Bryn Mawr Bank Corporation Reports Record Third Quarter Net Income of $9.4 Million, Strong Loan Growth Continues, Wealth Assets Approach $10 Billion

BRYN MAWR, Pa., Oct. 20, 2016 (GLOBE NEWSWIRE) -- Bryn Mawr Bank Corporation (NASDAQ:BMTC) (the “Corporation”), parent of The Bryn Mawr Trust Company (the “Bank”), today reported net income of $9.4 million and diluted earnings per share of $0.55 for the three months ended September 30, 2016, as compared to $8.9 million, or $0.52 diluted earnings per share for the three months ended June 30, 2016 and $7.5 million, or $0.42 diluted earnings per share, for the three months ended September 30, 2015.

On a non-GAAP basis, core net income, which excludes certain non-core income and expense items, as detailed in the appendix to this earnings release, was also $9.4 million, or $0.55 diluted earnings per share for the three months ended September 30, 2016 as compared to $9.0 million, or $0.53 diluted earnings per share for the three months ended June 30, 2016 and $8.2 million, or $0.46 diluted earnings per share for the three months ended September 30, 2015. Management believes the core net income measure is important in evaluating the Corporation’s performance on a more comparable basis between periods. A reconciliation of this and other non-GAAP to GAAP performance measures is included in the appendix to this earnings release.

“As we progress through 2016, with the backdrop of a sluggish economy and sustained low-interest rate environment, the Bank continues to perform well,” commented Frank Leto, President and Chief Executive Officer, continuing, “Despite this challenging backdrop, loan growth was strong during the third quarter, helping to offset a lower net interest margin.” Mr. Leto added, “During the first three quarters of this year, in addition to the near ten percent growth of our loan portfolio, we also saw an increase in our wealth assets of close to 20 percent. Both of these trends signal a promising outlook for the remainder of 2016, and we hope to carry this momentum into 2017.”

Mr. Leto also noted, “In addition to these promising trends, we’re also very excited about the successes of several of the strategic initiatives we began last year. Our mortgage banking operation, which began ramping up toward the end of 2014, is now in full swing, with loan volumes up 14.9% for the first nine months of this year compared to the same period last year. Our new loan production office, located in Hershey, Pennsylvania, which has been able to leverage the wealth management relationships we’ve developed there since the 2011 Hershey merger, has seen a ten-fold increase in outstanding balances from $5.2 million as of September 30, 2015 to $52.2 million as of September 30, 2016. And lastly, our non-traditional commercial mortgage subsidiary, headquartered in Media, Pennsylvania, which began operations on October 1, 2015, is progressing well. With outstanding balances as of September 30, 2016 of $19.5 million, from clients in eleven states, we are confident that this specialized arm of the Bank will continue to flourish and produce positive results to our bottom line.”

On October 20, 2016, the Board of Directors of the Corporation declared a quarterly dividend of $0.21 per share, payable December 1, 2016 to shareholders of record as of November 2, 2016.

SIGNIFICANT ITEMS OF NOTE
Results of Operations – Third Quarter 2016 Compared to Second Quarter 2016

• Net income for the three months ended September 30, 2016 was $9.4 million, as compared to $8.9 million for the three months ended June 30, 2016. Largely accounting for the increase in net income was a $570 thousand decrease in impairment of mortgage servicing rights (“MSR”s), a $576 thousand decrease in salaries and wages, a $311 thousand increase in other operating income and a $464 thousand decrease in income tax expense. These improvements were partially offset by a $967 thousand increase in provision for loan and lease losses (the “Provision”), a $331 thousand decrease in fees for wealth management services and a $463 thousand increase in other operating expense.
   
• Net interest income for the three months ended September 30, 2016 was $26.7 million, an increase of $90 thousand from $26.6 million for the three months ended June 30, 2016. Average loans and leases for the three months ended September 30, 2016 increased by $64.3 million from the three months ended June 30, 2016, however, the tax-equivalent yield earned on loans decreased by 13 basis points over the same period.
   
• The tax-equivalent net interest margin of 3.71% for the third quarter of 2016 decreased 10 basis points from 3.81% for the second quarter of 2016. The decrease was primarily the result of a 13 basis point decrease in tax-equivalent yield earned on loans, coupled with a 3 basis point increase in tax-equivalent rate paid on deposits, partially offset by a 2 basis point decrease in rate paid on borrowings. The contribution of fair value mark accretion to the tax-equivalent net interest margin accounted for 9 basis points of the margin for the third quarter of 2016 as compared to 17 basis points for the second quarter of 2016.
   
• Non-interest income for the three months ended September 30, 2016 increased $72 thousand from the second quarter of 2016. The relatively small increase was related to increases of $311 thousand and $89 thousand in other operating income and gain on sale of loans, respectively, which were offset by a decrease of $331 thousand in fees for wealth management services. The increase in other operating income was largely related to the $237 thousand income recognized as the result of the early pay-off, in full, of a purchased credit-impaired loan which had been discounted at acquisition. The decrease in fees for wealth management services was primarily related to fees for tax services billed in the second quarter of 2016 which did not reoccur in the third quarter.
   
• Non-interest expense for the three months ended September 30, 2016 decreased $782 thousand, to $25.5 million, as compared to $26.3 million for the second quarter of 2016. The primary contributors to the decrease in noninterest expense during the third quarter were decreases of $576 thousand in salaries and wages, related to reductions in variable compensation accruals, and a decrease of $570 thousand in impairment of MSRs, whose values have stabilized since the impairment recorded in the second quarter of 2016. These decreases in noninterest expense were offset by a $463 thousand increase in other operating expenses, which was largely related to changes in value of deferred compensation liability accounts.  
   
• For the three months ended September 30, 2016, net loan and lease charge-offs totaled $704 thousand, as compared to $254 thousand for the second quarter of 2016. The Provision for the three months ended September 30, 2016 was $1.4 million, as compared to $445 thousand for the second quarter of 2016. The increased loan volume, along with the increased net charge-offs, necessitated the $967 thousand increase in Provision to bring the allowance for loan and lease losses (the “Allowance”) to the appropriate level.
   
• Income tax expense for the third quarter of 2016 decreased by $464 thousand as compared to the second quarter of 2016. The reduction in the income tax rate from 35.1% to 31.7% from the second to third quarter of 2016 was the result of the early adoption of FASB Accounting Standards Update (ASU) 2016-09, “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 was adopted using a modified retrospective approach, in which the excess tax benefits related to the vesting of employee stock-based compensation are recorded through earnings in the 2016 period in which they occurred. Accordingly, the excess tax benefits recognized in earnings for the first, second and third quarter of 2016 were $47 thousand, $13 thousand and $385 thousand, respectively. The amounts shown in the first and second quarter income statements and balance sheets in the schedules accompanying this earnings release have been adjusted from the amounts previously reported in the earnings releases for first and second quarters of 2016. Prior to the adoption of ASU 2016-09, excess tax benefits associated with employee stock-based compensation were recorded directly to equity, as a component of additional paid-in capital (“APIC”). Accumulated excess tax benefit recorded in APIC for periods prior to 2016 has been reclassified to retained earnings as of January 1, 2016.

Results of Operations – Third Quarter 2016 Compared to Third Quarter 2015

• Net income for the three months ended September 30, 2016 was $9.4 million, or $0.55 diluted earnings per share, as compared to $7.5 million, or $0.42 diluted earnings per share for the same period in 2015. Contributing to the increase in net income was a $1.9 million increase in net interest income, a $1.0 million reduction in due diligence, merger-related and merger integration costs, and a $300 thousand increase in gain on sale of loans. Partially offsetting these improvements was a $646 thousand increase in other operating expense, a $680 thousand increase in salaries and wages and a $242 thousand increase in Pennsylvania bank shares tax. In addition to the effect of the increased net income, the $0.13 increase in diluted earnings per share was also impacted by the 456,300 shares of Corporation stock repurchased between September 30, 2015 and September 30, 2016 under the stock repurchase program announced on August 6, 2015.
   
• Net interest income for the three months ended September 30, 2016 was $26.7 million, an increase of $1.9 million, or 7.6%, from $24.8 million for the same period in 2015. The increase in net interest income was primarily related to the growth in average loan balances between the periods. Average loans and leases for the three months ended September 30, 2016 increased by $285.3 million from the same period in 2015. The increase in average loan balances was offset by a 15 basis point decrease in tax-equivalent yield earned on loans and leases. The net effect of the yield decrease and volume increase on average loans and leases was a $2.3 million increase in tax-equivalent interest income on loans. Partially offsetting the increase in average loans was an $84.7 million increase in average interest-bearing deposits accompanied by a 10 basis point increase in rate paid on deposits.
   
• The tax-equivalent net interest margin of 3.71% for the three months ended September 30, 2016 was a 6 basis point increase from the same period in 2015. The primary reason for the improvement in the margin was the shift in earning assets from low-yielding interest-earning deposits with banks, to much higher yielding loans and investment securities.
   
• Non-interest income for the three months ended September 30, 2016 increased $542 thousand as compared to the same period in 2015. Contributing to this increase was a $397 thousand increase in other operating income, partially related to the $504 thousand income recognized on deferred compensation trusts, $237 thousand resulting from the pay-off, in full, of a purchased credit-impaired loan which had been recorded at a discount and a $300 thousand increase in gain on sale of loans. Partially offsetting these increases was a $179 thousand decrease in insurance revenues between periods.
   
• Non-interest expense for the three months ended September 30, 2016 increased $74 thousand, as compared to the same period in 2015. Increases in salaries and wages and other operating expenses of $680 thousand and $646 thousand, respectively, were partially offset by a decrease of $1.0 million in due diligence, merger-related and merger integration expenses. The increase in salaries and wages was related to annual salary increases, new staff additions, and increases in incentive compensation. The increase in other operating expenses was primarily related to a $576 thousand increase in the deferred compensation liability. This increase in the deferred compensation liability is offset by earnings associated with the deferred compensation trusts discussed in the non-interest income section above.
   
• The Provision for the three months ended September 30, 2016 of $1.4 million was a $212 thousand increase from the same period in 2015. Net loan and lease charge-offs for the third quarter of 2016 increased by $480 thousand from the same period in 2015.

Financial Condition – September 30, 2016 Compared to December 31, 2015

• Total portfolio loans and leases of $2.49 billion as of September 30, 2016 increased by $224.4 million, or 9.9%, from December 31, 2015. Loan growth was concentrated in the commercial mortgage, commercial and industrial, and construction categories, which increased $125.4 million, $41.0 million and $42.8 million, respectively, since December 31, 2015.
   
• The Allowance as of September 30, 2016 was $17.7 million, or 0.71% of portfolio loans as compared to $15.9 million, or 0.70% of portfolio loans and leases, as of December 31, 2015. In addition to the ratio of Allowance to portfolio loans, management also calculates two non-GAAP measures: the Allowance as a percentage of originated loans and leases, which was 0.81% as of September 30, 2016, as compared to 0.84% as of December 31, 2015, and the Allowance plus the remaining loan mark as a percentage of gross loans, which was 1.24% as of September 30, 2016, as compared to 1.44% as of December 31, 2015. A reconciliation of these and other non-GAAP to GAAP performance measures is included in the appendix to this earnings release.
   
• Available for sale investment securities as of September 30, 2016 were $366.9 million, an increase of $17.9 million from December 31, 2015. Increases of $47.8 million in mortgage-related securities were partially offset by decreases of $24.9 million in U.S. government securities and $4.7 million in municipal obligations.
   
• Total assets as of September 30, 2016 were $3.17 billion, an increase of $143.1 million from December 31, 2015. Increases in loans and leases and available for sale investment securities were partially offset by reductions in interest-bearing deposits with banks, which decreased by $94.5 million.
   
• Wealth assets under management, administration, supervision and brokerage totaled $9.97 billion as of September 30, 2016, an increase of $1.60 billion, or 19.2%, from December 31, 2015. Despite this growth in assets, income related to these services did not grow proportionately, as a larger percentage of the portfolio was comprised of assets held in lower-yielding fixed-fee accounts. As in prior quarters, the proportion of balances in wealth accounts whose fees are tied to their asset values is decreasing relative to that of fixed-fee accounts. The growth in balances in the market-based accounts, which has resulted from solid new business development and strong account retention, was offset by the normal attrition of funds from these accounts, primarily through beneficiary spending. Additionally, much of the growth in wealth assets during the third quarter of 2016 was experienced in September and, as such, has not impacted the fee revenue line since account billings for the prospective period are based on quarter-end asset balances.
   
• Deposits of $2.48 billion as of September 30, 2016 increased $225.2 million from December 31, 2015. Noninterest-bearing deposits increased by $91.3 million, retail time deposits and savings deposits increased by $80.3 million and $41.1 million, respectively, and wholesale time deposits increased by $45.9 million. These increases were partially offset by a combined $30.4 million decrease in money market and NOW accounts.
   
• The capital ratios for the Bank and the Corporation, as of September 30, 2016, as shown in the attached tables, indicate levels well above the regulatory minimum to be considered “well capitalized.” At the Bank level, all capital ratios have increased from their June 30, 2016 levels, primarily due to increases in retained earnings, other comprehensive income and the $15.0 million capital infusion received from the Corporation in the first quarter of 2016. At the Corporation level, most capital levels remain below their December 31, 2015 levels largely due to asset growth.

FORWARD LOOKING STATEMENTS AND SAFE HARBOR
This press release contains statements which, to the extent that they are not recitations of historical fact may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such forward-looking statements may include financial and other projections as well as statements regarding the Corporation’s future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation’s underlying assumptions. The words “may,”  “would,” “should,” “could,” “will,” “likely,” “possibly,” “expect,” “anticipate,” “intend,” “indicate,” “estimate,” “target,” “potentially,” “promising,” “probably,” “outlook,” “predict,” “contemplate,” “continue,” “plan,” “forecast,” “project,” “are optimistic,” “are looking,” “are looking forward” and “believe” or other similar words and phrases may identify forward-looking statements. Persons reading this press release are cautioned that such statements are only predictions, and that the Corporation’s actual future results or performance may be materially different.

Such forward-looking statements involve known and unknown risks and uncertainties.   A number of factors, many of which are beyond the Corporation's control, could cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed, implied or anticipated by such forward-looking statements, and so our business and financial condition and results of operations could be materially and adversely affected. Such factors include, among others, that the integration of acquired businesses with the Corporation’s may take longer than anticipated or be more costly to complete and that the anticipated benefits, including any anticipated cost savings or strategic gains may be significantly harder to achieve or take longer than anticipated or may not be achieved, our need for capital, our ability to control operating costs and expenses, and to manage loan and lease delinquency rates; the credit risks of lending activities and overall quality of the composition of our loan, lease and securities portfolio; the impact of economic conditions, consumer and business spending habits, and real estate market conditions on our business and in our market area; changes in the levels of general interest rates, deposit interest rates, or net interest margin and funding sources; changes in banking regulations and policies and the possibility that any banking agency approvals we might require for certain activities will not be obtained in a timely manner or at all or will be conditioned in a manner that would impair our ability to implement our business plans; changes in accounting policies and practices; the inability of key third-party providers to perform their obligations to us; our ability to attract and retain key personnel; competition in our marketplace; war or terrorist activities; material differences in the actual financial results, cost savings and revenue enhancements associated with our acquisitions; and other factors as described in our securities filings.  All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made.  The Corporation does not undertake to update forward-looking statements.

For a complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, as updated by our quarterly or other reports subsequently filed with the SEC.