SEGMENT REPORTING

6 Months Ended

Jun. 30, 2011

SEGMENT REPORTING

NOTE 13 - 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.  Prior to 2010, the Company maintained a leasing segment.  In 2010, management combined the operation of the leasing subsidiary into Community Banking segment due to the planned decreasing portfolio size. The presentation of this line of business as a segment was eliminated and combined with the Community Banking segment for all periods presented.  The Insurance and Investment Management segments were businesses that were acquired in separate transactions where management of the acquisition was retained.  The accounting policies of the segments are the same as those described in Note 1 to the consolidated financial statements.  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 on sales of investment products and service charges on deposit accounts.  Expenses include personnel, occupancy, marketing, equipment and other expenses.  Amortization of intangibles related to acquired entities amounted to non-cash charges of $0.4 million for the three months ended June 30, 2011 and 2010, respectively.  Non-cash charges associated with amortization of intangibles related to the acquired entities amounted to $0.7 million for the six months ended June 30, 2011 and 2010, respectively.

The Insurance segment is conducted through Sandy Spring Insurance Company, a subsidiary of the Bank, and offers annuities as an alternative to traditional deposit accounts.  Sandy Spring Insurance Company operates the Chesapeake Insurance Group, 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 related to the acquired entities were not significant with respect to the three and six months ended June 30, 2011 and 2010, 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 $808 million 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 related to the acquired entities with respect to the results for the three months ended June 30, 2011 and 2010, respectively, were not significant.  Amortization of intangibles amounted to $0.1 million and $0.2 million for the six months ended June 30, 2011 and 2010, 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, 2011
	Community					Investment		Inter-Segment
(In thousands)	Banking		Insurance			Mgmt.		Elimination			Total
Interest income	$	35,025	$	2		$	2	$	(21	)	$	35,008
Interest expense		6,875		-			-		(21	)		6,854
Provision for loan and lease losses		1,151		-			-		-			1,151
Noninterest income		8,520		1,099			1,385		(202	)		10,802
Noninterest expenses		24,086		1,141			813		(202	)		25,838
Income (loss) before income taxes		11,433		(40	)		574		-			11,967
Income tax expense (benefit)		3,463		(16	)		224		-			3,671
Net income (loss)	$	7,970	$	(24	)	$	350	$	-		$	8,296
Assets	$	3,642,323	$	12,708		$	14,092	$	(57,107	)	$	3,612,016
	Three Months Ended June 30, 2010
	Community					Investment		Inter-Segment
(In thousands)	Banking		Insurance			Mgmt.		Elimination			Total
Interest income	$	37,618	$	2		$	1	$	(113	)	$	37,508
Interest expense		8,625		-			-		(113	)		8,512
Provision for loan and lease losses		6,107		-			-		-			6,107
Noninterest income		8,531		1,089			1,256		(202	)		10,674
Noninterest expenses		22,912		1,211			837		(202	)		24,758
Income (loss) before income taxes		8,505		(120	)		420		-			8,805
Income tax expense (benefit)		2,432		(49	)		163		-			2,546
Net income (loss)	$	6,073	$	(71	)	$	257	$	-		$	6,259
Assets	$	3,729,497	$	12,577		$	12,806	$	(53,730	)	$	3,701,150
	Six Months Ended June 30, 2011
	Community					Investment		Inter-Segment
(In thousands)	Banking		Insurance			Mgmt.		Elimination			Total
Interest income	$	69,814	$	3		$	4	$	(63	)	$	69,758
Interest expense		13,657		-			-		(63	)		13,594
Provision for loan and lease losses		2,666		-			-		-			2,666
Noninterest income		16,078		2,390			2,731		(405	)		20,794
Noninterest expenses		48,433		2,292			1,580		(405	)		51,900
Income before income taxes		21,136		101			1,155		-			22,392
Income tax expense		6,314		41			450		-			6,805
Net income	$	14,822	$	60		$	705	$	-		$	15,587
Assets	$	3,642,323	$	12,708		$	14,092	$	(57,107	)	$	3,612,016
	Six Months Ended June 30, 2010
	Community					Investment		Inter-Segment
(In thousands)	Banking		Insurance			Mgmt.		Elimination			Total
Interest income	$	75,104	$	4		$	2	$	(242	)	$	74,868
Interest expense		17,955		-			-		(242	)		17,713
Provision for loan and lease losses		21,132		-			-		-			21,132
Noninterest income		16,185		3,246			2,495		(405	)		21,521
Noninterest expenses		46,041		2,316			1,619		(405	)		49,571
Income before income taxes		6,161		934			878		-			7,973
Income tax expense		494		377			342		-			1,213
Net income	$	5,667	$	557		$	536	$	-		$	6,760
Assets	$	3,729,497	$	12,577		$	12,806	$	(53,730	)	$	3,701,150