Bryn Mawr Bank Corporation Reports Second Quarter Net Income of $14.7 Million, Continues Expansion With Domenick Acquisition, Increases Dividend 13.6% to $0.25 per share

BRYN MAWR, Pa., July 19, 2018 (GLOBE NEWSWIRE) — Bryn Mawr Bank Corporation (NASDAQ:BMTC) (the “Corporation”), parent of The Bryn Mawr Trust Company (the “Bank”) today reported net income of $14.7 million, or $0.72 diluted earnings per share for the three months ended June 30, 2018, as compared to net income of $15.3 million, or $0.75 diluted earnings per share, for the three months ended March 31, 2018, and $9.4 million, or $0.55 diluted earnings per share, for the three months ended June 30, 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 $17.0 million, or $0.83 diluted earnings per share, for the three months ended June 30, 2018, as compared to $19.3 million, or $0.94 diluted earnings per share, for the three months ended March 31, 2018, and $10.2 million, or $0.59 diluted earnings per share, for the three months ended June 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.

“Our strategic initiatives and the benefits from the Royal Bank merger contributed to our strong second quarter results enabling us to increase the rate of growth of our loan portfolio by over 10% on an annualized basis and expand the contribution of key areas of fee income most notably in the wealth, insurance and capital markets groups,” stated Frank Leto, President and Chief Executive Officer. Adding, “We expect to continue this momentum into the coming quarters.”

“As I have noted in previous quarters, the benefits of the Tax Cuts and Jobs Act provides a unique opportunity for us to evaluate our strategy and the level and pace of the investments related to its execution. As we gain more clarity around the opportunity, it is apparent to us that we are uniquely positioned to exploit the current competitive landscape and that accelerating the investments in our business is an appropriate use for a portion of the excess earnings associated with the lower tax rates.” Leto continued, “To that end, we plan to invest additional resources to enhance our talent and technology with the explicit intent of improving our long-term growth trajectory, while at the same time increasing near-term shareholder return as evidenced by the increase in our quarterly dividend we announced today.”

The Board of Directors of the Corporation declared a quarterly dividend of $0.25 per share, an increase of $0.03 per share from the prior quarterly dividend, payable September 1, 2018 to shareholders of record as of August 1, 2018.

SIGNIFICANT ITEMS OF NOTE

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

• Net income for the three months ended June 30, 2018 was $14.7 million, as compared to net income of $15.3 million for the three months ended March 31, 2018. The provision for loan and lease losses (the “Provision”) for the three months ended June 30, 2018 increased $2.1 million as compared to the first quarter 2018. Total noninterest income increased $539 thousand, total noninterest expense decreased $194 thousand, and income tax expense decreased $907 thousand for the three months ended June 30, 2018, as compared to the three months ended March 31, 2018.

  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 $17.0 million, or $0.83 per diluted share, for the three months ended June 30, 2018, as compared to $19.3 million or $0.94 per diluted share, for the three months ended March 31, 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 second quarter of 2018 remained relatively flat over the linked quarter ended March 31, 2018. Average interest-earning assets increased $75.1 million, primarily attributable to a $62.1 million increase of average loans and leases between the first and second quarters of 2018. The increase in interest-earning assets was accompanied by a $64.8 million increase in interest-bearing liabilities, which consisted of a $53.8 million increase of average interest-bearing deposits and an $11.0 million increase in average total borrowings between the first and second quarters of 2018.

• Tax-equivalent net interest income for the three months ended June 30, 2018 was $37.4 million, a decrease of $96 thousand over the linked quarter. Excluding the effect of the accretion of purchase accounting fair value marks, the adjusted tax-equivalent net interest income increased $713 thousand between the second and first quarters of 2018.

  Tax-equivalent interest and fees on loans and leases for the three months ended June 30, 2018 increased $1.0 million over the linked quarter. Average loans and leases for the three months ended June 30, 2018 increased $62.1 million over the linked quarter and experienced a two basis point decrease in tax-equivalent yield.

  Average available for sale investment securities increased by $14.0 million over the linked quarter, and experienced a 7 basis point tax-equivalent yield increase. The increase in volume and yield on available for sale investment securities resulted in a $206 thousand increase in tax-equivalent interest income for the second quarter of 2018 as compared to the first quarter of 2018.

  Interest expense on deposits for the three months ended June 30, 2018 increased $1.0 million over the linked quarter. Average interest-bearing deposits increased $53.8 million accompanied by a 14 basis point increase in the rate paid on deposits. This increase of 14 basis points on our interest-bearing deposits was also a key driver in the decrease in the tax-equivalent net interest margin which decreased 4 basis points to 3.58% at June 30, 2018 compared to 3.62% in the linked quarter after adjusting for the impact of purchase accounting in both periods.

• Noninterest income for the three months ended June 30, 2018 of $20.1 million increased $539 thousand from the first quarter of 2018. Items contributing to the increase included increases of $1.4 million, $350 thousand and $209 thousand in capital markets revenue, fees for wealth management services and insurance revenue, respectively. The increases were partially offset by a $1.3 million decrease in other operating income primarily due to a $2.3 million recovery of a purchase accounting fair value mark recorded during the first quarter of 2018 as compared to a $710 thousand recovery of a purchase accounting fair value mark recorded during the second quarter of 2018.

• Noninterest expense for the three months ended June 30, 2018 decreased $194 thousand, to $35.8 million, as compared to $36.0 million for the first quarter of 2018. The decrease on a linked quarter basis was primarily related to the decrease of $1.3 million in due diligence, merger-related and merger integration expenses. A reduction in merger-related expenses related to the Royal Bank merger was partially offset by increased merger-related expenses from the May 2018 acquisition of Domenick and Associates (“Domenick”). 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.

• The Provision increased $1.0 million for the three months ended June 30, 2018 to $3.1 million, as compared the first quarter of 2018. The increase in the Provision was primarily related to the organic growth of the portfolio, and charge-offs of both collateral-dependent loans and leases that arose during the second quarter. For the three months ended June 30, 2018, net loan and lease charge-offs totaled $1.4 million, as compared to $893 thousand for the first quarter of 2018. Nonperforming loans and leases as of June 30, 2018 totaled $9.4 million, an increase of $1.9 million from March 31, 2018.

• The effective tax rate for the second quarter of 2018 decreased to 20.2% from 23.3% for the first quarter of 2018. The decrease was partially related to a decline in the projected effective tax rate for the year. In addition, a net discrete tax benefit of $111 thousand was recorded in the second quarter of 2018, as compared to a net discrete tax expense of $229 thousand in the first quarter of 2018. These discrete items were the result of excess tax benefits from stock-based compensation as well as the re-measurement of deferred tax items related to Tax Reform.

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

• Net income for the three months ended June 30, 2018 was $14.7 million, or $0.72 diluted earnings per share, as compared to $9.4 million, or diluted earnings per share of $0.55 for the same period in 2017. Contributing to the $5.3 million increase in net income was a $9.4 million increase in net interest income and increases of $1.8 million, $1.2 million, $959 thousand and $851 thousand in other operating income, capital markets revenue, insurance revenue and fees for wealth management services, respectively. These increases were partially offset by increases of $2.6 million, $1.8 million, $473 thousand and $450 thousand in salaries and wages, due diligence, merger-related and merger integration expenses, 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 34.2% for the three months ended June 30, 2017 to 20.2% 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 $17.0 million, or $0.83 per diluted share, for the three months ended June 30, 2018 as compared to $10.2 million, or $0.59 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 June 30, 2018 was $37.4 million, an increase of $9.2 million over the same period in 2017.

  Tax-equivalent interest and fees on loans and leases increased $12.5 million for the three months ended June 30, 2018 as compared to the same period in 2017. Average loans and leases for the second quarter of 2018 increased $737.7 million from the same period in 2017 and experienced a 51 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 34 basis points between the second quarters of 2018 and 2017. The increase in average loans and leases for the second quarter of 2018 as compared to the same period in 2017 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 $113.1 million for the three months ended June 30, 2018 as compared to the same period in 2017, and experienced a 24 basis point tax-equivalent yield increase. The increase in volume and yield on available for sale investment securities resulted in a $891 thousand increase in tax-equivalent interest income on available for sale investment securities for the second 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 $2.5 million increase in interest expense on deposits for the second quarter of 2018 as compared to the same period in 2017. Average interest-bearing deposits increased by $635.6 million, accompanied by a 29 basis point increase in rate paid between the second quarters of 2018 and 2017. The increase in average interest-bearing deposits between the second 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 $556 thousand increase in interest expense on long- and short-term borrowings between the periods was attributed to a $36.9 million increase in average long- and short-term borrowings coupled with a 130 basis point increase in rate paid on long- and short-term borrowings for the three months ended June 30, 2018 as compared to the same period in 2017.

  Average subordinated notes for the three months ended June 30, 2018 increased $68.9 million as compared to the same period in 2017 with the rate paid decreasing by 36 basis points to 4.66% for the three months ended June 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 June 30, 2018 increased $21.5 million compared to the same period in 2017 as the Corporation acquired $21.4 million of floating rate junior subordinated debentures, currently at a 6.00% rate, in the Royal Bank merger. The volume increase in both subordinated debt types and rate decrease in the subordinated notes in the second quarter of 2018 resulted in an increase in interest expense on subordinated notes and junior subordinated debentures of $773 thousand and $321 thousand, respectively, for the three months ended June 30, 2018 as compared to the same period in 2017.

• The tax-equivalent net interest margin was 3.81% for the three months ended June 30, 2018 as compared to 3.68% 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 3.58% and 3.62% for three months ended June 30, 2018 and 2017, respectively. Key drivers responsible for the decrease four basis point decrease included the 29 basis point increase in rate paid on interest-bearing deposits coupled with increases of $68.9 million and $21.5 million in average subordinated notes and average junior subordinated debentures, respectively for the three months ended June 30, 2018 as compared to the same period in 2017.

• Noninterest income for the three months ended June 30, 2018 increased by $5.3 million, to $20.1 million, from the same period in 2017. Increases of $1.8 million, $1.2 million, $959 thousand and $851 thousand in other operating income, capital markets revenue, insurance revenue and fees for wealth management services, respectively, were recorded. The increase in fees for wealth management services related to the $1.35 billion increase in wealth assets under management, administration, supervision and brokerage between June 30, 2018 and June 30, 2017. The increase in insurance commissions was primarily related to the May 2017 acquisition of Hirshorn Boothby and, to a lesser extent, the May 2018 acquisition of Domenick which further 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 $1.8 million increase in other operating income was primarily related to a $710 thousand 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 and a $310 thousand recovery during the second quarter of 2018 of loans and leases previously charged-off by Royal Bank.

• Noninterest expense for the three months ended June 30, 2018 increased $7.3 million, to $35.8 million, from the same period in 2017. A majority of the increase 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, the formation of our Capital Markets group in the second quarter of 2017, and, to a lesser extent, the May 2018 acquisition of Domenick contributed to the increase in noninterest expense. Due diligence, merger-related and merger integration expenses also experienced an increase of $1.8 million for the three months ended June 30, 2018 as compared to the same period in 2017, primarily related to the Royal Bank merger and the May 2018 acquisition of Domenick.

• The Provision increased $3.2 million for the three months ended June 30, 2018 as compared to the same period in 2017. The increase in the Provision was primarily related to the organic growth of the portfolio, charge-offs of both collateral-dependent loans and non-performing leases that arose during the second quarter and to a lesser extent, adjustments in certain qualitative factors. Net charge-offs for the second quarter of 2018 were $1.4 million as compared to $625 thousand for the same period in 2017. Nonperforming loans and leases as of June 30, 2018 totaled $9.4 million, an increase of $2.2 million from June 30, 2017.

• The effective tax rate for the second quarter of 2018 decreased to 20.2% from 34.2% for the second quarter of 2017, primarily due to the reduced tax rates as a result of Tax Reform.

Financial Condition – June 30, 2018 Compared to December 31, 2017

• Total assets as of June 30, 2018 were $4.39 billion, a decrease of $55.5 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 June 30, 2018 totaled $531.1 million, a decrease of $158.1 million from December 31, 2017. The decrease between the two periods is primarily due to the maturing, in January 2018, of $200 million of short-term U.S. Treasury bills, partially offset by increases of $32.2 million and $17.6 million in the U.S. government and agencies and the mortgage-backed securities segments of the portfolio, respectively.

• Total portfolio loans and leases of $3.39 billion as of June 30, 2018 increased by $103.6 million from December 31, 2017, an increase of 3.2%. Increases of $90.3 million, $26.0 million, $17.2 million and $13.3 million in commercial mortgages, commercial and industrial loans, leases, and consumer loans, respectively, were offset by decreases of $21.6 million, $11.8 million and $9.8 million in construction loans, home equity loans and lines and residential mortgages, respectively, between the dates.

• The allowance for loan and lease losses (the “Allowance”) as of June 30, 2018 was $19.4 million, or 0.57% 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 0.71% as of June 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 1.35% as of June 30, 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.

• Deposits of $3.36 billion as of June 30, 2018 decreased $14.9 million from December 31, 2017. Decreases of $48.1 million, $46.7 million, $25.5 million, and $32.5 million in money market accounts, savings accounts, wholesale non-maturity deposits, and noninterest-bearing deposits, respectively, were partially offset by a $135.9 million increase in interest-bearing demand accounts.

• Borrowings of $434.9 million as of June 30, 2018, which include short-term borrowings, long-term FHLB advances, subordinated notes and junior subordinated debentures, decreased $62.0 million from December 31, 2017. The decrease was comprised of a $51.3 million decrease in long-term FHLB advances, and a $10.8 million decrease in short-term borrowings.

• Wealth assets under management, administration, supervision and brokerage totaled $13.40 billion as of June 30, 2018, an increase of $436.0 million from December 31, 2017.

• The capital ratios for the Bank and the Corporation, as of June 30, 2018, as shown in the attached tables, indicate levels above the regulatory minimum to be considered “well capitalized.”

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, our inability to successfully integrate acquired businesses, the possibility that integration 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.

(1) Non-GAAP measure – see Appendix for Non-GAAP to GAAP reconciliation.

(2) Brokerage assets represent assets held at a registered broker dealer under a clearing agreement.

(3) Capital Ratios for the current quarter are to be considered preliminary until the Call Reports are filed.