Bay Bancorp, Inc. Announces Fourth Quarter and Full Year 2015 Results

COLUMBIA, Md., Feb. 01, 2016 (GLOBE NEWSWIRE) -- Bay Bancorp, Inc. (“Bay”) (NASDAQ:BYBK), the savings and loan holding company for Bay Bank, FSB (“Bank”), announced today net income of $1.93 million or basic and diluted net income per common share of $0.18 and $0.17, respectively, for the year ended December 31, 2015, compared to net income of $3.03 million or basic and diluted net income per common share of $0.29 for the year ended December 31, 2014.  For the fourth quarter of 2015, Bay reported net income of $0.51 million or basic and diluted net income per common share of $0.05, compared to net income of $0.53 million or basic and diluted net income per common share of $0.05 for the third quarter of 2015 and net income of $1.31 million or basic and diluted net income per common share of $0.12 for the fourth quarter of 2014.  Net income for the year ended December 31, 2014 included a bargain purchase gain from the 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 Bay’s pre-tax profitability by 33% in 2015, when compared to 2014, which is also a $3.7 million increase in pre-tax earnings after adjusting for non-recurring items in 2014 (bargain purchase gain and exit of IRA).  We accomplished this increase by growing our originated loan portfolio by 33%, while reducing our noninterest expense by $4.9 million, or 18%, when compared to 2014.  While we did not grow total assets appreciably during 2015, our efforts to resolve acquired loans led to a reduction of our classified asset ratio to 26% from 47% at December 31, 2015, when compared to 2014.  With the announced second quarter 2016 merger with Hopkins Federal Savings Bank, we are poised to increase scale, profitability and leverage that will together lead to improved returns on our strong capital base,” continued Thomas.

Highlights from 2015

The Bank’s relationship management activities resulted in net new loan growth in the Bank’s originated portfolio by a 32.5% annualized pace in 2015.  Deposit mix changes were favorable, with planned declines in certificate of deposit balances offset by core interest bearing and noninterest-bearing deposit growth, leading to an attractive 0.40% cost of funds for the fourth quarter of 2015.  Bay has a very strong capital position and capacity for future growth with total regulatory capital to risk weighted assets of 16.6% as of December 31, 2015.  The Bank has a proven record of success in acquisitions and acquired problem asset resolutions and, at December 31, 2015, had $9.4 million in remaining net purchase discounts on acquired loan portfolios.

Specific highlights are listed below:

• The return on average assets for the three months and year ended December 31, 2015 was 0.43% and 0.40%, respectively, as compared to 1.08% and 0.66%, respectively, for the same periods of 2014.  The return on average equity for the three months and year ended December 31, 2015 was 3.10% and 2.94%, respectively, as compared to 7.87% and 4.93%, respectively, for the same periods of 2014.
   
• Total assets were $491 million at December 31, 2015, an increase of $17 million when compared to $474 million at September 30, 2015 and an increase of $11 million when compared to $480 million at December 31, 2014.
   
• Total loans were $393 million at December 31, 2015, an increase of 1.0% from $389 million at September 30, 2015 and unchanged from $393 million at December 31, 2014.
   
• Total deposits were $367 million at December 31, 2015, a decrease of 4% from $382 million at September 30, 2015 and a decrease of 5% from $388 million at December 31, 2014.
   
• Net interest income for the three and twelve months ended December 31, 2015 totaled $5.1 million and $21.4 million, respectively, compared to $6.4 million and $22.9 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.  For the three and twelve months ended December 31, 2015, accretion of purchased discounts included in interest income and deferred fee and cost amortization trailed the respective 2014 recognition by $1.05 million and $2.32 million, respectively.  Earning asset leverage was the primary offset to the decline in year-over-year results, as average earning assets increased to $455 million for the year ended December 31, 2015, compared to $431 million for 2014. 
   
• Net interest margin for the three month and year ended December 31, 2015 was 4.49% and 4.70%, respectively, compared to 5.61% and 5.31%, respectively, for the same periods of 2014.  The fourth quarter margin 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 year ended December 31, 2015, the earning asset portfolio yield was influenced by a $2.32 million decline in net discount accretion of purchased loan discounts recognized in interest income and a $1.07 million decrease in the fair value amortization on deposits when compared to 2014.  The margin declined by 61 basis points during the year ended December 31, 2015 when compared to 2014, with the reduction in loan and deposit accretion accounting for an 80 basis point fluctuation.
   
• Nonperforming assets decreased to $10.3 million at December 31, 2015, down from $12.8 million at September 30, 2015 but an improvement from the $14.3 million recorded at December 31, 2014.  The fourth quarter decrease resulted from the Bank’s continued resolution of acquired nonperforming loans.
   
• The provision for loan losses in the three and twelve months ended December 31, 2015 was $264,000 and $1,143,000, respectively, compared to $221,000 and $802,000, respectively, for the same periods of 2014.  The increases for 2015 were primarily related to an acceleration in growth in the Bay Bank originated portfolio combined with modest increases in the some qualitative factors used for calculating the required reserve.  As a result, the allowance for loan losses was $1.77 million at December 31, 2015, representing 0.45% of total loans, compared to $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 runoff of the discount on the acquired loan portfolios and an increase in new loan originations.
   
• Total Capital increased to $67.7 million at December 31, 2015 from $66.9 million at September 30, 2015 and $66.6 million at December 31, 2014.  The book value of Bay’s common stock was $6.13 per common share at December 31, 2015, compared to $6.05 per common share at September 30, 2015 and December 31, 2014.

Stock Repurchase Program

During 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.

Recent Events

On December 18, 2015, Bay and Hopkins Bancorp, Inc. (“Hopkins”), the parent company of Hopkins Federal Savings Bank, jointly announced the execution of a definitive merger agreement (the “Merger Agreement”) that provides for the merger of Hopkins, with assets of approximately $242 million at September 30, 2015, with and into Bay, with Bay as the surviving savings and loan holding company.  The transaction is valued at approximately $23.8 million.  Under the terms of the Merger Agreement, Bay will acquire the outstanding shares of Hopkins common stock for cash equal to 105% of Hopkins’ tangible book value as of the closing, after giving effect to Hopkins’ payment of all of its transaction-related expenses, up to $625,000 in cash bonuses that Hopkins may choose to pay to certain directors and employees at the closing (the “bonuses”), and a $16.0 million cash dividend that Hopkins proposes to pay to its stockholders prior to the closing (the “cash dividend”).  The merger consideration is subject to adjustment based on Hopkins’ tangible book value as of the closing, which will be calculated after deducting all of Hopkins’ transaction-related expenses.  Immediately after the Merger, Hopkins Federal Savings Bank will merge with and into the Bank, with the Bank as the surviving federal savings bank.  Based on Hopkins’ tangible book value at September 30, 2015 and 241,552 shares of Hopkins common stock outstanding, and after giving effect to Hopkins’ payment of the bonuses, the cash dividend and its anticipated transaction-related expenses, the merger consideration would be approximately $23.8 million in cash, with the stockholders of Hopkins receiving cash of approximately $98.44 for each share of Hopkins common stock owned at the effective time of the Merger.  Bay will have the right to terminate the Merger Agreement if the merger consideration would exceed $25.7 million, and Hopkins will have the right to terminate the Merger Agreement if the merger consideration would be less than $21.4 million.  The Merger, which is subject to regulatory approval, is anticipated to close in the second quarter of 2016.  Additional information regarding the Merger may be found in Bay’s Current Report on Form 8-K that was filed with the Securities and Exchange Commission on December 21, 2015.

Balance Sheet Review

Total assets were $491 million at December 31, 2015, an increase of $11 million, or 2%, when compared to December 31, 2014.  The increase was due mainly to an $18 million increase in liquid assets over the year.  Investment securities decreased by $1.7 million, or 5%, for the year, while loans held for sale decreased by $2.4 million, or 33%.

Total deposits were $367 million at December 31, 2015, a decrease of $20 million, or 5%, when compared to December 31, 2014.  The decrease was due to managed declines in certificates of deposits, offset by a $10 million, or 11.1% increase in noninterest bearing deposits.  This funding source has been temporarily replaced with short term FHLB advances, improving the cost of funds, while Bay prepares for the 2016 merger with the deposit funded balance sheet of Hopkins.  Short term borrowings were $52 million at December 31, 2015, an increase of $30 million, or 136%, when compared to December 31, 2014.

Stockholders’ equity increased to $67.7 million at December 31, 2015 when compared to $66.9 million at September 30, 2015 and $66.6 million at December 31, 2014.  The fourth quarter 2015 increases related to corporate earnings, which were assisted by net market value adjustment and net increases on bank owned investment securities.  The book value of Bay’s common stock was $6.13 at December 31, 2015 and $6.05 at September 30, 2015 and December 31, 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 $10.3 million at December 31, 2015, from $12.8 million at September 30, 2015 and from $14.3 million at December 31, 2014.  The improvements were driven by decreases in purchased credit impaired loans 90 days or more past due of $1.0 million and $3.0 million from September 30, 2015 and December 31, 2014, respectively.  Nonperforming assets represented 2.10% of total assets at December 31, 2015, compared to 2.71% of total assets at September 30, 2015, and 2.99% at December 31, 2014.

At December 31, 2015, the Bank remained above all “well-capitalized” regulatory requirement levels.  The Bank’s tier 1 risk-based capital ratio was 16.14% at December 31, 2015 as compared to 16.10% at September 30, 2015 and 16.31% 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 months and year ended December 31, 2015 was $0.51 million and $1.93 million, respectively, compared to net income of $1.31 million and $3.03 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 $0.52 million and the 2014 recognition of the remaining interest rate mark-to-market adjustment of $2.38 million related to the exit of our IRA business, changes were less comparable to prior periods. 

Net interest income for the three months ended December 31, 2015 totaled $5.1 million compared to $6.4 million for the same period 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 and the decline in accretion contributed $1.0 million to the change.

Net interest income decreased to $21.4 million for the year ended December 31, 2015 compared to $22.9 million for the same period of 2014.  The decrease was the result of a $24 million growth in average interest-earning assets partially due to the Slavie Acquisition, offset by a $2.3 million decline in net discount accretion of purchased loan discounts recognized in interest income and a $1.1 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 year ended December 31, 2014.  The net interest margin for the fourth quarter of 2015 decreased to 4.49% from 4.68% for the third quarter of 2015.  The net interest margin for the year ended December 31, 2015 decreased to 4.70% compared to 5.31% for 2014 due to the decline in discount accretion on loans and deposits.  As of December 31, 2015, the remaining net loan discounts on the Bank’s loan portfolio, including loans acquired in the Slavie Acquisition, totaled $9.4 million.

Noninterest income for the three months ended December 31, 2015 was $1.1 million compared to $1.5 million for the three months ended September 30, 2015 and $1.1 million for the three months ended December 31, 2014.  The change from the immediately prior quarter was primarily the result of $0.05 million decrease in electronic banking fees and a $0.32 million decrease in mortgage banking fees and gains.  The changes from the fourth quarter of 2014 were primarily the result of a $0.07 million decrease in electronic banking fees, offset by a $0.09 million gain from the sale of certain securities in 2015.

Noninterest income for the year ended December 31, 2015 was $5.4 million compared to $7.8 million for the same period of 2014.  This decrease was primarily the result of the $2.38 million remaining interest rate mark-to-market adjustment on IRA deposits recognized in 2014, the $0.52 million bargain purchase gain recognized in 2014 and a $0.23 million decrease in electronic banking fees, offset by a $0.76 million increase in mortgage banking fees and gains and a $0.29 million gain from the sale of certain securities in 2015.  Expectations are for mortgage fees and gains to increase during 2016 as the Bank moves to expand its mortgage banking operations.

Noninterest expense reduction was a key focus for 2015 net income improvement.  For the three months ended December 31, 2015, noninterest expense was $5.2 million compared to $5.8 million for the prior quarter and $6.9 million for the fourth quarter of 2014.  The primary contributors to the decrease when compared to the fourth quarter of 2014 were decreases of $0.87 million in salary and employee benefits, $0.08 million in occupancy expense, $0.12 million in furniture and equipment, $0.48 million in other expenses, and $0.13 million in merger related expenses.

For the year ended December 31, 2015, noninterest expense was $22.6 million compared to $27.5 million for 2014, a decrease of $4.9 million for the same period of 2014.  The primary contributors to the decrease when compared to 2014 were decreases of $1.68 million in salary and employee benefits, $0.33 million in occupancy expense, $0.22 million in furniture and equipment expense along with $1.01 million in one-time other expenses recorded in 2014.

In the fourth quarter of 2014, Bay Bancorp filed amended 2011 and 2012 Federal and Maryland tax returns for the former Carrollton Bancorp, resulting in the accrual of $0.6 million in tax refunds.  Combined with a reversal of a deferred tax valuation allowance, the Bank recognized $1.2 million in favorable tax benefits in the fourth quarter of 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”.