BRYN MAWR, Pa., October 18, 2018 – Bryn Mawr Bank Corporation (NASDAQ: Bryn Mawr TrustC) (the “Corporation”), parent of The Bryn Mawr Trust Company (the “Bank”) today reported net income of $16.7 million, or $0.82 diluted earnings per share for the three months ended September 30, 2018, as compared to net income of $14.7 million, or $0.72 diluted earnings per share, for the three months ended June 30, 2018, and $10.7 million, or $0.62 diluted earnings per share, for the three months ended September 30, 2017.
On a non-GAAP basis, core net income, which excludes Tax Cuts and Jobs Act (“Tax Reform”) related income tax charges, due diligence and merger-related expenses and other non-core income and expense items, as detailed in the appendix to this earnings release, was $17.1 million, or $0.84 diluted earnings per share, for the three months ended September 30, 2018, as compared to $17.0 million, or $0.83 diluted earnings per share, for the three months ended June 30, 2018, and $11.2 million, or $0.65 diluted earnings per share, for the three months ended September 30, 2017. 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.
“We continued the momentum of our strong first half into the third quarter, posting record quarterly earnings of $16.7 million,” stated Frank Leto, President and Chief Executive Officer.
“We are excited about the continued organic growth of our loan portfolio and assets held under management by our wealth division,” continued Mr. Leto. “We have seen a 10.6% year to date increase in originated loans and are approaching close to $14 billion in assets under management, increasing $509 million from last quarter or over 15% on an annualized basis,” added Mr. Leto, continuing “Such organic growth contributed to our solid results this quarter and leaves us well positioned to close out the fiscal year on a strong note.”
The Board of Directors of the Corporation declared a quarterly dividend of $0.25 per share, payable December 1, 2018 to shareholders of record as of November 1, 2018.
SIGNIFICANT ITEMS OF NOTE
Results of Operations – Third Quarter 2018 Compared to Second Quarter 2018
- Net income for the three months ended September 30, 2018 was $16.7 million, as compared to net income of $14.7 million for the three months ended June 30, 2018. The provision for loan and lease losses (the “Provision”) for the three months ended September 30, 2018 decreased $2.5 million as compared to the second quarter of 2018. Total noninterest income decreased $1.8 million, total noninterest expense decreased $2.2 million, and income tax expense increased $343 thousand for the three months ended September 30, 2018, as compared to the three months ended June 30, 2018.
On a non-GAAP basis, core net income, which excludes Tax Reform related income tax charges, due diligence and merger-related expenses and other non-core income and expense items, as detailed in the appendix to this earnings release, was $17.1 million, or $0.84 per diluted share, for the three months ended September 30, 2018, as compared to $17.0 million or $0.83 per diluted share, for the three months ended June 30, 2018. 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.
- Net interest income for the three months ended September 30, 2018 was $36.7 million, a decrease of $587 thousand over the linked quarter. The decrease was primarily related to a $1.0 million increase in interest expense on deposits, partially offset by a $414 thousand increase on interest and fees on loans and leases for the three months ended September 30, 2018 as compared to the linked quarter ended June 30, 2018.
- Tax-equivalent net interest income for the three months ended September 30, 2018 was $36.9 million, a decrease of $572 thousand over the linked quarter. Excluding the effect of the accretion of purchase accounting fair value marks, the adjusted tax-equivalent net interest income for the three months ended September 30, 2018 was $35.2 million, a decrease of $56 thousand over the linked quarter.
Tax-equivalent interest and fees on loans and leases for the three months ended September 30, 2018 increased $432 thousand over the linked quarter. Average loans and leases for the three months ended September 30, 2018 increased $26.4 million over the linked quarter and experienced a four basis point decrease in tax-equivalent yield.
Tax-equivalent interest income on available for sale investment securities increased $62 thousand for the third quarter of 2018 as compared to the linked quarter. Average available for sale investment securities decreased by $2.8 million over the linked quarter and experienced a four basis point tax-equivalent yield increase.
Interest expense on deposits for the three months ended September 30, 2018 increased $1.0 million over the linked quarter. Average interest-bearing deposits increased $3.9 million coupled with a 16 basis point increase in the rate paid on deposits. This increase of 16 basis points on our interest-bearing deposits was also a key driver in the decrease in the tax-equivalent net interest margin which decreased six basis points to 3.52% at September 30, 2018 as compared to 3.58% in the linked quarter after adjusting for the impact of purchase accounting in both periods.
- Noninterest income of $18.3 million for the three months ended September 30, 2018 decreased $1.8 million as compared to the second quarter of 2018. Items contributing to the decrease included decreases of $1.4 million, $315 thousand and $148 thousand in capital markets revenue, fees for wealth management services and insurance commissions, respectively. Other operating income for the three months ended September 30, 2018 and June 30, 2018 included $1.2 million and $710 thousand, respectively, of recoveries of purchase accounting fair value marks resulting from the pay off, in full, of purchased credit impaired loans acquired in the Royal Bank merger.
- Noninterest expense of $33.6 million for the three months ended September 30, 2018 decreased $2.2 million as compared to $35.8 million for the second quarter of 2018. The decrease on a linked quarter basis was primarily related to the decrease of $2.7 million in due diligence, merger-related and merger integration expenses. The decrease was partially offset by increases of $479 thousand and $288 thousand of employee benefits and salaries and wages, respectively.
- The Provision decreased $2.5 million for the three months ended September 30, 2018 to $664 thousand, as compared the second quarter of 2018. The decrease in the Provision was primarily related to improvements in qualitative factors related to the current economic environment. Net loan and lease charge-offs for the third quarter of 2018 were relatively unchanged from the second quarter of 2018, decreasing by $23 thousand. Nonperforming loans and leases as of September 30, 2018 totaled $9.0 million, a decrease of $458 thousand from June 30, 2018.
- The effective tax rate for the third quarter of 2018 decreased to 19.6% from 20.2% for the second quarter of 2018. A net discrete tax benefit of $295 thousand was recorded in the third quarter of 2018, as compared to a net discrete tax benefit of $111 thousand in the second quarter of 2018. These discrete items were the result of excess tax benefits from stock-based compensation as well as the re-measurement of certain deferred tax items related to Tax Reform. With the filing of the Corporation’s 2017 income tax returns in the fourth quarter, we expect there will be further discrete tax benefits recorded in 2018.
Results of Operations – Third Quarter 2018 Compared to Third Quarter 2017
- Net income for the three months ended September 30, 2018 was $16.7 million, or $0.82 diluted earnings per share, as compared to $10.7 million, or diluted earnings per share of $0.62 for the same period in 2017. Contributing to the $6.0 million increase in net income was a $7.3 million increase in net interest income and increases of $1.8 million, $692 thousand, and $381 thousand in other operating income, fees for wealth management services, and insurance commissions, respectively. These increases were partially offset by increases of $2.9 million, $796 thousand, $623 thousand, $344 thousand, and $232 thousand in salaries and wages, employee benefits, other operating expenses, furniture, fixtures and equipment and occupancy and bank premises, respectively. These cost increases were primarily related to the addition of the Royal Bank staff and branch infrastructure. Also contributing to the net income increase was the reduction in our effective income tax rate as a result of Tax Reform, which decreased from 30.7% for the three months ended September 30, 2017 to 19.6% for the same period in 2018.
On a non-GAAP basis, core net income, which excludes Tax Reform related income tax charges, due diligence and merger-related expenses and other non-core income and expense items, as detailed in the appendix to this earnings release, was $17.1 million, or $0.84 per diluted share, for the three months ended September 30, 2018 as compared to $11.2 million, or $0.65 per diluted share, for the same period in 2017. 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.
- Tax-equivalent net interest income for the three months ended September 30, 2018 was $36.9 million, an increase of $7.2 million as compared to the same period in 2017.
Tax-equivalent interest and fees on loans and leases increased $11.2 million for the three months ended September 30, 2018 as compared to the same period in 2017. Average loans and leases for the third quarter of 2018 increased $699.4 million from the same period in 2017 and experienced a 36 basis point increase in tax-equivalent yield. Excluding the effect of the accretion of purchase accounting fair value marks on loans and leases, the adjusted tax-equivalent yield on loans and leases experienced a 29 basis point increase from the third quarter of 2018 as compared to the same period in 2017. This increase in average loans and leases was primarily related to the loans and leases acquired in the Royal Bank merger in December 2017 which initially increased loans and leases by $567.3 million, as well as organic loan growth between the periods.
Average available for sale investment securities increased by $78.0 million for the three months ended September 30, 2018 as compared to the same period in 2017 and experienced a 27 basis point tax-equivalent yield increase. The increase in average balances and yield on available for sale investment securities resulted in a $749 thousand increase in tax-equivalent interest income on available for sale investment securities for the third quarter of 2018 as compared to the same period in 2017.
Partially offsetting the effect on net interest income associated with the increase in average loans and leases and available for sale investment securities was a $3.3 million increase in interest expense on deposits for the three months ended September 30, 2018 as compared to the same period in 2017. Average interest-bearing deposits increased by $621.7 million, coupled with a 41 basis point increase in rate paid for the third quarter of 2018 as compared to the same period in 2017. The increase in average interest-bearing deposits for the third quarter of 2018 as compared to the same period in 2017 was largely related to the interest-bearing deposits assumed in the Royal Bank merger, which initially totaled $494.8 million.
In addition to the increased interest expense on deposits, interest expense on long- and short-term borrowings increased $298 thousand for the three months ended September 30, 2018 as compared to the same period in 2017. The increase was primarily attributed to a 118 basis point increase in rate paid for the third quarter of 2018 as compared to the same period in 2017.
Interest expense on subordinated debt and junior subordinated debt increased $774 thousand and $337 thousand, respectively, for the three months ended September 30, 2018 as compared to the same period in 2017. Average subordinated notes for the three months ended September 30, 2018 increased $68.9 million as compared to the same period in 2017 with the rate paid decreasing by 36 basis points to 4.61% for the three months ended September 30, 2018. The volume increase in subordinated notes was the result of the December 13, 2017 issuance of $70 million ten-year, 4.25% fixed-to-floating subordinated notes. Average junior subordinated debentures for the three months ended September 30, 2018 increased $21.5 million as compared to the same period in 2017 as the Corporation acquired $21.4 million of floating rate junior subordinated debentures, currently at a 6.22% rate, in the Royal Bank merger.
- The tax-equivalent net interest margin was 3.69% for the three months ended September 30, 2018 as compared to 3.71% for the same period in 2017. Adjusting for the impact of the accretion of purchase accounting fair value marks, the adjusted tax-equivalent net interest margin was 3.52% and 3.62% for three months ended September 30, 2018 and 2017, respectively. Key drivers responsible for the ten basis point decrease included the 41 basis point increase in rate paid on interest-bearing deposits coupled with average balance increases of $68.9 million and $21.5 million in subordinated notes and junior subordinated debentures, respectively, for the three months ended September 30, 2018 as compared to the same period in 2017.
- Noninterest income of $18.3 million for the three months ended September 30, 2018 increased by $2.7 million as compared to the same period in 2017. Increases of $1.8 million, $692 thousand and $381 thousand in other operating income, fees for wealth management services and insurance commissions, respectively, were recorded. The $1.8 million increase in other operating income was primarily related to a $1.2 million recovery of a purchase accounting fair value mark resulting from the pay off, in full, of a purchased credit impaired loan acquired in the Royal Bank merger. The increase in fees for wealth management services related to the $1.48 billion increase in wealth assets under management, administration, supervision and brokerage between September 30, 2018 and September 30, 2017.
- Noninterest expense of $33.6 million for the three months ended September 30, 2018 increased $5.4 million as compared to the same period in 2017. Contributing to the $5.4 million increase were increases of $2.9 million, $796 thousand, $623 thousand, $344 thousand, and $232 thousand in salaries and wages, employee benefits, other operating expenses, furniture, fixtures and equipment and occupancy and bank premises expenses, respectively. A majority of these increases were related to the additional expenses associated with the staff and facilities assumed in the Royal Bank merger. Partially offsetting the increase in noninterest expense was a decrease of $461 thousand of due diligence, merger-related and merger integration expenses for the three months ended September 30, 2018 as compared to the same period in 2017.
- The Provision of $664 thousand for the three months ended September 30, 2018 decreased $669 thousand as compared to $1.3 million for the same period in 2017. The decrease in the Provision was primarily related to improvements in qualitative factors related to the current economic environment. Net charge-offs for the third quarter of 2018 were $1.4 million as compared to $728 thousand for the same period in 2017. Nonperforming loans and leases as of September 30, 2018 totaled $9.0 million, an increase of $4.5 million from September 30, 2017.
- The effective tax rate for the third quarter of 2018 decreased to 19.6% from 30.7% for the third quarter of 2017, primarily due to the reduced tax rates as a result of Tax Reform.
Financial Condition – September 30, 2018 Compared to December 31, 2017
- Total assets as of September 30, 2018 were $4.39 billion, a decrease of $61.3 million from December 31, 2017. Increases in portfolio loans and leases were largely offset by a decrease in available for sale investment securities discussed in the bullet point below.
- Available for sale investment securities as of September 30, 2018 totaled $528.1 million, a decrease of $161.1 million from December 31, 2017. The decrease is primarily due to the maturing, in January 2018, of $200 million of short-term U.S. Treasury bills, partially offset by increases of $39.4 million and $9.4 million in the U.S. government and agencies and the mortgage-backed securities segments of the portfolio, respectively.
- Total portfolio loans and leases of $3.38 billion as of September 30, 2018 increased by $95.6 million from December 31, 2017, an increase of 2.9%. Increases of $95.1 million, $23.1 million, $9.7 million, $8.5 million and $3.7 million in commercial mortgages, leases, consumer loans, residential mortgages, and commercial and industrial loans, respectively, were offset by decreases of $34.0 million and $10.5 million in construction loans and home equity loans and lines, respectively.
- The allowance for loan and lease losses (the “Allowance”) as of September 30, 2018 was $18.7 million, or 0.55% of portfolio loans and leases, as compared to $17.5 million, or 0.53% of portfolio loans and leases as of December 31, 2017. In addition to the ratio of Allowance to portfolio loans and leases, management also calculates two non-GAAP measures: the Allowance of originated loans and leases as a percentage of originated loans and leases, which was 0.68% as of September 30, 2018, as compared to 0.70% as of December 31, 2017, and the Allowance plus the remaining loan mark as a percentage of gross loans, which was 1.28% as of September 30, 2018, as compared to 1.58% as of December 31, 2017. The 30 basis point decrease in the Allowance plus the remaining loan mark as a percentage of gross loans non-GAAP measure is primarily related to the decrease in the remaining loan mark from $34.8 million as of December 31, 2017 to $25.0 million as of September 30, 2018 coupled with the increase in portfolio loans between the respective dates. A reconciliation of these and other non-GAAP to GAAP performance measures is included in the appendix to this earnings release.
- Deposits of $3.36 billion as of September 30, 2018 decreased $16.6 million from December 31, 2017. Decreases of $90.5 million, $52.3 million, $50.6 million, and $38.2 million in noninterest-bearing deposits, savings accounts, money market accounts, and wholesale non-maturity deposits, respectively, were partially offset by increases of $96.9 million and $89.2 million in interest-bearing demand accounts and wholesale time deposits, respectively.
- Borrowings of $419.4 million as of September 30, 2018, which include short-term borrowings, long-term FHLB advances, subordinated notes and junior subordinated debentures, decreased $77.5 million from December 31, 2017. The decrease was comprised of a $66.3 million decrease in long-term FHLB advances, and a $11.4 million decrease in short-term borrowings.
- Wealth assets under management, administration, supervision and brokerage totaled $13.91 billion as of September 30, 2018, an increase of $944.5 million from December 31, 2017.
- The capital ratios for the Bank and the Corporation, as of September 30, 2018, as shown in the attached tables, indicate levels above the regulatory minimum to be considered “well capitalized.”
