Daniel Schrider - President and CEO Ron Kuykendall - General Counsel Philip Mantua - CFO.

Austin Nicholas - Stephens Catherine Mealor - KBW.

Good day and welcome to the Sandy Spring’s Bancorp, Inc. Conference Call and Webcast for Third 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 third quarter of 2016. This is Dan Schrider speaking and I am joined here today by our Chief Financial Officer, Phil Mantua; and General Counsel for Sandy Spring Bancorp, Ron Kuykendall.

And we appreciate you joining our call today. Our call is open to all investors, analysts and the news media, and there will be a live webcast of today’s call and a replay of the call available on our website later today. We will take your questions after a brief review of some key highlights.

Before we get started Ron will give 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 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 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..

Thank you, Ron, and thank you all on the phone for joining today’s call. We will move to your questions immediately after I share some brief remarks.

As the headline of our press release issued earlier today indicates we achieved record net income for the third quarter of 2016 and those results were driven by core, strong core operating performance and contributions from multiple business lines.

As I said in previous calls our team continues to strive for and achieve strong growth and balanced results in the highly competitive market across the Washington, Baltimore and Northern Virginia Region.

These growth, success in fee based business lines the balance sheet restructuring initiatives that we executed earlier this year and an ongoing focus on expense management have enhanced our level of core performance. Here's just a quick rundown of the main highlights from the release we issued earlier this morning.

Net income for the third quarter of 2016 was $13.5 million or $0.56 per diluted share compared to net income of $11 million or $0.45 per diluted share for the third quarter of 2015, and net income of $10.6 million, $0.44 per diluted share for the linked second quarter of 2016.

On a core basis, pretax pre-provision income for the third quarter was $21 million compared to $18 million for the third quarter of 2015, a 16% increase, and a 13% increase compared to the $18.6 million for the linked second quarter of 2016.

Our net interest margin was stable at 3.50% for the third quarter compared to 3.51% for the second quarter of 2016 and 3.43% for the third quarter of 2015. We are modeling a stable margin for the remainder of 2016 given our ability to redeploy earnings assets from the investment portfolio into higher yielding loans.

Our continued strong core performance was driven by increased net interest income of 7.2% year-over-year, which was achieved from strong loan growth coupled with the low cost deposit base. Total loans increased 11% compared to the third quarter of 2015 and were up 3% compared to the second quarter of this year.

We continue to strive forward and realize balanced growth across our lending portfolios. The provision for loan and lease losses for the third quarter of 2016 was a charge of $800,000 compared to a charge of $1.7 million for the third quarter of 2015 and $3 million for the linked second quarter of 2016.

Credit quality continues the positive trend with lower net charge offs reductions in non-performing assets and loans strong allowance coverage over NPAs and a well-managed diverse lending portfolio.

On the deposit side at September 30 combined non-interest bearing and interest bearing transaction account balances increased 8% compared to balances a year ago. Our ability to continue to grow retail and commercial transaction relationships and balances are key strengths of our franchise.

Total deposits and other short term borrowings that are part of overall funding sources derived from customer relationships also increased 8% compared to a year ago. Fee income was strong for the third quarter despite the sale of a portion of our wealth assets under management that occurred early in the first quarter.

We see our core wealth business well positioned for growth, absent untimely market fluctuations. Our mortgage division and insurance agency business are performing well and as planned. As previously announced we acquired an additional in-market agency in early August. We expect the acquisition to be accretive in 2016.

Expenses continue to be well managed and adjusting for the FHLB prepayment penalties in both the first and second quarter this year non-interest expenses remained very stable. The non-GAAP efficiency ratio was 59.05 for the first nine months of 2016 compared to 60.41 for the first nine months of 2015.

For the third quarter of 2016 our non-GAAP efficiency ratio was 56.33 compared to 59.73 for the third quarter of last year.

At September 30 our capital position remained very strong with the total risk based capital ratio of 13.29, a tier one risk based capital ratio of 12.17, a tier one leverage ratio of 10.25 and tangible common equity to tangible assets ratio of 9.43.

Given the market value of our shares throughout the third quarter there were no share repurchases during the quarter, but we continue to remain open to repurchases should conditions warrant. With organic growth the priority we continue to seek both bank and fee based acquisition opportunities.

As I mentioned we were successful in an insurance agency acquisition in the third quarter. As I said before, and as those conversations present themselves, they will be aimed at organizations that value our approach to clients and employees, meet our financial objectives and enhance the value of your company.

Our underlying goal is unchanged, consistently produce strong and balanced operating earnings from a diverse revenue stream that results from creating meaningful remarkable experiences for both our clients and our employees.

While your interactions are often limited to Phil and me, I assure you we are just a small part of the incredible team of 700 plus employees of Sandy Spring Banc who serve our clients each day. It is their commitment that fuels our faith and our client experience strategy, a prime differentiator in a very competitive market.

We hope that you find our results today in this quarter a demonstration of that focus. That concludes my general comments for today and we will now move to your questions..

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Catherine Mealor of KBW. Please go ahead..

Thanks, good afternoon everyone..

Good afternoon Catherine..

First off, congrats on a great quarter. Just a couple of really simple questions. First is on fees, so that your other non-interest income will fluctuate around a little bit, and look it a little bit higher this quarter.

I think historically when it’s popped up it's been any SBA loan fees and prepayment fees, if you can talk about what your debt line is higher this quarter and then your outlook for that moving forward?.

Catherine this is Phil. You are accurate in terms of the types of things that normally are involved in some periodic kinds of bumps that are spikes in the other income category. This quarter it was not so much on the SBA gains side. There were some letter of credit fees, there were some probably some prepayment fees in there as well.

And I would also just expect that the fourth quarter would be fairly comparable to what we reported for other non-interest income in this quarter. Yeah, it’s certainly not the same as it was in the second quarter because remember we had the early extinguishment on the sub debt that we booked a $1.2 gain on.

So that’s the biggest delta quarter from the prior quarter to the current one..

Got it, okay. Right. And then expenses, I mean now your revenue growth was fantastic this quarter and your expenses were flat to what you mentioned earlier Dan. It’s now you say was a 56% efficiency ratio which is pretty remarkable.

So can you just talk about your outlook for that moving forward, you could calculate this quarter with maybe an anomaly for that and maybe as some of the revenue normalizes seasonally little bit next quarter you may see that pop back up to the high 50s or is this a level you think is sustainable for a longer period of time?.

Catherine, Phil again.

I think in terms of sheer level of expense quarter-to-quarter we are anticipating very similar level here going into the fourth quarter, might be slightly up, just with, just with overall general growth in a couple of areas, but not anything too significant and I think that what we are demonstrating in this quarter as relates to efficiency ratio is what we talked about for a long time, which is when the revenue side of things really starts to get going that’s where the major or material impacts to the efficiency ratio really come from, and I think that we’re fairly confident that there is a lot of momentum in that aspect of things coming out of the balance sheet, and driving net interest income.

So that efficiency ratio could be similar in the fourth quarter as well..

Great. Thanks and congrats on a great quarter..

Thank you Catherine..

Our next question comes from Austin Nicholas of Stephens. Please go ahead..

Hey guys, good morning..

Good morning..

Hey so, maybe just real quick on credit quality, it continues to be great, and NPAs were steady and charge-offs were down.

Anything that you’re seeing in your book that you’re kind of cautioning away from raising in the market in general that it looks attractive to you on from a credit perspective?.

Austin, this is Dan. It’s probably one of the areas from an outlook perspective that continues to look very good, and I say that focused less on the market right now and more on our portfolio because we’re seeing continued improvement in our metrics.

We’re seeing weighted average risk ratings continue to migrate down over the course of time, we are saying a watch list that continues to shrink and we also like the balance aspect of our portfolio where we are not heavyweight in any particular area. And so our outlook from a credit quality standpoint continues to be very stable.

And I guess the second part of your question as relates to the market place. There isn’t an area of the market that is creating concern for us. We continue to approach it in a very balanced way, smaller bites of the apple rather than big bets. And so we feel very good about credit.

We also feel really good about demand going into the fourth quarter as our pipelines really across the board remain very strong right now..

Okay. That’s helpful.

And then maybe on the margin outlook, how should we be thinking about that? Are you seeing I guess any competition to deposits in your market yet and then maybe as you rebalance the deposit books and CDs take a little bit higher emphasis, how does that play into your margin outlook over the next year or so?.

Austin, this is Phil. I think just very broad based comment for near-term margin for to be fairly stable to where it is today, I think Dan kind of mentioned that in his remarks.

I mean we already have been in some ways rebalancing some aspect of the deposit base, in terms of a little bit greater usage of CDs and yet because of some of other restructurings that we did, the overall margin has been able to expand.

So certainly if we had to have a much more significant dependence on time deposits and had to be more comparative, that would certainly put pressure on it continuing to be fairly stable. But we don’t see comparatively at this point and we don’t see anything out there that would drive that.

We do anticipate the fed will do something whether they show it or not in December. Now obviously that the end of the next quarter and beginning of - going into ‘17 but even then we don’t think it’s going to be significant enough that it’s going to drive somebody in a market to do something kind of outsized..

Okay. Thanks, that’s really helpful and congrats on a good quarter guys. I’ll step off and let someone else hop on. Thanks..

Thanks, Austin.

[Operator Instructions] It seems we have no other questions at this time. I would like to turn the conference back over to Daniel Schrider for any closing remarks..

Thank you and thank you all again for joining our call and your interest in Sandy Spring Bancorp. We appreciate you participating with us this afternoon. And we would also like to receive your feedback on the effectiveness of our call, so we can evaluate how we’ve done. You can email your comments to us at ir@sandyspringbank.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..