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BMTC > SEC Filings for BMTC > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for BRYN MAWR BANK CORP

Form 10-Q for BRYN MAWR BANK CORP


9-Nov-2012

Quarterly Report


ITEM 2 Management's Discussion and Analysis of Results of Operation and Financial Condition

The following is the Corporation's discussion and analysis of the significant changes in the financial condition, results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements. Current performance does not guarantee, and may not be indicative of, similar performance in the future.

Brief History of the Corporation

The Bryn Mawr Trust Company (the "Bank") received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the "Corporation") was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries provide community banking, business banking, residential mortgage lending, consumer and commercial lending and insurance services to customers through its seventeen full-service branches and seven limited-hour retirement community offices located throughout the Montgomery, Delaware and Chester counties of Pennsylvania. The Corporation and its subsidiaries also provide wealth management services through its network of Wealth Management offices located in Bryn Mawr, Devon and Hershey, Pennsylvania as well as Greenville, Delaware. The Corporation's stock trades on the NASDAQ Stock Market ("NASDAQ") under the symbol BMTC. The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission ("SEC"), NASDAQ, Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board and the Pennsylvania Department of Banking.

Acquisition of the Davidson Trust Company

On May 15, 2012, the Corporation acquired the Davidson Trust Company ("DTC") for $10.5 million, including $7.35 million cash paid at closing and $3.15 million of contingent cash payments to be paid November 14, 2012, May 14, 2013 and November 14, 2013, subject to certain post-closing contingencies relating to the assets under management. None of the three contingent cash payments is to exceed $1.05 million. The Corporation has determined that the first of three contingent payments, payable on November 14, 2012, will be $1.05 million.

Acquisition of the Private Wealth Management Group of the Hershey Trust Company

On May 27, 2011, the Corporation acquired the Private Wealth Management Group ("PWMG") of the Hershey Trust Company ("HTC") for $18.4 million, of which $8.1 million cash and 322,101 unregistered shares of the BMBC common stock, valued at $6.7 million, were paid at closing, and $3.6 million cash was placed in escrow to be paid in three equal installments on the 6-, 12- and 18-month anniversaries of February 17, 2011, subject to certain post-closing contingencies relating to the assets under management. As of September 30, 2012, all funds that had been placed in escrow have been released from escrow and paid to the recipients. Additionally, on September 30, 2011, the Corporation filed with the SEC a registration statement on Form S-3 (File No. 333-177109) to register for resale the 322,101 shares issued as part of the purchase price. The aforementioned registration statement became effective on November 18, 2011.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform with U.S. generally accepted accounting principles ("GAAP"). All inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous year's financial statements to the current year's presentation. In preparing the consolidated financial statements, the Corporation is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. However, there are uncertainties inherent in making these estimates and actual results could differ from these estimates. The Corporation has identified certain areas that require estimates and assumptions, which include the allowance for loan and lease losses (the "Allowance"), the valuation of goodwill and intangible assets, the fair value of investment securities, mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation.

These critical accounting policies along with other significant accounting policies are presented in Footnote 1 - Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in the Corporation's 2011 Annual Report.


Table of Contents

Executive Overview

The following items highlight the Corporation's results of operations for the three and nine months ended September 30, 2012, as compared to the same periods in 2011, and the changes in its financial condition as of September 30, 2012 as compared to December 31, 2011. More detailed information related to these highlights can be found in the sections that follow.

Three Month Results

Net income for the three months ended September 30, 2012 was $5.4 million, an increase of $195 thousand as compared to net income of $5.2 million for the same period in 2011. Diluted earnings per share for each period remained unchanged at $0.41.

Return on average equity ("ROE") and return on average assets ("ROA") for the three months ended September 30, 2012 were 10.93% and 1.18%, respectively, as compared to ROE and ROA of 11.13% and 1.14%, respectively, for the same period in 2011.

Tax-equivalent net interest income increased $302 thousand, or 1.90%, to $16.0 million for the three months ended September 30, 2012, as compared to $15.7 million for the same period in 2011.

The provision for loan and lease losses (the "Provision") for the three months ended September 30, 2012 was $1.0 million, a decrease of $828 thousand, or 45.3%, from the $1.8 million recorded for the same period in 2011.

Non-interest income of $12.2 million for the three months ended September 30, 2012 increased $3.0 million, or 32.2%, as compared to $9.3 million for the same period in 2011.

Included in non-interest income, fees for Wealth Management services of $8.0 million for the three months ended September 30, 2012 increased $1.9 million, or 31.1%, as compared to $6.1 million for the same period in 2011.

Non-interest expense of $18.9 million for the three months ended September 30, 2012 increased $3.2 million, or 20.5%, as compared to $15.7 million for the same period in 2011.

Nine Month Results

Net income for the nine months ended September 30, 2012 was $15.8 million, or diluted earnings per share of $1.20, an increase of $1.2 million as compared to net income of $14.6 million, or diluted earnings per share of $1.16, for the same period in 2011.

ROE and ROA for the nine months ended September 30, 2012 were 11.06% and 1.17%, respectively, as compared to ROE and ROA of 11.28% and 1.13%, respectively, for the same period in 2011.

Tax-equivalent net interest income increased $871 thousand, or 1.8%, to $48.1 million for the nine months ended September 30, 2012, as compared to $47.2 million for the same period in 2011.

The provision for loan and lease losses for the nine months ended September 30, 2012 was $3.0 million, a decrease of $2.0 million, or 40.3%, from the $5.0 million recorded for the same period in 2011.

Non-interest income of $33.2 million for the nine months ended September 30, 2012 increased $8.6 million, or 35.1%, as compared to $24.6 million for the same period in 2011.

Included in non-interest income, fees for Wealth Management services of $21.4 million for the nine months ended September 30, 2012 increased $6.1 million, or 39.5%, as compared to $15.4 million for the same period in 2011.

Non-interest expense of $53.8 million for the nine months ended September 30, 2012 increased $8.8 million, or 19.6%, as compared to $45.0 million for the same period in 2011.


Table of Contents

Changes in Financial Condition

Total assets of $1.81 billion as of September 30, 2012 increased $41.2 million from $1.77 billion as of December 31, 2011.

Shareholders' equity of $201.3 million as of September 30, 2012 increased $16.9 million from $184.4 million as of December 31, 2011.

Total portfolio loans and leases as of September 30, 2012 were $1.31 billion, an increase of $18.3 million from the December 31, 2011 balance.

Total non-performing loans and leases of $13.8 million represented 1.05% of portfolio loans and leases as of September 30, 2012 as compared to $14.3 million, or 1.11%, of portfolio loans and leases as of December 31, 2011.

The $13.6 million Allowance, as of September 30, 2012, represented 1.04% of portfolio loans and leases as compared to $12.8 million, or 0.98% of portfolio loans and leases as of December 31, 2011.

Total deposits of $1.40 billion as of September 30, 2012 increased $16.2 million, or 1.2%, from $1.38 billion as of December 31, 2011.

Wealth Management assets under management, administration, supervision and brokerage as of September 30, 2012 were $6.48 billion, an increase of $1.65 billion from December 31, 2011.

Other Recent Developments

The previously announced acquisition of consumer and business deposit and loan accounts, as well as a branch location in Wilmington, Delaware, from the First Bank of Delaware, which is anticipated to increase loans by approximately $90 million and deposits by approximately $70 million. An amendment to the original purchase agreement between the Corporation and the First Bank of Delaware was entered into on October 12, 2012. Due to unforeseen circumstances caused by Hurricane Sandy, First Bank of Delaware's systems processor has been delayed in its delivery of certain reports necessary to consummate the transaction. The closing, which was originally scheduled for November 9, 2012, has been postponed but is expected to occur in the fourth quarter of 2012.

Construction is well underway on the Corporation's full-service branch in Bala Cynwyd, Pennsylvania, just outside Philadelphia. The branch is projected to be completed and open for business during the fourth quarter of 2012.

Key Performance Ratios

Key financial performance ratios for the three and nine months ended
September 30, 2012 and 2011 are shown in the table below:



                                           Three Months Ended September 30,                 Nine months Ended September 30,
                                                 2012                     2011              2012                      2011
Annualized return on average equity                       10.93 %          11.35 %               11.06 %                   11.28 %
Annualized return on average assets                        1.18 %           1.14 %                1.17 %                    1.13 %
Efficiency ratio *                                         67.0 %           62.9 %                66.4 %                    62.9 %
Tax equivalent net interest margin                         3.78 %           3.90 %                3.85 %                    3.99 %

Diluted earnings per share $ 0.41 $ 0.41 $ 1.21 $ 1.16 Dividend per share $ 0.41 $ 0.41 $ 1.20 $ 1.16

* The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

The following table presents certain key period-end balances and ratios as of September 30, 2012 and December 31, 2011:

                                                       September 30,            December 31,
(dollars in millions, except per share amounts)            2012                     2011
Book value per share                                  $         15.02          $        14.07
Tangible book value per share                         $         11.14          $        10.78
Allowance as a percentage of loans and leases                    1.04 %                  0.98 %
Tier I capital to risk weighted assets                          11.64 %                 11.16 %
Tangible common equity ratio                                     8.58 %                  8.19 %
Loan to deposit ratio                                            94.2 %                  93.8 %
Wealth assets under management, administration,
supervision and brokerage                             $       6,482.8          $      4,831.6
Portfolio loans and leases                            $       1,313.7          $      1,295.4
Total assets                                          $       1,814.5          $      1,773.4
Shareholders' equity                                  $         201.3          $        184.4


Table of Contents

The following sections discuss, in detail, the Corporation's results of operations for the three and nine months ended September 30, 2012, as compared to the same periods in 2011, and the changes in its financial condition as of September 30, 2012 as compared to December 31, 2011.

Components of Net Income

Net income is comprised of five major elements:

Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;

Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;

Non-Interest Income which is made up primarily of Wealth Management revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;

Non-Interest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees and other operating expenses; and

Income Taxes.

Tax-Equivalent Net Interest Income

Net interest income is the primary source of the Corporation's revenue. The below tables present a summary for the three and nine month periods ended September 30, 2012 and 2011, of the Corporation's average balances and tax-equivalent yields earned on its interest-earning assets and the tax-equivalent rate paid on its interest-bearing liabilities. The tax-equivalent net interest margin is the tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread is the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of noninterest-bearing liabilities represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders' equity.

Tax-equivalent net interest income of $16.0 million for the three months ended September 30, 2012 increased $302 thousand, as compared to the same period in 2011. This increase was the result of an $84.5 million increase in average interest-earning assets between the periods, which was partially offset by a $32.4 million increase in average interest-bearing liabilities. The effect of the increase in average interest-earning assets was somewhat offset by a 41 basis point decrease in the rate earned on those assets. The effect of the increase in average interest-bearing liabilities was partially offset by a 30 basis point decline in the rate paid on those liabilities. The tax equivalent net interest margin for the three months ended September 30, 2012 was 3.78%, a 12 basis point decrease from the 3.90% tax equivalent net interest margin for the same period in 2011. The increase in average interest-earning assets relative to interest-bearing liabilities was largely the result of a $39.7 million increase in average noninterest-bearing deposits for the three months ended September 30, 2012 as compared to the same period in 2011.

Tax-equivalent net interest income of $48.1 million for the nine months ended September 30, 2012 increased $871 thousand, as compared to the same period in 2011. This increase was the result of an $82.0 million increase in average interest-earning assets between the periods, which was partially offset by a $32.4 million increase in average interest-bearing liabilities. The effect of the increase in average interest-earning assets was somewhat offset by a 34 basis point decrease in the rate earned on those assets. The effect of the increase in average interest-bearing liabilities was partially offset by a 25 basis point decline in the rate paid on those liabilities. The tax equivalent net interest margin for the nine months ended September 30, 2012 was 3.85%, a 13 basis point decrease from the 3.98% tax equivalent net interest margin for the same period in 2011. The increase in average interest-earning assets relative to interest-bearing liabilities was largely the result of a $38.1 million increase in average noninterest-bearing deposits for the nine months ended September 30, 2012 as compared to the same period in 2011.


Table of Contents

Analyses of Interest Rates and Interest Differential

The table below presents the major asset and liability categories on an average
daily balance basis for the periods presented, along with interest income,
interest expense and key rates and yields.



                                                                  For the Three Months Ended September 30,
                                                             2012                                          2011
                                                                           Average                                       Average
                                                            Interest        Rates                         Interest        Rates
                                             Average         Income/       Earned/         Average         Income/       Earned/
(dollars in thousands)                       Balance         Expense        Paid           Balance         Expense        Paid
Assets:
Interest-bearing deposits with banks       $    53,576      $      34          0.25 %    $    57,855      $      29          0.20 %
Money market funds                                 191              0             0 %            108              0             0 %
Investment securities - available for
sale:
Taxable                                        309,570            960          1.23 %        279,321          1,171          1.66 %
Non-taxable                                     18,481             82          1.77 %          3,933             18          1.82 %

Total investment securities - available
for sale                                       328,051          1,042          1.26 %        283,254          1,189          1.67 %
Investment securities - trading                  1,343              5          1.48 %          1,338              8          2.37 %
Loans and leases(1)(2)                       1,303,783         17,089          5.21 %      1,259,864         17,529          5.52 %

Total interest-earning assets                1,686,944         18,170          4.28 %      1,602,419         18,755          4.64 %
Cash and due from banks                         12,922                                        11,905
Allowance for loan and lease losses            (13,337 )                                     (11,790 )
Other assets                                   146,274                                       139,886

Total assets                               $ 1,832,803                                   $ 1,742,420

Liabilities:
Savings, NOW, and market rate accounts     $   849,966            567          0.27 %    $   724,266            772          0.42 %
Wholesale non-maturity deposits                 35,956             34          0.38 %         65,177             51          0.31 %
Wholesale time deposits                         13,809             21          0.60 %         29,187             86          1.17 %
Time deposits                                  178,711            316          0.70 %        234,645            585          0.99 %

Total interest-bearing deposits              1,078,442            938          0.35 %      1,053,275          1,494          0.56 %
Subordinated debentures                         21,114            271          5.11 %         22,500            279          4.92 %
Junior subordinated debentures                       0              0             0 %         12,000            271          8.96 %
Short-term borrowings                           13,273              4          0.12 %         10,908              6          0.22 %
FHLB advances and other borrowings             167,251            918          2.18 %        148,963            968          2.58 %

Total borrowings                               201,638          1,193          2.35 %        194,371          1,524          3.11 %

Total interest-bearing liabilities           1,280,080          2,131          0.66 %      1,247,646          3,018          0.96 %
Non-interest-bearing deposits                  330,179                                       290,468
Other liabilities                               25,100                                        21,482

Total non-interest-bearing liabilities         355,279                                       311,950

Total liabilities                            1,635,359                                     1,559,596
Shareholders' equity                           197,444                                       182,824

Total liabilities and shareholders'
equity                                     $ 1,832,803                                   $ 1,742,420

Net interest spread                                                            3.62 %                                        3.68 %
Effect of non-interest-bearing
liabilities                                                                    0.16 %                                        0.22 %

Tax equivalent net interest income and
margin on earning assets(3)                                 $  16,039          3.78 %                     $  15,737          3.90 %

Tax-equivalent adjustment(3)                                $      88          0.02 %                     $      64          0.02 %

                                                                  For the Nine months Ended September 30,
                                                             2012                                          2011
                                                                           Average                                       Average
                                                            Interest        Rates                         Interest        Rates
                                             Average         Income/       Earned/         Average         Income/       Earned/
(dollars in thousands)                       Balance         Expense        Paid           Balance         Expense        Paid
Assets:
Interest-bearing deposits with banks       $    49,832      $      86          0.23 %    $    50,778      $      88          0.23 %
Money market funds                                 201              0             0 %            167              1          0.80 %
Investment securities - available for
sale:
Taxable                                        303,865          3,166          1.39 %        285,038          3,824          1.79 %
Non-taxable                                     14,067            198          1.88 %         11,486            287          3.34 %

Total investment securities - available
for sale                                       317,932          3,364          1.41 %        296,524          4,111          1.85 %
Investment securities - trading                  1,442             21          1.95 %          1,345             24          2.39 %
Loans and leases(1)(2)                       1,299,135         51,419          5.29 %      1,237,692         51,882          5.60 %

Total interest-earning assets                1,668,542         54,890          4.39 %      1,586,506         56,106          4.73 %
Cash and due from banks                         12,242                                        12,249
Allowance for loan and lease losses            (13,270 )                                     (11,157 )
Other assets                                   143,563                                       134,764

Total assets                               $ 1,811,077                                   $ 1,722,362

Liabilities:
Savings, NOW, and market rate accounts     $   807,874          1,712          0.28 %    $   713,223          2,247          0.42 %
Wholesale non-maturity deposits                 49,463            131          0.35 %         68,691            174          0.34 %
Wholesale time deposits                         19,459             68          0.47 %         31,333            248          1.06 %
Time deposits                                  197,607          1,217          0.82 %        237,948          1,765          0.99 %

Total interest-bearing deposits              1,074,403          3,128          0.39 %      1,051,195          4,434          0.56 %
Subordinated debentures                         22,035            852          5.16 %         22,500            835          4.96 %
Junior subordinated debentures                       0              0             0 %         12,012            814          9.06 %
Short-term borrowings                           13,244             14          0.14 %         10,110             19          0.25 %
FHLB advances and other borrowings             165,717          2,808          2.26 %        147,189          2,787          2.53 %

Total borrowings                               200,996          3,674          2.44 %        191,811          4,455          3.11 %

Total interest-bearing liabilities           1,275,399          6,802          0.71 %      1,243,006          8,889          0.96 %
Non-interest-bearing deposits                  319,767                                       281,714
Other liabilities                               24,508                                        23,095

Total non-interest-bearing liabilities         344,275                                       304,809

Total liabilities                            1,619,674                                     1,547,815
Shareholders' equity                           191,403                                       174,547

Total liabilities and shareholders'
equity                                     $ 1,811,077                                   $ 1,722,362

Net interest spread                                                            3.68 %                                        3.77 %
Effect of non-interest-bearing
liabilities                                                                    0.17 %                                        0.21 %

. . .
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