrated in the following tables, this analysis indicated an imputed range of values per share for CNB’s common stock

of $9.37 to $16.05 when applying the price to earnings multiples to the matched discount rates and $7.34 to $18.87 when applying the price to earnings multiples and a 15.33% discount rate to the -25% / +25% variance above the base case earnings per share projections.

 

 

With Projected Net Income Variance:

 

 

In connection with its analyses, Sandler O’Neill considered and discussed with the CNB board of directors how the projected earnings analyses would be affected by changes in the underlying assumptions, including variations with respect to net income. Sandler O’Neill noted that the projected earnings model is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

 

Sandler O’Neill performed an analysis that estimated the projected earnings of Bancorp through December 31, 2008 under various circumstances, assuming Bancorp performed in accordance with the earnings and growth projections as published by I/B/E/S reviewed with management of Bancorp. As illustrated in the following tables, this analysis indicated an imputed range of values per share for Bancorp’s common stock of $28.93 to $38.90 when applying the price to earnings multiples to the matched discount rates and $23.00 to $46.30 when applying the price to earnings multiples and a 13.43% discount rate to the -25% / +25% variance above the base case earnings per share projections.

 

With Projected Net Income Variance:

 

 

In connection with its analyses, Sandler O’Neill considered and discussed with the CNB board of directors how the projected earnings analyses would be affected by changes in the underlying assumptions, including variations with respect to net income. Sandler O’Neill noted that the projected earnings model is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

 

Pro Forma Merger Analysis.  Sandler O’Neill analyzed certain potential pro forma effects of the merger, assuming the following: (1) the merger closes on March 31, 2007; (2) each share of CNB common stock would be converted into $12.50 cash plus the product of 0.3482 times the Bancorp closing price; (3) Bancorp will liquidate CNB securities to fund a portion of purchase price; (4) 3.5% core deposit intangible amortized on a straight-line basis over 8 years; (5) restructuring charges of $205,000 pre-tax securities mark and $1,239,000 pre-tax contract and other one-time charges; (6) 5.1% opportunity cost of cash; and (7) CNB options are exchanged for Bancorp options.

 

Based upon those assumptions, Sandler O’Neill’s analysis indicated that during the years ended December 31, 2007, December 31, 2008 and December 31, 2009, the merger would be accretive to Bancorp’s earnings per share in all years.

 

From the perspective of a CNB stockholder, the analysis indicated that at the years ended December 31, 2007, December 31, 2008 and December 31, 2009, the merger would be accretive to CNB’s earnings per share in all years. The actual results achieved by the combined company may vary from projected results and the variations may be material.

 

Sandler O’Neill Relationship.  CNB has agreed to pay Sandler O’Neill an opinion fee of $75,000 in cash at the time the opinion is rendered. CNB has also agreed to reimburse certain of Sandler O’Neill’s reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents, and controlling persons against certain expenses and liabilities, including liabilities under securities laws.

 

In the ordinary course of its business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to CNB and Bancorp and their affiliates. Sandler O’Neill may also actively trade the debt or equity securities of CNB and/or Bancorp or their affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

Accounting Treatment

 

Bancorp will account for the merger as a purchase, as that term is used under accounting principles generally accepted in the United States, for accounting and financial reporting purposes. Under purchase accounting, the assets and liabilities of CNB as of the effective time of the merger will be recorded at their respective fair values and added to those of Bancorp. The amount by which the purchase price paid by Bancorp exceeds the fair value of the net tangible and identifiable intangible assets acquired by Bancorp

through the merger will be recorded as goodwill. Financial statements of Bancorp issued after the effective time of the merger will reflect the values of such CNB assets and will not be restated retroactively to reflect the historical financial position or results of operations of CNB. A comparison of the most recent annual financial statements of Bancorp and CNB indicates that Bancorp’s investment in CNB will represent less than 10% of Bancorp’s assets.

 

Source of Financing

 

Bancorp expects to finance the cash portion of the merger consideration through the use of cash on hand and through funds received as a dividend from SSB of its undistributed profits prior to the bank merger.

 

Regulatory Approvals Required for the Merger

 

Bancorp and CNB have agreed to use their best efforts to obtain all regulatory approvals required to consummate the transactions contemplated by the merger agreement, including the merger and the bank merger, which include the approval of the Board of Governors of the Federal Reserve System and the Maryland Commissioner of Financial Regulation. Bancorp and CNB have also agreed to the provision of notice and the fulfillment of customary conditions imposed by the OCC in connection with the mergers. Neither the merger nor the bank merger can proceed without these regulatory approvals and notices and Bancorp and CNB have made applications and other filings for the purpose of obtaining such approvals and providing such notices. It is presently contemplated that if any additional governmental approvals or actions are required, such approvals or actions will be sought. Although Bancorp and CNB expect to obtain all necessary regulatory approvals, there can be no assurance as to if and when these regulatory approvals will be obtained, or whether a regulatory agency with jurisdiction over Bancorp, SSB, CNB or County National will impose conditions upon the parties before providing their approval. There can likewise be no assurance that the United States Department of Justice or any state attorney general will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, there can be no assurance as to its result.

 

A governmental authority’s approval may contain terms or impose conditions or restrictions relating or applying to, or requiring changes in or limitations on, the operation or ownership of any asset or business of Bancorp, CNB or any of their respective subsidiaries, or Bancorp’s ownership of CNB, or requiring asset divestitures. It is a condition to Bancorp’s obligation to consummate the merger that all governmental approvals are granted without the imposition of any condition that, in the reasonable judgment of Bancorp, is likely to have, among other things, a material adverse effect on CNB or Bancorp. We can provide no assurance that the required regulatory approvals will be obtained on terms that satisfy the conditions to the closing of the merger or within the time frame contemplated by Bancorp and CNB. See “The Merger Agreement — Conditions to the Completion of the Merger” on page 50.

 

Material United States Federal Income Tax Consequences

 

General

 

The following general discussion summarizes the anticipated material United States federal income tax consequences of the merger generally applicable to the CNB stockholders who exchange their CNB common stock for common stock of Bancorp and/or cash in the merger.

 

This discussion addresses only such CNB stockholders who hold their shares of CNB common stock as a capital asset and does not address all of the United States federal income tax consequences that may be relevant to particular stockholders in light of their particular circumstances or to stockholders who are subject to special rules, such as, without limitation: