Ronald E. Kuykendall - EVP, General Counsel and Secretary Daniel J. Schrider - President and Chief Executive Officer Philip J. Mantua – EVP and Chief Financial Officer.

Catherine Mealor - Keefe, Bruyette & Woods, Inc. Bryce W. Rowe - Robert W. Baird & Co. Matthew C. Schultheis - Boenning & Scattergood, Inc. William J. Wallace - Raymond James & Associates, Inc..

Good day everyone and welcome to the Sandy Spring Bancorp Incorporated Earnings Conference Call and Webcast for the Fourth Quarter of 2014. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.

[Operator Instructions] Please also note that today’s event is being recorded. At this time, I would like to turn the conference call over to Mr. Daniel J. Schrider, President and CEO. Sir, please go ahead..

Thank you Jamie and good afternoon everyone. Thank you for joining us for Sandy Spring Bancorp’s conference call to discuss our performance for the fourth quarter of 2014 and the full-year just ended.

This is Dan Schrider speaking and I’m joined here today by Phil Mantua, our Chief Financial Officer; and Ron Kuykendall, General Counsel for Sandy Spring Bancorp.

As is normally the case, today’s call is open to all investors, analysts and the news media, and there will be a live webcast of today’s call, as well as a replay of the call available at our website beginning later today. A technical setback on part delayed distribution of today’s press release by approximately two hours.

I know that may of your rely on those to prepare for our call and prepare your questions. So I apologize for any inconvenience that’s caused and we are very happy to answer any questions you might have either today on the call or after, but before we get started, Ron will cover the customary Safe Harbor statement..

Thank you, Dan and good afternoon ladies and gentlemen. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risk and uncertainties.

These forward-looking statements include statements of goals, intentions, earnings and other expectations, estimates of risks and future costs and benefits, assessments of probable loan and lease losses, assessments of market risk and statements of the ability to achieve financial and other goals.

These forward-looking statements are subject to significant uncertainties, because they are based upon or affected by management’s estimates and projections of future interest rates, market behavior and other economic conditions, future laws and regulations and a variety of other matters which by their very nature are subject to significant uncertainties.

Because of these uncertainties, Sandy Spring Bancorp’s actual future results may differ materially from those indicated. In addition, the Company’s past results of operations do not necessarily indicate its future results..

bank M&A, non-bank M&A, dividend payouts and share repurchases. We continue to be successful in expanding our team by adding to our existing competencies. For example, new talent in our Wealth Management businesses, enhancing our financial planning and portfolio management capabilities.

We hired additional mortgage originators to expand our presence in key markets within our geography, and finally our credit quality metrics remain strong with a solid allowance, excellent NPA coverage and a nice reduction in non-performing loans.

These areas that I have just highlighted represents some of the core elements of our strategies and performance that cause us to optimistic as we continue in 2015.

And now I would like to give you some more details on the items that specifically impacted our earnings miss in the fourth quarter and if there are additional questions, Phil and I will be glad to address them. First, we experienced heightened EFT Fraud losses which peaked and subsided within the fourth quarter.

Second, branch closing expenses impacted the fourth quarter and we're about equal year-over-year to similar expenses in the fourth quarter of 2013. Third, the non-recurring overlap of occupancy cost in the fourth quarter related to the new Columbia Center I mentioned earlier.

Fourth, there was a one time accounts receivable write-off in the insurance subsidiary during the fourth quarter and last impacting our earning for the year and as reported previously was a $6.5 million in unexpected litigation expense that continues to accrue interest as we work through the appeal process.

We remain optimistic regarding the positive outcome and know it will be a slow drawn out process. Our press release dated May 16, 2014 provides more detail on the case.

All-in-all the after tax EPS impact of these items is estimated as $0.06 for the fourth quarter of 2014 and $0.22 for the year and hopefully that provides the needed detail to appreciate our core performance.

So with the impact of the aforementioned expenses behind us the momentum of the balance loan and core deposit growth, continued success in wealth management and other fee-based business lines, the quality of our team of experienced bankers and multiple initiatives creating remarkable client experiences, we are well positioned for a bright future as a premier community bank in one of the nation’s most attractive markets.

That concludes my comments for today and we will now move to your questions..

Ladies and gentlemen at this time we’ll begin the question-and-answer session. [Operator Instructions] And our first question comes from Catherine Mealor from KBW. Please go ahead with your question. Ms. Mealor your line is open.

It is possible your phone is on mute?.

Yes, I was on mute. Sorry about that. Good afternoon everyone..

Hi, Catherine..

Hi, Catherine..

Sorry, I was just talking away.

Dan, can you talk a little bit about the insurance line as well and remind us of the typical seasonality that we may see in that line?.

Catherine this is Phil. There is no question that there is some seasonality in that business and that would normally include the fourth quarter as well as some seasonality in the first quarter which will be upon us here in the next couple of months.

The first quarter usually had some of that primarily due to the receipt of contingency based income from the carriers and the fourth quarter normally had some seasonality in our physicians’ liability type insurance which actually is to more - normally to the – more to the accretive side than what we had here.

But as part of our accounts receivable work we also looked at some of our revenue recognition efforts that take place through the subsidiary and some of that income that were normally received by the end of the December is actually going to fall into the first part of January and therefore make the first quarter even that much different than it might have in the past.

So those are the places that we normally see that, but on balance we normally have somewhere between $4.5 million or $5 million of revenue annually and look for their growth rate in that part of the business to be low double-digits year-over-year..

Okay, thank you, that’s helpful. And then Dan, appreciate your commentary around the expenses and just wanted to ask about one of those line items that you talked about in the occupancy expense.

So it looks like that came up just because of the double occupancy expense with the Columbia center, so backing that out is that - will we fall back to those kind of similar occupancy run rate that we’ve seen in the front half of the year around $3.2 million $3.3 million or – go ahead..

I am sorry..

No, just go ahead, go ahead..

No, Catherine finish I’m sorry I jumped in on you..

Yes, I was just going to say a word should we see growth from there, from the new Bethesda office and some of the hires that you talked about too?.

Okay, yes, this is Phil again, if you didn’t already know from my jump in there. In that number in the fourth quarter is the combination of the rent expense that we incurred by virtue of technically having occupied both facilities and that’s worth about $400,000 in the quarter.

And then there is also in that delta from the third quarter some of the costs for when we close the branches that Dan referred to in his opening remarks. So the majority of that I think that’s 800 and some odd thousand dollar variances is going to add back and not reoccur.

There is some incremental occupancy cost from the change in the Bethesda operations between the branch we left and the financial service center that we are occupying. It is not going to materially change that number here right away, but it will – there will be some increase..

Our next question comes from Bryce Rowe from Robert W. Baird..

Thanks, good afternoon.

I think Catherine covered my questions about the expenses - the non-core expenses, just wanted to also touch on maybe some of the pricing on the loan side, obviously in a handful of the loan portfolio buckets we saw some good growth especially from an average perspective and we saw loan pricing go down particularly in the construction and development bucket, the commercial real estate non-owner occupied bucket and the C&I bucket, so just trying to get a feel for what do you expect from those loan segments going forward from a pricing and growth perspective..

Yes, Bryce, this is Dan. I’ll probably – I’ll comment more on the growth I know Phil is digging out some of the pricing information. We’re really pleased with obviously with the growth that we achieved in 2014 as a whole, which lines up with kind of the way we were commenting on the year.

And in fact fourth quarter, obviously ended up being pretty darn strong towards the end of the quarter. And in our outlook in those buckets it continues to be I mean it’s still difficult economy but we are proving that we can win our fair share of business which still is often times stealing business to continue the growth that we are seeing.

I wouldn’t apply the fourth quarter growth rate necessarily across the 2015, but you know that double-digit loan growth is still something we think we can achieve, and I think it’s important as I commented to realize that we’re not stepping outside of our credit box or our credit appetite to achieve that..

,:.

Yes, Bryce in terms of, a little bit of granularity there but without getting into too much detail I mean our current overall commercial loan portfolio yields about 4.74, 4.75 and the majority on kind of a blended average basis that was booked in the overall commercial portfolio during the fourth quarter was more like 4.45 to maybe 4.50.

So just within the commercial loan book certainly there is still some compression to be had on a portfolio average versus current production rate basis.

I think though that, what we also recognize though in terms of our overall margin which is part of that where we want get to an answer too is that the stability there - the expansion related to that, though is again that the pickup from no longer being is depended on the investment portfolio yield that’s more like 3.00 to 3.05 and even picking up 4.45 or 4.50 in the loan portfolio.

So the yields within some of those specific categories are on both sides of the average as you might imagine with maybe one or two category exceptions though, we're still looking at current production yields that are less than the yields of which are most likely going to continue to roll down and so that’s probably the best way to view the yield within commercial portfolio itself and also within the context of a broader margin..

Great, that’s helpful and I think last time Phil you guys talked about the securities portfolio being a source of liquidity and with the potential for it to trade down to maybe 15% of assets overtime.

Is that still a pretty good target for us to think about?.

I don’t think there is any question about that yes, and we’ve made some progress here as we got through the – to that end to the end of the year, I mean investment portfolio at year was down to 21%, it could certainly be lower, but as we’ve discussed before we’ve chosen to take advantage of the interest rate environment and continue to use some short-term home loan bank funding and allow us to even maintain some of that 3% yield for the time being and based on some of the timing with some of the loan growth during the quarter you may also recognize that the year-end position of the home loan bank advance is elevated from other times during the year, not terribly different than what happened at the end of last year as well and we slowly migrate down some of the excess as is possible through either deposit growth or other changes on the asset side..

Great that’s helpful. Thank you..

You are welcome..

Thanks Bryce..

Our next question comes from Matthew Schultheis from Boenning. Please go ahead with your question..

Hi good afternoon..

Good afternoon Matt..

Hey Matt..

A couple of really quick question and I’m sorry if I missed some of this during the prepared remarks or even answering some of the questions, but your other income decreased linked quarter fairly substantially below what the long-term run rate is for that usually.

What explains that?.

Matt Phil again, a couple of things, one other thing that’s in that category during this quarter is the way that we account for the disposition of fixed assets that might be involved in the branch closures, we just met a gain or loss on to the other income side of the equation and there is about $225,000 worth of that that brings that category down from prior quarters or even the fourth quarter of last year, so that’s one aspect of it.

The other thing is and we’ve just been fortunate in some of these other areas throughout the year in that category by its nature as we run things like prepayment fees that we collect as loans get extinguished earlier whatever and they’ve been – we’ve actually had a fair amount of that in prior quarter as we did not have it in any great degree in the fourth quarter.

And then the other thing it runs through there that is bounces around is any success we have with the gain on the sale of SBA loans.

So to kind of more directly answer your question, I think a reasonable level in that category on average loan balance is more like $1.4 million not maybe a $1.7 million like it has been another times and certainly not $1 million like it is in this quarter, but kind of right square in the middle of that range..

And then moving into this $1.1 million in non-recurring expense for bankcard losses and adjustments to insurance receivables.

How much of that is tied to the fraud losses that you talked about and related to that should we be viewing fraud losses not just for Sandy Spring, but for maybe everybody will follow as an ongoing operating expense given the in terms of nature of how people are using their cards and exposure to cyber security issues and things of that nature?.

Matt, this is Dan that category was from a breakdown of first part of this question..

Yes, first part of your question, answer to first part of your question is in the quarter Matt, it’s about half of each about 500,000 to 550,000 a piece in terms of the mix of that number..

Yes, I think the later part of your question, the short answer Matt is yes, I think it is a well what occurred, we certainly don’t expect what occurred in the fourth quarter the absolute level that we experienced would be typical, but I think it’s the nature of the business today and even more so the result affected there has been no resolution to reaches our retailers and the ultimate liability that’s falling to financial institutions.

So I know that something congress is working on later in 2015, October specifically is when the EMV card mandate comes into play which we are actually prepared to do around midyear and which will impact some of it, but not all of it. So I think it’s a nature of the business right now..

Okay. Thank you very much..

You’re welcome..

Thank you, Matt..

[Operator Instructions] Our next question comes from William Wallace from Raymond James..

Good afternoon, gentlemen..

Hi, Walli..

Phil, maybe expanding a little bit on some of Bryce’s questions.

If you kind of put it all together it sounds like your budget is for low double-digit loan growth some continued funding of that growth [out of your] core securities portfolio with pressure from loan yields just given the competitive environment, which is kind of just put it all together what is your expectation for the movement in margin in 2015?.

I would suggest that we think it’s fairly overall not taking into consideration what the Fed might do which is always continues to be a wildcard or even trying not to prognosticate on the long end and which direction it might go on to just based on the things that you suggested we think that means if that margins fairly stable..

Okay, and if I look at your reserves you’ve had some pretty good loan growth in the past couple of years and you’ve really been leading the reserves just as from a reserves to loan perspective..

Yes..

I know you have to weigh the requirements for GAAP versus what the regulators are telling you what’s the level if we think about your reserve to loans as a ratio, what’s the level that you guess think you wouldn’t be comfortable crossing low?.

Yes, Walli, this is Dan, I think the obviously you’ve recognized kind of this trend we’ve been through fourth quarter we did have some provision expense and I think as you move into 2015 we are at – we are gotten near that bottom on the reserve to loans and so our expectation would be that would travel in that 120s band, again still methodology driven, but to your point of kind of our comfort level we are pretty close to where we think provisions would increase most likely we actually talked last year we kind of expected that the way loan growth in the way resolutions came in we just didn’t see it materialize, so it stood on our quarter-by-quarter basis..

Yes, and I might add to that Walli a little bit below the surfaces that we are getting the point where our NPA levels are that there is not a lot of specific reserve left in that reserve to be released on a loan-by-loan basis if based on the way the accounting works.

So that’s part of how we released in the past as when we have these specific transactions or whatever and then we don’t have the need for that as we exit those credits that’s where the releases have come from for the most part..

Okay, thanks.

And then my last question just shifting gears a little bit maybe you can just give us a little bit of color about what happened with that insurance accounts receivable that cost you in the quarter?.

Yes, this is - it is basically an analysis of our aging within the receivables in the agency and determining that based on the practice of when receivables are flowing through there versus the aging of the balance itself.

We just deem that there is likely some of that that was uncollectible and decided to adjust and deal with that here in the fourth quarter of the year. So something we looked at for a while and then finally came to the conclusion that we needed to write-off a portion of it..

So, this is multiple receivables. Dan..

Yes, this is something that probably a little bit of the time over a period of off time kind of built its way through to a balance that was probably greater than it really should have been and so we’ve recognized that here maybe adjustment.

And it does not have any bearing on future collections or future cash flows that are related to the revenue stream it’s just something that we thought we needed to address looking back over time..

Okay. Thanks Phil, Dan. Appreciate your time..

Thanks, Walli..

You’re welcome..

[Operator Instructions] And sir at this time, I am showing no additional questions. I’d like turn the conference call back over for any closing remarks..

All right. Thank you Jamie and thank you all for participating with us this afternoon, we value that and we want to remind you that we’d appreciate receiving your feedback to help us evaluate the effectiveness of our call. You can e-mail your comments at ir@sandyspringbank.com. Thanks again, and have a great afternoon..

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your telephone lines..