BMBC Reports Record Quarterly Earnings of $15.3M

BMBC Reports Record Quarterly Earnings of $15.3 Million in First Full Quarter with Royal Bank, Driven by $7.1 Million Increase in Net Interest Income and Strong Noninterest Revenues, Declares $0.22 Dividend

BRYN MAWR, Pa., April 19, 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 $15.3 million, or $0.75 diluted earnings per share for the three months ended March 31, 2018, as compared to a net loss of $6.2 million, or $(0.35) diluted loss per share, for the three months ended December 31, 2017, and $9.0 million, or $0.53 diluted earnings per share, for the three months ended March 31, 2017.

On a non-GAAP basis, core net income, which excludes due diligence and merger-related expenses, income tax charges related to re-measurement of net deferred tax assets, and certain other non-core income and expense items, as detailed in the appendix to this earnings release, was $19.3 million, or $0.94 diluted earnings per share, for the three months ended March 31, 2018, as compared to $11.3 million, or $0.63 diluted earnings per share, for the three months ended December 31, 2017, and $9.4 million, or $0.55 diluted earnings per share, for the three months ended March 31, 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 are pleased with the solid results posted in the first quarter. Our merger with Royal Bank, which closed at the end of 2017, has already begun to have a significant impact on our bottom line,” stated Frank Leto, President and Chief Executive Officer. “We successfully completed the combination of our banking systems in late February, and with all branch locations now operating under the Bryn Mawr Trust banner, we are able to offer an expanded range of financial solutions to clients from both institutions,” continued Mr. Leto.

“The strong results we witnessed this quarter included increases in net interest income, wealth management fees, insurance revenues and other operating income, along with the reduced income tax burden as a result of the Tax Cuts and Jobs Act,” added Mr. Leto, continuing, “We are excited about the savings and additional capital that the Tax Reform legislation has and will continue to create. We intend to put some of these benefits to work through investments in our businesses, team members, and the communities we serve. We are actively evaluating investments to further our private banking strategy, enhance our systems to improve client experience and advance the development of our operating platform, all with the goal of increasing shareholder value by positioning ourselves for future growth and performance.”

The Board of Directors of the Corporation declared a quarterly dividend of $0.22 per share, payable June 1, 2018 to shareholders of record as of May 1, 2018.

SIGNIFICANT ITEMS OF NOTE

Results of Operations – First Quarter 2018 Compared to Fourth Quarter 2017

Net income for the three months ended March 31, 2018 was $15.3 million, as compared to a net loss of $6.2 million for the three months ended December 31, 2017. The primary cause of the net loss in the fourth quarter of 2017 was the $15.2 million income tax charge related to the re-measurement of net deferred tax assets as a result of the Tax Cuts and Jobs Act (“Tax Reform”). Aside from the decrease in income tax expense, net interest income for the three months ended March 31, 2018 increased by $7.1 million, as the loans and leases acquired in the Royal Bank merger contributed to the $8.4 million increase in interest on loans and leases. In addition to the increase in net interest income, fees for wealth management services, commissions and fees from our insurance division, net gain on sale of other real estate owned and other operating income increased by $334 thousand, $183 thousand, $268 thousand and $2.8 million, respectively, for the three months ended March 31, 2018, as compared to the three months ended December 31, 2017.

On a non-GAAP basis, core net income, which excludes the above 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 $19.3 million, or $0.94 per diluted share for the three months ended March 31, 2018, as compared to $11.3 million or $0.63 per diluted share for the fourth quarter of 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.

Net interest income for the first quarter of 2018 increased $7.1 million, or 23.5%, over the linked quarter ended December 31, 2017. Average interest-earning assets increased $515.5 million, primarily as a result of the loans and leases acquired from Royal Bank. Average loans and leases increased $486.0 million between the fourth quarter of 2017 and the first quarter of 2018. The increase in interest-earning assets was accompanied by a $457.6 million increase in interest-bearing liabilities, which was also largely the result of interest-bearing deposits and junior subordinated debentures acquired from Royal Bank and the $70 million of subordinated notes issued in December 2017.
Tax-equivalent net interest income for the three months ended March 31, 2018 was $37.5 million, an increase of $7.0 million over the linked quarter, driven by the assets and liabilities acquired from Royal Bank as well as a $2.7 million increase in the accretion of purchase accounting fair value marks between the quarters.

Tax-equivalent interest and fees on loans and leases for the three months ended March 31, 2018 increased $8.4 million over the linked quarter. Average loans and leases for the three months ended March 31, 2018 increased $486.0 million over the previous quarter and experienced a 44 basis point increase in tax-equivalent yield.

Average available for sale investment securities increased by $31.2 million over the linked quarter, and experienced a 12 basis point tax-equivalent yield increase. The increase in volume and yield on available for sale investment securities resulted in a $254 thousand increase in tax-equivalent interest income for the first quarter of 2018 as compared to the fourth quarter of 2017. The majority of the investment portfolio acquired from Royal Bank was sold immediately following the close of the merger and did not impact interest income from available for sale investment securities.

Interest expense on deposits for the three months ended March 31, 2018 increased $733 thousand over the linked quarter. Average interest-bearing deposits increased $404.3 million accompanied by a five basis point increase in the rate paid on deposits. The increase in average interest-bearing deposits was largely related to the deposits acquired from Royal Bank.

Average subordinated notes for the three months ended March 31, 2018 increased $54.6 million over the linked quarter with the rate paid increasing by two basis points to 4.71%. The increase was primarily related to the $70 million of 4.25% fixed-to-floating subordinated notes issued on December 13, 2017. Average junior subordinated debentures for the three months ended March 31, 2018 increased $21.4 million over the linked quarter as the Corporation acquired $21.4 million of floating rate junior subordinated debentures currently at an effective rate of 5.45% from the Royal Bank merger. The volume increase in both borrowing types resulted in an increase in interest expense on subordinated notes and junior subordinated debentures of $625 thousand and $242 thousand, respectively, on a linked-quarter basis.

The tax-equivalent net interest margin was 3.94% for the first quarter of 2018 as compared to 3.62% for the fourth quarter of 2017. Adjusting for the impact of the accretion of purchase accounting fair value marks, the adjusted tax-equivalent net interest margin was 3.62% and 3.58% for the first quarter of 2018 and fourth quarter of 2017, respectively, an increase of four basis points.
Noninterest income for the three months ended March 31, 2018 of $19.5 million increased $4.0 million from the fourth quarter of 2017. Items contributing to the increase included a $2.8 million increase in other operating income comprised primarily of a $2.3 million recovery of the purchase accounting fair value mark that had been recorded on a purchased credit impaired loan acquired from Royal Bank, which paid off, in full, during the first quarter of 2018. A $334 thousand increase in fees for wealth management services, a $183 thousand increase in insurance revenue and a $268 thousand increase in net gain on sale of other real estate owned were also recorded during the quarter.
Noninterest expense for the three months ended March 31, 2018 increased $5.0 million, to $36.0 million, as compared to $31.0 million for the fourth quarter of 2017. The increase on a linked-quarter basis was related to increases of $2.4 million in salaries and wages, $991 thousand in employee benefits and $402 thousand in occupancy and bank premises, all of which were directly related to the staff and facilities additions from the Royal Bank merger. In addition, due diligence, merger-related and merger integration expenses increased $812 thousand on a linked-quarter basis. While much of the merger-related expenses associated with the Royal Bank merger were recorded at the time of the merger, certain expenses incurred in connection with the banking system conversion, contract terminations and lease terminations are recorded as they are incurred.
For the three months ended March 31, 2018, net loan and lease charge-offs totaled $893 thousand, as compared to $556 thousand for the fourth quarter of 2017. The provision for loan and lease losses (the “Provision”) for the three months ended March 31, 2018 was $1.0 million, a $47 thousand decrease from $1.1 million for the fourth quarter of 2017. The credit quality of the loan and lease portfolio remains stable, with the increase in the allowance for loan and lease losses (the “Allowance”) largely related to the organic growth of the portfolio. Nonperforming loans as of March 31, 2018 totaled $7.5 million, a decrease of $1.0 million from December 31, 2017.
Income tax expense for the first quarter of 2018 decreased $15.3 million as compared to the fourth quarter of 2017. Included in tax expense for both the fourth quarter of 2017 and the first quarter of 2018 were discrete tax charges of $15.2 million and $590 thousand, respectively, related to the re-measurement of net deferred tax assets as a result of Tax Reform. Excluding these discrete income tax charges related to Tax Reform, the effective tax rate for the first quarter of 2018 was 20.3% as compared to 34.5% for the fourth quarter of 2017.

Results of Operations – First Quarter 2018 Compared to First Quarter 2017

Net income for the three months ended March 31, 2018 was $15.3 million, or $0.75 diluted earnings per share, as compared to $9.0 million, or diluted earnings per share of $0.53 for the same period in 2017. Contributing to the $6.2 million increase in net income was a $10.0 million increase in net interest income and increases of $1.0 million, $930 thousand, $666 thousand and $3.2 million in fees for wealth management services, insurance commissions, capital markets revenue and other operating income, respectively. These increases were partially offset by increases of $3.5 million, $1.2 million and $524 thousand in salaries and wages, employee benefits and occupancy and bank premises expenses, respectively. These cost increases were primarily related to the addition of the Royal Bank staff and branch infrastructure and, to a lesser extent, the addition of Hirshorn Boothby in May 2017 and the establishment of our Capital Markets group in the second quarter of 2017. 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 33.9% for the three months ended March 31, 2017 to 23.3% for the same period in 2018. Included in the rate for the first quarter of 2018 was the effect of a discrete tax charge related to the re-measurement of net deferred tax assets, associated with Tax Reform. Excluding this discrete item, the effective rate for the first quarter of 2018 was 20.3%.

On a non-GAAP basis, core net income, which excludes the above 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 $19.3 million, or $0.94 per diluted share for the three months ended March 31, 2018 as compared to $9.4 million, or $0.55 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 March 31, 2018 was $37.5 million, an increase of $9.9 million over the same period in 2017. Contributing to the increase was a $2.3 million increase in the accretion of purchase accounting fair value marks between the first quarters of 2018 and 2017.

Tax-equivalent interest and fees on loans and leases increased $12.1 million for the three months ended March 31, 2018 as compared to the same period in 2017. Average loans and leases for the first quarter of 2018 increased $735.5 million from the same period in 2017 and experienced a 48 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 increased by 27 basis points between the first quarters of 2017 and 2018. The increases in short-term rates during 2017 and 2018 contributed to the increase in tax-equivalent yield on loans. The increase in average loans and leases for the first quarter of 2018 as compared to the same period in 2017 was related to the loans and leases acquired in the Royal Bank merger which initially increased loans and leases by $567.3 million, as well as organic loan growth during the period.

Average available for sale investment securities increased by $133.5 million for the three months ended March 31, 2018 as compared to the same period in 2017, and experienced a 26 basis point tax-equivalent yield increase. The increase in volume and yield on available for sale investment securities resulted in a $958 thousand increase in tax-equivalent interest income on available for sale investment securities for the first quarter of 2018 as compared to the same period in 2017.

Partially offsetting the effect on interest income associated with the increase in average loans and leases and available for sale investment securities was a $1.6 million increase in interest expense on deposits for the first quarter of 2018 as compared to the same period in 2017. Average interest-bearing deposits increased by $583.3 million, accompanied by an 18 basis point increase in rate paid between the first quarters of 2018 and 2017. The increase in average interest-bearing deposits between the first quarters of 2018 and 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, a $467 thousand increase in interest expense on long- and short-term borrowings between the periods was attributed to a $66.3 million increase in average long- and short-term borrowings coupled with a 153 basis point increase in rate paid on long- and short-term borrowings for the three months ended March 31, 2018 as compared to the same period in 2017.

Average subordinated notes for the three months ended March 31, 2018 increased $68.9 million as compared to the same period in 2017 with the rate paid decreasing by 37 basis points to 4.71% for the three months ended March 31, 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 March 31, 2018 increased $21.4 million compared to the same period in 2017 as the Corporation acquired $21.4 million of floating rate junior subordinated debentures, currently at a 5.45% rate, from the Royal Bank merger. The volume increase in both sub debt types and rate decrease in the subordinated notes in the first quarter of 2018 resulted in an increase in interest expense on subordinated notes and junior subordinated debentures of $773 thousand and a $288 thousand, respectively, for the three months ended March 31, 2018 as compared to the same period in 2017.

The tax-equivalent net interest margin was 3.94% for the three months ended March 31, 2018 as compared to 3.74% 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 3.62% and 3.63% for three months ended March 31, 2018 and 2017, respectively.
Noninterest income for the three months ended March 31, 2018 increased by $6.3 million, to $19.5 million, from the same period in 2017. Increases of $1.0 million, $930 thousand, $666 thousand, and $3.2 million in fees for wealth management services, insurance commissions, capital markets revenues and other operating income, respectively, were recorded. The increase in fees for wealth management services was related to the $1.42 billion increase in wealth assets under management, administration, supervision and brokerage between March 31, 2017 and March 31, 2018. The increase in insurance commissions was primarily related to the May 2017 acquisition of Hirshorn Boothby which expanded our insurance division into the City of Philadelphia. Our Capital Markets group, which began operations in the second quarter of 2017, contributed significantly to our noninterest income totals. The $3.2 million increase in other operating income was primarily related to a $2.3 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.
Noninterest expense for the three months ended March 31, 2018 increased $9.4 million, to $36.0 million, from the same period in 2017. A majority of the increase was related to the additional expenses associated with the staff and facilities assumed in the Royal Bank merger. In addition, the May 2017 acquisition of Hirshorn Boothby and the formation of our Capital Markets group in the second quarter of 2017 contributed to the increase in noninterest expense. Due diligence, merger-related and merger integration expenses also experienced an increase of $3.8 million between the quarters, primarily related to the Royal Bank merger.
For the three months ended March 31, 2018, the Provision was $1.0 million, which was an increase of $739 thousand from the same period in 2017. Net charge-offs for the first quarter of 2018 were $893 thousand as compared to $670 thousand for the same period in 2017.

Financial Condition – March 31, 2018 Compared to December 31, 2017

Total portfolio loans and leases of $3.31 billion as of March 31, 2018 increased by $19.9 million from December 31, 2017, an annualized increase rate of 2.4%. Increases of $18.1 million, $10.3 million, $7.9 million and $6.0 million in commercial mortgages, consumer loans, commercial and industrial loans and leases, respectively, were offset by decreases of $10.3 million, $6.8 million and $5.2 million in construction loans, home equity loans and lines and residential mortgages, respectively, between the dates.
The Allowance as of March 31, 2018 was $17.6 million, or 0.53% 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 as a percentage of originated loans and leases, which was 0.69% as of March 31, 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 1.50% as of March 31, 2018, as compared to 1.58% as of December 31, 2017. 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 March 31, 2018 totaled $534.1 million, a decrease of $155.1 million from December 31, 2017. The decrease in available for sale investment securities was primarily related to the maturing, in January 2018, of $200.0 million of short-term U.S. Treasury securities.
Total assets as of March 31, 2018 were $4.30 billion, a decrease of $149.3 million from December 31, 2017. The decrease in available for sale investment securities described in the previous bullet point accounted for the majority of the decrease.
Wealth assets under management, administration, supervision and brokerage totaled $13.15 billion as of March 31, 2018, an increase of $178.2 million from December 31, 2017. The increase in wealth assets was comprised of a $191.5 million decrease in account balances whose fees are based on market value, and a $369.7 million increase in fixed rate flat-fee account types.
Deposits of $3.32 billion as of March 31, 2018 decreased $58.3 million from December 31, 2017. Decreases of $61.7 million and $29.6 million in noninterest-bearing and savings accounts, respectively, were partially offset by a $48.1 million increase in interest-bearing demand accounts.
Borrowings of $401.4 million as of March 31, 2018, which include short-term borrowings, long-term FHLB advances, subordinated notes and junior subordinated debentures, decreased $95.4 million from December 31, 2017. The decrease was comprised of a $64.1 million decrease in short-term borrowings, and a $31.4 million decrease in long-term FHLB advances.
The capital ratios for the Bank and the Corporation, as of March 31, 2018, as shown in the attached tables, indicate levels above the regulatory minimum to be considered “well capitalized.” Excluding the Bank’s and Corporation’s Tier I leverage ratio, all regulatory capital ratios increased from their December 31, 2017 levels primarily as a result of the increase in retained earnings. The Tier I leverage ratio, which is the ratio of Tier I capital to average quarterly assets, for both the Bank and Corporation decreased from December 31, 2017, as the assets acquired in the Royal Bank merger were present for a full quarter.