Daniel Schrider - President and Chief Executive Officer Ron Kuykendall - General Counsel Philip Mantua - Chief Financial Officer.

Catherine Mealor - KBW Austin Nicholas - Stephens Inc. Bryce Rowe - Baird.

Good afternoon and welcome to the Sandy Spring Bancorp, Inc. Conference Call and Webcast for Second Quarter 2016 Earnings. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

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

Thank you and good afternoon everyone. And welcome to our conference call to discuss Sandy Spring Bancorp’s performance for the second 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 the call today. 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. As mentioned, we will take your questions after a review of some highlights.

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

Thank you, Dan. 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, and thanks again for joining us today. As mentioned, we will move to your questions after I make some brief remarks. The second quarter of 2016 represents another solid quarter of core performance.

We executed on additional balance sheet restructuring initiatives that reduced our borrowing costs, enhance our net interest margin and just favorably impact our run rate going forward. And I’ll cover those items in just a moment.

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

Net income for the second quarter of 2016 was $10.6 million or $0.44 per diluted share compared to net income of $10.3 or $0.42 per diluted share for the second quarter of 2015, and net income of $10.8 million or $0.45 per diluted share for the linked first quarter of 2016.

On a core basis, pretax pre-provision income for the second quarter was $18.6 million compared to $16.7 million for the second quarter of 2015 and $17.2 million for the linked first quarter of 2016.

This is the highest level of pre-tax pre-provision income since the third quarter of 2013 accordant which we had the positive effect of several loan related recoveries. Relating to the strategic balance sheet moves mentioned previously, during the second quarter we extinguish $5 million in subordinated debentures at a significant discount.

This discount provided the miscellaneous income to cover the fees associated with the pre-payment of $35 million in FHLB advances. While essentially neutral with respect to net income for the quarter, we expect a positive impact on future borrowing costs and interest expense.

This restructuring should help stabilize our net interest margin going forward which came in at 3.51% for the first quarter compared to 3.44% for the first quarter of 2016 and 3.42% for the second quarter of 2015.

We are modeling a stable margin for the remainder of 2016 given continued strong loan growth, the possibility for pricier deposit market and liquidity management given the success in our lending businesses. Our rate forecast as one fed move in the fourth quarter of 2016.

Our continued strong core performance is driven by continued increase in net interest income of 8% year-over-year which was due to loan growth coupled with a strong deposit base with low overall cost of deposits. Total loans increased 12% compared to the second quarter of 2015 and were up 3% compared to the first quarter of 2016.

Loan growth is particularly strong when considering the reduction of non-performing assets and a sale between 18 million to 19 million of residential mortgages at our portfolio that occurred during the second quarter. It is important to note that a significant portion of our loan growth occurred at the very end of the second quarter.

As a result, the provision expense related to loan growth impacted this quarter, while the benefit of those additional earning assets will have a positive effect in future periods.

The provision for loan and lease losses for the second quarter 2016 was a charge of $3 million compared to a charge of $1.2 million for the first quarter, again primarily the result of our solid ongoing loan growth.

Credit quality continues a positive trend with reduction in non-performing assets and loans, strong allowance coverage of our NPAs and well managed diverse lending portfolio.

On the deposit side at June 30, combined non-interest bearing and interest bearing transaction account balances, a primary driver of our multiproduct banking relationships with clients increased 8% compared to balances a year ago. Our ability to growth retail and commercial transaction relationships and balances are key strength of our franchise.

Total deposits and other short term borrowings that are part of overall funding sources drive from customers also increased 8% compared to a year ago. Fee income, it continues to be impacted by the sale of a portion of our wealth assets under management that occurred early in the first quarter.

However, we see core wealth business positioned for growth in 2016 absent on timely market fluctuations. Our insurance and mortgage operations are performing as planned and are position for growth for the reminder of the year.

Expenses continue to be well managed, adjusting for the FHLB prepayment penalties in both the first and second quarter of this year, non-interest expenses remained very stable. The non-GAAP efficiency ratio was 60.47% for the first six months of 2016 compared to 60.75% for the first six months of 2015.

At June 30, our capital position remains very strong with a total risk based capital ratio of 13.57, a Tier 1 risk based capital ratio of 12.42 and a Tier 1 leverage ratio of 10.29 and our tangible common equity to tangible assets ratio came in at 9.44%.

Given the market value of our shares throughout the second quarter, there were no share repurchases during that quarter, but we do remain open to repurchases showed conditions on [ph]. With organic growth, the main priority, we continue to see both and bank and fee based acquisition opportunities.

And as I commented previously, those conversations continue and we’ll be aimed at organizations that value our approach to clients and employees, meet our financial objective and enhance the value of your company. Our underlying goal is unchanged.

We strive to produce consistent results by growing diverse streamer revenue driven by creating meaningful remarkable experiences for our clients and our employees. And that concludes my general comments for today and we’ll now move to your questions.

Operator, we can have the first question and if you could please state your name and company affiliation as you come on so we know with whom we are speaking..

We will now begin question-and-answer session. [Operator Instructions] The first question is from Catherine Mealor from KBW. Please go ahead..

Thanks. Good afternoon, everyone..

Hi Catherine..

Hi Catherine..

One question on the expense line, there is a decline in the personal line, was that actually related to the sale of the wealth platform or anything else going on in that number?.

Catherine, this is Phil. A portion of it was certainly due to the reduction in what would have been commission compensation that was related to the asset sale that occurred in the first quarter. We also benefited here in the second quarter from some significantly reduced benefit cost especially in the healthcare area.

As you may know remember we are self-insured, so depending on our experience overtime, we adjust our flows accordingly and in the benefit area this period between that and just compensation related matches on 401-K and taxes et cetera, we drop back about $700,000 from the first quarter..

Okay, makes sense.

And then this quarter’s run rate probably a good starting point going into the back half of the year to grow from?.

Yes, when you take out the amount of the pre-payment penalties excuse me - that they were identified as roughly 3.2 for the extinguishment of the advances. Yeah, that’s correct..

Okay, great.

And then on the margins even the funding side on deposit cost, so I think with - do you see as a very competitive market, you’ve got lot of banks with high loan deposit ratio then everyone’s growing and most are growing in a double digit pace and so we already started to see funding cost become very competitive in this market in a suspicion of higher rates and now that the rate environment looks a little bit different, do you think that that take some of the pressure off the funding side or is just the growth piece of that still keep deposit cost slightly moving higher throughout the year even if we don’t have another rate hike?.

Catherine, this is Phil again. I think there is always that pressure that comes to bear with just being able to kind of self-market fund or growth which is obviously always been our core strategy.

But having said that I can tell you that we’ve already adjusted our deposit offering rights down from where we were at the end of the first quarter by anywhere from at least on the time deposit side anywhere from 20 to 45 basis points on the given maturity base or on any type of a special.

And we’ve also done similarly as it relates to some of what we refer to as our teaser rates in our premier money market account, we back that off during that time period by about 20 basis points as well. So I think that we’re recognizing that we can still be competitive in the market and preserve as much as a margin as we can.

I mean even during that three month period, we still grew our time deposits by about 6% almost 7%. So I think it can be done with the proper balance given the current rate environment in what we foresee for the reminder of the year..

Got it, makes sense. Alright, thank you, congrats on the good quarter..

Thanks..

Thank you..

[Operator Instructions] The next question is from Austin Nicholas from Stephens. Please go ahead..

Hey guys, good morning.

Just a quick question on loan growth, you know just geographically around DC and maybe by product type, what are areas of opportunity that you are seeing and what areas are looking less attractive maybe on the product type?.

Yeah, Austin, this is Dan. As we’ve mentioned as you know when you kind of dig into our portfolio, we brought ourselves on the diversity of our loan portfolio.

So - but what we are seeing in terms of production and growth opportunities is still continues to be pretty diverse you know small business, middle market clients, obviously real estate and those product types tend to be small retail warehouse, professional office space on the small side, a little bit of multifamily well that’s not been something that’s we’re significantly are significant player in owner occupied real estate.

So those are all providing opportunities for us in the market. And then on the real side as you know we continue to be very active on the residential construction for our retail client that we try to drive into other areas of business like wealth and insurance.

And then on the consumer side, still drive some home equity business through our branch network..

Okay, great, thank you, that’s very helpful.

And then just more on a top level, when you think about your M&A strategy, has there been any changes to that strategy and you know are you looking - you still looking at you know whole bank transactions and fee income kind of build on businesses and I guess what are you seeing in the market right now and has there been any change in that message?.

Yeah, I would say the message hasn’t changed. We continue to focus on looking in the community bank space of those that would value being a part of the Sandy Spring franchise knowing that we have, are looking to perform over the long run.

At the same time are very interested in, we think we’ve got a good foundation in both the wealth space as well as the insurance agency space and so we think we can be very effective with finding again the right partners to fold into to what we offer both in terms of our existing client base to tap into but also the culture of Sandy Spring.

So both banks continue to be our strategy..

Okay, thanks. I appreciate that.

And then just real quick on the margin, I know that you know within your model you assume fed raise in the fourth quarter, you know if we don’t get that fed raise, is it safe to assume that your margin would still be relatively stable just given your interest rate asset sensitivity profile?.

Yeah, Austin, this is Phil. I would suggest that would be true and just a note, our raise in the - our fed raise in the fourth quarter is actually in December, so there would be negligible impact to the quarter or the full year obviously by virtue of it happening that late in the year.

But yeah, I think that given that timing in particular, we don’t see that there is anything else that should preclude us from keeping that margin fairly stable..

Okay, great. Thanks. I appreciate the color on those questions. I think that’s it for me..

Thanks Austin..

Thanks Austin..

Our next question is from Bryce Rowe with Baird. Please go ahead..

Thanks. Hi, guys..

Hey, Bryce..

Just wanted to ask about commercial real estate pricing Dan, if you would mind, we’ve heard from a couple other institutions here this quarter that some other regulatory scrutiny around commercial real estate lending relative to capital levels is potentially getting some opportunities for commercial real estate growth and opportunities for improved pricing at least more stable pricing, I am just curious if that had anything to do with the increased yield on that commercial real estate portfolio of yours this quarter?.

Yeah, thanks Bryce. We - that’s a good question because we hear it often. And as you know we compete against you know both community banks of comparable size and larger that are much heavier and CREs and then we are.

In terms of pricing when you compare kind of what we’re riding today which is in the mid-4s in terms of averages that compares pretty favorably to the 12 months rolling average. So we’re not seeing you know significant yield pickups as a result of some of the regulatory pressure.

But I do think that we’re winning probably a little more of our fair share in there. So I don’t know whether it’s - I don’t see in the pricing as much as I see it potentially in the players that are going after those same transactions.

But I think the result of the growth is just part of our ongoing calling effort, the reputation that we build in the making place for the ease of business and doing business with Sandy Spring, they would be nice if we could pick up some of the yield.

To give you a little bit of perspective of in terms of capacity around that issue at quarter end we were about 260-ish percent in terms of the 300% regulatory guideline, that’s not a magic guideline as it relates to what we’re willing to do just to give you some perspective, we have the underlying credit risk management infrastructure to that will be necessary to exceed that but that gives you sense of where we are..

Yeah, that’s helpful.

And then maybe a follow-up, so there are other prepayment FHLB prepayment opportunities within that FHLB portfolio that we could expect?.

There may be an opportunity down the road Bryce to do some more of that.

I don’t have anything, I would tell you definitively I think you know it just got to the right timing with the right environment there and we’re as you can see what we’ve try to do is try to offset what we can current period, that’s probably where we have to make decisions about liquidating other types various assets or whatever to accomplish that.

But I don’t think we have anything definitively planned for at the moment, because we’ve also you may or may not recall, we did a fair amount of blend and extend to some of the other longer term advances that we have for some period of time a few years ago and they are not going to be in a position to be able to be repaid.

So there could be some but I am not anticipating anything in the immediate future..

Okay, that’s it for me. Thanks guys..

Okay, thanks Bryce..

Thank you..

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Daniel Schrider for any closing remarks. Please go ahead..

Sure, thank you, and thanks everyone again for participating well this afternoon. We appreciate your feedback, if you offer to us at ir@standyspringbank.com. Thank you again and have a great afternoon..

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