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Executives

Ted Peters - Chairman and CEO

Duncan Smith - EVP and CFO

Frank Leto - EVP, Bryn Mawr Trust Company, Wealth Management Divison

Joe Keefer - EVP and Chief Lending Officer

Analysts

Jason O’Donnell - Merion Capital Group

David Darst - Guggenheim Securities

Matthew Breese - Sterne, Agee

Chris McGratty - KBW

Bryn Mawr Bank Corporation (BMTC) Special Conference Call April 1, 2013 8:30 AM ET

Operator

Good morning ladies and gentlemen. My name is Keith and I will be your conference call operator today. At this time I would like to welcome everyone to the Bryn Mawr Bank Corporation’s Special Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions).

Now I would like to turn the floor over to your host Ted Peters, Chairman and CEO. Sir you may begin your conference.

Ted Peters

Good morning and thank you everybody for joining us today. We don't have a prepared script here, so it’s going to be little more informal. I think most of you have seen our press release which went out last Thursday morning in addition we filed an 8K on Friday, and then approximately about a half hour ago we put on our website a number of slides on the transaction overview. There's information out there and a lot of that of course we'll cover and mention today.

What's happening of course here is that Bryn Mawr Bank Corp. will be buying MidCoast Community Bancorp for 100% stock deal. It’s an exchange rate of approximately 0.52 BMTC for each MidCoast which works out about $12 a share or about 1.47 times tangible book value. The total deal is around $33 million.

We are very excited about this. MidCoast Community Bank is a very high performing de novo bank. It was started in 2007 in Delaware by Jim Ladio, who is the current CEO and a group of investors who are also directors of the bank. It’s very heavily targeted towards commercial lending to closely help businesses in the State of Delaware, may be just some overlapping some states around, but primarily Delaware. There are really four offices including the headquarters office with about 40 employees.

This transaction will be adding about little less than $300 million of assets to our balance sheet. By the time we get to closing, I think the loans will probably be close to $250 million with deposits a little bit higher. If you've seen some of the figures on MidCoast, once again its been a high performing de novo and their non-performers are very low at only 40 bps of total loans or 46 bps of total assets.

The bank has shown a greater ability to grow loans. Their CAGR since inception is over 32%. Obviously if you get bigger, it's harder to create that kind of compound annual growth rate. But still it's a very strong lending group that Jim has assembled down there. This transaction will make Bryn Mawr Trust really about the second or third largest community bank in Delaware when we close; because depending upon whether you consider was this a community bank, which I think you could, you drop down to Artisans and after that it drops right down to Bryn Mawr Trust. So we're pretty excited about being a significant player in the State of Delaware.

As you know, we purchased First Bank of Delaware in November which had about $80 million of assets at that time. So it's given us some good critical mass in that state. I think you also note that we have a couple of other companies in that state. We have Lau Associates which is a very high-end family office money manager and in addition we have Bryn Mawr Trust Company of Delaware, which we started about five years ago, special purpose trust company in Delaware and the combined assets of Lau and Bryn Mawr Trust of Delaware are over a few billion dollars. This is going to give us some, once again, some nice critical mass in this state.

I've been told by analyst; never leave by saying this is a strategically significant deal because that usually means it allows you financial deal. I can tell you; this is a very fair financial deal for both parties. I think like everyone of our acquisitions, this is our sixth acquisition now in five years. Everyone is we've paid fairly for good value. In no way are we stealing this bank, not at all; we paid a very fair price. It was negotiated in a limited auction situation. We’ve had a very fair price for a very, very good bank.

Once again from a financial view point, there is accretive earnings, we will never do an acquisition it's not an accretive earnings, its accretive earnings in the single-digit, it probably in the 3% to 5% range. It will see how it plays out. But once again we have done a number of these, so we are getting pretty good at analyzing these. But once again, it's strategically very significant for us as we grow in the Delaware market, which is quite frankly, is a less competitive market than most of markets we are in up here in Philadelphia area.

And we are looking for good loan growth down there, and Jim Ladio is going to be heading up Bryn Mawr Trust efforts in the State of Delaware, heading up our commercial banking efforts there. His charge will be to continue to grow the commercial banking portfolio down there. In addition over half the portfolio is floating rate which is very good. Obviously, we positioned our balance sheet for rates to go up at some point, you know they are and Jim has done the same thing down there. So I think we are in good shape in this economic environment, interest rate environment.

We don't see this as a high risk transaction; in fact we see it as a low risk transaction. We did a lot of due diligence. Our EVP, Alison Gers runs our due diligence. It’s extremely thorough; it’s a team effort by not only our people internally but by some outside vendors that we use. We feel very comfortable, we didn’t uncover any significant issues, and the bank is very clean, very well run bank as shown by in the compliance area, where a lot of small banks struggle in that area. This bank is very, very clean in the whole compliance and due diligence areas.

On the synergies, our cost savings are conservative. We weren’t aggressive there; we don't want to be aggressive in that area. So I think from the slide deck, you can see that we are looking for somewhere in the low 20s on cost savings. We think our retail model, our existing retail models, Bryn Mawr’s pretty good and we are looking forward to working with the MidCoast branches to change Bryn Mawr a little bit to work more on some lower cost core accounts.

MidCoast is very typical of a de novo bank, which I am pretty familiar with myself, where when you have strong asset growth, a lot of that asset growth is funded through retail CD deposits, so its very normal the way they funded their growth. This once again I mentioned this thing is immediately accretive to earnings per share which we will not do a transaction that’s not like the internal rate of return and our tangible book value dilution is bit not much in 3.5% which we will earn back pretty quickly.

So that your further general overview comments there, I have with this our whole team. I won’t go in to everybody. We have our whole team here. So, if you have questions, operator, why don't we open it up for questions and then we will make some closing statements thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jason O'Donnell from Merion Capital Group.

Jason O’Donnell - Merion Capital Group

I apologize, I don’t have the slides in front of me just yet, but Ted you mentioned that the cost savings figures is somewhere in the low 20% rates, and just sort of thinking about potential earnings accretion here. I am wondering, how quickly should we expect you all to reap those savings. Is it going to be a multi-quarter process or should that happen pretty quickly?

Ted Peters

Usually, our experience has been within 90 days we reach those and I mean we come in and we are pretty sensitive about the whole thing. So for instance any employees who won't be joining us there's going to be hopefully generous severance payments, there will be retention bonuses paid.

We work very hard at communication for those employees who perhaps at position might not be available. We open up our positions but --- whole positions open at Bryn Mawr Trust for people down there who maybe are being displaced so they can join us at another one of our branches or their operation center or something like that. So we don't go in the first day and just and slam things. We work it out over about 90 days, that's been our history and its proven well so far.

Jason O’Donnell - Merion Capital Group

And then Duncan maybe a question for you, I am wondering how much are you all assuming MidCoast has in the way of core operating expenses. It looks like salaries and benefits expense is up sharply in the fourth quarter, so I'm not sure if that is a quarterly run rate there is close to the $1.5 million or $1.8 million?

Duncan Smith

It’s a good question. I know they did have to step up a little bit and they had some one-time costs in the fourth quarter. So I'd say it’s more like the $1.5 million number. The $1.8 million included some charges.

Jason O’Donnell - Merion Capital Group

Perfect. And then how much do you anticipate in terms of total merger cost related to transaction and what portion should we expect to flow through the Bryn Mawr P&L over the next call it four quarters or so?

Unidentified Company Speaker

I think the total closing costs after tax are $4.3 million. Once again that's in the slide deck, let me just pull it out. $4.7 million, yeah. Pretax merger cost, actually its pretax merger cost $4.7 million in 2013, $1.8 million in 2014. So that's pretax so after tax would be definitely be lower.

And one of the things as you know Jason when you do a transaction it’s not a really large transaction. Your closing costs end up being a little bit more of the deal than it was a bigger transaction, that's just the way it kind of works.

Duncan Smith

And the $4.7 million in ’13 relates to the actual closing and some one-time payments and the $1.8 million is more relative to the conversion of the data systems which should be sometime in 2014.

Jason O’Donnell - Merion Capital Group

Okay, the $4.7 million for both sides or is that for just on flowing through Bryn Mawr?

Duncan Smith

That's both sides. Some of these expenses will go through on their books; some will go through on ours.

Jason O’Donnell - Merion Capital Group

Okay, and then one more question and I'll hop out. With respect to the margin, a weighted average suggest maybe a negative eight basis points hit to your NIM in the fourth quarter without accounting for the benefit accretive yield or any other factors, what are you all expecting in the way of a margin impact in the fourth quarter and should we assume a bounce back in 2014 as you runoff time deposit pretty aggressively?

Ted Peters

Well, you have to remember that we mark time deposits you mark them to market right away. So they will be a market rate. In addition, we will work on the other deposits to bring them down a bit more in line with us over a period of time.

We actually see their existing margin jumping sharply because of our lower funding cost. So we don't see an overall entire operation, entire Bryn Mawr Bank Corp. We don't really see real change in our net interest margin as a company mainly but their margin will be jumping up fairly sharply.

Obviously, margin is important but net interest income which is to us even little more important, net interest income obviously is going to jump because fairly they are bringing a lot of net interest income with them.

Unidentified Company Representative

Jason, the CD mark will be significant because they have funded, their funding strategy has been to and (inaudible) they get $10 million of loans they will go out and do a three-year higher rate special and fund it with that special CD. So they will be mark-to-market at times. So to the extent, they can run some of their mile prior to closing or would go shorter. That would help the goodwill and put them more in market rate what we consider market rate.

Ted Peters

We anticipate the CD mark to be $4.3 million. And once again I think what we tried or to do Jason, is we have been through this a few times is not to be, try to be realistic, you know, a little bit conservative. So for our closing cost, if anything we're going to try not to, you know, we're going to try to be a little high then a little low, these types of things. I know in the first transaction, we did First Keystone Bank back four, five years ago. We, quite frankly, probably were not as, do as good a job as we should at long anticipating some of these costs and things.

Operator

Thank you and the next question comes from David Darst of Guggenheim Securities.

David Darst - Guggenheim Securities

Could you maybe talk about any synergies you got with the wealth management business? It is the (inaudible) business or the Delaware Trust with both this and the First Bank of Delaware acquisition?

Ted Peters

Okay, I will turn that over to Frank Leto who runs our Wealth Group. He's here.

Frank Leto

I think we were certainly looking for synergies, they have had no wealth presence really in Delaware on top of that, some of their commercial vendors and others at the bank have been former employees of other institutions that have significant wealth presence in Delaware. So we think that there will be an opportunity across selling some of the commercial clients as we go forward.

David Darst - Guggenheim Securities

Okay. Got it. And Ted as you think about this further expansion I guess, other than the synergy may with wealth management this looks like you are attracted to the commercial markets in Delaware. And I guess this is more attractive than some of the areas in Pennsylvania you could go from your headquarters, where do you think you might go next and does it take one to two more deals to hit your goals by the end of 2014?

Ted Peters

Well, first of all, we have our larger area where we would look for people to join us and that area as we stated publically as sort of from the Harrisburg, Hershey area where we have a wealth presence to anywhere in the state of Delaware to up Northern Pennsylvania may be up around the Scranton area may be little further south.

We don't have any plans to go over the river in New Jersey right now. But we are going to look closely, we look a lot of situations. So we probably looked at 17, 18, 19 situations of banks and we have had three join us.

So we are trying to be careful, we are trying to find things which are good fit for us culturally and geographically and so forth. We have, I think many of you know we have a sort of a goal by the end of 2014 to get the bank up to $3 billion in assets some organic growth, and inorganic growth that’s our reach goal a little bit and as the board knows we are not going to do it unless it's kind of make sense. We might not make $3 billion and if we don't that’s fine, I would rather be in a $2.5 billion high performing bank than a $3 billion mediocre bank. Likewise in the wealth area we've just grown rapidly in last couple of years. We are now little under $7 billion there and our goal is to get up to $8 billion in a couple of years. So we will see once to get how that kind of works out.

We are agnostic as to whether another wealth company joins us or whether another bank joins us and whatever opportunity presents itself that makes sense. Personally, I would like to do another transaction in the next year but on the other hand we might not be one, we don't know and we are certainly not going to push to situation at all.

Operator

Next question comes from Matthew Breese from Sterne, Agee.

Matthew Breese - Sterne, Agee

Good, just a quick question on the loan market. I guess I was surprised with the size of the loan mark given the quality of institution. So could you give us a better idea of what’s in there and what made you be that conservative?

Ted Peters

Okay, good, Joe Keefer our Chief Loan Officer is here with us, I am going to turn over to Joe.

Joe Keefer

Yeah, I think we are conservative and what I would say is yeah, the impact very, very good credit performance, low charge-offs, low non-performing. You know, when we did our due diligence, it was in a very, very compressed timeframe and we had to do it over three days. So we had a 64% penetration rate and we did 24 site visits and quite frankly when you are going in the first time, you want to be conservative.

My sense is, I mean this is not the final marks but and looking at the credit files once we get to know the credits more, we get updated financial information by [biases] is that mark will mostly likely come down prior to close. But again more of it has to do with dealing with the unknown as opposed to what their past performance is. So that's why it’s a little bit higher and you might think there's little bit of a disconnect there.

Matthew Breese - Sterne, Agee

Is that 10.6 inclusive of their reserve.

Ted Peters

Yeah, so the reserve will be netted out when it came over. The actual loan Mark prior to the reserve right now is at 3.9%.

Matthew Breese - Sterne, Agee

And then hopping over to time earn back, could you give us a better sense of what the combined earn back would be and then what the standalone earn back would be on a tangible book value basis.

Ted Peters

Well, we are looking for tangible book value per share dilution is 3.5 and we anticipate making that back in three years. It’s just the way we are analyzing, I'm not quite sure Matt what you mean by combined or standalone.

Matthew Breese - Sterne, Agee

Standalone meaning the dilution from the transaction to book value and the accretion to earnings on a standalone basis. So if it adds call it $0.05, how quickly does that $0.05 get you back to even on the dilution.

Ted Peters

Yeah, we are looking, well on the curve, book per value per share. We are looking three years or less.

Operator

The next question comes from [Margarita Correa from Source Media]

Unidentified Analyst

Hi, I had a question also related to the wealth management business and I believe you covered most of it, and I just wanted to know how the acquisition if it would contribute to the goal of building that business. And my sense since you said that this new bank has no wealth presence it really wouldn't contribute too much to that goal. Am I correct?

Frank Leto

Margarita, its Frank. No I think actually we are hoping it will contribute. Like I said because they don't have a presence their clients haven't had, they haven't had the opportunity to cross sell the clients, number one; and number two, they have a number of employees that are seasoned in the Delaware market and have come from institutions with large wealth presence and those, some of their clients have wealth accounts in other institutions that we are hoping to be able to entice to come to Bryn Mawr.

Ted Peters

So we are hoping Margarita that it will grow, its not going to be something that happens all at once. But once again they have a very sophisticated lending group which has experience in selling wealth management services and we think we are pretty good, the wealth management business. So I think it’s a nice step. Obviously with Wilmington Trust sort of imploding down there and M&T taking over there might be some opportunities down there for us. Already at our Bryn Mawr Trust Company of Delaware operation we've brought in a fair amount of business from that situation.

Unidentified Analyst

Any sense as to how much business you might be able to get from this in terms of assets under management.

Frank Leto

No, I don't think we have really a number yet in mind.

Ted Peters

But one thing we do Margarita, when we do these things we don't factor in extra revenue from like wealth or whatever increased branch and so forth. To us that's kind of frosting on the cake. So I know in my former lives I've seen people do acquisitions and they start factoring in all these revenue projections to try to make the acquisition look better and very often those revenue projections don't happen. So our philosophy her has been that we just, we really don't add much, if anything at all on increased revenue from other products and services we have in our analysis.

Unidentified Analyst

And the number of employees in the wealth management business is that a large group or you know, how bigger network?

Ted Peters

Well Bryn Mawr Frank, how large is your wealth group at Bryn Mawr? A 110

Frank Leto

110. We've about 110 people in Bryn Mawr and it was Bryn Mawr, Hershey and Wilmington right now and in that area, I am not sure how you are familiar, we are very diverse. We do a lot of things in the wealth area. We have a lot of products and services. We do not only managing money but we're big fiduciary trust shop. We have a 401K business we run. We have a (inaudible) bridge outfit; we have a special purpose trust company once again in Delaware. So there’s a lot of things we do. So I think a lot of things that can be applicable to Delaware and to the clients down there.

Unidentified Analyst

But in terms of MidCoast Community Bank Corp., how big is their wealth group?

Frank Leto

They do not have a wealth group. I am sorry I didn’t understand your question. They do not have a wealth group.

Operator

The next question comes from Chris McGratty with KBW.

Chris McGratty - KBW

On the expense kind of starting point, just want to make sure I am clear. If I look at their full year financial, it looks at it's starting base is around 6 million bucks. Is that the basis on which you are determining the 22%, 24% (inaudible)? Is that right?

Ted Peters

You are looking at their cost base of 6 million.

Chris McGratty - KBW

Yeah, I mean their full-year non-interest expense. On the kind of a more strategic question, I totally appreciate your comments about, you know, the next deal, the next year or so. Does it preclude you from doing anything to the extent something comes up of interest maybe later this year?

Ted Peters

No, it doesn’t at all. Because we have the ability to just sort of put in place so for instance, Davidson Trust that joined us last year, we just did the data processing conversion the core process conversion this past weekend. So they were with us for six months before we did that or so.

And we have the ability just sort of stack things and put them into order. So, clearly when you do acquisitions it puts a lot of stress on our organization, on management because we are sort of hands on people, and we are in there doing the due diligence ourselves. We don't outsource of that, much of that.

So it put stress on the organization, but we are once again this is [61] in five years and we are getting pretty good at it. And we'll just see what place and once I do want to stress that we are agnostic whether Chris whether it would be a bank or whether it would be a wealth business. We have no problem that we chipped across a wealth business with $500 million to $1 billion or more in assets that’s a nice fit when we are doing that might take a priority over having another bank join us.

Chris McGratty - KBW

Understood. Now on the bank side. Obviously just one pretty [management] side, is there a size of the bank that you would consider too big at this point given your kind of outlook?

Ted Peters

Well, let’s go maybe the other way, I mean too small I think, we have looked at some smaller things in the past but the problem is that closing costs are so high relative to the deal that they really don't work. So we probably wouldn’t go much below $250 million in size, of course it correspond to where it is located too. On the upper side it becomes, we could look at something that’s $1.5 billion, $1.4 billion, we have looked at banks that size, clearly when you get to a bank that’s larger and closer to us in size, you have to be a lot more careful and we were in a couple of deals where you just can't make a mistake, I mean not that we are going to make a mistake here but if you make a little bit of a mistake on smaller acquisitions, it’s not going to hurt you that much but if you do one on the big one it will. So we would look at something for $1 billion, $1.5 billion without a doubt it would be more of a transformative kind of acquisition for us, but we would take a look at it.

Chris McGratty - KBW

Great, and just two housekeeping ones, then I will jump out. The 3.5% book value dilution that is exclusive of any merger charge that you guys gave correct or is that including all the merge charges as well?

Ted Peters

Duncan?

Duncan Smith

Yeah, it would include the merger charges right, so that is goodwill and I mean has it been a loss or goodwill right so.

Ted Peters

I think right now I don't have that in front of me…

Chris McGratty - KBW

It seems like some of the merger trusts are kind of backend loaded into 14 and my guess is some of them are putting there and some of them are not?

Duncan Smith

Yeah, I think in that number at least the 2013 merger cost all in there.

Chris McGratty - KBW

Okay.

Duncan Smith

So that was even other $1 million for pretax, right, so I call another $1 million right.

Ted Peters

But the (inaudible) is factored in on the loss and you know the P&L going forward, so.

Chris McGratty - KBW

Okay, and then the fee income there is really I heard the comments about really no wealth management, there is not a big fee income platform at this situation, can you maybe talk about besides from wealth the opportunities to get some accretion there?

Ted Peters

Well, first of all, we are a big mortgage shop and we do about $300 million a year mortgages, we are pretty good, we sell them mainly to Fannie Mae and so forth we service about $700 million. MidCoast has a mortgage operation it is not quite as large as ours. So we are hoping to really expand that and to make that grow, (inaudible) can be a nice source of fee income for us. I think in the branch system as we expand their transaction accounts and use some of our branch system, some of the things we do pretty successfully in our branch system down there. I think that might start to increase that slightly as time goes on and I think even though once again we have not factored anything. I think Frank’s area, the wealth area is going to start doing some business down there and that will be in there as well.

Operator

Thank you. (Operator Instructions)

Ted Peters

Okay, at this point it might be good that Duncan Smith needs to go over some information here, so Duncan if I can give that to you and then there's no more questions there so with that we will wrap up the call.

Duncan Smith

Yes, good morning. We have some housekeeping decisions here. 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 10027001. A replay will be available approximately two hours after this call concludes.

Before we close, please be advised that during the course of this conference call management may have made 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 the words 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 these forward-looking statements.

All forward-looking 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 complete discussion of the assumptions risks and uncertainties related to our business, you are encouraged to review our filings with the SEC located on our website. Thanks and I will turn it back over to Ted to close.

Ted Peters

Okay, good, are there any more questions operator?

Operator

No sir.

Ted Peters

Okay, good, well thank you all for joining us and once again we are very excited about MidCoast Community Bank joining us. We are looking forward to Jim Ladio leading our efforts down there and we appreciate everybody’s support and for tuning in today. Thank you so much.

Operator

Thank you. This concludes today's teleconference. Thank you for participating. You may now disconnect your phone lines.

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