SEGMENT REPORTING

6 Months Ended

Jun. 30, 2018

Note 16 - Segment Reporting

Currently, the Company conducts business in three operating segments—Community Banking, Insurance and Investment Management. Each of the operating segments is a strategic business unit that offers different products and services. The Insurance and Investment Management segments were businesses that were acquired in separate transactions where management of the acquired business was retained. The accounting policies of the segments are the same as those of the Company. However, the segment data reflect inter-segment transactions and balances.

The Community Banking segment is conducted through Sandy Spring Bank and involves delivering a broad range of financial products and services, including various loan and deposit products to both individuals and businesses. Parent company income is included in the Community Banking segment, as the majority of effort of these functions is related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, trust income fees and service charges on deposit accounts. Expenses include personnel, occupancy, marketing, equipment and other expenses. Non-cash charges associated with amortization of intangibles was $0.5 million and $1.0 million for the three and six months ended June 30, 2018, respectively. This amount was not significant for the three and six months ended June 30, 2017.

The Insurance segment is conducted through Sandy Spring Insurance Corporation, a subsidiary of the Bank, and offers annuities as an alternative to traditional deposit accounts. Sandy Spring Insurance Corporation operates Sandy Spring Insurance, a general insurance agency located in Annapolis, Maryland, and Neff and Associates, located in Ocean City, Maryland. Major sources of revenue are insurance commissions from commercial lines, personal lines, and medical liability lines. Expenses include personnel and support charges. Non-cash charges associated with amortization of intangibles were not significant for the three and six months ended June 30, 2018 and 2017, respectively.

The Investment Management segment is conducted through West Financial Services, Inc., a subsidiary of the Bank. This asset management and financial planning firm, located in McLean, Virginia, provides comprehensive investment management and financial planning to individuals, families, small businesses and associations including cash flow analysis, investment review, tax planning, retirement planning, insurance analysis and estate planning. West Financial currently has approximately $1.5 billion in assets under management. Major revenue sources include non-interest income earned on the above services. Expenses include personnel and support charges. Non-cash charges associated with amortization of intangibles were not significant for the three and six months ended June 30, 2018 and 2017, respectively.

Information for the operating segments and reconciliation of the information to the condensed consolidated financial statements for the periods indicated is presented in the following tables:

	Three Months Ended June 30, 2018
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Mgmt.		Elimination		Total
Interest income	$	78,596	$	1	$	2	$	(2)	$	78,597
Interest expense		14,781		-		-		(2)		14,779
Provision for loan losses		1,733		-		-		-		1,733
Noninterest income		11,252		1,179		2,590		(153)		14,868
Noninterest expense		42,302		1,302		1,631		(153)		45,082
Income before income taxes		31,032		(122)		961		-		31,871
Income tax expense		7,249		(32)		255		-		7,472
Net income	$	23,783	$	(90)	$	706	$	-	$	24,399


Assets	$	8,154,957	$	9,041	$	15,407	$	(26,805)	$	8,152,600

	Three Months Ended June 30, 2017
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Mgmt.		Elimination		Total
Interest income	$	48,576	$	-	$	2	$	(2)	$	48,576
Interest expense		6,252		-		-		(2)		6,250
Provision for loan losses		1,322		-		-		-		1,322
Non-interest income		10,544		1,223		2,014		(210)		13,571
Non-interest expense		30,602		1,324		1,152		(210)		32,868
Income before income taxes		20,944		(101)		864		-		21,707
Income tax expense		6,669		(40)		337		-		6,966
Net income	$	14,275	$	(61)	$	527	$	-	$	14,741


Assets	$	5,273,823	$	8,046	$	13,676	$	(25,024)	$	5,270,521

	Six Months Ended June 30, 2018
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Mgmt.		Elimination		Total
Interest income	$	154,100	$	1	$	3	$	(3)	$	154,101
Interest expense		27,395		-		-		(3)		27,392
Provision for loan losses		3,730		-		-		-		3,730
Noninterest income		24,423		3,001		4,869		(307)		31,986
Noninterest expense		89,333		2,681		3,016		(307)		94,723
Income before income taxes		58,065		321		1,856		-		60,242
Income tax expense		13,602		91		485		-		14,178
Net income	$	44,463	$	230	$	1,371	$	-	$	46,064

Assets	$	8,154,957	$	9,041	$	15,407	$	(26,805)	$	8,152,600

	Six Months Ended June 30, 2017
	Community				Investment		Inter-Segment
(In thousands)	Banking		Insurance		Mgmt.		Elimination		Total
Interest income	$	94,533	$	1	$	4	$	(4)	$	94,534
Interest expense		11,959		-		-		(4)		11,955
Provision for loan losses		1,516		-		-		-		1,516
Non-interest income		19,630		2,975		4,017		(419)		26,203
Non-interest expense		58,401		2,679		2,188		(419)		62,849
Income before income taxes		42,287		297		1,833		-		44,417
Income tax expense		13,729		121		714		-		14,564
Net income	$	28,558	$	176	$	1,119	$	-	$	29,853

Assets	$	5,273,823	$	8,046	$	13,676	$	(25,024)	$	5,270,521