Bryn Mawr Bank Corporation
Q1 2013 Earnings Call Transcript

Published: 26 Apr 2013

[Operator:]

Good morning ladies and gentlemen. My name is Amy. I will be your conference call operator today. At this time, I would like to welcome everyone to the Bryn Mawr Bank Corporation’s quarterly conference call. All lines have been placed on-mute to private any background noise. After the speaker remarks there will be an opportunity for question-and-answer period. (Operator Instructions) Thank you. It is now my pleasure to turn the floor over to your host, Mr. Duncan Smith, Chief Financial Officer. Mr. Smith please go ahead.

[Duncan Smith:]

Thank you, Amy and thanks everyone for joining us today. I hope you had a chance to review our most recent press release. If you have not received our press release, it is available on our website at bmtc.com or by calling 610-581-4925. Ted Peters, Chairman and CEO of Bryn Mawr Bank Corp., has some comments on the quarter and our strategic initiatives. After that, we will take your questions. The archives of this call will be available at Bryn Mawr Bank Corp.’s website or by calling 877-344-7529 and the replay passcode 10022593. A replay will be available approximately two hours after this call concludes. Before we begin, please be advised that during the course of this conference call management may make forward-looking statements which are not historical facts. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include but are not limited to words such as may, will, would, could, should, likely, possibly, probably, potentially, predict, contemplate, continue, believe, expect, anticipate, outlook, project, forecast or optimistic or looking, intend, plan, target, estimate or words or phrases of similar meaning. Forward-looking statements by their nature are subject to risks and uncertainties. A number of factors, many of which are beyond the corporation's control could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. All forward-looking statements discussed during this call are based on management’s current beliefs and assumptions and speak only as of the date and time they are made. The corporation does not undertake to update forward-looking statements. For a more complete discussion of the assumptions, risks, uncertainties related to our business you are encouraged to review our filings with the SEC located on our website. Thanks. Now I would like to turn the call over to Ted.

[Frederick Peters:]

Thanks Duncan and thank you everyone for joining us today. I hope you've all had time to review our earnings press release that we issued after the market closed yesterday. We reported net income of $5.3 million and diluted earnings per share of $0.40 for the first quarter of 2013 compared to net income of $5.1 million and diluted earnings per share of $0.39 for the same period a year earlier. It should be noted that net income for the first quarter of 2013 included pretax, due diligence and merger related expenses of $714,000 as compared to $209,000 for the same period in 2012. When reviewing our press release financial schedules comparing the first quarter of 2013 to the first quarter of 2012, you will notice the impact of our merger and acquisition activities in 2012. Our 2012 transactions included the acquisition of the Davidson Trust Company in May and the acquisition of deposits, loans and of branch location from the First Bank of Delaware in November. Both transactions have made contributions to our bottomline. Net interest income for the first quarter of 2013 was $17.4 million, an increase of $1.4 million or 8.9% compared to the first quarter of 2012. The three contributing factors to this increase were loans acquired from the First Bank of Delaware, the Corporation’s strategic decision to pre-pay $22 million of subordinated debt in the third and fourth quarters of last year and $20 million of Federal Home Loan bank borrowing during the first quarter of 2013 as well as the 16 basis points reduction in the rates paid on deposits between periods. The tax equivalent net interest margin of 3.85% for the first quarter of 2013 declined 8 basis points from the 3.9 pre-tax equivalent net interest margin for the same period in 2012. The decrease was primarily the result of an incremental increase in average interest earning assets with an average margin of only 2.9%. Although, average interest earning assets increased by $202 million between the periods, over one-third of this increase in assets was comprised of interest bearing deposits with other banks with a yield of only 24 basis points. For the first quarter of 2013, revenue for wealth and management services was $8.3 million, a $2.1 million increase or 34% from the $6.2 million for the same period in 2012. The wealth division’s assets under management, administration, supervision and brokerage increased to $7 billion as of March 31, 2013, an increase of $1.8 billion or 35.6% from March 31, 2012. The acquisition of Davidson Trust initially added $1 billion in wealth assets with remainder of the increase being the result of organic growth as well as market appreciation. Non-interest expense for the three months ended March 31st, increased $3.4 million or $20.2 million as compared to $16.8 million for the same period in 2012. Not surprisingly, our 2012 acquisitions along with the opening of our new Bala Cynwyd branch were largely responsible for salaries and benefit increases of $1.5 million; occupancy cost increases of $394,000 and due diligence and merger related expense increases of $5,000 between periods. In addition to these cost increases related to staff and facilities additions, we experienced a $1.4 million increase in other operating expenses, the three months ended March 31st, as compared with the same period last year. The primary contributors of this increase included a $347,000 increase in outsource services for audit and IT support and a $408,000 increase in computer processing and telecommunications expenses. The corporation is currently undertaking several technology infrastructure improvement projects, which had largely accounted for these increases. In addition, the pre-payment of the $20 million of Federal Home Loan bank borrowings mentioned previously resulted in the $347,000 pre-payment penalty. This premium will be offset by future interest expense savings. Partially offsetting these cost increases was a $570,000 gain recognized on the curtailment of a non-qualified defined benefit plan for certain executives which was curtailed on January 1, 2013. Non-performing loans and leases as of March 31st were $12.8 million or 91 basis points of total portfolio of loans and leases and compared to $22.6 million or 1.73% of portfolio of loans and leases as of March 31, 2012. We are very pleased with the significant decrease in non-performing loans which was concentrated in the commercial and industrial and construction segments to portfolio. For the three months ended March 31st, the corporation recorded net loan and lease charge-offs of $782,000 as compared to $713,000 for the same period in 2012. The provision for loan and lease losses for the first quarter of 2013 was $804,000 as compared to $1 million even for the same period in 2012. The capital ratios of the bank and the corporation are at levels well above the regulatory minimum to be considered well capitalized. In particular, as we are anticipated, tangible equity ratios for both the bank and the corporation have improved from their December 31, 2012 levels to 8.11% and 7.98% respectively. These increases were primarily the result of increases in retained earnings and decreases in accumulated and other comprehensive losses between the dates. Deposits decreased $24 million during the first quarter of 2013 primarily due to the planned attrition of higher priced time deposits and reductions in wholesale deposit levels. Total assets as of March 31st were $2.03 billion meaning relatively unchanged from the end of 2012. I am pleased to announce that on April 25, 2013, that was yesterday, the Board of Directors of the corporation declared a quarterly dividend of $0.17 per share. This dividend is payable June 1 to shareholders of record as of May 7. In summary, the corporation’s results for the first quarter of 2013 were solid and we are able to sustain the level of performance achieved in 2012. Acquisitions over the last several years have had a positive impact on our growth and performance. We look forward to completing our recently announced acquisitions of MidCoast Community Bancorp and anticipate a smooth integration of that organization in Bryn Mawr Trust. We believe there are great opportunities for the corporation to expand and thrive in Delaware and this acquisition will allow us to further capitalize on these opportunities. We believe our business model is sound and we expect continued strong performance in 2013. With that we will open the lines for any questions. Operator, would you please compile the Q&A roster.

[Operator:]

(Operator Instructions) Our first question is from Chris McGratty with KBW.

[Chris McGratty:]

Ted on the mortgage you know similar to many bank this quarter you saw kind of a little bit of a decline in the quarter, can you comment about the outlook and how April looks in terms of volume being on sales and how we should be thinking about the mortgage loan going forward.

[Frederick Peters:]

Well Joe Keefer, our Chief Lending Officer is here and he oversees the mortgage groups. So Joe do you want to talk about the mortgage where we've been and where we plan on going.

[Joseph Keefer:]

Yeah, sure Chris, good morning. The fourth quarter was abnormally high. We didn't think that that would continue and based on what I'm seeing on approvals coming through, our internal loan committee I'm sort of seeing that we could probably maintain between a $45 million to $55 million in sales per quarter. So I think we will probably look more like the second quarter of last year and the first quarter of this year as far as ongoing volume and beyond that into the third and fourth quarter really depends on the level of the rates. What we are seeing though which is encouraging is a pickup in purchase mortgages so that's good.

[Chris McGratty:]

What was the percentage of volumes being purchased in (inaudible) this quarter.

[Joseph Keefer:]

Well it’s been running about 80-20. And I think that held up in the first quarter. We won’t see the purchase business pick up until the second and third quarter. I'm just saying by, I'm basing that off with the approvals that have come through but have not yet closed.

[Chris McGratty:]

Okay. That’s helpful. Duncan for you on the size of the balance sheet how should we be thinking about both the combination of the cash position and the securities books and then maybe how it relates to margin expectations for the next few quarters.

[Duncan Smith:]

Good question, fair question, obviously we would love to make more loans. So the math works real good there, it goes from 24 basis points to 3.5% to 4.5% so that's certainly our focus with the first MidCoast Bank coming on board later in the year that certainly bodes well and we are working with those folks now and in addition the first keystone book of loans that we purchased in July of 2010 of you know low part of the cycle there and they are improving. So we are seeing some payoffs, and we are seeing some improvements in the loan marks. So we should see some positive margin help there. We can’t take our deposits much lower. We're probably one of the lowest in the state if not the country on this and we will continue to look at our borrowings to see. You know, you see with the last three quarters, we're taking some prepayment penalties to reduce some of the longer term borrowings. Even though the longer term borrowings were paying off, we're paying 2.5 and placing it with 1.5. So, you know those opportunities still exist but they are diminishing. So I think we're still getting the margin pressure on the upside from the loan customers. So I think we have enough to keep it relatively steady to over the next couple of quarters and after a year or so at this pace who knows, but I think we are looking pretty good for the next couple of quarters.

[Frederick Peters:]

Yeah, for the quarter our deposits on just our core accounts was down around 20 bps . That doesn’t include CDEs or wholesale deposits or things like that. As you know, we got a strategy of really running off most of our CDs. So we're running off and that's fine but we're, no, we don’t have quite frankly, Chris, we don’t have a lot of room probably on our core accounts to drop that pricing a whole lot more.

[Operator:]

Next question is from David Darst with Guggenheim Securities. Go ahead please.

[David Darst:]

Duncan as you are saying the margin could hang in here for couple of quarters than we might see a more pronounced decline as you move later this year or in the next year?

[Duncan Smith:]

Well we have the MidCoast coming along in the fourth quarter so that will give a positive boost. And then a lot of it depends on the loan volume that gets put on between after the next six months. As Ted said our time deposits we are basically dropping the rates to pretty low level, so we may see some run-out of those time deposits and then we can use up some of the cash. So we can only look two to three quarters out and after that if there is continued pressure on the downside, we are not sure from there.

[Frederick Peters:]

Yeah, Dave our loan growth as you saw was only really one half of 1% in the first quarter, but we are anticipating of a very good strong backlog down with our Delaware operation that we have been there now with our existing business we have up here in our core markets. So we are still just thinking most in that 6% to 8% range. We are getting hurt and I think a lot of banks are getting hurt is in the consumer lending area, where because of the refi on mortgages people paying off home equity lines of credit and home equity loans and things like that. So that’s where we are seeing a little bit of pressure. But we are still holding for right now to that 6% to 8% increase in loans. In addition our MidCoast has still seen some very strong growth in their loan area. I think they are 235 million in loans when we signed the agreement. I think by time we close we are going to be much closer to 350 to 360 somewhere in that range, so that’s certainly going to help us quite a bit there.

[Duncan Smith:]

And David, with Bryn Mawr connecting with MidCoast, we give them the ability to go after some larger loans that they couldn't do before the announcement, so.

[Frederick Peters:]

Even right now.

[David Darst:]

Yeah, so Ted I guess that’s a $115 million of growth that’s pretty significant for them this year?

[Frederick Peters:]

I am sorry I have the numbers wrong. They are 235 when we signed agreement, I am just dyslexic but I had them backwards. They were 235 and we think by the time we’ve settled they will be 250 to 260 I apologize there. I wonder why Duncan was ticking me under the table so.

[David Darst:]

And then I guess with a couple of acquisitions you have done over the past year the efficiency ratio is kind of creeping up on you, is there a benefit from this pension plan termination and there is anything else you’ve got on the works?

[Frederick Peters:]

Well, I mean we have the couple of things. First of all what we are trying to do is to grow the organization and to leverage our cost structure. Our cost structure however continues to have some pressure for a couple of reasons, one is the regulatory environment where the regulators are not more compliance people and more risk management people and they want more reports from finance and so forth. So we are seeing what every other bank is out there is increased cost in that. In addition we have an IT initiative that we’ve now done five acquisitions in five years and we have a sixth pending, and its put a lot of pressure on the IT part of our organization and so we are making some pretty serious investments in people and in other things hardware and so forth and projects in the IT area. You have to remember we run two businesses here, we run a wealth business, and our efficiency ratio in the wealth business is about 70% which is really good. If you talk to other companies in that business, they go, wow, you are doing a 30% pre-tax margin in that business. I mean, most of them are in the low 20s. So we are actually doing very well in that. So that's going to naturally pulls up a little bit. I would still like to get our efficiency ratio down to sort of 61, 62, and part of it is leveraging what we have as we grow. Obviously, MidCoast will help us as we increase the assets at that time probably closer to almost 300 million. That will help us as well. We look for continued efficiencies. I think David we can do a better job in the expense area and we are -- we continue to as we always have been take a look at them.

[David Darst:]

Maybe I guess a lot of it sounds like you are just part of you know growing up, right. In some ways you've got to install an upgrade and be ready to handle larger organization.

[Frederick Peters:]

I think that's a part of it. Duncan, do you have a comment?

[Duncan Smith:]

David, one example would be a phone system upgrade. We currently have say six or seven phone systems. We will be putting one new phone system in the cover all the enterprises so that will increase our efficiencies as we go forward relative to acquisitions and give us more feature functionality and backups. And we also did a significant disaster recovery backup in the fall. So we are enhancing our abilities and keeping in compliance and growing into a $2.5 billion to $3 billion bank.

[Frederick Peters:]

I mean when we close on -- when we close on MidCoast, our bank should be probably about $2.3 billion to $2.4 billion and Frank keeps growing that wealth area. So we are up to $7 billion there and the market’s been strong. So we are going to be a deep pretty decent sized organization.

[David Darst:]

Okay. And then just on capital, it looks like you are still raising a little money through the direct program?

[Frederick Peters:]

No, we are not, no. We are -- I'll turn it over to Duncan.

[Duncan Smith:]

Yeah, the money that's coming in into the direct dividend reinvestment and direct stock purchase programs is coming from the dividend reinvestments on a quarterly basis growing a little bit each quarter.

[Frederick Peters:]

Small though you know.

[Duncan Smith:]

Yeah, and then there are individuals just putting smaller dollar amounts, but we haven't done any block purchases or offerings of stock through that program for quite some time and our focus is to keep the shares outstanding to a lower number or to not take the extra capital, that is very easily available, but we don't want to -- we want to grow the earnings per share. So any growth there is just coming from the normal recurring stuff and there's no you know optional additions.

[Frederick Peters:]

Just a DRIP program.

[Duncan Smith:]

Yes.

[Frederick Peters:]

I mean our goal as you know is to drive.

[David Darst:]

And options? And I am sorry options over that period?

[Duncan Smith:]

Options exercises, David we are adding in. So there are -- some of those options reached seven, eight, nine, 10 years ago and a lot of them are expiring, so we will probably see a little bit of that continuing through this year.

[Operator:]

(Operator Instructions) Our next question is from David Peppard with Janney. Go ahead please.

[David Peppard:]

I just had a question related to the wealth business and you guys have covered most of it, but I was just wondering if you could talk about your goals for building that business for the rest of the year and the impact to the income statement that you expect please?

[Frederick Peters:]

Frank Leto who heads up our wealth business is here. Frank, turn it over to you.

[Frank Leto:]

Well, Dave, we just -- you know we want to continue to grow. We've got a goal out there to get to $8 billion by the end of next year. So a large portion of that was organic growth and we’ve got an internal strategic plan for wealth to get us to that target and obviously some of that would probably come from potentially an acquisition if we could find something that made sense. So we're still continuing to grow. We had about 5% growth in the first quarter just in AUM. You didn’t see the direct impact on the income statement because that will trickle out through the rest of the year. We had pretty good growth in our Bryn Mawr Trust Delaware again in the first quarter where you will see that, again in the second quarter and third and fourth quarter. So I think you will see the impact of -- the full effect of Davidson this year and our growth initiatives as we go in to this quarter and the remainder of the year.

[David Peppard:]

And could you just fill me in on what your current assets under management is?

[Frank Leto:]

About 7 billion, just a hair under 7 billion.

[David Peppard:]

Do you expect to put on about 500 million of new assets this year?

[Frank Leto:]

I would love to and we certainly love to. We had a good first quarter. I don't know how the gross is going to come in, some of that we need some market cooperation and we will see how the market handles the next couple of months, but I'd love to say we could get to that 5 billion number -- $500 million number by the end of the year.

[Operator:]

The next question is from Matthew Breese with Sterne Agee. Please go ahead.

[Matthew Breese:]

I just wanted to touch on the loan pipeline. I was hoping you guys could kind of characterize where you are seeing the growth and how you are seeing the growth. Is it more market share gains versus organic growth? And then, if you could touch on some of the loan yields you are starting to see, that would be great?

[Frederick Peters:]

Yeah, Joe Keefer will handle that one Matt.

[Joseph Keefer:]

Yeah, Matt, if you don't mind I’ll just go back to the linked quarter growth and the test point, we are seeing a little bit more elevated payoffs in the HELOC portfolio and the residential mortgage portfolio. But I think it's important to know it's not like we are losing customers or eroding the franchise, I mean we are just transferring those and transporting those into residential mortgages and sell them in the secondary market. So we are still retaining the customer and they are there for us to continue to sell to. On the business side though, if you net that out, we have been consistently been able to grow our various categories of business loans at a 10% to 11% cliff and where I am getting encouraged is been down to first or well now Bryn Mawr Trust with the first pack at Delaware office and that pipeline there is very, very strong. So we are capitalizing on that, had a lot of interaction with the MidCoast folks and one of the reasons they wanted to join us is they had capital limitations on how much they could land. So they have very strong customers coming to them wanting to do more good customers and we will probably participate some of those loans with Bryn Mawr Trust. The other thing is when I look at the pipeline which really was your question and I compared it to last year, our accepted loans, I won’t go into numbers but loans as of March 31 have been accepted but not yet closed, they are up about 131% over last year, and fundings and our proposals what we have out on the street are up about 60%. So what I think from an organic perspective, what you are going to see happen is the business loan growth coupled with our presence now in Delaware is going to outpace the erosion, but I think we will continue to appoint in the HELOC portfolio and residential mortgages where we’ll try to get, we will get to that 6% to 8% growth that Ted had mentioned. The new loans that we are booking mostly some CRE, some owner occupied commercial mortgages and some construction loans and we are seeing rates from as low as 4.8 up through 4.875, some of them are over 5%, but it’s primarily in that 4.8 to say 4.875% range. So hope that was enough color for you on our loan book.

[Matthew Breese:]

That is great color. My last question is really around thoughts on M&A, MidCoast is a smaller acquisition and I just wanted to know if that -- does that impact take you out of the market for little while doing additional deals and if you could touch on the types of acquisition that you would like to on the bank side of things that would be great as well?

[Frederick Peters:]

As we mentioned earlier Matt, we have done five acquisitions in five years and they have all gone very well, they have all been integrated, they all in our core processing systems. It is going very well. They have all been accretive to earnings. They have all worked very nicely. MidCoast is now sort of in the queue. We hope to close on that, maybe it’s very early in the first quarter, end of the third quarter, first quarter, or fourth quarter and we are already working with them in a very (inaudible) manner about different way we do things, the way they do things and trying to get that to go smoothly. Probably our core processing conversion with them will probably happen in November or maybe early December. We feel that we can do probably an acquisition again, right away; we are certainly agnostic of whether it is a bank or wealth business. If we find something that's a good wealth business we would do something there; if we find a good bank we would do something there. Our market area for bank acquisition has grown. As you know we are out in the Harrisburg area with Hershey Trust, or down in Delaware. So we really anything sort of within that triangle of Harrisburg in Central Pennsylvania, we are in Delaware and then maybe Southeastern Pennsylvania maybe going up to given the size and Allentown, anything sort of on that big triangle we would love to look at, it could be York, it could be Lancashire, it could be Hershey, it could be of course anything and Delaware as well. Our sweet spot would probably be something in the sort of the $250 million to $1 billion range. Even though I think we can even go a little bit larger than that if we wanted to. We've actually gotten pretty good at this M&A stuff; you know we've had three banks who have had joined us which we are excited about that, including MidCoast and we probably looked at 18 to 20 banks and by 18 to 20 its not that I just had lunch with the President of the bank, its that we had a book or data room or we actually looked at something fairly concrete. So we are trying to be selective. Anything we do in the banking space is got to be accretive, turnings immediately and then of course has to be strategic, has to be strategic as well. But we will see, we may, what I would like to do is to do at least one more, not two acquisitions in the next 18 months, but we may do none; because if we can't find something that makes sense we are not going to do it. But I certainly believe that we have the management talent here; I'll take myself out of the equation, but I think we certainly have the management talent here and the infrastructure to absorb at least one, if not two more acquisitions in the next year and a half.

[Matthew Breese:]

How would you size up the M&A market right now and how has deal flow been, what kind of things have been brought to you, is it increased or….?

[Duncan Smith:]

Well, my feeling is that you are going to see a lot more M&A. We already have seen more M&A activity and I think that's going to certainly increase. The pressures on smaller banks, not to say any bank below a $1 billion is fairly intense. Most of those banks are net interest margin driven and they are seeing any pressure as the larger banks are seeing and the regulatory expenses which are just, this is my 28th year as a bank President I have never seen anything like this. The regulatory pressures are pretty tough on banks of size as well. So I think we are going to see more pickup in M&A activity. We've already seen it, I am on the list of all the houses there and so I see all the acquisitions that occurred and so I am seeing the exact numbers for the first quarter, I would imagine announced the acquisitions would certainly be up. But no, we have seen prices increase. The price that MidCoast, our feeling has always been we want to pay fairly for good value and quite frankly MidCoast you know we are paying a very fair price there. We probably would have been lower a year ago. I think in general you've seen bank prices trend upwards a little bit. There is 7,400 banks now in the country, 7,300 banks if you define that as peak institutions that have FDIC insurance; I think we all realize there is going to be between 4,000 and 5,000 banks within five or six years. So we expect to see it continue. We've been sort of seeing about the same number of deals that we've seen before. We've just had two recent situations where we decided very quickly, it wasn’t something that we are interested in and hopefully we will see more.

[Operator:]

The next question is from Jason O’Donnell with Merion Capital Group. Go ahead.

[Jason O’Donnell:]

Most of my questions have been answered. I did have a question for Ted or maybe Duncan on the capital front. You all have indicated in the past, if I recall correctly the desire to keep your TCE ratio near the 8% level. I am curious about, how you are thinking about Tier-1 leverage at this point in particular. Looks like that ratio it's been migrating lower over the last several quarters as you have been adding earning assets and deploying capital. Is there a level above what Basel III implies, where you feel like that you need to maintain in order to grow the business?

[Frederick Peters:]

Duncan has our chart out. We obviously track this very closely, Duncan?

[Duncan Smith:]

Jason, it's a good question. Certainly we're watching it. Its well above our internal target and it is above the, obviously the well capitalized minimums. So Basel III, when is that coming out, when is that going to be phased in and how it's going to work, I don't think anybody knows yet. It keeps changing until but it’s certainly something we're looking at. That’s a question I can’t give you a number on that. But as we said, the 8% TCE ratio was one we were definitely focused on as far as public disclosure. This number will have to think about what we’d want to talk about, but certainly capital and all the capital ratios, we just keep updating our capital policy and we're very aware of where they are and where they need to be. So I would tell you, we feel comfortable here and we will keep an eye on it and may be in a future conference call we will talk a little bit about some in the other capital ratio targets.

[Frederick Peters:]

Operator is there are any more questions?

[Operator:]

Our next question is a follow-up from Chris McGratty.

[Chris McGratty:]

Yes, just a quick one on the expenses. I think you got 61 or 62 efficiency. Is that something you can get to in this rate environment, is that kind of a longer term aspiration, and may be for Duncan how should we be thinking about the next couple of quarters in terms of expense run rate before, kind of before the deal closes?

[Duncan Smith:]

Well on our efficiency ratio, clearly I mean there is two parts, there’s the numerator and denominator and we are looking to see what expenses we can take our there aren’t going to affect growth or affect revenue, but we continually be looking that and hopefully we can find some more things. We are going to continue to see non-interest income going up in Frank’s area. We think the mortgage business will stay there. Clearly the margin will get - there is always pressure on the margin, but hopefully we can make that up in volume a little bit. To get to the efficiency ratio of 61% or 62%, we are not going to do that for a couple of years. The one thing and I just want to mention is that, we are very, very well-position for rates going up and it would be really easy for us not to do that, to go put on some 30-year mortgages at 3.5% and so forth. We are not doing that and we are resisting doing that. Our residential mortgages that we hold in our portfolio have decreased $20 million since last year, because we are not going to go out and start putting on 30 year or 20, 30 year fixed rate mortgages. So one thing we have concentrated on quite a bit is to build up our core accounts in the last three or four years, maybe five years and that’s business checking, personal checking, money market savings, these types of things. Right now 24% of our deposits are non-interest-bearing. I think most of you know that is very, very high. We know when rates go up there will be some more price sensitivity and that might go down to 21% or 22%, but that money cost is zero and it is going to cost us zero whether primes are 3.25 or whether primes at 6.25. So we think we are very well positioned, we look at our GAAP analysis and our (output) stuff very closely, we're positively gapped, we want to stay positively gapped, we know this is going to heard us in the short term, but we are going to stay there. So once again the efficiency ratio is a matter of driving revenue and keeping expenses under control. Our whole strategy has been to grow the bank through organically and through acquisition and try to maintain the expense level lower or not to grow as fast as the bank’s grown, but that is the kind of where we are. Duncan, do you have some color on that you want to add?

[Duncan Smith:]

Yes, Chris, couple of things, looking at the March income statement, they have been in front of you probably. The couple of things I'd comment on, the provision, if you noted we were at $1 million the last four prior quarters and in this quarter we dropped down to 804. If you saw the asset quality numbers, delinquencies are looking good and the non-performing assets gone down. So there is potential if that trend continues or steadies or stays where it is, we may see a drop down in the provision. So that is obviously a positive thing, it helps. The salaries and wages and benefits, let's say medical expenses are never going down at least in the near future, but the first quarter includes full quarter of First Bank of Delaware and obviously all of Davidson. So that should be a pretty good run rate from here on in and so MidCoast comes on. Obviously that pension curtailment is not going to continue, but we will see as a result of the freezing of that plan, there's probably going to be a pick up of say an additional $300,000 of lower pension cost throughout the year. So, that's a positive. The premises and equipments, we are all adding -- we will be adding some capital items in the second and third quarter, so they will go up a little bit, some of the infrastructure projects we talked about, but there will be some benefits to those. The intangible asset amortization, that number is probably set for couple quarters and the good part about that, it’s a non-cash item, that's adding capital at a clip of $600,000 to $700,000 a quarter. The professional fees and the other operating expenses are probably the two most controllable or non-controllable expenses. Professional fees, we think fourth quarter was a pretty high number. First quarter here was probably a little bit lower. So we are probably more around the $600,000 to $650,000 on professional fees. Then the other operating expenses, that's where I think Ted mentioned you know we are taking a look, there's some opportunities there to reduce some costs and other operating expenses. So we are going to take a look at all that, but this quarter reflects really all the acquisitions to-date to that full quarter of operating expenses and there we don't see any significant new hires coming other than just cleaning up and streamlining some things that we've already started.

[Chris McGratty:]

Great. Just a quick follow-up, the $300,000 on the benefits freeze, that's where the $100,000 a quarter, is that $300,000 benefit a quarter?

[Duncan Smith:]

It’s $100,000 a quarter.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Ted Peters for any closing remarks.

[Frederick Peters:]

No, just thank you everybody for tuning in today, calling in and we appreciate your interest in Bryn Mawr Bank Corp. and we are just going to keep working hard and keep driving earnings per share, quality core earnings per share and hopefully the stock price as well. Thank you very much.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.