Columbia Maryland—October 29, 2015 – Bay Bancorp, Inc. (“Bay”) (NASDAQ: BYBK), the savings and loan holding company for Bay Bank, FSB (“Bank”), announced today net income of $0.53 million or basic and diluted net income per common share of $.05 for the third quarter of 2015, compared to net income of $0.55 million or basic and diluted net income per common share of $.05 for the second quarter of 2015, and a loss of $0.94 million or basic and diluted loss per common share of $.09 for the third quarter of 2014.
Bay reported net income of $1.42 million or basic and diluted net income per common share of $0.13 for the first nine-months of 2015, compared to $1.79 million or basic or diluted net income per common share of $0.18 for the same period of 2014, which included a bargain purchase gain from the May 30, 2014 acquisition of Slavie Federal Savings Bank from the FDIC (the “Slavie Acquisition”) and income from the recognition of the remaining interest rate mark-to-market adjustment related to the Bank’s exit from its IRA business, representing a combined $2.9 million of pre-tax income.
Commenting on the announcement, Joseph J. Thomas, President and CEO, said, “I am very pleased by our team’s efforts to increase the company’s pre-tax profitability 18% in the nine months ending September 30, 2015, while we also continued to improve our asset quality as measured in the 30% classified asset ratio. Excluding the benefit of the 2014 bargain purchase gain and exit of the IRA business, pre-tax income increased by $3.1 million for the first nine months of 2015 when compared to the first nine-months of 2014. With our expanded geographic focus, investments in our banking team, responsive and creative lending capacity, and progressive suite of treasury and technology products, we are poised to drive organic growth and profitability that will lead to improved returns on our strong capital levels,” continued Thomas.
Highlights from the First Nine Months of 2015
The Bank’s relationship management activities resulted in the growth of new loans in the Bank’s originated portfolio by a 29.8% annualized pace in the first nine-months of 2015. Deposit mix changes were favorable, with declines in certificate of deposit balances offset by core interest bearing and noninterest-bearing deposit growth, leading to an attractive 0.45% cost of deposits for the 3rd quarter of 2015. Bay has a very strong capital position and capacity for future growth with total regulatory capital to risk weighted assets of 16.5% as of September 30, 2015. The Bank has a proven record of success in acquisitions and acquired problem asset resolutions and, at September 30, 2015, had $11.1 million in remaining net purchase discounts on acquired loan portfolios.
Specific highlights are listed below:
· The return on average assets for the three- and nine-month periods ended September 30, 2015 was 0.43% and 0.39%, respectively, as compared to -0.77% and 0.54%, respectively, for the same periods of 2014. The return on average equity for the three- and nine-month periods ended September 30, 2015 was 3.12% and 2.81%, respectively, as compared to -5.62% and 3.89%, respectively, for the same periods in 2014.
· Total assets were $474 million at September 30, 2015 compared to $489 million at June 30, 2015 and $480 million at December 31, 2014.
· Total loans were $389 million at September 30, 2015, an increase of 1.0% from $386 million at June 30, 2015, a decrease of 0.9% from $393 million at December 31, 2014 and a decrease of 1.2% from $394 million at September 30, 2014.
· Total deposits were $382 million at September 30, 2015, a decrease of 0.7% from $384 million at June 30, 2015, a decrease of 1.6% from $388 million at December 31, 2014 and a decrease of 4.3% from $399 million at September 30, 2014. Non-interest bearing deposits were $92 million at September 30, 2015, an increase of 0.2% from $92 million at December 31, 2014.
· Net interest income for the three- and nine-month periods ended September 30, 2015 totaled $5.4 million and $16.3 million, respectively, compared to $5.5 million and $16.5 million, respectively, for the same periods of 2014. Interest income associated with discount accretion on purchased loans, deferred costs and deferred fees will vary due to the timing and nature of loan principal payments. Earning asset leverage was the primary driver in year-over-year results, as average earning loans and investments increased to $426 million for the nine months ended September 30, 2015, compared to $361 million for the same period of 2014.
· Net interest margin for the three- and nine-month periods ended September 30, 2015 was 4.68% and 4.76%, respectively, compared to 4.80% and 5.50%, respectively, for the same periods of 2014. The margin for nine-months ended September 30, 2015 reflects the variable pace of discount accretion recognition within interest income and the impact of fair value amortization on the interest expense of acquired deposits. For the nine-months ended September 30, 2015, the earning asset portfolio yield was influenced by a $1.19 million decline in net discount accretion of purchased loan discounts recognized in interest income and a $0.92 million decrease in the fair value amortization on deposits when compared to the same period of 2014. The margin declined by 74 basis points during the nine months ended September 30, 2015 when compared to a year earlier, with the reduction in loan and deposit accretion accounting for 76 basis points of the fluctuation.
· Nonperforming assets decreased to $12.8 million at September 30, 2015 or 2.0%, from $13.1 million at June 30, 2015, and declined 37.9% from $20.7 million at September 30, 2014. The third quarter of 2015 decreases resulted from the Bank’s continued resolution of acquired nonperforming loans.
· The provision for loan losses for the three and nine months ended September 30, 2015 was $306,000 and $878,000, respectively, compared to $220,000 and $580,000, respectively, for the same periods of 2014. The increases for the 2015 periods were primarily the result of increases in loan originations. As a result, the allowance for loan losses was $1.62 million at September 30, 2015, representing 0.42% of total loans, compared to $1.43 million, or 0.37% of total loans, at June 30, 2015 and $1.29 million, or 0.33% of total loans, at December 31, 2014. Management expects both the allowance for loan losses and the related provision for loan losses to increase in the future due to the gradual accretion of the discount on the acquired loan portfolios and an increase in new loan originations
Stock Repurchase Program
During the third quarter of 2015, Bay purchased 170,492 shares of its common stock, at an average price of $5.03 per share, pursuant to the stock purchase program that the Board of Directors approved on July 30, 2015. The program authorizes Bay to purchase up to 250,000 shares of its common stock over a 12-month period in open market and/or through privately negotiated transactions, at Bay’s discretion. The Board may modify, suspend or discontinue the program at any time.
Third Quarter Events
On July 1, 2015, the Bank announced it moved its corporate headquarters to Columbia, Maryland, where it also opened a new full service branch on April 27, 2015. This is the Bank’s first branch in Howard County, Maryland. The headquarters and branch are located at 7151 Columbia Gateway Drive. The headquarters change resulted in 14 associates relocating to Columbia and 13 associates remaining in the Lutherville sales offices.
Balance Sheet Review
Total assets were $474 million at September 30, 2015, a decrease of $5.8 million, or 1.2%, when compared to December 31, 2014. Investment securities decreased by $1.6 million or 4.4% for the nine-month period, while loans held for sale increased by $3.3 million or 45.1%. These changes were partially offset by a $3.7 million or 0.9% decline in loans held for investment.
Total deposits were $382 million at September 30, 2015, a decrease of $6.3 million, or 1.6%, when compared to December 31, 2014. The decrease was primarily due to managed declines in certificates of deposits and seasonal deposit fluctuations, offset by a $.2 million or 0.2% increase in non-interest bearing deposits.
Stockholders’ equity increased to $66.9 million at September 30, 2015 compared to $66.1 million at June 30, 2015, $66.6 million at December 31, 2014, and $65.2 million at September 30, 2014. The third quarter 2015 increases related to corporate earnings, which were partially offset by net market value adjustments on bank owned investment securities. The increase over the first nine months of 2015 includes an increase in the Bank’s retirement income plan liability due to changes in actuarial assumptions, offset by related deferred taxes. The book value of Bay’s common stock was $6.05 at September 30, 2015 compared to $5.99 per share at June 30, 2015 and $5.92 per share at September 30, 2014.
Nonperforming assets, which consist of nonaccrual loans, troubled debt restructurings, accruing loans past due 90 days or more, and real estate acquired through foreclosure, decreased to $12.8 million at September 30, 2015 from $13.1 million at June 30, 2015 and from $14.3 million at December 31, 2014. The improvements were driven by related decreases in purchased credit impaired loans of $0.25 million and $2.03 million from June 30, 2015 and December 31, 2014, respectively. Nonperforming assets represented 2.71% of total assets at September 30, 2015, compared to 2.68% at June 30, 2015 and 4.31% at September 30, 2014.
At September 30, 2015, the Bank remained above all “well-capitalized” regulatory requirement levels. The Bank’s tier 1 risk-based capital ratio was 16.09% at September 30, 2015 as compared to 15.84% at September 30, 2014 and 16.66% at December 31, 2014. Liquidity remained strong due to managed cash and cash equivalents, borrowing lines with the FHLB of Atlanta, the Federal Reserve and correspondent banks, and the size and composition of the investment portfolio.
Review of Financial Results
Net income for the three- and nine-month periods ended September 30, 2015 was $0.53 million and $1.42 million, respectively, compared to a net loss of $0.94 million and net income of $1.79 million, respectively, for the same periods of 2014. With the changes to net income primarily the result of the 2014 bargain purchase gain attributable to the Slavie Acquisition of $0.51 million and the 2014 recognition of the remaining interest rate mark-to-market adjustment of $2.4 million related to the exit of our IRA business, changes were less comparable to prior periods.
Net interest income for the three months ended September 30, 2015 totaled $5.4 million compared to $5.5 million for the same periods of 2014. Interest income associated with discount accretion on purchased loans, deferred costs and deferred fees will vary due to the timing and nature of loan principal payments. A decrease of $0.2 million in certificate of deposit interest mark amortization was offset by favorable changes in Bay’s deposit mix and the resulting reduction in deposit costs.
Net interest income decreased to $16.3 million for the nine months ended September 30, 2015 compared to $16.5 million for the same period of 2014. The decrease was the result of a $64.2 million growth in average interest-earning assets largely due to the Slavie Acquisition, offset by a $1.19 million decline in net discount accretion of purchased loan discounts recognized in interest income and a $0.92 million decrease in the fair value amortization on deposits. Excluding the impact of the fair value accounting, net interest income increased by $1.90 million when compared to the nine months ended September 30, 2014. The net interest margin for third quarter of 2015 decreased to 4.68% from 4.88% for the second quarter of 2015. The net interest margin for the nine months ended September 30, 2015 decreased to 4.76% compared to 5.50% for the same period of 2014 due to the decline in discount accretion on loans and deposits. As of September 30, 2015, the remaining net loan discounts on the Bank’s loan portfolio, including loans acquired in the Slavie Acquisition, totaled $11.1 million.
Noninterest income for the three months ended September 30, 2015 was $1.5 million compared to $1.6 million for the three months ended June 30, 2015 and $1.1 million for the three months ended September 30, 2014. The change from the immediately prior quarter was primarily the result of a $0.12 million gain from the sale of certain securities, offset by a $0.09 million decrease in mortgage banking fees and gains. The increase from the third quarter of 2014 was primarily the result of a $0.26 million increase in mortgage banking fees and gains and a $0.12 million gain from the sale of certain securities in 2015.
Noninterest income for the nine months ended September 30, 2015 was $4.3 million compared to $6.6 million for the same period of 2014. This decrease was primarily the result of the $2.4 million remaining interest rate mark-to-market adjustment on IRA deposits recognized in 2014, the $0.51 million bargain purchase gain recognized in 2014 and a $0.16 million decrease in electronic banking fees, offset by a $0.74 million increase in mortgage banking fees and gains and a $0.20 million gain from the sale of certain securities in 2015. Expectations are for mortgage fees and gains to decrease during the final quarter of 2015, although Bay anticipates that they will remain above the pace recorded in 2014.
Noninterest expense reduction is a key focus for 2015 net income improvement. For the three months ended September 30, 2015, noninterest expense was $5.8 million compared to $5.9 million for the prior quarter and $8.0 million for the third quarter of 2014. The primary contributors to the decrease when compared to the third quarter of 2014 were decreases of $0.35 million in salary and employee benefits, $0.09 million in occupancy expense, $0.05 million in foreclosed property expenses, and $0.64 million in merger related expenses and one-time other expenses of $0.98 million recorded in 2014.
For the nine months ended September 30, 2015, noninterest expense was $17.4 million compared to $20.6 million for the same period of 2014. The primary contributors to the decrease when compared to the first nine-months of 2014 were decreases of $0.81 million in salary and employee benefits, $0.27 million in occupancy expense and $0.22 million in foreclosed property expenses offset by $0.13 million increase in data processing expenses along with $0.98 million in one-time other expenses recorded in 2014.
Bay Bancorp, Inc. Information
Bay Bancorp, Inc. is a financial holding company and a savings and loan holding company headquartered in Columbia, Maryland. Through Bay Bank, FSB, its federal savings bank subsidiary, Bay Bancorp, Inc. serves the community with a network of 11 branches strategically located throughout the Baltimore Metropolitan Statistical Area, particularly Baltimore City and the Maryland counties of Baltimore Washington corridor. The Bank serves small and medium size businesses, professionals and other valued customers by offering a broad suite of financial products and services, including on-line and mobile banking, commercial banking, cash management, mortgage lending and retail banking. The Bank funds a variety of loan types including commercial and residential real estate loans, commercial term loans and lines of credit, consumer loans and letters of credit. Additional information is available at www.baybankmd.com.
Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Bay Bancorp, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.
For investor inquiries contact:
Joseph J. Thomas, President and CEO
410-536-7336
jthomas@baybankmd.com
7151 Columbia Gateway Drive,
Suite A
Columbia, MD 21046
For further information contact:
Larry D. Pickett, Chief Financial Officer
lpickett@baybankmd.com
410-312-5415