Thank you, Keith. And good afternoon, everyone, and welcome to Sandy Spring Bancorp’s conference call to discuss our performance for the second quarter of 2012.

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

After a review of some key highlights, we’ll take your questions. But before we get started, Ron Kuykendall 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 risk and uncertainties. These forward-looking statements include statements of goals, intentions, and earnings and other expectations, estimates of risk and future cost 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.

Thank you, Ron. We’re going to keep our remarks today rather brief as it was a solid, straightforward quarter with really no expected developments -- unexpected developments.

As reported in our press release issued earlier today, net income for the second quarter of 2012 was $7.2 million, that’s $0.30 per diluted share, and this compares to net income of $8.3 million or $0.34 per diluted share for the second quarter of 2011, and net income of $8.5 million or $0.35 per diluted share for the first quarter of this year.

Year-to-date net income for the 6-month period ending June 30, 2012, totaled $15.7 million, that’s $0.65 per diluted share, which compares to net income of $15.6 million, again $0.65 per dilute share for the prior year period. I’d like to point out one major factor which is included in both the second quarter and our year-to-date results, and this is the impact of our acquisition of Commerce First Bancorp.

For the second quarter, we booked onetime pre-tax merger-related expenses of $2.2 million, and on a year-to-date basis it comes to $2.6 million, also pre-tax. To provide some context related to EPS on an after tax earnings per share basis, merger-related costs represents $0.06 per share.

On a related note, the consolidated results of operations for Commerce First are included subsequent to the close of business of May 31, 2012, as we officially closed the transaction on the last day of May. So in other words, there is one month of earnings contribution from Commerce First included in the second quarter results combined with $2.2 million of merger-related expense.

As we noted in this morning’s release, as of the date of purchase, Commerce First had total loans of $169 million and total deposits of $170 million. Pre-tax pre-provision income on a non-GAAP basis, excluding merger expenses, was $14.6 million for the second quarter, up 11% over the second quarter of 2011 and up 12% over the first quarter of 2012.

We expect that by year-end the accretive contribution from Commerce First should more than offset the onetime cost of doing the deal.

In fact, our original expectations for accretion are looking a bit on the conservative side as we are seeing a better benefit from their margin than we anticipated since there is a positive effect of our ability to run off their higher cost broker deposits allowing us to fund their loan portfolio at our lower cost of funds. So in balance, we continue to be very pleased with the opportunity that Commerce First brings to the table and excited to finally have our teams working together.

As for other highlights, the margin held up versus our expectation going into the quarter that it may have slacked off. There were positive trends in both management and on the mortgage banking side.

There was good overall loan growth in the various portfolios, and especially on the commercial side, plus residential construction loans to individual homeowners.

Our total loans increased 16%, or $337.2 million, at June 30, 2012, compared to mid year of 2011. Excluding loans acquired in the Commerce First acquisition, this was the company’s fourth straight quarterly organic increase.

We attribute our continued success with organic loan growth to the efforts of our front line bankers, who I believe are as focused as ever, calling on both business and retail clients that value dealing with a local bank that has the depth and breadth to handle all of their financial needs. And that said, we do remain disciplined to our credit and pricing standards in a market that can be a bit irrational at times.

On the quality front, non-performing loans continued to decline to $67 million at June 30 versus $76.5 million a year earlier and $72.2 million at March 31, 2012. The net interest margin was 3.62% for the second quarter of 2012 compared to 3.58% for the second quarter of 2011 and 3.56% for the first quarter of 2012.

We think the margin is quite respectable in the current environment.

Another important highlight is the fact that our non-GAAP efficiency ratio improved to 61.5% for the second quarter of 2012 compared to 62.8% for the second quarter of 2011. And on a final note, capital remains strong.

At June 30, 2012 the company had total risk-based capital at 15.37%, a Tier 1 risk-based capital ratio of 14.12% and a Tier 1 leverage ratio of 11.21%.

So that wraps up my comments as we covered most of the other key financial highlights and stats in our press release today, and we will now move to your questions.

I just have a quick question on the $2.2 million in merger expense. That came in on the other line on the non-interest expense?

Not necessarily, Mike, we actually booked it to the appropriate category so it’s spread amongst a number of the key expense lines. Some of it's in salary and benefits, a fair portion of it is in outside data services related to conversion costs and some contract buyout work that we had to do, and then there is some things in other and also professional fees which is broken out related to attorneys, et cetera.

So, it’s spread amongst a number of categories.

Okay. So then as we think about your original kind of cost save numbers, how much, with only a month of having the merger this quarter, how much of that is kind of in there?

And then, what are you guys thinking about moving forward on the expense side? Should we see some more realized benefit on some of those lines?

In terms of how we compare the cost saves, I think we’re very comfortable that we are almost immediately getting towards the mark that we had put out there when we evaluated the deal, which was at least 30%. And again, the $2.2 million there has got to come off the top to then realize what’s actually happening from that point forward.

So I think we feel that we’re in pretty good shape as it relates to that. And then, as we look at expenses from this point out, I don’t know that we see a tremendous amount of increase from where we are, again, absent of the merger costs for the following couple of quarters.

It’s just not necessarily that material and I would hope that we would continue to see our efficiency ratio actually improve throughout the remaining half of the year.

So basically, operating expenses, then, are right under $27 million for this quarter, and you guys feel like that should stay relatively flat to potentially down as we move forward?

I think we can stay in that general range, Mike, yes. Because I think we’ve been doing some other things in the core operation of the company that are offsetting the additional costs of the -- of primarily the personnel that was added in the acquisition.

Okay, great. And then just on the margin.

As we think about kind of the accretable yield coming through from the transaction, how long do you think this is -- we’re going to continue to see that benefit? And I mean, I know you guys are also gaining benefit from kind of a lot of the funding mix on the non-interest bearing deposits accounting percent replacing some of these CDs, but just that accretable piece, how long do you think we’re going to continue to see that benefit?

I don’t have it right at my hands, Mike, but I think that it’s probably maybe out 24 to 30 months, just in recollection of the way we did the calculation. I can tell you that it’s really -- it's not that significant in the larger scheme of things.

It might be a basis point or 2, so I mean it’s not that big of a deal. The bigger advantage is really coming from the sheer difference in their yields on the loan portfolio we inherited and our ability to run off, as we said before, the brokered and more wholesale-based CDs and replacing it with our funding sources.

So I mean, I think that’s really where the significant pop comes from the margin from where we would have been in terms of margin continuing to compress going forward and now looking at it being on a much more stable basis for the rest of the year similar to where we are in the quarter.

So then as we kind of think about the 10 years sitting here at 150, and certainly there’s going to be continued pressure on reinvestment yields in that security book, that this last quarter actually held up relatively well from an overall securities deal standpoint, only down a couple of basis points. Just how should we kind of think about that then?

It seems like you have a lot of benefit coming on, on the loan side and that deposit funding mix. So it seems to me like we’re going to see a relatively stable NIM for the remainder of the year?

I mean, that’s exactly my expectation, is that when you add/subtract all the different elements of it now that we’ve folded in the additional loans into the portfolio, that that’s pretty much how we see the NIM for the rest of the year. I would agree.

And then just kind of a housekeeping question on the tax rate. Where do you think we should kind of be looking at that moving forward?

Still around 32%?

Yes. I mean, we had -- the quarter got a little bit affected by as we took the merger costs, some of them are not tax deductible.

It wasn’t a significant amount but some of them were not tax deductible, so that impacted the effective tax rate in the quarter because of that. But yes, I think that otherwise, we're looking out the rest of the year, our general tax rate should be similar to where it’s been.

Okay. And then just on the core basis, you guys are looking at an additional $0.06, so a core number of $0.36, excluding the merger costs for the quarter?

That’s accurate, yes.

Just as a quick follow-up, just to make sure I’m understanding everything that you guys are saying. So on the margin front, you had benefit mostly just from the fact that you’re picking up a lot of the yield in their loan portfolio.

So you picked up 6 basis points sequentially. However, that was for only one month of contribution, but you’re not expecting to pick up additional benefit as the other 2 months that you did not get in the second quarter come in, in the third quarter?

Yes, I mean, that’s a legitimate question, Wally. There in the month of June in addition to the one month pickup on the Commerce First portfolio, we also had some non-accrual reversal that came through in our residential construction portfolio that was a one-time type of item that also popped the margin at the end of the month, so we don’t expect that to reoccur, just so you know.

And that was, I think it was like a $60,000 adjustment, so that is not normal. And again, because as to Mike's question before, there are some -- again, some mitigating factors that we talked before about having the margin expand any further because if you recall from earlier, if you were on any earlier calls and maybe you weren’t, we had expected the margin to actually compress through the rest of the year and actually get into the mid 340 range.

So I think that where we’re at and going forward and having it be as stable as we think it’s going to be, is really the answer.

Okay. All right.

Good. That helps.

And then also, more clarification from Mike's questions on the expense side. It seems like you’re hesitant to break out where the $2.2 million is on a dollar basis, which makes it a little bit tougher for us to model.

Is there a way you can tell us where it’s weighted? Like is there one line item that has 50% to 60% of that number, or is it really just spread pretty evenly across all the items you mentioned?

Actually, I’m not necessarily hesitant to tell you that. I mean, of the $2.2, almost half of it was in the outside data services area and most -- a lot of that, again, conversion-based costs, and then we had one contract that we had to buy out, unfortunately, that contributed to that.

Behind that, the other major category would be salaries and benefits, as you might expect, related to severance costs, pay to stay, those types of activities. And that was probably somewhere around $700,000 in the quarter.

And then the remainder would have been in the other category. So really, if you look at the comparison in quarters, one of the things that should pop out is that absent of the merger costs, our salary and benefit line would have really gone down in the quarter.

Yes, okay. Which is pretty impressive given that you also had a month of the additional salary from the acquisition.

Correct.

Okay. And then I guess the one last question I’d like to ask is, moving to the revenue part of the equation, specifically on the mortgage banking, another very strong quarter, not surprising given what we’ve seen across the industry.

I would be curious to know how you were seeing the volumes in that business, maybe in June? And if you’re seeing any change in the refi versus purchase mix, and if you could remind us what that mix is?

Yes, Wally, this is Dan. The demand in originations and new apps, all the leading indicators continue to remain very strong through June and into this current period.

Phil is pulling out the data in terms of the mix between refi and purchase money.

Yes, Wally, I’ll give it to you this way because this is the information I have. On a year-to-date basis the refinance element was about a little over 68%, and that has changed slightly for the month of June down to about 66.5%.

So there is some movement, more towards purchase money activity, but not that significant quite yet.

A couple of some more strategic questions, I suppose. With this acquisition behind you, assuming that there is a transaction or a company you actually wanted to acquire that put itself up for sale, do you think you’d be ready to do another deal at this stage, or do you feel you need to wait a little bit longer and integrate this a little more?

Yes, Matt, good question. I can tell you that from the beginning, which was really -- it was back in last fall, through diligence, integration, system conversions, the team here at Sandy Spring just did a tremendous job.

And if the right opportunity came along that fit strategically and was priced right, we would be ready to move.

Okay. Additionally, in the State of Maryland, certain municipalities have started moving some of the sort of smaller agency working accounts out of the big banks, which I guess BofA is the big cash management firm for the state and a lot of the larger municipalities.

Have you been able to take advantage of that at all? Are you interested in taking advantage of that at all?

And I’m thinking of, specifically, Montgomery County, I guess, moved a few million dollars in deposits, and if you were willing to do certain types of loans within the county? Does that interest you at all?

Yes, Matt, good question, and that’s a relatively new program that was developed with the, obviously, the desire among the community banks, those like us, to have the county deposit locally where we’re going to turn around and make loans locally. That program, quite frankly, may scratch the surface.

It is -- we think it’s just good business for the municipalities and the counties to do business locally but not necessarily through the programs like the one that was designed. I think the main issue here in Maryland is making the RFP process one that doesn’t require a staff of a half a dozen attorneys in order to bid for that business at the state level and the county level.

So that’s what we’re working on. The answer to your question is, we’re interested in any consistent, stable funding base that fits our cost strategy.

But that program, in and of itself, did not have a great deal of interest as designed.

So excluding the Commerce First loans, it looks like you guys had some organic growth in the quarter. Could you talk about some of the loan growth you experienced, and what you expect for the rest of the year?

Yes, good question, Dave. We were just under 2% growth period to period in -- from the core organic basis, and largely driven by what’s happening within our commercial bank, and then to a lesser extent through some of the residential construction activity, that is to the individual homeowner.

Within the commercial book it’s largely coming within, what we love, which is owner-occupied real estate, and to a lesser degree C&I. So folks are doing a good job at winning some quality relationships.

We stayed pretty consistent with pulling aside the impact of Commerce First with our view of kind of a mid single digit loan growth expectation for the year. And that really is in light of what we think the market will provide in quality opportunities that are priced within our -- where we see things going.

So mid single digits is still our outlook.

Yes. And on the asset quality front, things appear stable.

How should we look at credit cost going for the rest of the year?

Yes, I think stable to improving is the way we view it. Obviously, we’ve had some decent moves in the right direction, even with bringing on a new portfolio to the company.

I think we’re hitting that place with the MPA portfolio where big improvements quarter-to-quarter are probably a bit more difficult to come by as we work through it, so it’s going to be a slower improvement. I think from a credit cost perspective, anything that you see different in future quarters from a provision expense will be driven more by our ability to grow the portfolio than it would be an expectation of a deteriorating quality.

So probably not inconsistent with what you see this quarter.

All right. Thank you, Keith.

Thank you for your questions, and we really appreciate you taking the time to participate with us this afternoon. We’d love to receive your feedback on the value of this call, so if you could let us know by emailing your comments to [email protected], that would be great.

Thank you, all, again, and have a wonderful afternoon.