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

This is Dan Schrider speaking and I am joined here today as usual by Phil Mantua, our Chief Financial Officer and Ron Kuykendall, our General Counsel for Sandy Spring Bancorp.

Now today’s 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 at our website beginning later on today.

We’ll take your questions after a brief review of some key financial 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 on 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 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, Ron. As we have in the past, I will briefly cover our prepared remarks and move right to your questions.

Our team again produced a solid straightforward quarter with no unexpected developments. And we’re pleased that our quarterly results this year have been very consistent and predictable on what has been an unpredictable economic environment.

Our stock price which, as of last Friday’s close, is up a healthy 8% over a year ago and reached a 52-week high of $20.27 on the fourth of January.

As stated in our press release issued earlier today, net income for the fourth quarter of 2012 was $9.9 million, that’s $0.40 per diluted share and this compares to net income of $7.3 million or $0.30 per diluted share for the last quarter of 2011 and a net income of $11 million or $0.44 per diluted share for the linked third quarter of 2012.

So for the full year, we reported net income of 36.6 million, which is $1.48 per share versus $34.1 million or $1.41 per share in 2011, which is a 7% increase.

Pre-tax, pre-provision income, while down from the third quarter of 2012, remained solid at 15.7 million for the fourth quarter of 2012. As you might expect, these results enabled us to raise the quarterly cash dividend by $0.02 during the fourth quarter to $0.14 a share.

That’s a hike of about 16% quarter over quarter and an increase of 40% over last year’s level. And even with the higher payout, we’re continuing to accumulate capital at a healthy rate to support our ongoing growth and expansion.

We are pleased with linked quarter period and loan growth of 2.5% where we experience net growth in all 3 categories of mortgage loans, consumer loans and commercial loans. A particular note is the linked quarter growth of 7.6% in our strategically important C&I portfolio and 4.7% increase in the permanent residential loan portfolio.

We continue to optimize our deposit mix and our cost by generating 3.5% linked quarter growth and our non-interest bearing deposits. The majority of which is the result of new retail and commercial households.

Our net interest margin moved ahead to 3.60% for the full year up from 3.57% for 2011. However, the margin did experience a linked quarter decline from 3.67% in the third quarter of 2012 to 3.53% in the fourth quarter.

The link to quarter decrease was driven by essentially asset yield compression in both our residential mortgage and investment portfolio. So it’s obvious to say that continuing our loan growth momentum is a key to stabilizing our margin at its current level.

Non-interest income remained very strong in the fourth quarter versus the level with the linked quarter and up 8% over the fourth quarter of 2011. This is driven by a continued success in our mortgage area, wealth management area and visa check revenue.

At the same time, non-interest expenses were well-managed in 2012, evidence by our non-GAAP efficiency ratio of 60.54% for 2012 compared to 63.7% for 2011. A related interest is ongoing improvement in overall credit quality as non-performing loans decline to $58 million at year end versus $79 million a year ago.

We do expect that trend to continue as we move forward through 2013. The allowance for loan and lease losses stood at 1.7% of total outstandings and 74% of non-performing loans at year end, which we think give us a very good strong position of coverage.

On the capital front, tangible common equity was $384 million at year end compared to $351 million a year ago, which were tangible common equity as percentage of tangible assets at 9.94% for 2012. And our total risk based capital ratio at year end was at 15.40.

So, we think it’s quite healthy when we compare it to our peer group.

Anecdotally, we are pleased to be able to include the second full quarter of accretion from our Commerce First acquisition in the fourth quarter results. The performance included is some good SPA production and we see a strong forthcoming pipeline for us moving into 2013.

Also, thanks to a great integration team, the merger integration process was very smooth. All of our expectations have been fully met or exceeded.

We do learn something new with each transaction. But suffice it to say at this point, we feel very comfortable with our ability to quickly accomplish the assimilation process should another opportunity present itself.

So, that wraps up my comments as we’ve covered most of the other key financial highlights and statistics in our press release today. So now I’ll move on to your questions.

So, Andrew, we can now have the first question. And we would appreciate it if you would state your name and company affiliation as you come on so we know with whom we are speaking.

A couple of quick questions. I was wondering if we could talk a little bit more about margin.

In your prepared remarks, you talk about yield compression. But in your press release you talk about the accrual status of specific commercial loans.

Yes, Wally, this is Phil. I can elaborate a little bit on that.

I think that when we step back and look at the comparison between the 2 quarters in terms of the absolute margin, probably after the fact realize that the third quarter margin was probably a little bit artificially inflated by some of the movements that we’re kind of alluding to in the press release in terms of a couple of credits there in the third quarter that came back to accrual status, and therefore bump the interest to income that was reinstated by virtue of the change in that status. And then a little bit of a similar experience with one or 2 credits early in the fourth quarter going in the other direction.

So there are some reversal involve there as well. So I think that that’s really what the press release was designed to address without getting into specifics.

But I think the overwriting element of the decline quarter over quarter is still related to yield compression both in the investment portfolio, which I think was about 9 basis point compression quarter over quarter. And then within the loan portfolio, as Dan mentioned, residential mortgage loans, which we did expect and continue to expect will occur just by virtue of our portfolio being adjustable ARM-based credits.

That was about 22-basis-point decline quarter over quarter. And then there was also some similar compression in the commercial portfolio as well.

And I think that part of it is much indicative of the pricing pressures in the market. I mean, we obviously reported that we had some loan growth, especially in the C&I portfolio.

And I think there, and any other real estate based commercial portfolios, the competitive pressures are really making it tough to get yield in certain places.

So let’s think about this. Obviously, you’re seeing loan growth.

So to the extent that you can deploy liquidity from your securities into your loans portfolio, that will help margin. But take that off the table and let’s just kind of think about yield pressure, you’re going to continue to see ARM resets that I imagine are going to continue to drive pretty meaningful compression on the loan yields and you’ll see it in the commercial book.

So if you exclude the benefit from deploying liquidity, do you think you could continue to see 15 to 20 basis points of pressure in your loan portfolio yields?

I wouldn’t think it would be quite that extreme. I mean, to my earlier point about some of the noise between the quarters.

I would venture to guess that the combination of things between the third and fourth quarter in that regard was probably worth 5 to 7 basis points of the drop. So you take that out of where it's 14-basis-point decline.

It kind of gets you down more so into higher single digit type of thing. Our expectation is this does not exactly answer, but to give you a perspective, with continuation on loan growth is that that margin will settle down in that low 350, maybe high 340 range into the next couple of quarters here.

So maybe to answer your question somewhat more directly, the 7 and 9 basis point type of decline is maybe possible without redeployment from one asset pulled to the next.

Okay. And then throughout the quarter, we know all over the country that loan pricing is very competitive.

Are you seeing any change, any new entrance or anybody exiting in your markets? I was kind of getting a sense as how competitive, is it getting more competitive on the pricing side for good credits?

Yes. Wally, this is Dan.

I think to several parts of your question, we’re not seeing, certainly, anyone to exit the market in terms of the competitive environment for lending nor have we seen a whole lot of new entrance into the market, per se. But I would say the competitive environment pricing is consistent with what has been in the last several quarters, which is certainly a heightened level of competitiveness and willingness for some shops to go pretty far out on the curve at pretty low rates.

And that’s really what we’re battling against and trying to stay pretty sure.

How do you manage the decision matrix between trying to compete and go out, go along with low rates versus letting a customer go?

We do use profitability modeling at a relationship level where we’re taking the consideration. What we perceive the value of deposit relationship in a fee type businesses and the potential thereof in making that decision.

But transaction for transaction sake is an easy one to let go if it falls outside of our duration parameters.

Okay, fair enough. And then I just want to switch gears real quick to M&A.

It’s been a few quarters since this question was asked but how big of a deal are you willing to consider?

Good question and it has been a few quarters. When you look at the environment geography, which is important for us strategically in the population of players within that area, we tend to focus our efforts in that 200 million to 1 billion range and that’s not absolute but that’s where we're focusing our efforts right now.

Quick question. Back in 2011, it was August of 2011, you announced that $750,000 authorization for 750,000 share buyback, have you done anything on that?

We did. Mark, this is Dan.

We immediately think it was in September of that year, late September. There was a window of time when shares were trading right at tangible book and we were in the market maybe for a couple days before the blackout period in our shares recovered, but since that time we have not.

That’s really a function of more of where the stock prices have been.

Are you using tangible book as kind of your -- would you buy in above that, or is that kind of the level that you target for buybacks?

I think right now that is where our thinking is but within the context of really other organic opportunities we believe we could achieve M&A opportunities that we may consider and obviously the dividend being a part of that capital deployment view as well. So it’s in relation to those other 3 and how we foresee the next several quarters in that way.

So clearly, high priority would be organic and finding other transactions similar to the one we were able to do this year. But right now, I would think that it would be an environment where we would approach kind of a tangible book type number where it makes clear sense.

Thank you, Andrew, and thank you for your questions and participating today. We know your time is valuable, so we appreciate you taking it to participate today.

I want to remind you, we would love to receive your feedback and help us evaluate our call and how we’ve done. You can email your comments to [email protected].

Thank you again and have a great afternoon.