NOTE 2 – ACQUISITION

On May 31, 2012, the Company completed the acquisition of CommerceFirst Bancorp, Inc. and its wholly-owned subsidiary. Under the terms of the acquisition the Company acquired 100% of the shares of CommerceFirst common stock for a combination of 50% Sandy Spring Bancorp common stock and 50% cash. Stock consideration was exchanged at a ratio of 0.8043 of the Company’s shares for each CommerceFirst share resulting in the issuance of 732,054 of the Company’s common stock. Total cash consideration amounted to $12.4 million or $13.60 per share.

The transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration transferred were recorded at their estimated fair value on the acquisition date. Assets acquired amounted to $190.9 million, including loans and leases of $169.0 million. Liabilities assumed totaled $170.6 million, including $169.9 million in deposits. The acquisition resulted in the addition of $13.0 million to the Company’s equity. Goodwill of $5.1 million was recorded as a result of the transaction and will not be deductible for tax purposes. The goodwill from this transaction will be included in the Company’s Community Banking segment. The stock portion of the consideration to CommerceFirst shareholders is intended to qualify as a tax-free transaction.

The consideration transferred for CommerceFirst’s common equity and the amounts of acquired identifiable assets and liabilities assumed as of the acquisition date were as follows:

(in thousands)
Purchase Price:
Value of common share issued	$	13,023
Cash		12,381
Total purchase price		25,404

Identifiable assets:
Cash and due from banks		11,532
Investments		502
Loans and leases		168,984
Other Real Estate Owned		4,232
Intangible assets		210
Other assets		5,439
Total identifiable assets		190,899

Liabilities:
Deposits		169,921
Other Liabilities		644
Total liabilities		170,565

Net goodwill resulting from acquisition	$	5,070

The determination of the fair value of acquired assets and assumed liabilities required that expected cash flows from those assets and liabilities be estimated and discounted at appropriate rates of interest. The most significant of these determinations related to the valuation of acquired loans with evidence of deteriorated credit quality. The following is a summary of the loans acquired in the acquisition with evidence of deteriorated credit quality:

	Loans Acquired
	with Evidence of
(in thousands)	Deteriorated Credit Quality
Contractually required principal and interest at acquisition	$	11,356
Contractual cash flows not expected to be collected		(4,427	)
Expected cash flows at acquisition		6,929
Interest component of expected cash flows		(850	)
Basis in acquired loans at acquisition - estimated fair value	$	6,079

The fair value of checking, savings and money market deposit accounts acquired was assumed to be the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued at the present value of the expected contractual payments discounted at the market rates for similar certificates. There was no core deposit intangible associated with the acquisition of the deposits.

Merger related expenses associated with the acquisition related to personnel and integrating and conforming the acquired operations with and into the Company. These expenses consisted of professional services, conversion and integration of operations, termination of existing contractual arrangements and cost to provide an introduction of the Company to its new customers. A summary of merger related expenses included in the indicated captions in the consolidated statement of income at June 30, 2012 as follows:

	For the Six Months Ended
(in thousands)	June 30, 2012
Salaries and employee benefits	$	737
Outside data services		1,031
Other non-interest expenses:
Professional fees (legal, consulting, etc.)		683
Miscellaneous expenses		121
Total merger expenses	$	2,572

Pro Forma Condensed Combined Financial Information

If the acquisition of CommerceFirst had been completed on January 1, 2011, total revenue, net of interest expense, would have been approximately $85.8 million and $82.6 million for the six months ended June 30, 2012 and 2011, respectively. Net income would have been approximately $16.1 million and $16.5 million for the same periods. The pro forma information does not provide for the impact of potential business model revisions nor does it consider any potential impacts of current market conditions on revenue, expense efficiencies or other factors.