8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 17, 2013

SANDY SPRING BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	000-19065	52-1532952
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

17801 Georgia Avenue, Olney, Maryland 20832

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (301) 774-6400

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02Results of Operations and Financial Condition

On October 17, 2013, Sandy Spring Bancorp, Inc. issued a news release announcing its results of operations and financial condition for the quarter ended September 30, 2013. A copy of the news release is included as Exhibit 99.1 to this report.

Item 9.01 Financial Statements and Exhibits

Exhibits

Number	Description
99.1	Press Release dated October 17, 2013

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SANDY SPRING BANCORP, INC.
	(Registrant)
Date:  October 17, 2013	By:	/s/ Daniel J. Schrider
		Daniel J. Schrider
		President and Chief Executive Officer

EX-99.1

  News release

FOR IMMEDIATE RELEASE

SANDY SPRING BANCORP REPORTS THIRD QUARTER NET INCOME OF

$12.1 MILLION, AN INCREASE OF 10% OVER PRIOR YEAR

OLNEY, MARYLAND, October 17, 2013 — Sandy Spring Bancorp, Inc., (Nasdaq-SASR) the parent company of Sandy Spring Bank, today reported net income for the third quarter of 2013 of $12.1 million ($0.48 per diluted share) compared to net income of $11.0 million ($0.44 per diluted share) for the third quarter of 2012 and net income of $12.2 million ($0.49 per diluted share) for the second quarter of 2013.

Net income for the nine-month period ended September 30, 2013 totaled $34.8 million ($1.39 per diluted share) compared to net income of $26.7 million ($1.09 per diluted share) for the prior year period, an increase of 31%.

“While our third quarter results benefitted from significant recoveries on two commercial real estate loans, historically low interest rates continued to exert downward pressure on our net interest margin. The increase in long-term treasury rates reduced both mortgage loan origination volume and the related mortgage banking income from the sales of such loans,” said Daniel J. Schrider, President and Chief Executive Officer.

“Despite ongoing challenging market conditions, our focused efforts resulted in further improvement in credit quality metrics, growth from our wealth management and insurance segments and continued control of our funding costs.

“We continue to believe the consistent application of prudent banking principles together with outstanding client service is the formula for success in this very difficult and volatile economy,” said Schrider.

Third Quarter Highlights:

· Pre-tax pre-provision income, a non-GAAP measure, was $19.6 million for the third quarter of 2013, a 16% increase compared to the third quarter of 2012 and a 26% increase compared to the second quarter of 2013. Third quarter results with respect to credit metrics, the net interest margin and non-interest income and expense were positively affected by major recoveries from resolution of two previously non-performing commercial real estate credits.

· The provision for loan and lease losses for the third quarter of 2013 was a charge of $1.1 million compared to a charge of $0.2 million for the third quarter of 2012 and a credit of $2.9 million for the second quarter of 2013. This increase in the provision compared to the prior quarter was due primarily to loan growth during the quarter.

· Non-performing loans decreased to $38.3 million at September 30, 2013 compared to $58.9 million at September 30, 2012 and $46.2 million at June 30, 2013. The coverage ratio of the allowance for loan and lease losses to non-performing loans was 103% at September 30, 2013 compared to a coverage ratio of 72% at September 30, 2012 and 84% at June 30, 2013.

· The net interest margin was 3.88% for the third quarter of 2013, compared to 3.67% for the third quarter of 2012 and 3.51% for the second quarter of 2013. Excluding the effect of the loan recoveries mentioned above, the net interest margin was 3.49% for the quarter. The decrease in the normalized margin was due primarily to the decline in the yield on a higher level of earning assets which more than offset the lower cost of borrowings and deposits.

· Non-interest income decreased 8% for the quarter compared to both the prior year quarter and the second quarter of 2013. The decrease was due primarily to the decrease in income from mortgage banking due primarily to a significant decline in the volume of saleable mortgage loan originations. This decrease was somewhat offset by increases in insurance agency commissions and other non-interest income.

· Total loans increased 8% compared to the third quarter of 2012 and 2% compared to the second quarter of 2013 due to organic loan growth in the residential mortgage, commercial investor real estate and consumer loan portfolios.

Review of Balance Sheet and Credit Quality

Total assets increased 4% to $4.1 billion at September 30, 2013 as compared to September 30, 2012. Total loans and leases increased 8% to $2.7 billion compared to the prior year due primarily to the growth in the specific loan portfolios mentioned above.

Customer funding sources, which include deposits and other short-term borrowings from customers, remained stable compared to September 30, 2012. Noninterest-bearing and interest-bearing checking account balances increased 10% compared to the prior year quarter. The Company considers the growth in checking accounts to be an important performance metric as such accounts typically are the primary drivers of growth in multiple product banking relationships with clients. Certificates of deposit declined 14% while FHLB advances increased 28% at September 30, 2013 compared to balances at September 30, 2012, as the Company managed its funding mix to take advantage of current low interest rates to maintain the net interest margin.

Tangible common equity totaled $410.8 million at September 30, 2013 compared to $379.8 million at September 30, 2012 resulting in an increase in the ratio of tangible common equity to tangible assets from 9.99% at September 30, 2012 to 10.36% at September 30, 2013. This increase was due primarily to net income earned during the period. At September 30, 2013, the Company had a total risk-based capital ratio of 15.70%, a tier 1 risk-based capital ratio of 14.45% and a tier 1 leverage ratio of 11.29%.

Non-performing loans totaled $38.3 million at September 30, 2013 compared to $58.9 million at September 30, 2012 and $46.2 million at June 30, 2013. Overall credit quality continued to improve due to the resolution of existing problem credits and the reduced migration of new credits to non-performing status.

Loan charge-offs, net of recoveries, totaled $0.7 million for the third quarter of 2013 compared to net charge-offs of $2.9 million for the third quarter of 2012 and net recoveries of $0.6 million for the second quarter of 2013. This improvement for the third quarter of 2013 compared to the prior year quarter was due primarily to recoveries on existing problem credits. The allowance for loan and lease losses represented 1.48% of outstanding loans and leases and 103% of non-performing loans at September 30, 2013 compared to 1.73% of outstanding loans and leases and 72% of non-performing loans at September 30, 2012 and 1.50% of outstanding loans and leases and 84% of non-performing loans at June 30, 2013. Non-performing loans includes accruing loans 90 days or more past due and restructured loans.

Income Statement Review

Net interest income for the third quarter of 2013 increased 11% compared to the third quarter of 2012 due to $3.7 million in interest recoveries on loans previously charged-off. Excluding these recoveries, net interest income remained virtually level compared to the prior year quarter. The resulting increase was due to an increase in average interest-earning assets and lower funding costs which somewhat offset the decline in asset yields. The Company’s funding costs declined due to a lower cost deposit mix and the restructuring of $170 million in Federal Home Loan Bank advances during the fourth quarter of 2012 and the first six months of 2013. The net interest margin increased to 3.88% for the third quarter of 2013 compared to 3.67% for the third quarter of 2012 due to loan recoveries. Excluding the effect of these loan recoveries, the net interest margin would have been 3.49% for the quarter. The resulting decrease in the margin was due to lower yields on a higher amount of interest-earning assets.

The provision for loan and lease losses was a charge of $1.1 million for the third quarter of 2013 compared to a charge of $0.2 million for the third quarter of 2012 and a credit of $2.9 million for the second quarter of 2013. The increase in the provision for the third quarter of 2013 compared to the third quarter of 2012 was due primarily to loan growth during the quarter and the previously mentioned recoveries which were largely offset by a charge-off on a commercial real estate loan together with a lower migration of new problem loans into non-performing status.

Non-interest income decreased 8% to $11.2 million for the third quarter of 2013 compared to $12.2 million for the third quarter of 2012. This decrease was driven by a lack of mortgage banking income due primarily to lower mortgage origination volumes and a decline in client refinancing activity. This decrease was somewhat offset by a 17% increase in wealth management income due to higher assets under management. In addition, other non-interest income increased 36% due to gains on sales and dispositions of loans.

Non-interest expenses decreased 1% to $26.9 million for the third quarter of 2013 compared to $27.2 million in the third quarter of 2012. This decrease was driven primarily by a decline in other non-interest expenses related to the recovery of expenses related to the resolution of problem loan credits mentioned above. The non-GAAP efficiency ratio improved to 55.21% for the third quarter of 2013 compared to 58.91% for the third quarter of 2012. Excluding the effect of the interest recoveries mentioned above, the non-GAAP efficiency ratio for the third quarter of 2013 was 61.47%.

Net interest income for the first nine months of 2013 increased 8% compared to the prior year period while the net interest margin increased to 3.66% for the year to date compared to 3.62% in 2012 due to the $3.7 million in interest recoveries on previously mentioned commercial loans. Excluding the effect of the interest recoveries, net interest income increased 4% for the first nine months of 2013 compared to the prior year period while the net interest margin decreased to 3.53% for the first nine months of 2013 compared to 3.62% for the first nine months of 2012. The increase in net interest income and decrease in the net interest margin were due primarily to the factors cited previously with respect to the third quarter of 2013.

The provision for loan and lease losses was a credit of $1.7 million for the first nine months of 2013 compared to a charge of $2.5 million for first nine months of 2012. The decrease in the provision for the period was due primarily to a decline in historical losses, a lower migration of new problem loans into non-performing status, and net loan recoveries during the period.

Non-interest income increased 3% to $35.9 million for the first nine months of 2013 compared to $34.7 million for the first nine months of 2012. This increase was driven by a 9% increase in wealth management income due to higher assets under management while insurance agency commissions increased 13% due to higher revenues on whole life insurance and physicians’ liability lines. Other non-interest income increased 45% due to gains on sales and dispositions of loans and a non-recurring legal settlement. These increases were partially offset by a 36% decrease in mortgage banking income due to declining mortgage origination volumes.

Non-interest expenses remained virtually level at $82.2 million for the first nine months of 2013 compared to $82.7 million in the first nine months of 2012. Outside data services decreased due to merger expenses from the CommerceFirst acquisition recorded in the second quarter of 2012. Other non-interest expenses decreased due to such merger expenses and due to the recovery of expenses from the resolution of problem loan credits. These decreases were somewhat offset by an increase in salaries and benefits expenses due to additional staff and higher incentive compensation. The non-GAAP efficiency ratio improved to 58.89% for the first nine months of 2013 compared to 61.08% for the first nine months of 2012. Excluding the effect of the interest recoveries mentioned above, the non-GAAP efficiency ratio for the first nine months of 2013 was 61.01%.

Conference Call

The Company’s management will host a conference call to discuss its second quarter results today at 2:00 P.M. (ET). A live Web cast of the conference call is available through the Investor Relations’ section of the Sandy Spring Web site at www.sandyspringbank.com. Participants may call 1-888-317-6016. A password is not necessary. Visitors to the Web site are advised to log on 10 minutes ahead of the scheduled start of the call. An internet-based replay will be available at the Web site until 9:00 am (ET) November 18, 2013. A replay of the teleconference will be available through the same time period by calling 1-877-344-7529 under conference call number 10034198.

About Sandy Spring Bancorp/Sandy Spring Bank

With $4.1 billion in assets, Sandy Spring Bancorp is the holding company for Sandy Spring Bank and its principal subsidiaries, Sandy Spring Insurance Corporation and West Financial Services, Inc. Sandy Spring Bancorp is the largest publicly traded banking company headquartered and operating in Maryland. Sandy Spring is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. Independent and community-oriented, Sandy Spring Bank was founded in 1868 and offers a broad range of commercial banking, retail banking and trust services through 49 community offices in Anne Arundel, Carroll, Frederick, Howard, Montgomery, and Prince George’s counties in Maryland, and Arlington, Fairfax and Loudoun counties in Virginia. Through its subsidiaries, Sandy Spring Bank also offers a comprehensive menu of insurance and investment management services. Visit www.sandyspringbank.com to locate an ATM near you or for more information about Sandy Spring Bank.

For additional information or questions, please contact:

Daniel J. Schrider, President & Chief Executive Officer, or

Philip J. Mantua, E.V.P. & Chief Financial Officer

Sandy Spring Bancorp

17801 Georgia Avenue

Olney, Maryland 20832

1-800-399-5919

Email: DSchrider@sandyspringbank.com

            PMantua@sandyspringbank.com

Web site: www.sandyspringbank.com

Forward-Looking Statements

Sandy Spring Bancorp makes forward-looking statements in this news release and in the conference call regarding this news release. These forward-looking statements may include: statements of goals, intentions, earnings expectations, and other expectations; estimates of risks and of future costs and benefits; assessments of probable loan and lease losses; assessments of market risk; and statements of the ability to achieve financial and other goals.

Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. Sandy Spring Bancorp does not assume any duty and does not undertake to update its forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that Sandy Spring Bancorp anticipated in its forward-looking statements and future results could differ materially from historical performance.

Sandy Spring Bancorp’s forward-looking statements are subject to the following principal risks and uncertainties: general economic conditions and trends, either nationally or locally; conditions in the securities markets; changes in interest rates; changes in deposit flows, and in the demand for deposit, loan, and investment products and other financial services; changes in real estate values; changes in the quality or composition of the Company’s loan or investment portfolios; changes in competitive pressures among financial institutions or from non-financial institutions; the Company’s ability to retain key members of management; changes in legislation, regulations, and policies; and a variety of other matters which, by their nature, are subject to significant uncertainties. Sandy Spring Bancorp provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2012, including in the Risk Factors section of that report, and in its other SEC reports. Sandy Spring Bancorp’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC’s Web site at www.sec.gov.

Sandy Spring Bancorp, Inc. and Subsidiaries

FINANCIAL HIGHLIGHTS - UNAUDITED

	Three Months Ended									Nine Months Ended
	September 30,						%			September 30,						%
(Dollars in thousands, except per share data)	2013			2012			Change			2013			2012			Change
Results of Operations:
Net interest income	$	35,306		$	31,785			11	%	$	97,564		$	90,299			8	%
Provision for loan and lease losses		1,128			232			-			(1,670	)		2,481			(167	)
Non-interest income		11,223			12,242			(8	)		35,857			34,709			3
Non-interest expenses		26,893			27,167			(1	)		82,224			82,708			(1	)
Income before income taxes		18,508			16,628			11			52,867			39,819			33
Net income		12,089			10,990			10			34,809			26,673			31
Pre-tax pre-provision pre-merger expense income	$	19,636		$	16,996			16		$	51,197		$	45,008			14
Return on average assets		1.19	%		1.13	%					1.17	%		0.95	%
Return on average common equity		9.91	%		9.22	%					9.59	%		7.74	%
Net interest margin		3.88	%		3.67	%					3.66	%		3.62	%
Efficiency ratio - GAAP basis (1)		57.80	%		61.70	%					61.63	%		66.16	%
Efficiency ratio - Non-GAAP basis   (1)		55.21	%		58.91	%					58.89	%		61.08	%
Per share data:
Basic net income	$	0.48		$	0.44			9	%	$	1.40		$	1.09			28	%
Diluted net income	$	0.48		$	0.44			9		$	1.39		$	1.09			28
Average fully diluted shares		25,070,506			24,949,205			-			25,049,181			24,535,439			2
Dividends declared per share	$	0.16		$	0.12			33		$	0.46		$	0.34			35
Book value per share		19.77			19.35			2			19.77			19.35			2
Tangible book value per share		16.44			15.26			8			16.44			15.26			8
Outstanding shares		24,985,146			24,896,136			-			24,985,146			24,896,136			-
Financial Condition at period-end:
Investment securities	$	1,077,951		$	1,074,918			-	%	$	1,077,951		$	1,074,918			-	%
Loans and leases		2,662,010			2,468,985			8			2,662,010			2,468,985			8
Interest-earning assets		3,771,825			3,614,310			4			3,771,825			3,614,310			4
Assets		4,052,969			3,887,427			4			4,052,969			3,887,427			4
Deposits		2,916,466			2,880,262			1			2,916,466			2,880,262			1
Interest-bearing liabilities		2,634,324			2,560,040			3			2,634,324			2,560,040			3
Stockholders' equity		493,882			481,810			3			493,882			481,810			3
Capital ratios:
Tier 1 leverage		11.29	%		10.99	%					11.29	%		10.99	%
Tier 1 capital to risk-weighted assets		14.45	%		14.31	%					14.45	%		14.31	%
Total regulatory capital to risk-weighted assets		15.70	%		15.56	%					15.70	%		15.56	%
Tangible common equity to tangible assets   (2)		10.36	%		9.99	%					10.36	%		9.99	%
Average equity to average assets		11.98	%		12.27	%					12.19	%		12.31	%
Credit quality ratios:
Allowance for loan and lease losses to loans and leases		1.48	%		1.73	%					1.48	%		1.73	%
Non-performing loans to total loans		1.44	%		2.38	%					1.44	%		2.38	%
Non-performing assets to total assets		0.98	%		1.75	%					0.98	%		1.75	%
Allowance for loan and lease losses to non-performing loans		103.06	%		72.40	%					103.06	%		72.40	%
Annualized net charge-offs to average loans and leases    (3)		0.11	%		0.46	%					0.10	%		0.53	%

(1) The efficiency ratio - GAAP basis is non-interest expenses divided by net interest income plus non-interest income from the Condensed Consolidated Statements of Income. The traditional eficiency ratio - non-GAAP basis excludes intangible asset amortization and merger expenses from non-interest expense; securities gains (losses) from non-interest income; OTTI; and the tax-equivalent adjustment to net interest income. See the Reconciliation Table included with these Financial Highlights.

(2) The tangible common equity to tangible assets ratio is a non-GAAP ratio that divides assets excluding intangible assets into stockholders' equity after deducting intangible assets and other comprehensive gains (losses). See the Reconciliation Table included with these Financial Highlights.

(3) Calculation utilizes average loans and leases, excluding residential mortgage loans held-for-sale.

Sandy Spring Bancorp, Inc. and Subsidiaries
RECONCILIATION TABLE - UNAUDITED
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2013			2012			2013			2012
Pre-tax pre-provision pre-merger expense income:
Net income	$	12,089		$	10,990		$	34,809		$	26,673
Plus non-GAAP adjustment:
Merger expenses		-			136			-			2,708
Income taxes		6,419			5,638			18,058			13,146
Provision for loan and lease losses		1,128			232			(1,670	)		2,481
Pre-tax pre-provision pre-merger expense income	$	19,636		$	16,996		$	51,197		$	45,008
Efficiency ratio - GAAP basis:
Non-interest expenses	$	26,893		$	27,167		$	82,224		$	82,708
Net interest income plus non-interest income	$	46,529		$	44,027		$	133,421		$	125,008
Efficiency ratio - GAAP basis		57.80	%		61.70	%		61.63	%		66.16	%
Efficiency ratio - Non-GAAP basis:
Non-interest expenses	$	26,893		$	27,167		$	82,224		$	82,708
Less non-GAAP adjustment:
Amortization of intangible assets		462			476			1,384			1,403
Merger expenses		-			136			-			2,708
Non-interest expenses -  as adjusted	$	26,431		$	26,555		$	80,840		$	78,597
Net interest income plus non-interest income	$	46,529		$	44,027		$	133,421		$	125,008
Plus non-GAAP adjustment:
Tax-equivalent income		1,344			1,324			3,967			4,040
Less non-GAAP adjustments:
Securities gains		-			296			118			459
OTTI recognized in earnings		-			(23	)		-			(95	)
Net interest income plus non-interest income - as adjusted	$	47,873		$	45,078		$	137,270		$	128,684
Efficiency ratio - Non-GAAP basis		55.21	%		58.91	%		58.89	%		61.08	%
Tangible common equity ratio:
Total stockholders' equity	$	493,882		$	481,810		$	493,882		$	481,810
Accumulated other comprehensive loss		2,892			(16,433	)		2,892			(16,433	)
Goodwill		(84,171	)		(81,892	)		(84,171	)		(81,892	)
Other intangible assets, net		(1,792	)		(3,641	)		(1,792	)		(3,641	)
Tangible common equity	$	410,811		$	379,844		$	410,811		$	379,844
Total assets	$	4,052,969		$	3,887,427		$	4,052,969		$	3,887,427
Goodwill		(84,171	)		(81,892	)		(84,171	)		(81,892	)
Other intangible assets, net		(1,792	)		(3,641	)		(1,792	)		(3,641	)
Tangible assets	$	3,967,006		$	3,801,894		$	3,967,006		$	3,801,894
Tangible common equity ratio		10.36	%		9.99	%		10.36	%		9.99	%
Outstanding common shares		24,985,146			24,896,136			24,985,146			24,896,136
Tangible book value per common share	$	16.44		$	15.26		$	16.44		$	15.26

Sandy Spring Bancorp, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION  - UNAUDITED
	September 30,			December 31,			September 30,
(Dollars in thousands)	2013			2012			2012
Assets
Cash and due from banks	$	58,746		$	59,540		$	48,744
Federal funds sold		475			466			466
Interest-bearing deposits with banks		20,847			26,400			30,057
Cash and cash equivalents		80,068			86,406			79,267
Residential mortgage loans held for sale (at fair value)		10,542			36,149			39,884
Investments available-for-sale (at fair value)		815,545			825,582			834,665
Investments held-to-maturity -- fair value of $220,054, $222,024 and $213,235
at September 30, 2013, December 31, 2012 and September 30, 2012, respectively		225,994			215,814			206,613
Other equity securities		36,412			33,636			33,640
Total loans and leases		2,662,010			2,531,128			2,468,985
Less: allowance for loan and lease losses		(39,422	)		(42,957	)		(42,618	)
Net loans and leases		2,622,588			2,488,171			2,426,367
Premises and equipment, net		46,655			48,326			48,784
Other real estate owned		1,662			5,926			9,291
Accrued interest receivable		12,464			12,392			12,813
Goodwill		84,171			84,808			81,892
Other intangible assets, net		1,792			3,163			3,641
Other assets		115,076			114,833			110,570
Total assets	$	4,052,969		$	3,955,206		$	3,887,427
Liabilities
Noninterest-bearing deposits	$	890,319		$	847,415		$	818,674
Interest-bearing deposits		2,026,147			2,065,619			2,061,588
Total deposits		2,916,466			2,913,034			2,880,262
Securities sold under retail repurchase agreements and federal funds purchased		53,177			86,929			58,306
Advances from FHLB		520,000			405,058			405,146
Subordinated debentures		35,000			35,000			35,000
Accrued interest payable and other liabilities		34,444			31,673			26,903
Total liabilities		3,559,087			3,471,694			3,405,617
Stockholders' Equity
Common stock -- par value $1.00; shares authorized 50,000,000; shares issued
and outstanding 24,985,146, 24,905,392 and 24,896,136 at September 30, 2013,
December 31, 2012 and September 30, 2012, respectively		24,985			24,905			24,896
Additional paid in capital		192,964			191,689			191,237
Retained earnings		278,825			255,606			249,244
Accumulated other comprehensive income (loss)		(2,892	)		11,312			16,433
Total stockholders' equity		493,882			483,512			481,810
Total liabilities and stockholders' equity	$	4,052,969		$	3,955,206		$	3,887,427

Sandy Spring Bancorp, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2013			2012			2013			2012
Interest Income:
Interest and fees on loans and leases	$	33,079		$	30,697		$	91,937		$	86,164
Interest on loans held for sale		176			248			838			587
Interest on deposits with banks		22			38			65			83
Interest and dividends on investment securities:
Taxable		4,558			4,204			12,411			13,809
Exempt from federal income taxes		2,345			2,308			6,987			7,024
Interest on federal funds sold		-			-			-			1
Total interest income		40,180			37,495			112,238			107,668
Interest Expense:
Interest on deposits		1,358			1,823			4,209			5,707
Interest on retail repurchase agreements and federal funds purchased		39			46			126			158
Interest on advances from FHLB		3,255			3,599			9,667			10,772
Interest on subordinated debt		222			242			672			732
Total interest expense		4,874			5,710			14,674			17,369
Net interest income		35,306			31,785			97,564			90,299
Provision for loan and lease losses		1,128			232			(1,670	)		2,481
Net interest income after provision for loan and lease losses		34,178			31,553			99,234			87,818
Non-interest Income:
Investment securities gains		-			296			118			459
Total other-than-temporary impairment ("OTTI") losses		-			(23	)		-			(95	)
Portion of OTTI losses recognized in other comprehensive income, before taxes		-			-			-			-
Net OTTI recognized in earnings		-			(23	)		-			(95	)
Service charges on deposit accounts		2,171			2,230			6,390			6,713
Mortgage banking activities		(26	)		1,981			2,738			4,294
Wealth management income		4,503			3,858			13,077			11,949
Insurance agency commissions		1,193			1,020			3,578			3,156
Income from bank owned life insurance		629			660			1,864			1,954
Visa check fees		1,077			984			3,113			2,844
Other income		1,676			1,236			4,979			3,435
Total non-interest income		11,223			12,242			35,857			34,709
Non-interest Expenses:
Salaries and employee benefits		16,382			15,476			48,891			47,104
Occupancy expense of premises		3,149			3,106			9,327			8,895
Equipment expenses		1,200			1,237			3,676			3,682
Marketing		713			764			1,983			1,824
Outside data services		1,152			1,076			3,418			4,183
FDIC insurance		678			667			1,855			1,972
Amortization of intangible assets		462			476			1,384			1,403
Other expenses		3,157			4,365			11,690			13,645
Total non-interest expenses		26,893			27,167			82,224			82,708
Income before income taxes		18,508			16,628			52,867			39,819
Income tax expense		6,419			5,638			18,058			13,146
Net income	$	12,089		$	10,990		$	34,809		$	26,673
Net Income Per Share Amounts:
Basic net income per share	$	0.48		$	0.44		$	1.40		$	1.09
Diluted net income per share	$	0.48		$	0.44		$	1.39		$	1.09
Dividends declared per share	$	0.16		$	0.12		$	0.46		$	0.34

Sandy Spring Bancorp, Inc. and Subsidiaries
HISTORICAL TRENDS - QUARTERLY FINANCIAL DATA - UNAUDITED
	2013									2012
(Dollars in thousands, except per share data)	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Profitability for the quarter:
Tax-equivalent interest income	$	41,524		$	37,091		$	37,590		$	37,536		$	38,819		$	36,898		$	35,991
Interest expense		4,874			4,847			4,953			5,282			5,710			5,749			5,910
Tax-equivalent net interest income		36,650			32,244			32,637			32,254			33,109			31,149			30,081
Tax-equivalent adjustment		1,344			1,312			1,311			1,334			1,324			1,340			1,376
Provision for loan and lease losses		1,128			(2,876	)		78			1,168			232			1,585			664
Non-interest income		11,223			12,215			12,419			12,247			12,242			11,493			10,974
Non-interest expenses		26,893			27,508			27,823			27,219			27,167			28,858			26,683
Income before income taxes		18,508			18,515			15,844			14,780			16,628			10,859			12,332
Income tax expense		6,419			6,353			5,286			4,899			5,638			3,652			3,856
Net income	$	12,089		$	12,162		$	10,558		$	9,881		$	10,990		$	7,207		$	8,476
Financial performance:
Pre-tax pre-provision pre-merger expense income	$	19,636		$	15,639		$	15,922		$	15,740		$	16,996		$	14,642		$	13,370
Return on average assets		1.19	%		1.23	%		1.08	%		1.01	%		1.13	%		0.78	%		0.94	%
Return on average common equity		9.91	%		9.98	%		8.85	%		8.14	%		9.22	%		6.34	%		7.60	%
Net interest margin		3.88	%		3.51	%		3.59	%		3.53	%		3.67	%		3.62	%		3.56	%
Efficiency ratio - GAAP basis (1)		57.80	%		63.75	%		63.60	%		63.06	%		61.70	%		69.87	%		67.25	%
Efficiency ratio - Non-GAAP basis (1)		55.21	%		60.92	%		60.80	%		60.54	%		58.91	%		61.54	%		62.97	%
Per share data:
Basic net income per share	$	0.48		$	0.49		$	0.42		$	0.40		$	0.44		$	0.30		$	0.35
Diluted net income per share	$	0.48		$	0.49		$	0.42		$	0.40		$	0.44		$	0.30		$	0.35
Average fully diluted shares		25,070,506			25,009,092			25,002,612			24,971,249			24,949,205			24,423,236			24,180,501
Dividends declared per common share	$	0.16		$	0.16		$	0.14		$	0.14		$	0.12		$	0.12		$	0.10
Non-interest income:
Securities gains	$	-		$	62		$	56		$	-		$	296		$	90		$	73
Net OTTI recognized in earnings		-			-			-			(14	)		(23	)		(8	)		(64	)
Service charges on deposit accounts		2,171			2,150			2,069			2,197			2,230			2,283			2,200
Mortgage banking activities		(26	)		1,237			1,527			1,738			1,981			1,288			1,025
Wealth management income		4,503			4,532			4,042			4,000			3,858			4,034			4,057
Insurance agency commissions		1,193			1,036			1,349			1,334			1,020			934			1,202
Income from bank owned life insurance		629			623			612			662			660			660			634
Visa check fees		1,077			1,079			957			1,043			984			962			898
Other income		1,676			1,496			1,807			1,287			1,236			1,250			949
Total non-interest income	$	11,223		$	12,215		$	12,419		$	12,247		$	12,242		$	11,493		$	10,974
Non-interest expense:
Salaries and employee benefits	$	16,382		$	16,163		$	16,346		$	15,405		$	15,476		$	15,927		$	15,701
Occupancy expense of premises		3,149			2,996			3,182			3,115			3,106			2,943			2,846
Equipment expenses		1,200			1,227			1,249			1,189			1,237			1,255			1,190
Marketing		713			755			515			827			764			565			495
Outside data services		1,152			1,114			1,152			836			1,076			1,828			1,279
FDIC insurance		678			581			596			601			667			653			652
Amortization of intangible assets		462			461			461			478			476			466			461
Professional fees		511			1,332			1,250			1,584			1,282			2,156			1,287
Other real estate owned expenses		(150	)		(281	)		37			316			174			351			64
Other expenses		2,796			3,160			3,035			2,868			2,909			2,714			2,708
Total non-interest expense	$	26,893		$	27,508		$	27,823		$	27,219		$	27,167		$	28,858		$	26,683

(1) The efficiency ratio - GAAP basis is non-interest expenses divided by net interest income plus non-interest income from the Condensed Consolidated Statements of Income. The traditional, efficiency ratio - non-GAAP basis excludes intangible asset amortization and merger expenses from non-interest expense; excludes securities gains; OTTI losses from non-interest income; and adds the tax-equivalent adjustment to net interest income. See the Reconciliation Table included with these Financial Highlights.

Sandy Spring Bancorp, Inc. and Subsidiaries
HISTORICAL TRENDS - QUARTERLY FINANCIAL DATA - UNAUDITED
	2013									2012
(Dollars in thousands)	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Balance sheets at quarter end:
Residential mortgage loans	$	595,180		$	565,282		$	538,346		$	523,364		$	499,806		$	472,426		$	465,204
Residential construction loans		118,316			116,736			122,698			120,314			128,606			130,791			122,841
Commercial ADC loans		158,739			163,309			150,599			151,933			133,007			151,620			149,814
Commercial investor real estate loans		518,029			497,365			487,802			456,888			447,536			443,237			392,626
Commercial owner occupied real estate loans		569,350			563,258			565,820			571,510			579,711			579,812			525,022
Commercial business loans		332,670			334,979			344,489			346,708			322,087			334,040			253,827
Leasing		962			1,415			1,974			3,421			4,233			5,618			5,843
Consumer loans		368,764			363,114			353,341			356,990			353,999			357,534			356,215
Total loans and leases		2,662,010			2,605,458			2,565,069			2,531,128			2,468,985			2,475,078			2,271,392
Allowance for loan and lease losses		(39,422	)		(39,015	)		(41,246	)		(42,957	)		(42,618	)		(45,265	)		(45,061	)
Investment securities		1,077,951			1,102,209			1,008,693			1,075,032			1,074,918			1,006,743			1,067,462
Interest-earning assets		3,771,825			3,802,682			3,660,809			3,669,175			3,614,310			3,584,480			3,416,136
Total assets		4,052,969			4,072,617			3,932,026			3,955,206			3,887,427			3,855,177			3,668,273
Noninterest-bearing demand deposits		890,319			877,891			832,679			847,415			818,674			763,566			685,770
Total deposits		2,916,466			2,926,650			2,919,208			2,913,034			2,880,262			2,852,055			2,681,075
Customer repurchase agreements		53,177			54,731			50,302			51,929			58,306			64,779			73,130
Total interest-bearing liabilities		2,634,324			2,678,490			2,576,831			2,592,606			2,560,040			2,593,501			2,508,756
Total stockholders' equity		493,882			485,643			488,947			483,512			481,810			471,464			451,917
Quarterly average balance sheets:
Residential mortgage loans	$	593,335		$	579,899		$	575,889		$	542,095		$	510,475		$	488,644		$	474,149
Residential construction loans		120,676			119,197			120,283			125,640			133,236			125,582			116,630
Commercial ADC loans		158,557			160,483			148,749			137,679			142,870			151,374			159,769
Commercial investor real estate loans		499,896			485,630			474,062			453,074			445,012			410,258			377,072
Commercial owner occupied real estate loans		566,366			561,249			567,723			577,693			580,994			539,590			518,763
Commercial business loans		331,374			337,843			347,569			322,501			332,364			284,271			258,099
Leasing		1,152			1,644			2,510			3,773			4,858			5,528			6,325
Consumer loans		366,562			360,842			357,366			356,452			357,135			359,008			358,783
Total loans and leases		2,637,918			2,606,787			2,594,151			2,518,907			2,506,945			2,364,255			2,269,590
Investment securities		1,097,643			1,047,726			1,051,769			1,072,278			1,038,586			1,052,502			1,086,295
Interest-earning assets		3,770,855			3,692,215			3,677,444			3,639,605			3,599,715			3,453,590			3,389,843
Total assets		4,039,069			3,959,907			3,946,578			3,908,479			3,863,951			3,708,622			3,637,674
Noninterest-bearing demand deposits		862,046			838,502			797,926			824,188			774,215			699,638			641,477
Total deposits		2,903,926			2,892,704			2,860,451			2,891,120			2,857,523			2,714,980			2,642,634
Customer repurchase agreements		56,766			55,941			52,622			60,941			62,693			66,674			65,195
Total interest-bearing liabilities		2,659,406			2,599,704			2,631,198			2,571,937			2,587,815			2,526,541			2,523,394
Total stockholders' equity		483,811			489,014			483,664			482,621			474,231			457,338			448,406
Financial Measures
Average equity to average assets		11.98	%		12.35	%		12.26	%		12.35	%		12.27	%		12.33	%		12.33	%
Investment securities to earning assets		28.58	%		28.99	%		27.55	%		29.30	%		29.74	%		28.09	%		31.25	%
Loans to earnings assets		70.58	%		68.52	%		70.07	%		68.98	%		68.31	%		69.05	%		66.49	%
Loans to assets		65.68	%		63.98	%		65.24	%		63.99	%		63.51	%		64.20	%		61.92	%
Loans to deposits		91.28	%		89.03	%		87.87	%		86.89	%		85.72	%		86.78	%		84.72	%
Capital measures:
Tier 1 leverage		11.29	%		11.28	%		11.07	%		10.98	%		10.99	%		11.21	%		11.05	%
Tier 1 capital to risk-weighted assets		14.45	%		14.30	%		14.23	%		14.15	%		14.31	%		14.12	%		14.89	%
Total regulatory capital to risk-weighted assets		15.70	%		15.55	%		15.48	%		15.40	%		15.56	%		15.36	%		16.14	%
Book value per share	$	19.77		$	19.45		$	19.59		$	19.41		$	19.35		$	18.94		$	18.72
Outstanding shares		24,985,146			24,967,558			24,954,892			24,905,392			24,896,136			24,886,724			24,143,985

Sandy Spring Bancorp, Inc. and Subsidiaries

LOAN PORTFOLIO QUALITY DETAIL - UNAUDITED

	2013						2012
(Dollars in thousands)	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
Non-Performing Assets:
Loans and leases 90 days past due:
Commercial business	$	-	$	15	$	-	$	24	$	44	$	70	$	40
Commercial real estate:
Commercial AD&C		-		-		-		-		-		342		-
Commercial investor real estate		-		-		-		-		-		-		-
Commercial owner occupied real estate		-		-		-		209		-		-		-
Leasing		-		-		-		-		127		96		-
Consumer		10		-		54		14		18		5		89
Residential real estate:
Residential mortgage		-		-		-		-		116		91		167
Residential construction		-		-		-		-		-		-		-
Total loans and leases 90 days past due		10		15		54		247		305		604		296
Non-accrual loans and leases:
Commercial business		4,050		4,483		4,012		4,611		4,919		4,583		6,542
Commercial real estate:
Commercial AD&C		5,086		5,885		5,826		6,332		8,957		13,055		14,303
Commercial investor real estate		6,877		11,741		12,353		11,843		12,345		13,327		13,893
Commercial owner occupied real estate		4,202		5,413		5,346		13,681		13,742		15,146		16,295
Leasing		-		-		-		865		834		872		858
Consumer		2,004		2,305		2,388		2,410		1,607		1,651		1,700
Residential real estate:
Residential mortgage		5,643		5,581		5,393		4,681		3,644		2,600		4,818
Residential construction		2,327		2,558		3,258		3,125		3,236		4,333		4,929
Total non-accrual loans and lease		30,189		37,966		38,576		47,548		49,284		55,567		63,338
Total restructured loans - accruing		8,054		8,213		10,839		10,110		9,277		8,285		8,547
Total non-performing loans and leases		38,253		46,194		49,469		57,905		58,866		64,456		72,181
Other assets and real estate owned (OREO)		1,662		4,831		5,250		5,926		9,291		9,553		4,834
Total non-performing assets	$	39,915	$	51,025	$	54,719	$	63,831	$	68,157	$	74,009	$	77,015

	For the quarter ended,
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
(Dollars in thousands)	2013			2013			2013			2012			2012			2012			2012
Analysis of Non-accrual Loan and Lease Activity:
Balance at beginning of period	$	37,966		$	38,576		$	47,548		$	49,284		$	55,567		$	63,338		$	71,680
Non-accrual balances transferred to OREO		(723	)		(1,426	)		(92	)		(400	)		(232	)		(2,131	)		-
Non-accrual balances charged-off		(4,995	)		(668	)		(2,175	)		(979	)		(3,697	)		(1,663	)		(4,965	)
Net payments or draws		(13,547	)		(3,560	)		(11,768	)		(3,852	)		(6,342	)		(4,149	)		(5,061	)
Loans placed on non-accrual		11,488			5,044			5,493			5,023			3,988			1,261			1,809
Non-accrual loans brought current		-			-			(430	)		(1,528	)		-			(1,089	)		(125	)
Balance at end of period	$	30,189		$	37,966		$	38,576		$	47,548		$	49,284		$	55,567		$	63,338
Analysis of Allowance for Loan Losses:
Balance at beginning of period	$	39,015		$	41,246		$	42,957		$	42,618		$	45,265		$	45,061		$	49,426
Provision for loan and lease losses		1,128			(2,876	)		78			1,168			232			1,585			664
Less loans charged-off, net of recoveries:
Commercial business		1			(32	)		1,744			(76	)		(225	)		(185	)		(39	)
Commercial real estate:
Commercial AD&C		(616	)		(1,444	)		(1,020	)		(248	)		1,983			(59	)		1,076
Commercial investor real estate		1,243			123			31			110			123			140			3,219
Commercial owner occupied real estate		(284	)		100			81			-			653			484			-
Leasing		(6	)		(4	)		-			-			(17	)		(3	)		5
Consumer		169			490			508			384			111			228			348
Residential real estate:
Residential mortgage		216			22			447			508			253			713			420
Residential construction		(2	)		100			(2	)		151			(2	)		63			-
Net charge-offs		721			(645	)		1,789			829			2,879			1,381			5,029
Balance at end of period	$	39,422		$	39,015		$	41,246		$	42,957		$	42,618		$	45,265		$	45,061
Asset Quality Ratios:
Non-performing loans to total loans		1.44	%		1.77	%		1.93	%		2.29	%		2.38	%		2.60	%		3.18	%
Non-performing assets to total assets		0.98	%		1.25	%		1.39	%		1.61	%		1.75	%		1.92	%		2.10	%
Allowance for loan losses to loans		1.48	%		1.50	%		1.61	%		1.70	%		1.73	%		1.83	%		1.98	%
Allowance for loan losses to non-performing loans		103.06	%		84.46	%		83.38	%		74.18	%		72.40	%		70.23	%		62.43	%
Net charge-offs in quarter to average loans		0.11	%		(0.10	)%		0.28	%		0.13	%		0.46	%		0.23	%		0.89	%

Sandy Spring Bancorp, Inc. and Subsidiaries
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES - UNAUDITED
	Three Months Ended September 30,
		2013				2012
			Annualized				Annualized
	Average	(1)	Average		Average	(1)	Average
(Dollars in thousands and tax-equivalent)	Balances	Interest	Yield/Rate		Balances	Interest	Yield/Rate
Assets
Residential mortgage loans (2)	$     593,335	$        5,315	3.57	%	$   510,475	$        5,262	4.15	%
Residential construction loans	120,676	1,106	3.63		133,236	1,214	3.63
Commercial ADC loans	158,557	3,438	8.60		142,870	1,965	5.47
Commercial investor real estate loans	499,896	8,608	6.83		445,012	6,161	5.51
Commercial owner occupied real estate loans	566,366	7,361	5.30		580,994	7,938	5.56
Commercial business loans	331,374	4,246	4.94		332,364	5,172	5.97
Leasing	1,152	20	7.11		4,858	79	6.51
Consumer loans	366,562	3,161	3.45		357,136	3,154	3.54
Total loans and leases (3)	2,637,918	33,255	5.03		2,506,945	30,945	4.93
Taxable securities	794,344	4,942	2.49		745,475	4,508	2.42
Tax-exempt securities (4)	303,299	3,305	4.36		293,111	3,328	4.54
Interest-bearing deposits with banks	34,819	22	0.25		53,717	38	0.29
Federal funds sold	475	-	0.22		466	-	0.22
Total interest-earning assets	3,770,855	41,524	4.39		3,599,714	38,819	4.30
Less:  allowance for loan and lease losses	(41,385)				(45,467)
Cash and due from banks	45,322				46,583
Premises and equipment, net	46,784				49,234
Other assets	217,493				213,887
Total assets	$  4,039,069				$3,863,951
Liabilities and Stockholders' Equity
Interest-bearing demand deposits	$     442,210	97	0.09	%	$   392,117	85	0.09	%
Regular savings deposits	240,910	53	0.09		216,249	51	0.09
Money market savings deposits	874,946	342	0.16		894,708	488	0.22
Time deposits	483,814	866	0.71		580,234	1,199	0.82
Total interest-bearing deposits	2,041,880	1,358	0.26		2,083,308	1,823	0.35
Other borrowings	56,983	39	0.27		64,324	46	0.29
Advances from FHLB	525,543	3,255	2.46		405,184	3,599	3.53
Subordinated debentures	35,000	222	2.55		35,000	242	2.77
Total interest-bearing liabilities	2,659,406	4,874	0.73		2,587,816	5,710	0.88
Noninterest-bearing demand deposits	862,046				774,215
Other liabilities	33,806				27,689
Stockholders' equity	483,811				474,231
Total liabilities and stockholders' equity	$  4,039,069				$3,863,951
Net interest income and spread		$      36,650	3.66	%		$      33,109	3.42	%
Less: tax-equivalent adjustment		1,344				1,324
Net interest income		$      35,306				$      31,785
Interest income/earning assets			4.39	%			4.30	%
Interest expense/earning assets			0.51				0.63
Net interest margin			3.88	%			3.67	%

(1) Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 39.88% for 2013 and 2012. The annualized taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $1.3 million and $1.3 million in 2013 and 2012, respectively.

(2) Includes residential mortgage loans held for sale. Home equity loans and lines are classified as consumer loans.

(3) Non-accrual loans are included in the average balances.

(4) Includes only investments that are exempt from federal taxes.

	Nine Months Ended September 30,
		2013				2012
			Annualized				Annualized
	Average	(1)	Average		Average	(1)	Average
(Dollars in thousands and tax-equivalent)	Balances	Interest	Yield/Rate		Balances	Interest	Yield/Rate
Assets
Residential mortgage loans (2)	$   583,105	$      16,001	3.66	%	$   491,160	$      16,003	4.37	%
Residential construction loans	120,053	3,142	3.50		125,179	3,505	3.74
Commercial ADC loans	155,965	7,540	6.46		151,307	5,855	5.17
Commercial investor real estate loans	486,624	20,927	5.75		410,905	16,925	5.50
Commercial owner occupied real estate loans	565,108	22,464	5.45		546,575	22,722	5.64
Commercial business loans	338,869	13,288	5.10		291,727	11,988	5.33
Leasing	1,764	88	6.67		5,568	272	6.52
Consumer loans	361,624	9,325	3.47		358,304	9,481	3.56
Total loans and leases (3)	2,613,112	92,775	4.77		2,380,725	86,751	4.88
Taxable securities	765,054	13,536	2.36		775,916	14,761	2.54
Tax-exempt securities (4)	300,826	9,829	4.36		283,137	10,112	4.76
Interest-bearing deposits with banks	34,379	65	0.25		40,892	83	0.27
Federal funds sold	475	-	0.22		811	1	0.17
Total interest-earning assets	3,713,846	116,205	4.19		3,481,481	111,708	4.28
Less:  allowance for loan and lease losses	(42,223)				(47,442)
Cash and due from banks	45,932				45,844
Premises and equipment, net	47,479				48,959
Other assets	216,958				208,371
Total assets	$3,981,992				$3,737,213
Liabilities and Stockholders' Equity
Interest-bearing demand deposits	$   436,236	280	0.09	%	$   379,910	256	0.09	%
Regular savings deposits	238,627	159	0.09		209,920	155	0.10
Money market savings deposits	880,794	1,131	0.17		869,675	1,471	0.23
Time deposits	497,136	2,639	0.71		573,946	3,825	0.89
Total interest-bearing deposits	2,052,793	4,209	0.27		2,033,451	5,707	0.37
Other borrowings	59,734	126	0.28		72,347	158	0.29
Advances from FHLB	482,679	9,667	2.68		405,271	10,772	3.55
Subordinated debentures	35,000	672	2.56		35,000	732	2.79
Total interest-bearing liabilities	2,630,206	14,674	0.75		2,546,069	17,369	0.91
Noninterest-bearing demand deposits	833,059				705,362
Other liabilities	33,230				25,738
Stockholders' equity	485,497				460,044
Total liabilities and stockholders' equity	$3,981,992				$3,737,213
Net interest income and spread		$    101,531	3.44	%		$      94,339	3.37	%
Less: tax-equivalent adjustment		3,967				4,040
Net interest income		$      97,564				$      90,299
Interest income/earning assets			4.19	%			4.28	%
Interest expense/earning assets			0.53				0.66
Net interest margin			3.66	%			3.62	%

(1) Tax-equivalent income has been adjusted using the combined marginal federal and state rate of 39.88% for 2013 and 2012. The annualized taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $4.0 million and $4.0 million in 2013 and 2012, respectively.

(2) Includes residential mortgage loans held for sale. Home equity loans and lines are classified as consumer loans.

(3) Non-accrual loans are included in the average balances.

(4) Includes only investments that are exempt from federal taxes.