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BMTC > SEC Filings for BMTC > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for BRYN MAWR BANK CORP

Form 10-Q for BRYN MAWR BANK CORP


8-Aug-2014

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 19 full-service branches and seven limited-hour retirement community offices located throughout the Montgomery, Delaware and Chester counties of Pennsylvania and New Castle county in Delaware. 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 and Securities.

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, valuation of 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 2013 Annual Report.

Executive Overview

The following items highlight the Corporation's results of operations for the three and six months ended June 30, 2014, as compared to the same periods in 2013, and the changes in its financial condition as of June 30, 2014 as compared to December 31, 2013. 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 June 30, 2014 was $7.6 million, an increase of $1.4 million as compared to net income of $6.3 million for the same period in 2013. Diluted earnings per share of $0.55 for the three months ended June 30, 2014 was a $0.09 increase from the same period in 2013.

Return on average equity ("ROE") and return on average assets ("ROA") for the three months ended June 30, 2014 were 12.80% and 1.45%, respectively, as compared to ROE and ROA of 11.90% and 1.28%, respectively, for the same period in 2013.

Tax-equivalent net interest income increased $1.5 million, or 8.5%, to $19.6 million for the three months ended June 30, 2014, as compared to $18.0 million for the same period in 2013.

The Corporation recorded a negative provision for loan and lease losses (the "Provision"), or a release from the allowance for loan and lease losses (the "Allowance") of $100 thousand for the three months ended June 30, 2014, a decrease of $1.1 million from the $1.0 million recorded for the same period in 2013.

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Non-interest income of $12.8 million for the three months ended June 30, 2014 decreased $186 thousand, or 1.4%, as compared to $12.9 million for the same period in 2013.

Included in non-interest income, fees for Wealth Management services of $9.5 million for the three months ended June 30, 2014 increased $405 thousand, or 4.5%, as compared to $9.1 million for the same period in 2013.

Non-interest expense of $20.6 million for the three months ended June 30, 2014 decreased $102 thousand, or 0.5%, as compared to $20.5 million for the same period in 2013.

Six Month Results

Net income for the six months ended June 30, 2014 was $14.3 million, an increase of $2.7 million as compared to net income of $11.6 million for the same period in 2013. Diluted earnings per share of $1.03 for the six months ended June 30, 2014 was an $0.18 increase from the same period in 2013.

ROE and ROA for the six months ended June 30, 2014 were 12.26% and 1.39%, respectively, as compared to ROE and ROA of 11.25% and 1.18%, respectively, for the same period in 2013.

Tax-equivalent net interest income increased $2.9 million, or 8.0%, to $38.4 million for the six months ended June 30, 2014, as compared to $35.5 million for the same period in 2013.

The provision for loan and lease losses of $650 thousand for the six months ended June 30, 2014 was a decrease of $1.2 million, or 64.0%, as compared to $1.8 million for the same period in 2013.

Non-interest income of $23.9 million for the six months ended June 30, 2014 decreased $837 thousand, or 3.4%, as compared to $24.7 million for the same period in 2013.

Included in non-interest income, fees for Wealth Management services of $18.4 million for the six months ended June 30, 2014 increased $969 thousand, or 5.6%, as compared to $17.4 million for the same period in 2013.

Non-interest expense of $39.5 million for the six months ended June 30, 2014 decreased $1.2 million, or 3.0%, as compared to $40.8 million for the same period in 2013.

Changes in Financial Condition

Total assets of $2.13 billion as of June 30, 2014 increased $69.6 million from December 31, 2013.

Shareholders' equity of $243.4 million as of June 30, 2014 increased $13.5 million from $229.9 million as of December 31, 2013.

Total portfolio loans and leases as of June 30, 2014 were $1.62 billion, an increase of $68.4 million from the December 31, 2013 balance.

Total non-performing loans and leases of $8.4 million represented 0.52% of portfolio loans and leases as of June 30, 2014 as compared to $10.5 million, or 0.68% of portfolio loans and leases as of December 31, 2013.

The $15.5 million Allowance, as of June 30, 2014, represented 0.96% of portfolio loans and leases, as compared to $15.5 million, or 1.00% of portfolio loans as of December 31, 2013.

Total deposits of $1.62 billion as of June 30, 2014 increased $28.6 million, or 1.8%, from $1.59 billion as of December 31, 2013.

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Wealth Management assets under management, administration, supervision and brokerage as of June 30, 2014 were $7.57 billion, an increase of $301.6 million from December 31, 2013.

Key Performance Ratios

Key financial performance ratios for the three and six months ended June 30,
2014 and 2013 are shown in the table below:



                                                   Three Months Ended               Six Months Ended
                                                        June 30,                        June 30,
                                                  2014             2013            2014           2013
Annualized return on average equity                 12.80 %         11.90 %         12.26 %        11.25 %
Annualized return on average assets                  1.45 %          1.28 %          1.39 %         1.18 %
Efficiency ratio1                                   64.06 %         66.49 %         63.69 %        67.86 %
Tax-equivalent net interest margin                   4.03 %          3.98 %          4.02 %         3.91 %
Basic earnings per share                        $    0.56         $  0.47        $   1.06        $  0.87
Diluted earnings per share                      $    0.55         $  0.46        $   1.03        $  0.86
Dividend per share                              $    0.18         $  0.17        $   0.36        $  0.34
Dividend declared per share to net income
per basic common share                               32.1 %          36.2 %          34.0 %         39.1 %

1 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 June 30, 2014 and December 31, 2013:

                                                         June 30,           December 31,
(dollars in millions, except per share amounts)            2014                 2013
Book value per share                                     $   17.74         $        16.84
Tangible book value per share                            $   14.03         $        13.02
Allowance as a percentage of loans and leases                 0.96 %                 1.00 %
Tier I capital to risk weighted assets                       11.85 %                11.57 %
Tangible common equity ratio                                  9.32 %                 8.92 %
Loan to deposit ratio                                         99.8 %                 97.3 %
Wealth assets under management, administration,
supervision and brokerage                                $ 7,569.8         $      7,268.3
Portfolio loans and leases                               $ 1,615.5         $      1,547.2
Total assets                                             $ 2,131.2         $      2,061.7
Shareholders' equity                                     $   243.4         $        229.9

The following sections discuss, in detail, the Corporation's results of operations for the three and six months ended June 30, 2014, as compared to the same period in 2013, and the changes in its financial condition as of June 30, 2014 as compared to December 31, 2013.

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 investment securities available for sale 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, which include state and federal jurisdictions.

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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 six months ended June 30, 2014 and 2013, 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 $19.6 million for the three months ended June 30, 2014 increased $1.5 million, as compared to the same period in 2013. The increase in net interest income between the periods was primarily driven by volume increases, with average loan balances increasing by $172.3 million, which was partially offset by a $53.9 million decrease in average available for sale investment securities. The net increase in average interest-earning assets was partially offset by a $82.3 million increase in average interest-bearing liabilities between periods.

For the six months ended June 30, 2014, tax-equivalent net interest income of $38.4 million was a $2.9 million increase from the same period in 2013. Average interest-earning assets for the six months ended June 30, 2014 increased $93.7 million, while interest-bearing liabilities increased by $44.5 million from the same period in 2013. The tax-equivalent yield earned on assets increased by 11 basis points and the tax-equivalent rate paid on interest-bearing liabilities increased by 1 basis point.

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 June 30,
                                                             2014                                          2013
                                                                           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       $    70,775      $      44          0.25 %    $    59,981      $      41          0.27 %
Investment securities-available for
sale:
Taxable                                        235,853            903          1.54 %        287,287            846          1.18 %
Non-taxable(3)                                  35,977            151          1.68 %         38,442            146          1.52 %

Total investment securities-available
for sale                                       271,830          1,054          1.56 %        325,729            922          1.22 %
Investment securities-trading                    3,518             17          1.94 %          2,168             13          2.41 %
Loans and leases(1)(2)(3)                    1,600,384         19,936          5.00 %      1,428,069         18,277          5.13 %

Total interest-earning assets                1,946,507         21,051          4.34 %      1,815,947         19,323          4.27 %
Cash and due from banks                         12,067                                        12,876
Allowance for loan and lease losses            (16,073 )                                     (14,625 )
Other assets                                   153,990                                       151,933

Total assets                               $ 2,096,491                                   $ 1,966,131

Liabilities:
Savings, NOW, and market rate accounts     $   963,746            420          0.17 %    $   969,654            445          0.18 %
Wholesale deposits                              91,761            147          0.64 %         42,734             44          0.41 %
Time deposits                                  127,167            146          0.46 %        164,247            205          0.50 %

Total interest-bearing deposits              1,182,674            713          0.24 %      1,176,635            694          0.24 %
Short-term borrowings                           17,220              5          0.12 %         13,358              4          0.12 %
Long-term FHLB advances and other
borrowings                                     222,851            781          1.41 %        150,468            596          1.59 %

Total borrowings                               240,071            786          1.31 %        163,826            600          1.47 %

Total interest-bearing liabilities           1,422,745          1,499          0.42 %      1,340,461          1,294          0.39 %
Non-interest-bearing deposits                  416,104                                       391,387
Other liabilities                               19,368                                        23,617

Total non-interest-bearing liabilities         435,472                                       415,004

Total liabilities                            1,858,217                                     1,755,465
Shareholders' equity                           238,274                                       210,666

Total liabilities and shareholders'
equity                                     $ 2,096,491                                   $ 1,966,131

Net interest spread                                                            3.92 %                                        3.88 %
Effect of non-interest-bearing
liabilities                                                                    0.11 %                                        0.10 %

Tax equivalent net interest income and
margin on earning assets(3)                                 $  19,552          4.03 %                     $  18,029          3.98 %

Tax-equivalent adjustment(3)                                $     110          0.02 %                     $     106          0.02 %

(1) Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.

(2) Loans include portfolio loans and leases and loans held for sale.

(3) Tax rate used for tax-equivalent calculations is 35%.

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For the Six Months Ended June 30, 2014 2013 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 $ 69,300 $ 81 0.24 % $ 88,518 $ 110 0.25 % Investment securities-available for
sale:
Taxable 240,404 1,875 1.57 % 288,187 1,735 1.21 % Non-taxable(3) 36,270 304 1.69 % 36,308 269 1.49 %

Total investment securities-available
for sale 276,674 2,179 1.59 % 324,495 2,004 1.24 % Investment securities-trading 3,478 24 1.39 % 1,933 15 1.56 % Loans and leases(1)(2)(3) 1,575,165 39,043 5.00 % 1,415,944 36,147 5.15 %

Total interest-earning assets 1,924,617 41,327 4.33 % 1,830,890 38,276 4.22 % Cash and due from banks 12,184 13,080 Allowance for loan and lease losses (15,918 ) (14,659 ) Other assets 154,150 150,953

Total assets $ 2,075,033 $ 1,980,264

Liabilities:
Savings, NOW, and market rate accounts $ 955,186 824 0.17 % $ 972,544 924 0.19 % Wholesale deposits 84,402 262 0.63 % 46,435 98 0.43 % Time deposits 130,850 316 0.49 % 177,518 447 0.51 %

Total interest-bearing deposits 1,170,438 1,402 0.24 % 1,196,497 1,469 0.25 % Short-term borrowings 15,167 8 0.11 % 12,672 7 0.13 % Long-term FHLB advances and other
borrowings 217,657 1,527 1.41 % 149,573 1,264 1.70 %

Total borrowings 232,824 1,535 1.33 % 162,245 1,271 1.58 %

Total interest-bearing liabilities 1,403,262 2,937 0.42 % 1,358,742 2,740 0.41 % Non-interest-bearing deposits 415,810 389,146 Other liabilities 20,948 24,878

Total non-interest-bearing liabilities 436,758 414,024

Total liabilities 1,840,020 1,772,766 Shareholders' equity 235,013 207,498

Total liabilities and shareholders'
equity $ 2,075,033 $ 1,980,264

Net interest spread 3.91 % 3.81 % Effect of non-interest-bearing
liabilities 0.11 % 0.10 %

Tax equivalent net interest income and
margin on earning assets(3) $ 38,390 4.02 % $ 35,536 3.91 %

Tax-equivalent adjustment(3) $ 225 0.02 % $ 204 0.02 %

(1) Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.

(2) Loans include portfolio loans and leases and loans held for sale.

(3) Tax rate used for tax-equivalent calculations is 35%.

Rate/Volume Analysis (tax equivalent basis*)

The rate/volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and six months ended June 30, 2014 as compared to the same periods in 2013, allocated by rate and volume. The change in interest income and/or expense due to both volume and rate has been allocated to changes in volume.

                                                                      2014 Compared to 2013
                                                    Three Months Ended
                                                         June 30,                      Six Months Ended June 30,
                                             Volume        Rate        Total       Volume         Rate         Total
Interest income
Interest-bearing deposits with other banks   $     7      $   (4 )    $     3      $   (26 )    $     (3 )    $   (28 )
Investment securities                           (154 )       220           66         (276 )         460          184
Loans and leases                               2,183        (524 )      1,659        4,068        (1,172 )      2,896

Total interest income                        $ 2,036      $ (308 )    $ 1,728      $ 3,766      $   (715 )    $ 3,051

Interest expense:
Savings, NOW and market rate accounts        $    (3 )    $  (22 )    $   (25 )    $   (14 )    $    (86 )    $  (100 )
Wholesale non-maturity deposits                    9          (2 )          7           14           (12 )          2
Time deposits                                    (46 )       (13 )        (59 )       (118 )         (13 )       (131 )
Wholesale time deposits                           61          35           96          100            62          162
Borrowed funds**                                 287        (101 )        186          578          (314 )        264

Total interest expense                           308        (103 )        205          560          (363 )        197

Interest differential                        $ 1,728      $  205      $ 1,523      $ 3,206      $   (352 )    $ 2,854

* The tax rate used in the calculation of the tax equivalent income is 35%.

** Borrowed funds include subordinated debentures, short-term borrowings and Federal Home Loan Bank ("FHLB") advances and other borrowings.

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Tax Equivalent Net Interest Margin

The Corporation's tax-equivalent net interest margin increased 5 basis points to 4.03% for the three months ended June 30, 2014, from 3.98% for the same period in 2013. The increase in the tax-equivalent net interest margin was primarily driven by volume increases in interest-earning assets. Average interest-earning assets increased $130.6 million, while average interest-bearing liabilities increased by $82.3 million. The increase in average interest-earning assets between periods was largely related to a $172.3 million increase in average portfolio loans, partially offset by a $53.9 million decrease in available for sale investment securities. The yield on loans for the three months ended June 30, 2014 declined by 13 basis points from the same period in 2013, while the yield on available for sale investment securities increased by 34 basis points increase in between the three month periods ended June 30, 2013 and June 30, 2014. The increase in rate paid on average interest-bearing liabilities was primarily related to a $76.2 million increase in average borrowings. The . . .

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