Dan Schrider - President and CEO Phil Mantua - Chief Financial Officer Don Schuster - Senior Corporate Counsel.

David Bishop - Drexel Hamilton Matt Schultheis - Boenning Catherine Miller - KBW.

Good day. And welcome to the Sandy Spring Bancorp, Incorporated Earnings Conference Call and Webcast for the Second Quarter of 2015. 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 note this event is being recorded.

I would now like to turn the conference over to President and CEO Daniel J. Schrider. Please go ahead..

Thanks, Cassia and good afternoon, everyone. And welcome to Sandy Spring Bancorp’s conference call to discuss our performance for the second quarter of 2015. This is Dan Schrider speaking and I am joined here today by Phil Mantua, our Chief Financial Officer; and Don Schuster, Senior Corporate Counsel for Sandy Spring Bancorp.

As always 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 on today.

We will take your questions after a brief review of some key highlights, but before we get started, Don will give the customary Safe Harbor statement.

Don?.

Thanks, Dan. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks 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..

Thanks, Don. Today as usual, we’ll move to your questions immediately after I make some brief remarks. Overall, we produced another respectable quarter in the first half of 2015. As I have repeated previously, we continue to show balanced results and a very highly competitive market place.

Our stock price has advanced to over 18% year-over-year, which suggests investors appreciate the quality of our business model as well as our consistent performance. Here’s just a quick rundown of the main highlights when they are released with a bit of added color where appropriate.

Net income for the second quarter of 2015 was $10.3 million or $0.42 per diluted share compared to net income of $7 million or $0.28 per diluted share for the second quarter of 2014 and an income of $11.2 million or $0.45 per share for the first quarter of 2015.

For the six months ended June 30, 2015, net income was $21.6 million or $0.87 per diluted share compared to net income of $17.9 million or $0.71 per diluted share for the same period of the prior year.

Second quarter results were driven by the ongoing momentum that we developed in the first quarter and that is net interest income from a larger loan portfolio was healthy and revenue from mortgage banking and wealth management was also strong.

On a linked quarter basis, there was balanced growth in each loan portfolio with commercial loans growing a strong 16% during the quarter. Deposit growth was also very healthy. Combined non-interest bearing and interest bearing transaction balances increased 11% to $1.6 billion at quarter end compared to $1.5 billion a year ago.

On a side note, on the deposit gathering front we are seeing success so far this year and re-emphasizing time deposits and are seeing a resurgence of CDs for the first time in many years, but just as a frame of reference, however, while CD balances are up 10% or $44 million year-to-date they still only represent 15% of total deposits.

We’re using periodic rate specials at varied terms, some increased advertising and importantly effective salesmanship throughout our branch network. We are also very focused on driving time deposit growth within the context of full banking relationships as opposed to the one off single service product.

Total noninterest-bearing deposits, they are up to nearly 34% of total deposits now and we’ve seen nice growth in deposits coming from the small business sector and so with our on-going loan growth and the healthy deposit story, the deposit story is certainly welcome on the funding side and is a key element of our strategy.

Another significant strategic priority that we’ve been reporting on for some time now revolves around what we call the Sandy Spring client experience.

The proof that all the work we’ve been doing to create an outstanding focus in this area with tangible results is the global recognition we recently earned for a unique companywide initiative to improve the client experience.

The International Customer Experience Professionals Association or CXPA, named Sandy Spring Bank a 2015 CX innovation award winner for a coordinated approach to engaging our nearly 730 employees on ways to better serve clients and one another. Five years ago, we made a commitment to put the client at the very center of every business decision.

And it sounds simple in theory, but we knew that putting it into practice would require extensive education and a cultural transformation.

In 2010, we cast a new vision and launched our client experience initiative which engages every employee through monthly meetings, routine trainings and a constant companywide dialogue all to maintain a sustainable client focus culture.

Bank clients have also participated in discussions with senior leadership and provide us valuable feedback about the issues that matter most to them. We were specifically recognized by CXPA for its training -- for our training initiative called "Meeting in a Box”. Each month employees discuss a designated topic and learn by using a common language.

Managers across every division of our company facilitate these activities which gives them the opportunity to relate the issues at hand to their employee’s roles within the bank. This is a synchronized hub and spokes model, so we are all connected in our efforts to improve the client experience.

And while educating our employees is important, we also hope to inspire ownership at every level of our company as we work towards being consistently remarkable as well as making a difference in the communities in which we operate.

In addition to Sandy Spring, Crowe Horvath LLP, John Deere, Optum and Western National Insurance Group were also recognized as innovation award winners. And these four companies are all far larger with far more geographic reach than our company and we are very pleased to join such an elite group.

Shifting gears, the margin met our ongoing expectations, remaining in the range between 3.4% and 3.45%. We believe that our margin will benefit from a rising short term rates that is executed in smaller controlled increments.

As mentioned in our release today, during the second quarter of 2015 we repurchased 224,103 shares as part of our existing share repurchase program. For the year-to-date, we have repurchased over 575,000 shares. Tangible common equity totaled $435 million at June 30, 2015 compared to $427 million at June 30, 2014.

The ratio of tangible common equity to tangible assets decreased to 9.84% at June 30, from 10.29% at June 30, of last year due primarily to the growth in assets and share repurchases. Dividends per common share were $0.44 per share for the first six months of 2015 compared to $0.36 per share for the first six months of 2014, a 22% increase.

At June 30, 2015, the Company had total risk-based capital ratio of 14.65%, a common equity tier 1 risk-based capital ratio of 12.53%, a tier 1 risk-based capital ratio of 13.54% and a tier 1 leverage ratio of 10.83%.

We are in a strong capital position in a great market and as we have said previously our deployment to strategy continues to include a focus mainly on organic growth along with strategic M&A activity, dividend payouts and share repurchases when prudent to do so. So that concludes my comments for today and we will now move to your questions.

Cassia, we can go ahead and start taking questions..

[Operator Instructions] The first question comes from David Bishop from Drexel Hamilton. Please go ahead..

Hey good morning gentlemen, how are you?.

Good afternoon, Dave how are you doing?.

Hi, Dave..

Hey not too bad, not too bad.

Hey quick question, you know noted that the strong growth on the loan side there you know across all the different you know various categories, just maybe give us an update in terms of economic environment you are seeing in some of your markets especially in sort of that Northern Virginia DC quarter just curious what you are seeing overall from an economic macro perspective?.

Yeah Dave, this is Dan.

I think the behavior of kind of the greater Washington Metro region whether it be inside the beltway [ph] in Maryland or around into Northern Virginia are pretty comparable in terms of economic stability where you know still room for improvement but yet as you can see from our numbers you know we’re still seeing pretty decent opportunities in this quarter you know a little more growth in the commercial sector which we think is a really good indication of economic activity another and that would go for our general market as well as Northern Virginia.

Another indicator which wasn’t part of your question, but really for the first time in I think the last two to three years we’ve seen an increase in line utilization on the commercial portfolio up from about 50% to 55% which is a pretty meaningful move and again typically an indication that the economy is heating up a bit..

Any signs of you know any early indications of any sort of imbalance there on the real estate side there from a supply demand or things are pretty well balanced from an equilibrium perspective..

You know with kind of in the world we play in which tends to be whether it’s retail, it’s small not big bucks stuff, kind of neighborhood centers in key elements of our market and it’s the same for us with office we’re not -- we have some office exposure, both owner occupied and for lease but we don’t play in a real, the big products so some of that for us has been most of the past couple of years has been on the refinance side, some liquidity coming off the sidelines and then more so this year we’ve seen some newer projects come along as well.

So I wouldn’t say that we see an imbalance, but we’re also not playing in kind of the large office market, which quite frankly we pay a close attention to just because of the migration of folks that are working at home, and the demand from large corporate users to not quite need quite as much space and what is the overall with studying, what’s the overall impact in that marketplace as it relates to that migration..

Got it.

And maybe you just update maybe in terms of loan pricing relative to last quarter what you’ve seen on that front, that’s another question?.

Really, staying -- we’re right in the same ballpark as we were last quarter. Not a lot of fluctuation at all..

Great. Thank you, guys..

Thanks, Dave..

Your next question comes from Matt Schultheis from Boenning. Please go ahead..

Good afternoon..

Hi, Matt..

Hi, Matt..

Couple of quick questions.

With regard to the increase in line utilization, what would you argue is historically your normal utilization level and what’s the peak level over the past few cycles?.

Yes. Matt, I don’t have a good number on that. I can tell you that what I do know is that when things started to deteriorate at the end of 2008 through 2009 you know and even into a bit 2010, that that fell off quite a bit. And what I don’t know is what it fell from. And I know that it hasn’t moved back to where it was.

But this is really the first indication that we’ve seen line utilization even move. But I can circle back with you on kind of those two parts of that question in terms of what’s typical and what was peak..

Okay. Thank you.

With regard to the M&A environment are you seeing more books doing more chatter [ph] or it sort of a steady state of where it’s been over past year or so?.

I would say steady state. I think most conversations at least from our perspective and the way we believe that we would ultimately be successful is when we’re initiating conversations with key strategic partners that we think make a lot of sense for us as opposed to reacting to a book, but to answer your question is the activity, it’s about same..

Any change in your geographic focus with regarding to that?.

No..

Okay. And one that I know you can really answer, but I’m going have sort of Bob or David [ph] to ask I guess, but you have the litigation settlement or reserve from the last year and you guys said, you’re going to continue to fight that..

Yeah..

I was wondering if you have any update as to whether you’re still fighting that or whether you’re thinking of just letting it go or if there has been any sort of progress towards something that’s sort of tolerable as far as the settlement?.

Yes. You know that’s a fair question and I can’t comment on that. We have moved through the process that would -- which is lengthy to even get to a point where you would begin an appeal process, and that is where we are today. So, we do continue to move down that road, that process.

While we bear some costs on ongoing basis because of the interest rate that’s attributed to that settlement reserve that we set aside, the legal aspect of that from the appeal standpoint is still being borne by our insurer and we still believe we have coverage, but we’re going to need to move through that appeal process in order to resolve both the legal aspect as well as the coverage aspect, and we’re going to continue to go down that road, it just going to be longer.

I think there maybe some interim opportunities to talk about a more reasonable outcome, but I’m not holding my breath on that..

Okay. Thank you very much..

Sure. Thanks Matt..

The next question comes from Catherine Miller of KBW. Please go ahead..

Hey, good afternoon everyone..

Good afternoon..

Hi, Catherine..

You mentioned CD growth earlier in the call and your increased focus there, and [suddenly] saw the deposit cost up a little this quarter.

Can you talk about your market in terms of deposits in competition and rates and what you’re seeing in your markets, what are you seeing competitors doing and what do you have to do to show the kind of growth that you’ve shown kind of these and examples of some rate specials that you have out right now?.

Yes. Catherine, we’ll probably tag team this a little bit. This is Dan.

I think our fundamental focus continues to be on driving transaction accounts from both small business, commercial and retail which we’re doing and continuing to grow as we probably recall from our prior calls or conversations and talking about loan to deposit ratio, that’s really when we thought we turned on a little bit more of an appetite on the time deposit front, which we really -- which we knew we could and -- but we’ve been out of that game for little bit.

I’ll let Phil talk about this specificity around what we’re offering. We are – I mean it is a competitive market both on the non-interest bearing as well as this CD and money market style of things.

So everybody is beginning to play as you probably know Cap One is in our market and they’ve begun to introduce and pretty heavily market within their whole front print also money market products as well. But we’ve typically have taken kind of a short to interim term strategy on those specials. I’ll let Phil speak to that..

Catherine, this is Phil. Dan is exactly right. We normally try to fill in maturity gaps with specials that are one or two-month off of a more standard type of offering.

And majority of what we’re doing there is in between the two and three year range, something like 21 months or 29 months special and probably what we are focused mainly on is right in the middle of that two-year window. We’ve got 27-month special out there today that would yield about 165 rate.

And I think that’s where a predominant amount of the growth is coming from. We’ve actually grown the CD portfolio a little over $53 million from the beginning of the year, which is well on the way to what we thought we would need to do this year which was an original kind of plan or target for about $90 million worth of growth there.

So what we are doing is certainly being successful and it’s given us kind of results that we were hoping for..

Okay.

And what’s your target loan to deposit ratio to as you where the strong loan growth and then unbalancing as you’ve kind of grow the CD portfolio? And maybe a second part of that is how do we think about what the loan to deposit ratio does overtime and then how that relates to securities -- average earnings assets ratio as that comes down?.

I think that – I wouldn’t say that we target a specific loan to deposit ratio. I think we try to manage within range that we are comfortable with. I think today we’re 101, maybe 102 somewhere in that range. It’s in the lower end of being little bit over 100 and we can tolerate that being 105, maybe 106.

When we get into the areas that starts to approach 110 is where we really, really get uncomfortable and probably start to take different types of actions to ease that and that would, that could manifest itself from a lot of different types of activities. But I think that, that’s where we are today we’re very comfortable with.

So I think that -- if we can – we maintain the kind of balance growth on both sides of the ledger than we will be very comfortable with exactly where we are now.

I didn’t quite catch the second part of that question, Catherine, can you restate that?.

Just on the secure -- you’ve been bringing securities to average earning assets down?.

Got you..

It’s kind of come from the 20s now, you’re around 20 and I know you’ve got a goal to get that down to mid teens..

Right..

I just wanted to see if that was still on track and then your outlook for next year?.

Yes, very much though. We’re roughly around 19% of actual total assets today in the investment portfolio, and we certainly want to get that, we stated before into 10% to 15% range, probably initially in that 15% range. And then I think we look at that stage of the game what the margin looks like.

What overall net interest income is etcetera to determine if we want to redeploy in that area or just continue to let it move down into loans which it certainly has worked perfectly along the lines of the plan right along time..

Okay. Very helpful. Thank you..

You’re welcome..

[Operator Instructions] Next a follow-up question from Matt Schultheis from Boenning. Please go ahead..

Hi. Sorry to double dip.

Really quickly, looking at the loan growth for the quarter was there any timing issues where there is pent-up demand in the first quarter that got realized in the second quarter, in other words did we expect to see a tail off from this quarter’s space going forward or is this just the demand that’s out there right now?.

Matt, this is Phil. This quarter, the growth throughout the quarter in the second quarter was actually more balanced than it was even in the first quarter.

You may remember we probably made some comments when we had this call last time that a significant amount of that growth came in the month of March and therefore at the tail end of the quarter, that was not the case here.

The loan growth, even though it did have a upward trend throughout the quarter building some momentum it was a lot more evenly balanced month to month to month than it had been in the first quarter. So – and I think that the outlook in the pipelines are for that to continue into the foreseeable future..

Okay. Thank you..

Thanks, Matt..

This concludes the question and answer session. I would like to turn the conference back over to Mr. Schrider for any closing remarks. Thank you..

All right, thanks Cassia and thanks to everyone for participating in our call today. I appreciate you taking the time to participate with us, and we’d love to receive your feedback if you have some to let us know how we’ve done. You can e-mail your comments to ir@sandyspringbank.com. You’ll have a wonderful afternoon..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..