Daniel Schrider – President and Chief Executive Officer Phil Mantua – Chief Financial Officer Ron Kuykendall – General Counsel.

Catherine Mealor – KBW Will Curtiss – SunTrust Robinson Humphrey Casey Orr – Sandler O'Neill Bryce Rowe – Baird Mark Hughes – Lafayette Investments.

Good afternoon and welcome to the Sandy Spring Bancorp, Inc. conference call and webcast for First Quarter 2016 Earnings. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Schrider, President and CEO. Please go ahead..

Thank you, and good afternoon everyone. Welcome to our conference call to discuss Sandy Spring Bancorp’s performance for the first quarter of 2016. This is Dan Schrider speaking and I am joined here today by my colleagues Phil Mantua, our Chief Financial Officer and Ron Kuykendall, General Counsel for Sandy Spring Bancorp.

We really appreciate you joining today’s call. As always, this call is open to all investors, analyst and the news media and there will be a live webcast of today’s call and a replay of the call available at our website beginning later today. We will take your questions after a brief review and some highlights.

But before we get started, Ron will give the customary Safe Harbor statement.

Ron?.

Thank you, Dan and good afternoon ladies and gentlemen. 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 cost and benefits, assessments of probable loan and lease losses, assessments of market risks 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 in 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..

Thank you, Ron. Today, as usual, we will move to your questions immediately after some brief remarks. Overall, we produced another solid quarter performance, at the same time we executed on some important strategic decisions that resulted in more noise than usual and I will cover those items in a moment.

But as I’ve said in previous calls, we continue to strive for and achieve balanced results in a highly competitive market across the Washington, Baltimore, Northern Virginia region. Here is just a quick rundown of the main highlights from the release we issued earlier today.

Net income for the first quarter of 2016 was $10.8 million or $0.45 per diluted share compared to net income of $11.2 or $0.45 per diluted share for the first quarter of 2015, and net income of $12.8 million or $0.52 per diluted share for the linked fourth quarter of 2015.

On a core basis pretax pre-provision income for the first quarter was $17.2 million compared to $17.5 million for the first quarter of 2015 and $16.6 million for the linked fourth quarter of 2015. You may recall that during the fourth quarter, we recognized a $4.5 million recapture of litigation expense that was recognized in prior periods.

Overall, our performance this quarter indicates strong quarter results. A key strategic move during the quarter was the sale of a portion of our higher cost segment of wealth assets under management. Approximately $540 million in assets under management was sold.

This sale allowed us to transition eight individual advisors with their clients and freed us to focus – focused our resources in the more profitable and growing segments of our wealth management franchise.

The 2016 bottom line impact given the decrease in revenue, reduction in operating costs and initial payment received is neutral, with an earn out in the transaction that could benefit the company in future years.

A second strategic move positions us for continued loan growth and that was the reclassification of all investments held by the company as available-for-sale. From a liquidity perspective, we're better prepared to continue to shift in our balance sheet towards loan growth.

Additionally, as reported in our press release we executed the sale of approximately $40 million of AFS mortgage-backed securities, which funded the prepayment of an equal amount of FHLB advances.

The gain on the sale of securities was nearly equal to the prepayment cost related to the FHLB advances, and while revenue neutral in the first quarter, we expect this transaction will have a positive impact on our net interest margin in future periods.

Speaking of net interest margin, our margin was 3.44% for the first quarter compared to 3.45% for the fourth quarter of 2015, and 3.44% for the first quarter of 2015.

We are modeling a stable margin in 2016 given continued strong loan growth, the potential for a pricier deposit market and liquidity management given the success in our lending businesses. Our rate forecast as I said moving rates in both the third and fourth quarter of 2016.

Our continued strong core performance was driven by continued increase in net interest income due to loan growth at a double-digit year-over-year rate. Total loans increased 13% compared to the first quarter of last year and were up 2% compared to the fourth quarter of 2015.

The provision for loan and lease losses for the first quarter of 2016 was a charge of $1.2 million compared to a charge of $1.9 million for the fourth quarter of 2015, consistent with our solid ongoing loan growth.

On the deposit side, at March 31 combined non-interest-bearing and interest-bearing transaction account balances, a primary driver of our multi-product multiple product banking relationships with clients increased 7% compared to balances one year ago.

Total deposits and other short-term borrowings that are part of overall funding sources derived from clients increased 10% compared to year ago. Fee income was impacted by the sale of a portion of our wealth assets under management I mentioned earlier, however we see our core wealth business is positioned for growth in 2016.

Our insurance and mortgage operations experienced a typically softer first quarter for the season and are positioned for growth for the remainder of 2016.

Expenses continue to be well-managed, adjusting for the litigation recovery in the fourth quarter 2015 and the FHLB prepayment penalties in the first quarter of this year non-interest expenses remained very stable.

At March 31, our capital position remains very strong with total risk-based capital at 14.02% and Tier 1 risk-based capital ratio of 12.88%, a Tier 1 leverage ratio of 10.28% and a tangible common equity to tangible asset ratio of 9.37%.

During the first quarter of 2016, the company repurchased 512,000 shares of its common stock at an average price of $25.90, as part of our robust existing share repurchase program. With organic growth, our main priority we continue to seek both bank and fee-based acquisition opportunities.

As I’ve commented previously those conversations continue and will be aimed at organizations that value our approach to clients and employees to meet our financial objectives and enhance the value of your company. Our underlying goal is unchanged.

We strive to produce consistent results by growing a diverse revenue stream driven by creating meaningful remarkable experiences for our clients and employees. And that concludes my general comments for today and we will now move to your questions. So Aaron, can we take the first question.

We’d appreciate if you would state your name and company affiliation as you come on so we know with whom we are speaking..

[Operator Instructions] The first question comes from Catherine Mealor from KBW. Please go ahead..

Hi, good afternoon everyone..

Good afternoon..

Hi Catherine..

On the expense side, and once we back out the FHLB expense, your expenses were fairly flat, and so how should we think about expenses moving forward. I mean, you’ve done a great job keeping expenses around this kind of $29 million, $30 million for a number of quarters.

What is your outlook for the pace of expense growth, what could take that up or do you think you’ll be able to maintain this level of fairly flat expenses moving forward..

Catherine, this is Phil. Your range in that $29 million to $30 million level is probably pretty much on point, and I would even suggest that the kind of real run rate there is right smack in the middle of that.

I mean just from growth standpoint, we normally plan for overall kind of expense growth to be 2%, 3% year-over-year on a somewhat normalized basis, and I don't think we see any reason for that to be any different for the remainder of this year.

And I don’t know that we’d see anything again on a core basis that will lead us believe that that’s kind of altering in any significant way. .

And then your NIM forecast, fairly stable NIM, but that includes two rate hikes of the year, and so how do you think about trend in the margin if we do not see any rate hikes this year..

Yeah, Catherine, this is Phil again. I think as we discussed on the call last time, that with the possibility of those couple of rate increases in the latter part of the year, we might actually see a little bit of expansion in the NIM, and absent of those is where we would truly look for the NIM to be fairly stable for the rest of the year.

Now, the action that we took in the first quarter here in terms of the trade we made between some – in morning mortgage-backed securities and the payoffs and advances generally help to bolster the ability for the NIM to be at least stable if not to initially expand a little bit.

The net interest impact of that trade is about $0.5 million annualized because there was $40 million on both sides of the balance sheet at a overall kind of spread relationship of 130 basis points.

So that certainly — certainly helps and we would continue to look for other similar opportunities in the coming quarters to help keep the margin where it is and were expanded. All again, as we’ve discussed before being predicated on continued loan growth and the asset mix changing according..

Great. Thank you that’s all I got..

Thanks Catherine..

Thanks Catherine..

The next question comes from Will Curtiss of SunTrust Robinson Humphrey. Will, please go ahead. .

Hey guys good afternoon..

Hi Will..

Hi Will..

Maybe just really quickly back on the expense and I think I know the answer.

But on the occupancy expense, is that just a seasonal increase because it looks like it’s pretty similar level to last year, just curious is there anything driving that this quarter?.

Yeah, well this is Phil. You're correct, every time we get a nice heavy snowstorm, it cost us some money to get everything back and working order and absent of that there's really nothing else in there that would be unusual and since those things happen, you know in the winter month and this is the first quarter and that's what it is..

Understood, thank you.

Then, the loan growth outlook, any change, I think previously you guys have always guided to kind of that 10% to 12% range, anything – any change there?.

Will, this is Dan. No, that’s the way we continue to look at the overall picture with regard to loan growth, kind of double digit..

And maybe just, you know, kind of maybe some of the drivers to continuing the pace that you guys are on?.

Well I think, you know as we reported and talked about, we've been pretty balanced with activity both commercial and res mortgage, and the res mortgage growth is really dictated little bit more by the rate environment and the activity on our construction perm business, but I would say we’re looking, as we look forward for commercial to continue – commercial real data to be a key component and driver to loan growth, but not anything really different than what we’ve been producing here over the last several quarters..

Okay, great.

And then maybe the last one from me is, we think the reserve ratio has been going pretty stable here, so just curious how we should think about the kind of level provisioning going forward?.

Yeah, driven by what you see on the loan growth side of things. I mean, we too would agree when you look at our methodology; one, it’s being driven by growth as opposed to any moves within the quality of portfolio, but it does seem to kind of settled in around that 115, 117 [ph] level here for a bit, and that’s probably a good way to think about it..

Okay, great. Thank you very much..

Thanks Will..

The next question comes from Casey Orr of Sandler O'Neill. Casey, go ahead..

Good afternoon..

Hi, Casey..

Hi Casey..

Hey, I was just hoping to dive into what was going on with deposit this quarter because it looked like deposits grew pretty nicely on an end of period basis, but not as much on the average balance sheet.

So is it safe to say, you had inflow deposits at the end of the quarter and could that have some drag on the second quarter margin or has that liquidity [indiscernible] put to work?.

Casey, this is Dan. You hit it right on the head, we did have some inflows toward the end of the quarter. But when we talk about the stable NIM, we take that into consideration.

With the growth of non-interest bearing deposits within the commercial side of our business, we’re seeing a lot more volatility in those balances intra-quarter, but overall we continue to see growth and we’ve modelled that into our margin forecast..

Okay, great.

And just when you think about the loan deposit ratio, is there sort of a range that you like to bring it down to or are you comfortable of it staying above 100% here?.

Yeah, I wouldn’t suggest that we're looking to bring it down, it’s in a arrange where we’re in that $100 million, $105 million range, and so that's how we think about a comfortable place..

Great. That’s helpful. I’ll hop off. Thanks..

Thank you, Casey..

The next question comes from Bryce Rowe of Baird. Mr. Rowe go ahead..

Thanks. Hello Dan and Phil..

Hi Bryce..

Hi Bryce..

Just wanted to kind of follow up on the balance sheet with the liquidity that you were holding at the end of the quarter. I assume we expect that to kind of run into to loans and to securities portfolio, from around $700 million, I assume that’s going to be relatively static here going forward..

Yeah, I think that that's accurate, Bryce. The balance sheet certainly shows a fair bit more of period end liquidity, kind of cash base liquidity and that would certainly be temporary to some – end of quarter timing type things.

As far as the investment portfolio is concerned, we moved everything into AFS to just give us the ultimate amount of flexibility, and we’ll come in and out of that portfolio as necessary between what happens with calls that might force some cash flows back to us and timing between that and loan demand.

So it's not really much different than the way it’s been for the last year or so. And we’ll continue to move there, I guess as a bit of a reminder we’ve kind of strategically pushing the investment portfolio somewhere between 10% and 15% of assets and that’s still the goal..

Great. Okay. That’s helpful.

And then Dan, just wanted to kind of maybe get a better feel for the wealth management related sale, how that came about and ultimately what was the driver behind that? I guess, the reason I ask is a lot of banks are trying to push into those fee generating areas, that wealth management team want, so this is a big counter to what we would hear from others in the industry?.

Yeah, good question Bryce. This, I think you had two parse to your question, kind of how did it come about and why is it counter to what might be traditional thinking on that business, or why.

The why it's pretty, pretty short answer, we have three legs of the wealth managements tool, our trust operation are – the RIA that we own West financial services and then this piece, which is predominantly made up of the sale of mutual funds and annuities originating through our retail network and those have been the three legs of that business.

This by far was the least profitable and less efficient delivery model that we had relative to our other business lines. And so over time, we work to – try to create a model within it to be more profitable, provide greater returns, and it just it did not work the way we wanted it to work.

So we made a decision to vacate that business so that we can put the resources towards those other two wealth functions that that are very profitable and efficient. So that was the driver, but we still feel that wealth is an extremely important segment to our business.

We will continue to invest in growing it, as well as looking for other RIA's to fold into the business. So it was really just identifying one segment that wasn't providing the returns on our invested capital that we desired..

That’s great. Great information, I appreciate it, Dan, one follow-up if I could.

You guys are being aggressive or more aggressive with the buyback this quarter, was that more opportunistic with the bank stocks team, relatively weak in the first quarter?.

Absolutely, yeah. Totally based on that..

Great. Thank you..

Thanks Bryce..

[Operator Instructions] Our next question comes from Mark Hughes of Lafayette Investments. Mark, you’re ready..

Good afternoon. My question was just asked by the previous caller. Thank you..

Thanks Mark..

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

Thanks Aaron, and thanks everybody who took the time to participate with us this afternoon. And remember we’d appreciate receiving your feedback to help us evaluate how we've done. You can email your comments to ir@sandyspringbank.com. Thanks again, have a great afternoon..

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