Bay Bancorp, Inc. Announces Second Quarter 2016 Results

COLUMBIA, Md., July 28, 2016 (GLOBE NEWSWIRE) -- Bay Bancorp, Inc. (“Bay”) (NASDAQ:BYBK), the savings and loan holding company for Bay Bank, FSB (“Bank”), announced today net income increased to $0.45 million or $0.04 per basic and diluted common share for the second quarter of 2016 over the $0.19 million or $0.02 per basic and diluted common share recorded for the first quarter of 2016.  Net income for the second quarter of 2015 was $0.55 million or $0.05 per basic and diluted common share.  Bay reported net income of $0.64 million or $0.06 per basic and diluted common share for the first half of 2016, compared to $0.89 million or $0.08 per basic and diluted common share for the first half of 2015.  Net loans held for investment increased by $20.3 million or 5.12% when compared to March 31, 2016.  The results highlight Bay’s transition from reliance on favorable net discount accretion assisted results to a bank with strong loan growth and materially improving efficiency metrics.

Commenting on the announcement, Joseph J. Thomas, President and CEO, said, “We celebrated the sixth anniversary of our founding in July and take pride in what we have accomplished in building a bank from the concept of a shelf charter in 2010 to what management expects to be the fifth largest community bank headquartered in the Baltimore region based upon deposit market share with the completion of the Hopkins Federal Savings Bank merger (“Hopkins Merger”) in July.  With the Hopkins Merger, the Bank should have total assets of approximately $650 million and 12 branches in the Baltimore-Washington region.  The Bank has achieved 36.4% growth in its originated loan portfolio for the six-months ending June 30, 2016 which validates our new Market President and dedicated industry-specific leadership structure that was launched in 2016.  We have also made significant progress in improving asset quality through the resolution of criticized assets acquired in prior mergers and acquisitions.  The Bank’s classified loans and OREO to total risk based capital declined to 22% at June 30, 2016 after peaking over 70% in 2014 following the acquisition of Slavie Federal Savings Bank.  The earnings impact of this growth should be fully realized over the remainder of 2016 and beyond.  Our ongoing efficiency efforts continued into 2016 and for the six-months ended June 30, 2016, noninterest expense was $10.4 million compared to $11.6 million for the same period of 2015.  The contributors to the decrease were broad based and even greater after considering the Hopkins merger-related expenses incurred in the second quarter of 2016.”

Highlights from the First Six Months of 2016

The Bank’s relationship management activities resulted in considerable growth of new loans in the Bank’s originated portfolio by a 36.4% annualized pace in the first six months of 2016.  Deposit balances declined slightly and short term borrowings increased as the Bank prepared the balance sheet for the Hopkins Merger in July 2016 and funded considerable loan portfolio growth.  Overall deposits declined by $4.2 million or 1.2% with declines in certificate of deposit balances fully offset by interest-bearing demand deposit growth.  Bay has a very strong capital position and capacity for future growth with total regulatory capital to risk weighted assets of 16.10% as of June 30, 2016.  Bay has a proven record of success in acquisitions and acquired problem asset resolutions and, at June 30, 2016, had $8.5 million in remaining net purchase discounts on acquired loan portfolios.

Specific highlights are listed below:

• The return on average assets for the three- and six-month periods ended June 30, 2016 was 0.38% and 0.27%, respectively, as compared to 0.46% and 0.37%, respectively, for the same periods of 2015.  The return on average equity for the three- and six-month periods ended June 30, 2016 was 2.70% and 1.90%, respectively, as compared to 3.26% and 2.66%, respectively, for the same periods in 2015.
   
• Total assets were $496 million at June 30, 2016 compared to $463 million at March 31, 2016 and $491 million at December 31, 2015.
   
• Total loans were $417 million at June 30, 2016, an increase of 5.1% from $397 million at March 31, 2016, an increase of 6.1% from $393 million at December 31, 2015 and an increase of 8.2% from $386 million at June 30, 2015.
   
• Total deposits were $363 million at June 30, 2016, a decrease of 0.7% from $366 million at March 31, 2016, a decrease of 1.2% from $367 million at December 31, 2015 and a decrease of 5.5% from $384 million at June 30, 2015.  Non-interest bearing deposits were $96 million at June 30, 2016, a decrease of 1.7% from $98 million at June 30, 2015.
   
• Short term borrowings were $61 million at June 30, 2016, an increase of 130.5% from $26 million at March 31, 2016 and 15.8% from $52 million at December 31, 2015.
   
• Net interest income for the three- and six-month periods ended June 30, 2016 totaled $4.9 million and $9.6 million, respectively, compared to $5.5 million and $10.8 million, respectively, for the same periods of 2015.  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 did not materially impact the year-over-year results, as average earning portfolio loans and investment securities increased to $428 million for the six-month period ended June 30, 2016, compared to $425 million for the same period of 2015.  The earnings impact of the second quarter of 2016 increase in net loan growth and the earning asset leverage of the Hopkins Merger is expected to materially improve ongoing net interest income.
   
• Net interest margin for the three- and six-month periods ended June 30, 2016 was 4.34% and 4.28%, respectively, compared to 4.89% and 4.81%, respectively, for the same periods of 2015.  The margin for the six-months ended June 30, 2016 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 six-month period ended June 30, 2016, the earning asset loan portfolio yield was negatively influenced by a $0.86 million decline in net discount accretion of primarily purchased loan discounts recognized in interest income when compared to the same period of 2015.  The margin declined by 0.53% during the six-month period ending June 30, 2016 when compared to a year earlier, with the reduction in net loan discount accretion accounting for 0.38% of the yield fluctuation.
   
• Nonperforming assets decreased to $9.1 million at June 30, 2016 or 6.3%, from $9.7 million at March 31, 2016, and declined 30.5% from $13.1 million at June 30, 2015.  The second quarter of 2016 decrease resulted from the Bank’s continued resolution of acquired nonperforming loans.
   
• The provision for loan losses for the three- and six-month periods ended June 30, 2016 was $358,000 and $656,000, respectively, compared to $297,000 and $572,000, respectively, for the same periods of 2015.  The increases for the 2016 periods were primarily the result of increases in loan originations.  As a result, the allowance for loan losses was $2.29 million at June 30, 2016, representing 0.55% of total loans, compared to $1.95 million, or 0.49% of total loans, at March 31, 2016 and $1.43 million, or 0.37% of total loans, at June 30, 2015.  Management expects both the allowance for loan losses and the related provision for loan losses to increase in the future periods due to the gradual accretion of the discount on the acquired loan portfolios and an increase in new loan originations. 

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 authorized 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.  During the first quarter of 2016, Bay purchased the remaining 79,508 shares of its common stock pursuant to the stock purchase program at an average price of $4.91 per share.  Also during the first quarter of 2016, the Board of Directors authorized an additional stock purchase program, authorizing Bay to purchase an additional 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.  During the second quarter of 2016, no common shares were repurchased under the additional authorization.  As of June 30, 2016, Bay has repurchased 95,492 shares under this authorization at an average price of $4.95 per share.  The Board may modify, suspend or discontinue the program at any time.

Recent Events

On July 8, 2016, Bay Bancorp announced that it completed its merger with Hopkins Bancorp, Inc., and the corresponding merger of Hopkins Federal Savings Bank into the Bank, making the Bank the fifth largest community bank headquartered in the Baltimore region based upon deposit market share.  Following the Hopkins Merger, the Bank should have total assets exceeding $625 million and 12 branches in the Baltimore-Washington corridor.

The Hopkins Merger should enable Bay to substantially improve its efficiency ratio as a result of the cost savings achieved.  The improved efficiency combined with greater scale should enable Bay to increase core earnings within the first 12 months.  The core deposit funding provided by the Hopkins Merger allowed the Bank to pay off its short term borrowings and immediately lower its loan-to-deposit ratio.  Finally, as an all cash acquisition, the Hopkins Merger should enable Bay to deploy excess capital, which in combination with the surging originated loan growth, increased earnings and lower capital should enable Bay to improve its return on equity for the full year following the Hopkins Merger.

Balance Sheet Review
             
Total assets were $496 million at June 30, 2016, an increase of $4.4 million, or 0.9%, when compared to December 31, 2015.  Investment securities available for sale decreased by $11.0 million or 29.0% for the six-month period ended June 30, 2016.  The decline was offset by a $23.9 million or 6.1% increase in loans held for investment, while loans held for sale increased by $0.5 million or 10.7%.  Cash and interest-bearing deposits with banks decreased by $7.3 million or 21.2% for the six-month period ended June 30, 2016.

Total deposits were $363 million at June 30, 2016, a decrease of $4.2 million, or 1.2%, when compared to December 31, 2015.  The decrease was primarily due to an $11.3 million managed decline in certificates of deposits and $5.9 million of seasonal non-interest bearing deposit fluctuations, offset by a $12.9 million increase in interest bearing demand deposits.  The increase in loan balances and decrease in deposits resulted in an $8.3 million increase in short-term borrowings for the six-month period ending June 30, 2016.

Stockholders’ equity increased to $67.5 million at June 30, 2016 compared to $66.9 million at March 31, 2016.  At December 31, 2015 and June 30, 2015, stockholders equity was $67.7 million and $66.1 million, respectively.  The second quarter 2016 increase over the first quarter of 2016 was primarily driven by corporate earnings and partially supported by net market value adjustments on available for sale investment securities.  The decrease over the first six months of 2016 related to the ongoing stock repurchase program and a $0.1 million decrease in Accumulated Other Comprehensive Income offset by corporate earnings.  The book value of Bay’s common stock was $6.18 at June 30, 2016, compared to $6.15 per share at March 31, 2016 and $5.99 per share at June 30, 2015.

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 $9.1 million at June 30, 2016 from $9.7 million at March 31, 2016 and from $10.3 million at December 31, 2015.  The decreases were driven by related decreases in nonaccrual loans of $0.52 million and $1.05 million from March 31, 2016 and December 31, 2015, respectively.  Nonperforming assets represented 1.84% of total assets at June 30, 2016, which was down from 2.10% at March 31, 2016, 2.10% at December 31, 2015 and 2.68% at June 30, 2015. 

At June 30, 2016, the Bank remained above all “well-capitalized” regulatory requirement levels.  The Bank’s tier 1 risk-based capital ratio was 15.56% at June 30, 2016 as compared to 16.20% at March 31, 2016, 16.14% at December 31, 2015 and 17.00% at June 30, 2015.  Liquidity was intentionally managed tightly at June 30, 2016, in preparation of the pending merger with Hopkins Bancorp, although the position remained strong due to available 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 six-month periods ended June 30, 2016 was $0.45 million and $0.64 million, respectively, compared to net income of $0.55 million and $0.89 million, respectively, for the same periods of 2015.  While the reported results trail 2015 due primarily to declines in year-over-year net discount accretion income on acquired loans, and Hopkins Federal Savings Bank related merger costs, management believes that the underlying results and trends are quite compelling.  Individual categories reflect variability between years.

Net interest income decreased to $9.6 million for the six-months ended June 30, 2016 compared to $10.8 million for the same period of 2015.  The decrease was largely the result of $0.86 million decline in net discount accretion on purchased loans recognized in interest income while the balance of average earning assets were relatively unchanged over the first six months of each year.  The average yield for new loans closed over the past year was less than the average loan portfolio yield during this period, while higher yielding loans originated in prior periods have amortized or paid off.  The net interest margin for the second quarter of 2016 increased to 4.34% from 4.20% for the first quarter of 2016.  The net interest margin for the six-months ended June 30, 2016 decreased to 4.28% compared to 4.81% for the same period of 2015 due to the decline in net discount accretion on loans and deposits.  As of June 30, 2016, the remaining net loan discounts on the Bank’s acquired loan portfolio totaled $8.5 million.  Management believes that interest income in the third quarter of 2016 and beyond will reflect the impact of accelerating internal loan growth, the impact of the Hopkins Federal Savings Bank merger leverage and a moderation of the deceleration of net discount accretion recognition.

Noninterest income for the three months ended June 30, 2016 was $1.3 million compared to $1.2 million for the three months ended March 31, 2016 and $1.5 million for the three months ended June 30, 2015.  The increase over the immediate prior quarter was primarily the result of $0.03 million increase in electronic banking fees and a $0.10 million increase in mortgage banking fees and gains.  The decrease from the second quarter of 2015 was primarily the result of a $0.34 million net decrease in mortgage banking fees and gains were offset by a $0.21 million increase in gains on security sales and redemptions during the quarter ended June 30, 2016.  Expectations are for increased electronic banking and mortgage banking fees and gains throughout the remainder of 2016.

Noninterest income for the six-months ended June 30, 2016 was $2.5 million compared to $2.8 million for the same period of 2015.  This decrease was primarily the result of a $0.07 million decrease in electronic banking fees and a $0.58 million decrease in mortgage banking fees and gains, offset by a $0.41 million increase in gains on security sales and redemptions during the six-months ended June 30, 2016. 

Noninterest expense reduction remains a key focus for 2016 net income improvement.  For the three months ended June 30, 2016, noninterest expense was $5.1 million compared to $5.3 million for the prior quarter and $5.9 million for the second quarter of 2015.  The primary contributors to the decrease for the quarter ended June 30, 2016 when compared to the second quarter of 2015 were decreases of $0.36 million in salary and employee benefits, $0.09 million in occupancy expense, $0.15 million in legal, accounting and professional fees, $0.03 million in foreclosed property expenses and OREO sales, offset by $0.13 million increase in 2016 merger related expenses.

For the six-months ended June 30, 2016, noninterest expense was $10.4 million compared to $11.6 million for the same period of 2015.  The primary contributors to the decrease over the first six months of 2015 were decreases of $0.39 million in salary and employee benefits, $0.22 million in occupancy expense, $0.21 million in legal, accounting and professional fees, $0.17 million in loan collection costs, offset by $0.19 million increase in 2016 merger related expenses.

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”.