Sandy Spring Bancorp's profits fell short of expectations in the second quarter as revenue from mortgage banking plummeted and litigation costs rose.

The Olney, Md., company said Thursday that it earned $7 million in the quarter that ended June 30, down 43% from a year earlier. Earnings per share of 28 cents fell 10 cents below estimates of analysts polled by Bloomberg.

Noninterest income dropped 4%, to $11.7 million. Sandy Spring (SASR) attributed the drop largely to a 54% decline in mortgage banking income, to $570,000, as originations and refinancing activity slowed.

Noninterest expenses were up 24%, to $34.1 million, as the company spending $6.1 million for litigation-related matters pertaining to a case involving a former employee.

The $4.2 billion-asset bank's net interest income increased 4%, to $32.3 million, due to growth in average loans and a reduction in funding costs, which helped offset a decline in loan yields declining. The net interest margin fell three basis points, to 3.48%.

Sandy Spring's shares fell 3.3% in heavy trading Thursday, to close at $22.68.

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