Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

Quarterly Report Under Section 13 or 15 (d)

of the Securities and Exchange Act of 1934.

For Quarter ended June 30, 2013

Commission File Number 001-35746

 

 

Bryn Mawr Bank Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania   23-2434506

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

identification No.)

801 Lancaster Avenue, Bryn Mawr, Pennsylvania   19010
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (610) 525-1700

Not Applicable

Former name, former address and fiscal year, if changed since last report.

 

 

Indicate by checkmark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 6, 2013

Common Stock, par value $1   13,545,713

 

 

 


Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED June 30, 2013

Index

 

PART I -  

FINANCIAL INFORMATION

  
ITEM 1.  

Financial Statements (unaudited)

  
 

Consolidated Financial Statements

     Page 3   
 

Notes to Consolidated Financial Statements

     Page 8   
ITEM 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Page 37   
ITEM 3.  

Quantitative and Qualitative Disclosures About Market Risk

     Page 54   
ITEM 4.  

Controls and Procedures

     Page 54   
PART II -  

OTHER INFORMATION

     Page 54   
ITEM 1.  

Legal Proceedings

     Page 54   
ITEM 1A.  

Risk Factors

     Page 55   
ITEM 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     Page 55   
ITEM 3.  

Defaults Upon Senior Securities

     Page 55   
ITEM 4.  

Mine Safety Disclosures

     Page 55   
ITEM 5.  

Other Information

     Page 55   
ITEM 6.  

Exhibits

     Page 56   

 

Page 2


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited

 

     (unaudited)        
     June 30,     December 31,  
(dollars in thousands)    2013     2012  

Assets

    

Cash and due from banks

   $ 14,208      $ 16,203   

Interest-bearing deposits with banks

     95,903        159,483   
  

 

 

   

 

 

 

Cash and cash equivalents

     110,111        175,686   

Investment securities available for sale, at fair value (amortized cost of $323,149 and $311,747 as of June 30, 2013 and December 31, 2012 respectively)

     322,960        316,614   

Investment securities, trading

     2,180        1,447   

Loans held for sale

     2,207        3,412   

Portfolio loans and leases

     1,430,919        1,398,456   

Less: Allowance for loan and lease losses

     (14,444     (14,425
  

 

 

   

 

 

 

Net portfolio loans and leases

     1,416,475        1,384,031   

Premises and equipment, net

     30,947        31,170   

Accrued interest receivable

     6,097        5,955   

Deferred income taxes

     11,788        12,303   

Mortgage servicing rights

     4,790        4,491   

Bank owned life insurance

     20,060        19,862   

FHLB stock

     13,028        10,761   

Goodwill

     32,843        32,897   

Intangible assets

     20,677        21,998   

Other investments

     4,378        4,346   

Other assets

     10,981        10,912   
  

 

 

   

 

 

 

Total assets

   $ 2,009,522      $ 2,035,885   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Non-interest-bearing

   $ 395,742      $ 399,673   

Interest-bearing

     1,153,973        1,235,009   
  

 

 

   

 

 

 

Total deposits

     1,549,715        1,634,682   
  

 

 

   

 

 

 

Short-term borrowings

     71,768        9,403   

Long-term FHLB advances and other borrowings

     152,642        161,315   

Accrued interest payable

     915        1,233   

Other liabilities

     22,013        25,688   
  

 

 

   

 

 

 

Total liabilities

     1,797,053        1,832,321   
  

 

 

   

 

 

 

Shareholders’ equity

    

Common stock, par value $1; authorized 100,000,000 shares; issued 16,485,217 and 16,390,608 shares as of June 30, 2013 and December 31, 2012, respectively, and outstanding of 13,528,078 and 13,412,690 as of June 30, 2013 and December 31, 2012, respectively

     16,485        16,390   

Paid-in capital in excess of par value

     91,783        89,137   

Less: Common stock in treasury at cost - 2,957,139 and 2,977,918 shares as of June 30, 2013 and December 31, 2012, respectively

     (30,553     (30,745

Accumulated other comprehensive loss, net of tax benefit

     (11,105     (10,078

Retained earnings

     145,859        138,860   
  

 

 

   

 

 

 

Total shareholders’ equity

     212,469        203,564   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,009,522      $ 2,035,885   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

Page 3


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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2013     2012      2013     2012  
(dollars in thousands, except share and per share data)                          

Interest income:

         

Interest and fees on loans and leases

   $ 18,219      $ 17,034       $ 36,030      $ 34,206   

Interest on cash and cash equivalents

     41        30         110        52   

Interest on investment securities:

         

Taxable

     829        1,049         1,687        2,152   

Non-taxable

     98        45         182        83   

Dividends

     30        30         63        67   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest income

     19,217        18,188         38,072        36,560   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense on:

         

Deposits

     694        1,064         1,469        2,190   

Short-term borrowings

     4        5         7        11   

Long-term FHLB advances and other borrowings

     596        925         1,264        1,889   

Subordinated debentures

     0        291         0        582   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest expense

     1,294        2,285         2,740        4,672   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net interest income

     17,923        15,903         35,332        31,888   

Provision for loan and lease losses

     1,000        1,003         1,804        2,003   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net interest income after provision for loan and lease losses

     16,923        14,900         33,528        29,885   

Non-interest income:

         

Fees for wealth management services

     9,094        7,211         17,443        13,440   

Service charges on deposits

     596        609         1,180        1,189   

Loan servicing and other fees

     448        436         899        871   

Net gain on sale of residential mortgage loans

     1,492        1,304         3,010        2,474   

Net gain on sale of investment securities available for sale

     —          716         2        716   

Net loss on sale of other real estate owned (“OREO”)

     (141     —           (193     (41

Bank owned life insurance (“BOLI”) income

     85        105         198        223   

Other operating income

     1,369        1,000         2,194        2,096   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest income

     12,943        11,381         24,733        20,968   

Non-interest expenses:

         

Salaries and wages

     9,086        8,075         17,896        15,580   

Employee benefits

     2,212        2,023         4,537        4,183   

Net gain on curtailment of nonqualified pension plan

     (120     —           (690     —     

Occupancy and bank premises

     1,728        1,394         3,478        2,769   

Furniture, fixtures, and equipment

     1,221        940         2,040        1,831   

Advertising

     380        359         792        679   

Amortization of mortgage servicing rights

     218        256         430        475   

Net (recovery) impairment of mortgage servicing rights

     (91     87         (20     (23

Amortization of intangible assets

     660        560         1,321        1,069   

FDIC insurance

     275        234         533        453   

Due diligence and merger-related expenses

     688        914         1,402        1,123   

Professional fees

     664        572         1,239        1,228   

Early extinguishment of debt - costs and premiums

     —          —           347        —     

Other operating expenses

     3,603        2,714         7,454        5,555   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest expenses

     20,524        18,128         40,759        34,922   

Income before income taxes

     9,342        8,153         17,502        15,931   

Income tax expense

     3,090        2,808         5,930        5,512   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 6,252      $ 5,345       $ 11,572      $ 10,419   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic earnings per common share

   $ 0.47      $ 0.41       $ 0.87      $ 0.80   

Diluted earnings per common share

   $ 0.46      $ 0.40       $ 0.86      $ 0.79   

Dividends declared per share

   $ 0.17      $ 0.16       $ 0.34      $ 0.32   

Weighted-average basic shares outstanding

     13,280,624        13,072,963         13,243,289        13,026,354   

Weighted-average dilutive shares

     227,150        158,570         228,782        127,510   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted weighted-average diluted shares

     13,507,774        13,231,533         13,472,071        13,153,864   
  

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

Page 4


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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

 

(dollars in thousands)    Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Net income

   $ 6,252      $ 5,345      $ 11,572      $ 10,419   

Other comprehensive income (loss):

        

Net change in unrealized (losses) gains on investment securities available for sale:

        

Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of ($1,761), $398, ($1,769) and $759, respectively

     (3,270     739        (3,286     1,409   

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $0, $250, $1 and $250, respectively

     —          (465     (1     (465
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized investment (losses) gains, net of tax (benefit) expense of ($1,761), $148, ($1,770) and $508, respectively

     (3,270     274        (3,287     944   

Net change in fair value of derivative used for cash flow hedge:

        

Change in fair value of hedging instruments, net of tax expense of $260, $0, $324 and $0, respectively

     482        —          601        —     

Net change in unfunded pension liability:

        

Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense of $133, $146, $267 and $293, respectively

     248        272        494        544   

Change in unfunded pension liability related to curtailment, net of tax expense of $0, $0, $627 and $0, respectively

     —          —          1,165        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total change in unfunded pension liability, net of tax expense of $133, $146, $894 and $293, respectively

     248        272        1,659        544   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     (2,540     546        (1,027     1,488   

Total comprehensive income

   $ 3,712      $ 5,891      $ 10,545      $ 11,907   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited

 

(dollars in thousands)    Six Months Ended June 30,  
     2013     2012  

Operating activities:

    

Net Income

   $ 11,572      $ 10,419   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan and lease losses

     1,804        2,003   

Provision for depreciation and amortization

     3,682        2,970   

Net gain on sale of investment securities available for sale

     (2     (716

Net gain on sale of residential mortgages

     (3,010     (2,474

Stock based compensation cost

     469        530   

Amortization and net impairment of mortgage servicing rights

     410        452   

Net accretion of fair value adjustments

     (1,628     (456

Amortization of intangible assets

     1,321        1,069   

Net loss on sale of OREO

     193        41   

Net increase in cash surrender value of bank owned life insurance

     (198     (223

Other, net

     377        (3,369

Loans originated for resale

     (97,492     (75,898

Proceeds from loans sold

     100,998        77,661   

Provision (benefit) for deferred income taxes

     1,123        (1,795

Change in income taxes payable/receivable

     293        3,274   

Change in accrued interest receivable

     (142     52   

Change in accrued interest payable

     (318     (387
  

 

 

   

 

 

 

Net cash provided by operating activities

     19,452        13,153   
  

 

 

   

 

 

 

Investing activities:

    

Purchases of investment securities available for sale

     (70,362     (149,333

Proceeds from paydowns and maturities of investment securities available for sale

     33,417        19,900   

Proceeds from sale of investment securities available for sale

     496        21,002   

Net (purchase of) proceeds from redemptions of FHLB stock

     (2,267     842   

Proceeds from calls of investment securities available for sale

     22,512        50,772   

Net change in other investments

     (32     (318

Net portfolio loan and lease originations

     (33,417     (2,548

Purchases of premises and equipment

     (1,233     (870

Acquisitions, net of cash acquired

     —          (7,845

Capitalize OREO costs

     (485     (61

Proceeds from sale of OREO

     488        175   
  

 

 

   

 

 

 

Net cash used by investing activities

     (50,883     (68,284
  

 

 

   

 

 

 

Financing activities:

    

Change in deposits

     (84,738     44,381   

Change in short-term borrowings

     62,365        1,812   

Dividends paid

     (4,498     (4,241

Change in long-term FHLB advances and other borrowings

     (8,583     22,017   

Payment of contingent consideration for business combinations

     (1,050     —     

Tax benefit from exercise and vesting of stock awards

     148        80   

Proceeds from sale of treasury stock from deferred compensation plans

     365        82   

Proceeds from issuance of common stock

     107        2,088   

Proceeds from exercise of stock options

     1,740        1,244   
  

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (34,144     67,463   
  

 

 

   

 

 

 

Change in cash and cash equivalents

     (65,575     12,332   

Cash and cash equivalents at beginning of period

     175,686        69,140   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 110,111      $ 81,472   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid during the year for:

    

Income taxes

   $ 4,366      $ 2,871   

Interest

     3,058        5,059   

Supplemental cash flow information:

    

Available for sale securities purchased, not settled

   $ —          —     

Change in other comprehensive income

     (1,027     1,488   

Change in deferred tax due to change in comprehensive income

     (552     801   

Transfer of loans to other real estate owned

     495        471   

Acquisition of noncash assets and liabilities:

    

Assets acquired

     —          12,020   

Liabilities assumed

     —          6,103   

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited

 

(dollars in thousands, except share information)  
    For the Six Months Ended June 30, 2013  
    Shares of
Common
Stock Issued
    Common Stock     Paid-in Capital     Treasury
Stock
    Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
    Total
Shareholders’
Equity
 

Balance December 31, 2012

    16,390,608      $ 16,390      $ 89,137      $ (30,745   $ (10,078   $ 138,860      $ 203,564   

Net income

    0        0        0        0        0        11,572        11,572   

Dividends declared, $0.34 per share

    0        0        0        0        0        (4,573     (4,573

Other comprehensive loss, net of tax benefit of $552

    0        0        0        0        (1,027     0        (1,027

Stock based compensation

    0        0        469        0        0        0        469   

Tax benefit from exercise and vesting of stock awards

    0        0        148        0        0        0        148   

Retirement of treasury stock

    (4,517     (5     (40     45        0        0        0   

Net sale of treasury stock from deferred compensation plans

    0        0        218        147        0        0        365   

Common stock issued:

             

Dividend Reinvestment and Stock Purchase Plan

    4,765        5        102        0        0        0        107   

Share-based awards and options exercises

    94,361        95        1,749        0        0        0        1,844   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance June 30, 2013

    16,485,217      $ 16,485      $ 91,783      $ (30,553   $ (11,105   $ 145,859      $ 212,469   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) Management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Corporation’s 2012 Annual Report on Form 10-K (the “2012 Annual Report”).

The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year.

Note 2 - Business Combinations

First Bank of Delaware

The acquisition of certain loan and deposit accounts and a branch location from First Bank of Delaware (“FBD”) by the Corporation (the “FBD Transaction”) was completed on November 17, 2012.

First Bank of Delaware, established in June 1999, was a $250 million state-chartered commercial bank operating from one full-service branch location in Wilmington, Delaware. Subsequent to the transaction with the Corporation, FBD’s remaining assets were transferred to a liquidating trust and its charter was cancelled. The FBD Transaction enabled the Corporation to further expand its footprint in the State of Delaware by complementing its existing wealth management operations of Bryn Mawr Trust of Delaware and Lau Associates, both located in Greenville, Delaware.

The FBD Transaction was accounted for as a business combination, with assets acquired, liabilities assumed and consideration paid recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill, which will not be amortizable for book purposes, however will be deductible for tax purposes. The Corporation allocated the total balance of goodwill to its Banking segment. The Corporation also recorded a core deposit intangible which will be amortized over a ten-year period using a declining-balance method.

In connection with the FBD Transaction, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:

 

(dollars in thousands)       

Consideration paid:

  

Cash

   $ 10,559   
  

 

 

 

Value of consideration

     10,559   

Assets acquired:

  

Cash and due from banks

     525   

Loans

     76,556   

Premises and equipment

     460   

Core deposit intangible

     320   

Other assets

     256   
  

 

 

 

Total assets

     78,117   

Liabilities assumed:

  

Nonmaturity deposits

     27,080   

Time deposits

     43,257   

Unfavorable lease

     140   

Other liabilities

     390   
  

 

 

 

Total liabilities

     70,867   

Net assets acquired

     7,250   
  

 

 

 

Goodwill resulting from the FBD Transaction

   $ 3,309   
  

 

 

 

As of March 31, 2013, the Corporation had finalized its fair value estimates related to the FBD Transaction. No adjustments were made to the original estimates.

 

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Davidson Trust Company

The acquisition of the Davidson Trust Company (“DTC”) by the Corporation was completed on May 15, 2012. In addition to cash paid at closing, three separate contingent payments, each of which is not to exceed $1.05 million, were payable on each of November 14, 2012, May 14, 2013 and November 14, 2013. These contingent payments are subject to certain post-closing contingencies relating to the assets under management. The first two of the three contingent payments were made on November 14, 2012 and May 14, 2013, each in the amount of $1.05 million.

The addition of DTC has allowed the Corporation to expand its range of services and bring deeper market penetration in its core market area. The structure of the Corporation’s existing Wealth Management segment allowed for the immediate integration of DTC and takes advantage of the various synergies that exist between the two companies. The acquisition of DTC initially increased the Corporation’s Wealth Management Division assets under management by $1.0 billion.

The acquisition of DTC was accounted for as a business combination, with assets acquired, liabilities assumed and consideration paid being recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill. The Corporation allocated the total balance of goodwill to its Wealth Management segment. The Corporation also recorded an intangible asset for customer relationships, which is being amortized over a ten-year period using a straight-line method, an intangible asset for restrictive covenant agreements, which is being amortized over a five-year period using a straight-line method and an intangible asset for trade name which will not be amortized.

In connection with the DTC acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:

 

(dollars in thousands)

      

Consideration paid:

  

Cash

   $ 9,450   

Contingent payment liability

     1,050   
  

 

 

 

Value of consideration

     10,500   

Assets acquired:

  

Cash operating accounts

     1,433   

Other assets

     201   

Intangible asset – customer relationships

     3,720   

Intangible asset – noncompetition agreements

     1,385   

Intangible asset – brand

     970   

Premises and equipment

     117   

Deferred tax asset

     839   
  

 

 

 

Total assets

     8,665   

Liabilities assumed:

  

Deferred tax liability

     2,125   

Miscellaneous liabilities

     885   
  

 

 

 

Total liabilities

     3,010   

Net assets acquired

     5,655   
  

 

 

 

Goodwill resulting from acquisition of DTC

   $ 4,845   
  

 

 

 

For the three months ended June 30, 2013, the Corporation increased its estimated value for the deferred tax asset acquired in the DTC acquisition by $54 thousand. This resulted in a corresponding decrease of $54 thousand in goodwill recorded in the transaction.

As of June 30, 2013, the Corporation has finalized its fair value estimates related to the acquisition of DTC.

 

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Note 3 - Earnings Per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share takes into account the potential dilution computed using the treasury stock method that could occur if stock options were exercised and converted into common stock, as well as the effect of restricted and performance shares becoming unrestricted common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive. All weighted-average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and stock splits.

 

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  

(dollars in thousands except per share data)

  2013     2012     2013     2012  

Numerator:

       

Net income available to common shareholders

  $ 6,252      $ 5,345      $ 11,572      $ 10,419   
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for basic earnings per share – weighted average shares outstanding

    13,280,624        13,072,963        13,243,289        13,026,354   

Effect of dilutive common shares

    227,150        158,570        228,782        127,510   
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for diluted earnings per share – adjusted weighted average shares outstanding

    13,507,774        13,231,533        13,472,071        13,153,864   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

  $ 0.47      $ 0.41      $ 0.87      $ 0.80   

Diluted earnings per share

  $ 0.46      $ 0.40      $ 0.86      $ 0.79   

Antidilutive shares excluded from computation of average dilutive earnings per share

    114,713        351,439        116,138        352,662   

Note 4 - Investment Securities

The amortized cost and estimated fair value of investment securities available for sale are as follows:

As of June 30, 2013

 

(dollars in thousands)    Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair Value
 

U.S. Treasury securities

   $ 102       $ —         $ (2   $ 100   

Obligations of U.S. government agencies

     82,170         338         (1,349     81,159   

Obligations of state & political subdivisions

     39,353         90         (388     39,055   

Mortgage-backed securities

     131,860         1,630         (792     132,698   

Collateralized mortgage obligations

     51,780         402         (245     51,937   

Other investments

     17,884         163         (36     18,011   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 323,149       $ 2,623       $ (2,812   $ 322,960   
  

 

 

    

 

 

    

 

 

   

 

 

 

As of December 31, 2012

 

(dollars in thousands)    Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair Value
 

Obligations of U.S. government agencies

   $ 73,183       $ 796       $ (107   $ 73,872   

Obligations of state & political subdivisions

     30,244         199         (59     30,384   

Mortgage-backed securities

     128,537         3,302         (13     131,826   

Collateralized mortgage obligations

     62,116         622         (35     62,703   

Other investments

     17,667         162         —          17,829   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 311,747       $ 5,081       $ (214   $ 316,614   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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The following tables detail the amount of investment securities available for sale that were in an unrealized loss position as of the dates indicated:

As of June 30, 2013:

 

(dollars in thousands)    Less than 12
Months
    12 Months
or Longer
    Total  
     Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 

U.S. Treasury securities

   $ 100       $ (2   $ —         $ —        $ 100       $ (2

Obligations of U.S. government agencies

     47,643         (1,349     —           —          47,643         (1,349

Obligations of state & political subdivisions

     22,553         (379     303         (9     22,856         (388

Mortgage-backed securities

     44,020         (792     —           —          44,020         (792

Collateralized mortgage obligations

     18,396         (231     1,325         (14     19,721         (245

Other investments

     13,480         (36     —           —          13,480         (36
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 146,192       $ (2,789   $ 1,628       $ (23   $ 147,820       $ (2,812
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
As of December 31, 2012:   
(dollars in thousands)    Less than 12
Months
    12 Months
or Longer
    Total  
     Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 

Obligations of U.S. government agencies

   $ 20,032       $ (107   $ —         $ —        $ 20,032       $ (107

Obligations of state & political subdivisions

     10,752         (59     —           —          10,752         (59

Mortgage-backed securities

     12,602         (13     —           —          12,602         (13

Collateralized mortgage obligations

     10,040         (35     —           —          10,040         (35
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 53,426       $ (214   $ —         $ —        $ 53,426       $ (214
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Management evaluates the Corporation’s investment securities available for sale that are in an unrealized loss position in order to determine if the decline in market value is other than temporary. The available for sale investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state and local municipalities and other issuers. All fixed income investment securities in the Corporation’s available for sale investment portfolio are rated as investment grade. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers. The Corporation does not believe that these unrealized losses are other-than-temporary. The Corporation does not have the intent to sell these securities prior to their maturity or the recovery of their cost bases and believes that it is more likely than not that it will not have to sell these securities prior to their maturity or the recovery of their cost bases.

As of June 30, 2013 and December 31, 2012, securities having market values of $106.1 million and $108.7 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”) borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Bank’s borrowing agreement with the FHLB.

 

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The amortized cost and fair value of investment securities available for sale as of June 30, 2013 and December 31, 2012, by contractual maturity, are shown below:

 

     June 30, 2013      December 31, 2012  
(dollars in thousands)    Amortized
Cost
     Fair Value      Amortized
Cost
     Fair Value  

Due in one year or less

   $ 9,107       $ 9,112       $ 10,571       $ 10,590   

Due after one year through five years

     48,203         48,094         38,056         38,171   

Due after five years through ten years

     52,963         51,644         40,635         40,714   

Due after ten years

     15,871         15,985         18,415         19,044   

Mortgage-related securities*

     183,640         184,635         190,653         194,529   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total maturing investments

     309,784         309,470         298,330         303,048   

Bond mutual funds and other non-maturity investments

     13,365         13,490         13,417         13,566   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 323,149       $ 322,960       $ 311,747       $ 316,614   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

As of June 30, 2013 and December 31, 2012, the Corporation’s investment securities held in trading accounts were comprised of a deferred compensation trust which is invested in marketable securities whose diversification is at the discretion of the deferred compensation plan participants.

Note 5 - Loans and Leases

A. Loans and leases outstanding are detailed by category as follows:

 

     June 30,
2013
     December 31,
2012
 

Loans held for sale

   $ 2,207       $ 3,412   
  

 

 

    

 

 

 

Real estate loans:

     

Commercial mortgage

   $ 587,261       $ 546,358   

Home equity lines and loans

     183,006         194,861   

Residential mortgage

     280,687         288,212   

Construction

     28,718         26,908   
  

 

 

    

 

 

 

Total real estate loans

     1,079,672         1,056,339   

Commercial and industrial

     296,073         291,620   

Consumer

     18,404         17,666   

Leases

     36,770         32,831   
  

 

 

    

 

 

 

Total portfolio loans and leases

     1,430,919         1,398,456   
  

 

 

    

 

 

 

Total loans and leases

   $ 1,433,126       $ 1,401,868   
  

 

 

    

 

 

 

Loans with predetermined rates

   $ 766,749       $ 723,417   

Loans with adjustable or floating rates

     666,377         678,451   
  

 

 

    

 

 

 

Total loans and leases

   $ 1,433,126       $ 1,401,868   
  

 

 

    

 

 

 

Net deferred loan origination costs included in the above loan table

   $ 409       $ 402   
  

 

 

    

 

 

 

B. Components of the net investment in leases are detailed as follows:

 

                                             
(dollars in thousands)   June 30,
2013
    December 31,
2012
 

Minimum lease payments receivable

  $ 41,858      $ 37,349   

Unearned lease income

    (6,881     (6,099

Initial direct costs and deferred fees

    1,793        1,581   
 

 

 

   

 

 

 

Total

  $ 36,770      $ 32,831   
 

 

 

   

 

 

 

 

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C. Non-Performing Loans and Leases(1)

 

                                             
(dollars in thousands)    June 30,
2013
     December 31,
2012
 

Non-accrual loans and leases:

     

Commercial mortgage

   $ 731       $ 631   

Home equity lines and loans

     1,418         2,792   

Residential mortgage

     3,668         3,748   

Construction

     1,662         3,314   

Commercial and industrial

     2,994         3,506   

Consumer

     5         7   

Leases

     11         42   
  

 

 

    

 

 

 

Total

   $ 10,489       $ 14,040   
  

 

 

    

 

 

 

Loans and leases 90 days or more past due, still accruing:

     

Construction

     —           728   
  

 

 

    

 

 

 

Total nonperforming loans and leases

   $ 10,489       $ 14,768   
  

 

 

    

 

 

 

 

(1) 

Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of $302 thousand and $90 thousand of purchased credit-impaired loans as of June 30, 2013 and December 31, 2012, respectively, which became non-performing subsequent to acquisition.

D. Purchased Credit-Impaired Loans

The outstanding principal balance and related carrying amount of credit-impaired loans, for which the Bank applies ASC 310-30 to account for the interest earned, as of the dates indicated, are as follows:

 

                                             
(dollars in thousands)    June 30,
2013
     December 31,
2012
 

Outstanding principal balance

   $ 16,643       $ 19,527   

Carrying amount(1)

   $ 10,729       $ 12,128   

 

(1) Includes $525 thousand and $319 thousand purchased credit-impaired loans as of June 30, 2013 and December 31, 2012, respectively, for which the Bank could not estimate the timing or amount of expected cash flows to be collected at acquisition, and for which no accretable yield is recognized. Additionally, the table above includes $302 thousand and $90 thousand of purchased credit-impaired loans as of June 30, 2013 and December 31, 2012, respectively, that subsequently became non-performing, which are disclosed in Note 5C, above, and which also have no accretable yield.

The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Bank applies ASC 310-30, for the six months ended June 30, 2013:

 

(dollars in thousands)    Accretable
Discount
 

Balance, December 31, 2012

   $ 8,025   

Accretion

     (929

Reclassifications from nonaccretable difference

     998   

Additions/adjustments

     (257

Disposals

     (871
  

 

 

 

Balance, June 30, 2013

   $ 6,966   
  

 

 

 

 

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Table of Contents

E. Age Analysis of Past Due Loans and Leases

The following tables present an aging of the Corporation’s loan and lease portfolio as of the dates indicated:

 

    Accruing Loans and Leases              
(dollars in thousands)   30 –  59
Days
Past Due
    60 –  89
Days
Past Due
    Over 89
Days
Past Due
    Total  Past
Due
    Current     Total
Accruing
Loans and
Leases
    Nonaccrual
Loans  and
Leases
    Total
Loans  and
Leases
 

As of June 30, 2013

               

Commercial mortgage

  $ 432      $ —        $ —        $ 432      $ 586,098      $ 586,530      $ 731      $ 587,261   

Home equity lines and loans

    125        264        —          389        181,199        181,588        1,418        183,006   

Residential mortgage

    1,197        —          —          1,197        275,822        277,019        3,668        280,687   

Construction

    —          —          —          —          27,056        27,056        1,662        28,718   

Commercial and industrial

    5        77        —          82        292,997        293,079        2,994        296,073   

Consumer

    54        —          —          54        18,344        18,398        5        18,403   

Leases

    147        28        —          175        36,585        36,760        11        36,771   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,960      $ 369      $ —        $ 2,329      $ 1,418,101      $ 1,420,430      $ 10,489      $ 1,430,919   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Accruing Loans and Leases              
(dollars in thousands)   30 – 59
Days
Past Due
    60 –  89
Days
Past Due
    Over 89
Days
Past Due
    Total  Past
Due
    Current     Total
Accruing
Loans and
Leases
    Nonaccrual
Loans  and
Leases
    Total
Loans  and
Leases
 

As of December 31, 2012

               

Commercial mortgage

  $ 704      $ 130      $ —        $ 834      $ 544,893      $ 545,727      $ 631      $ 546,358   

Home equity lines and loans

    107        84        —          191        191,878        192,069        2,792        194,861   

Residential mortgage

    399        141        —          540        283,924        284,464        3,748        288,212   

Construction

    —          —          728        728        22,866        23,594        3,314        26,908   

Commercial and industrial

    376        50        —          426        287,688        288,114        3,506        291,620   

Consumer

    8        7        —          15        17,644        17,659        7        17,666   

Leases

    33        13        —          46        32,743        32,789        42        32,831   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,627      $ 425      $ 728      $ 2,780      $ 1,381,636      $ 1,384,416      $ 14,040      $ 1,398,456   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

F. Allowance for Loan and Lease Losses (the “Allowance”)

The following tables detail the roll-forward of the Corporation’s allowance for loan and lease losses, by loan category, for the three and six months ended June 30, 2013:

 

(dollars in thousands)   Commercial
Mortgage
    Home
Equity
Lines and
Loans
    Residential
Mortgage
    Construction     Commercial
and
Industrial
    Consumer     Leases     Unallocated     Total  

Balance, March 31, 2013

  $ 4,106      $ 2,030      $ 1,829      $ 1,051      $ 4,437      $ 211      $ 525      $ 258      $ 14,447   

Charge-offs

    —          (292     —          (550     (183     (32     (107       (1,164

Recoveries

    —          —          4        18        41        2        96          161   

Provision for loan and lease losses

    375        371        (60     134        —          37        37        106        1,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

  $ 4,481      $ 2,109      $ 1,773      $ 653      $ 4,295      $ 218      $ 551      $ 364      $ 14,444   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(dollars in thousands)   Commercial
Mortgage
    Home
Equity
Lines and
Loans
    Residential
Mortgage
    Construction     Commercial
and
Industrial
    Consumer     Leases     Unallocated     Total  

Balance, December 31, 2012

  $ 3,907      $ 1,857      $ 2,024      $ 1,019      $ 4,637      $ 189      $ 493      $ 299      $ 14,425   

Charge-offs

    —          (352     —          (720     (718     (70     (134       (1,994

Recoveries

    —          —          8        18        45        4        134          209   

Provision for loan and lease losses

    574        604        (259     336        331        95        58        65        1,804   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

  $ 4,481      $ 2,109      $ 1,773      $ 653      $ 4,295      $ 218      $ 551      $ 364      $ 14,444   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following tables detail the roll-forward of the Corporation’s allowance for loan and lease losses, by loan category, for the three and six months ended June 30, 2012:

 

(dollars in thousands)   Commercial
Mortgage
    Home
Equity
Lines and
Loans
    Residential
Mortgage
    Construction     Commercial
and
Industrial
    Consumer     Leases     Unallocated     Total  

Balance, March 31, 2012

  $ 3,196      $ 1,585      $ 1,692      $ 1,351      $ 3,917      $ 142      $ 508      $ 649      $ 13,040   

Charge-offs

    (210     (14     (157     (299     (138     (17     (125     0        (960

Recoveries

    0        0        0        0        0        1        56        0        57   

Provision for loan and lease losses

    398        178        101        60        10        54        96        106        1,003   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

  $ 3,384      $ 1,749      $ 1,636      $ 1,112      $ 3,789      $ 180      $ 535      $ 755      $ 13,140   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(dollars in thousands)   Commercial
Mortgage
    Home
Equity
Lines and
Loans
    Residential
Mortgage
    Construction     Commercial
and
Industrial
    Consumer     Leases     Unallocated     Total  

Balance, December 31, 2011

  $ 3,165      $ 1,707      $ 1,592      $ 1,384      $ 3,816      $ 119      $ 532      $ 438      $ 12,753   

Charge-offs

    (235     (14     (170     (699     (408     (42     (231     0        (1,799

Recoveries

    0        0        0        0        65        5        113        0        183   

Provision for loan and lease losses

    454        56        214        427        316        98        121        317        2,003   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

  $ 3,384      $ 1,749      $ 1,636      $ 1,112      $ 3,789      $ 180      $ 535      $ 755      $ 13,140   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table details the allocation of the Allowance by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2013 and December 31, 2012:

 

(dollars in thousands)   Commercial
Mortgage
    Home
Equity
Lines and
Loans
    Residential
Mortgage
    Construction     Commercial
and
Industrial
    Consumer     Leases     Unallocated     Total  

As of June 30, 2013

                 

Allowance on loans and leases:

                 

Individually evaluated for impairment

  $ 25      $ 208      $ 387      $ —        $ 466      $ 5      $ —        $ —        $ 1,091   

Collectively evaluated for impairment

    4,359        1,901        1,386        652        3,829        213        551        364        13,255   

Purchased credit-impaired(1)

    97        —          —          1        —          —          —          —          98   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 4,481      $ 2,109      $ 1,773      $ 653      $ 4,295      $ 218      $ 551      $ 364      $ 14,444   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2012

                 

Allowance on loans and leases:

                 

Individually evaluated for impairment

  $ —        $ 217      $ 667      $ 543      $ 919      $ 8      $ —        $ —        $ 2,354   

Collectively evaluated for impairment

    3,894        1,640        1,357        451        3,718        181        493        299        12,033   

Purchased credit-impaired(1)

    13        —          —          25        —          —          —          —          38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,907      $ 1,857      $ 2,024      $ 1,019      $ 4,637      $ 189      $ 493      $ 299      $ 14,425   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Purchased credit-impaired loans are evaluated for impairment on an individual basis.

 

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Table of Contents

The following table details the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2013 and December 31, 2012:

 

(dollars in thousands)   Commercial
Mortgage
    Home
Equity
Lines and
Loans
    Residential
Mortgage
    Construction     Commercial
and
Industrial
    Consumer     Leases     Total  

As of June 30, 2013

               

Carrying value of loans and leases:

               

Individually evaluated for impairment

  $ 523      $ 1,945      $ 9,150      $ 2,418      $ 4,223      $ 5      $ —        $ 18,264   

Collectively evaluated for impairment

    576,628        181,044        271,493        26,093        291,498        18,399        36,770        1,401,925   

Purchased credit-impaired(1)

    10,110        17        44        207        352        —          —          10,730   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 587,261      $ 183,006      $ 280,687      $ 28,718      $ 296,073      $ 18,404      $ 36,770      $ 1,430,919   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2012

               

Carrying value of loans and leases:

               

Individually evaluated for impairment

  $ 541      $ 3,403      $ 9,211      $ 4,631      $ 3,997      $ 7      $ —        $ 21,790   

Collectively evaluated for impairment

    535,506        191,439        278,951        20,785        287,367        17,659        32,831        1,364,538   

Purchased credit-impaired(1)

    10,311        19        50        1,492        256        —          —          12,128   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 546,358      $ 194,861      $ 288,212      $ 26,908      $ 291,620      $ 17,666      $ 32,831      $ 1,398,456   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Purchased credit-impaired loans are evaluated for impairment on an individual basis.

As part of the process of determining the Allowance for the different segments of the loan and lease portfolio, Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by both in-house staff as well as external loan reviewers. The result of these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

 

 

Pass – Loans considered satisfactory with no indications of deterioration.

 

 

Special mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

 

Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

 

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

In addition, for the remaining segments of the loan and lease portfolio, which include residential mortgage, home equity lines and loans, consumer, and leases, the credit quality indicator used to determine this component of the Allowance is based on performance status.

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of June 30, 2013 and December 31, 2012:

 

    Credit Risk Profile by Internally Assigned Grade  
(dollars in thousands)   Commercial Mortgage     Construction     Commercial and Industrial     Total  
    June  30,
2013
    December  31,
2012
    June 30,
2013
    December  31,
2012
    June 30,
2013
    December  31,
2012
    June 30,
2013
    December  31,
2012
 

Pass

  $ 580,035      $ 538,470      $ 24,444      $ 16,504      $ 285,850      $ 278,167      $ 890,329      $ 833,141   

Special Mention

    286        2,215        —          1,317        3,410        6,256        3,696        9,788   

Substandard

    6,940        5,673        4,274        9,087        6,813        7,197        18,027        21,957   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 587,261      $ 546,358      $ 28,718      $ 26,908      $ 296,073      $ 291,620      $ 912,052      $ 864,886   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 16


Table of Contents
Credit Risk Profile by Payment Activity  
(dollars in thousands)   Residential Mortgage     Home Equity Lines and
Loans
    Consumer     Leases     Total  
    June 30,
2013
    December  31,
2012
    June 30,
2013
    December 31,
2012
    June 30,
2013
    December 31,
2012
    June 30,
2013
    December 31,
2012
    June 30,
2013
    December 31,
2012
 

Performing

  $ 277,019      $ 284,464      $ 181,588      $ 192,069      $ 18,399      $ 17,659      $ 36,759      $ 32,789      $ 513,765      $ 526,981   

Non-performing

    3,668        3,748        1,418        2,792        5        7        11        42        5,102        6,589   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 280,687      $ 288,212      $ 183,006      $ 194,861      $ 18,404      $ 17,666      $ 36,770      $ 32,831      $ 518,867      $ 533,570   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

G. Troubled Debt Restructurings (“TDRs”)

The restructuring of a loan is considered a “troubled debt restructuring” if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

The following table presents the balance of TDRs as of the indicated dates:

 

(dollars in thousands)    June 30,
2013
     December 31,
2012
 

TDRs included in nonperforming loans and leases

   $ 2,869       $ 3,106   

TDRs in compliance with modified terms

     8,157         8,008   
  

 

 

    

 

 

 

Total TDRs

   $ 11,026       $ 11,114   
  

 

 

    

 

 

 

The following tables present information regarding loan and lease modifications categorized as TDRs for the three and six months ended June 30, 2013:

 

     For the Three Months Ended June 30, 2013  
(dollars in thousands)    Number of
Contracts
     Pre-Modification
Outstanding  Recorded
Investment
     Post-Modification
Outstanding Recorded
Investment
 

Commercial and industrial

     1       $ 855       $ 855   

Leases

     1         2         2   
  

 

 

    

 

 

    

 

 

 

Total

     2       $ 857       $ 857   
  

 

 

    

 

 

    

 

 

 

 

     For the Six Months Ended June 30, 2013  
(dollars in thousands)    Number of
Contracts
     Pre-Modification
Outstanding  Recorded
Investment
     Post-Modification
Outstanding Recorded
Investment
 

Residential mortgage

     2       $ 672       $ 672   

Home equity lines and loans

     2         39         39   

Commercial and industrial

     1         855         855   

Leases

     2         16         16   
  

 

 

    

 

 

    

 

 

 

Total

     7       $ 1,582       $ 1,582   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following tables presents information regarding the types of loan and lease modifications made for the three and six months ended June 30, 2013:

 

     Number of Contracts for the Three Months Ended June 30, 2013  
     Interest
Rate
Change
     Loan Term
Extension
     Interest Rate
Change  and
Term Extension
     Interest Rate
Change
and/or
Interest-Only
Period
     Contractual
Payment
Reduction
(Leases only)
     Forgiveness
of Interest
 

Commercial and industrial

     —           —           —           1         —           —     

Leases

           —           —           1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           —           1         1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Number of Contracts for the Six Months Ended June 30, 2013  
     Interest
Rate
Change
     Loan Term
Extension
     Interest Rate
Change  and
Term Extension
     Interest Rate
Change
and/or
Interest-Only
Period
     Contractual
Payment
Reduction
(Leases only)
     Forgiveness
of Interest
 

Residential mortgage

     —           —           1         —           —           1   

Home equity lines and loans

     1         —           —           1         —           —     

Commercial and industrial

     —           —           —           1         —           —     

Leases

     —           —           —           —           2         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1         —           1         2         2         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the three and six months ended June 30, 2013, there were no defaults of loans or leases that had been previously modified to troubled debt restructurings.

H. Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related Allowance and interest income recognized as of the dates or for the periods indicated:

 

(dollars in thousands)    Recorded
Investment(2)
     Principal
Balance
     Related
Allowance
     Average
Principal
Balance
     Interest
Income
Recognized
     Cash-Basis
Interest
Income
Recognized
 

As of or for the three months ended June 30, 2013

                 

Impaired loans with related Allowance:

                 

Commercial mortgage

   $ 181       $ 190       $ 25       $ 192       $ —         $ —     

Home equity lines and loans

     715         762         207         767         7         —     

Residential mortgage

     4,454         4,430         388         4,234         29         —     

Commercial and industrial

     2,560         2,639         466         2,670         15         —     

Consumer

     5         5         5         7         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,915       $ 8,026       $ 1,091       $ 7,870       $ 51       $ —     

Impaired loans without related Allowance(1) (3):

                 

Commercial mortgage

   $ 342       $ 347       $ —         $ 377       $ 6       $ —     

Home equity lines and loans

     1,230         1,228         —           1,328         10         —     

Residential mortgage

     4,696         4,747         —           5,026         50         —     

Construction

     2,418         3,380         —           3,536         8         —     

Commercial and industrial

     1,663         1,863         —           1,863         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,349       $ 11,565       $ —         $ 12,130       $ 74       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand total

   $ 18,264       $ 19,591       $ 1,091       $ 20,000       $ 125       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

The table above does not include the recorded investment of $80 thousand of impaired leases without a related Allowance.

(2) 

Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

(3) 

This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.

 

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Table of Contents
(dollars in thousands)    Recorded
Investment(2)
     Principal
Balance
     Related
Allowance
     Average
Principal
Balance
     Interest
Income
Recognized
     Cash-Basis
Interest
Income
Recognized
 

As of or for the six months ended June 30, 2013

                 

Impaired loans with related Allowance:

                 

Commercial mortgage

   $ 181       $ 190       $ 25       $ 192       $ —         $ —     

Home equity lines and loans

     715         762         207         777         14         —     

Residential mortgage

     4,454         4,430         388         4,339         59         —     

Commercial and industrial

     2,560         2,639         466         2,677         33         —     

Consumer

     5         5         5         8         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,915       $ 8,026       $ 1,091       $ 7,993       $ 106       $ —     

Impaired loans without related Allowance(1) (3):

                 

Commercial mortgage

   $ 342       $ 347       $ —         $ 379       $ 12       $ —     

Home equity lines and loans

     1,230         1,228         —           1,331         22         —     

Residential mortgage

     4,696         4,747         —           5,025         122         —     

Construction

     2,418         3,380         —           3,679         18         —     

Commercial and industrial

     1,663         1,863         —           1,863         1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,349       $ 11,565       $ —         $ 12,277       $ 175       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand total

   $ 18,264       $ 19,591       $ 1,091       $ 20,270       $ 281       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

The table above does not include the recorded investment of $80 thousand of impaired leases without a related Allowance.

(2) 

Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

(3) 

This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.

 

(dollars in thousands)    Recorded
Investment(2)
     Principal
Balance
     Related
Allowance
     Average
Principal
Balance
     Interest
Income
Recognized
     Cash-Basis
Interest
Income
Recognized
 

As of or for the three months ended June 30, 2012

                 

Impaired loans with related allowance:

                 

Home equity lines and loans

   $ 1,612       $ 1,662       $ 226       $ 1,664       $ —         $ —     

Residential mortgage

     2,846         2,892         324         2,893         25         —     

Construction

     3,882         3,938         622         6,284         —           —     

Commercial and industrial

     1,355         1,361         325         1,469         4         —     

Consumer

     14         16         15         16         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,709       $ 9,869       $ 1,512       $ 12,326       $ 29       $ —     

Impaired loans without related allowance(1) (3):

                 

Commercial mortgage

   $ 163       $ 171       $ —         $ 171       $ —         $ —     

Home equity lines and loans

     1,675         1,714         —           1,716         1         —     

Residential mortgage

     7,014         7,305         —           7,108         53         —     

Construction

     1,475         1,491         —           1,427         15         —     

Commercial and industrial

     2,333         2,351         —           2,719         3         —     

Consumer

     1         1         —           2         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,661       $ 13,033       $ —         $ 13,143       $ 72       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand total

   $ 22,370       $ 22,902       $ 1,512       $ 25,469       $ 101       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

The table above does not include the recorded investment of $323 thousand of impaired leases without a related allowance for loan and lease losses.

(2) 

Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

(3) 

This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.

 

Page 19


Table of Contents
(dollars in thousands)    Recorded
Investment(2)
     Principal
Balance
     Related
Allowance
     Average
Principal
Balance
     Interest
Income
Recognized
     Cash-Basis
Interest
Income
Recognized
 

As of or for the six months ended June 30, 2012

                 

Impaired loans with related allowance:

                 

Home equity lines and loans

   $ 1,612       $ 1,662       $ 226       $ 1,663       $ 1       $ —     

Residential mortgage

     2,846         2,892         324         2,896         48         —     

Construction

     3,882         3,938         622         6,540         —           —     

Commercial and industrial

     1,355         1,361         325         1,499         9         —     

Consumer

     14         16         15         17         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,709       $ 9,869       $ 1,512       $ 12,615       $ 58       $ —     

Impaired loans without related allowance(1) (3):

                 

Commercial mortgage

   $ 163       $ 171       $ —         $ 171       $ —         $ —     

Home equity lines and loans

     1,675         1,714         —           1,720         7         —     

Residential mortgage

     7,014         7,305         —           7,149         109         —     

Construction

     1,475         1,491         —           1,341         28         —     

Commercial and industrial

     2,333         2,351         —           2,851         10         —     

Consumer

     1         1         —           2         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,661       $ 13,033       $ —         $ 13,234       $ 154       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand total

   $ 22,370       $ 22,902       $ 1,512       $ 25,849       $ 212       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

The table above does not include the recorded investment of $323 thousand of impaired leases without a related allowance for loan and lease losses.

(2) 

Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

(3) 

This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.

 

(dollars in thousands)    Recorded
Investment(2)
     Principal
Balance
     Related
Allowance
 

As of December 31, 2012

        

Impaired loans with related Allowance:

        

Home equity lines and loans

   $ 1,261       $ 1,321       $ 217   

Residential mortgage

     4,778         4,793         667   

Construction

     2,564         2,564         543   

Commercial and industrial

     3,357         3,383         919   

Consumer

     7         8         8   
  

 

 

    

 

 

    

 

 

 

Total

   $ 11,967       $ 12,069       $ 2,354   

Impaired loans without related Allowance(1):

        

Commercial mortgage

   $ 541       $ 574       $ —     

Home equity lines and loans

     2,142         2,223         —     

Residential mortgage

     4,433         4,741         —     

Construction

     2,067         2,317         —     

Commercial and industrial

     640         639         —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 9,823       $ 10,494       $ —     
  

 

 

    

 

 

    

 

 

 

Grand total

   $ 21,790       $ 22,563       $ 2,354   
  

 

 

    

 

 

    

 

 

 

 

(1) 

The table above does not include the recorded investment of $168 thousand of impaired leases without a related Allowance.

(2) 

Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal

Note 6 - Deposits

The following table details the components of deposits:

 

(dollars in thousands)    June 30, 2013      December 31,
2012
 

Savings accounts

   $ 136,307       $ 129,091   

Interest-bearing checking accounts

     262,316         270,279   

Market-rate accounts

     551,750         559,470   

Wholesale non-maturity deposits

     30,315         45,162   

Wholesale time deposits

     12,139         12,421   

Time deposits

     161,146         218,586   
  

 

 

    

 

 

 

Total interest-bearing deposits

     1,153,973         1,235,009   

Non-interest-bearing deposits

     395,742         399,673   
  

 

 

    

 

 

 

Total deposits

   $ 1,549,715       $ 1,634,682   
  

 

 

    

 

 

 

 

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Note 7 - Borrowings

A. Short-term borrowings

The Corporation’s short-term borrowings (original maturity of one year or less), which consist of a revolving line of credit with a correspondent bank, funds obtained from overnight repurchase agreements with commercial customers, FHLB advances with original maturities of one year or less and overnight fed funds, are detailed below.

A summary of short-term borrowings is as follows:

 

(dollars in thousands)    June 30, 2013      December 31,
2012
 

Overnight fed funds

   $ —         $ —     

Short-term FHLB advances

     60,000         —     

Repurchase agreements

     11,768         9,403   
  

 

 

    

 

 

 

Total short-term borrowings

   $ 71,768       $ 9,403   
  

 

 

    

 

 

 

The following table sets forth information concerning short-term borrowings:

 

(dollars in thousands)    Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Balance at period-end

   $ 71,768      $ 14,675      $ 71,768      $ 14,675   

Maximum amount outstanding at any month-end

     71,768        14,675        71,768        14,775   

Average balance outstanding during the period

     13,358        13,237        12,672        13,583   

Weighted-average interest rate:

        

As of period-end

     0.23     0.15     0.23     0.15

Paid during the period

     0.21     0.17     0.18     0.17

B. Long-term FHLB Advances and Other Borrowings

The Corporation’s long-term FHLB advances and other borrowings consist of advances from the FHLB with original maturities of greater than one year and an adjustable-rate commercial loan from a correspondent bank.

The following table presents the remaining periods until maturity of the long-term FHLB advances and other borrowings:

 

(dollars in thousands)    June 30, 2013      December 31,
2012
 

Within one year

   $ 3,889       $ 35,458   

Over one year through five years

     128,753         104,244   

Over five years through ten years

     20,000         21,613   
  

 

 

    

 

 

 

Total

   $ 152,642       $ 161,315   
  

 

 

    

 

 

 

The following table presents rate and maturity information on long-term FHLB advances and other borrowings:

 

(dollars in thousands)    Maturity Range(1)    Weighted
Average
Rate
    Interest Rate     Balance  

Description

   From    To      From     To     June 30, 2013      December 31,
2012
 

Fixed amortizing

   04/08/15    04/08/15      3.61     3.61     3.61   $ 2,865       $ 4,285   

Adjustable amortizing

   12/31/16    12/31/16      3.25     3.25     3.25     8,224         9,400   

Bullet maturity – fixed rate

   03/23/15    05/28/19      1.39     0.58     4.12     105,000         90,000   

Bullet maturity – variable rate

   11/18/17    11/18/17      0.46     0.46     0.46     15,000         15,000   

Convertible-fixed(2)

   01/03/18    08/20/18      2.47     2.21     2.62     21,553         42,630   
              

 

 

    

 

 

 

Total

               $ 152,642       $ 161,315   
              

 

 

    

 

 

 

 

(1) 

Maturity range refers to June 30, 2013 balances

(2) 

FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of June 30, 2013, substantially all the FHLB advances with this convertible feature are subject to conversion in fiscal 2013. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to conversion.

 

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C. Other Borrowings Information

As of June 30, 2013 the Corporation had a maximum borrowing capacity with the FHLB of approximately $749.6 million, of which the unused capacity was $535.7 million. In addition, there were unused capacities of $64.0 million in overnight federal funds line, $75.2 million of Federal Reserve Discount Window borrowings and $3.0 million in a revolving line of credit from a correspondent bank as of June 30, 2013. In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of FHLB capital stock held was $13.0 million at June 30, 2013, and $10.8 million at December 31, 2012. The carrying amount of the FHLB capital stock approximates its redemption value.

Note 8 - Derivatives and Hedging Activities

In December, 2012, the Corporation entered into a forward-starting interest rate swap to hedge the cash flows of a $15 million floating-rate FHLB borrowing. The interest rate swap involves the exchange of the Corporation’s floating rate interest payments on the underlying principal amount. This swap was designated, and qualified, for cash-flow hedge accounting. The term of the swap begins November 30, 2015 and ends November 28, 2022. For derivative instruments that are designated and qualify as hedging instruments, the effective portion of gains or losses is reported as a component of other comprehensive income, and is subsequently reclassified into earnings as an adjustment to interest expense in the periods in which the hedged forecasted transaction affects earnings.

The following table details the Corporation’s derivative positions as of the balance sheet dates indicated:

As of June 30, 2013:

 

(dollars in thousands)                                 
Notional
Amount
     Trade Date      Effective
Date
     Maturity
Date
     Receive (Variable)
Index
   Current
Projected
Receive Rate
    Pay Fixed
Swap Rate
    Fair Value of
Derivative
Position
 
$ 15,000         12/13/2012         11/30/2015         11/28/2022       US 3-Month LIBOR      3.319     2.376   $ 889   

As of December 31, 2012:

 

(dollars in thousands)                                 
Notional
Amount
     Trade Date      Effective
Date
     Maturity
Date
     Receive (Variable)
Index
   Current
Projected
Receive Rate
    Pay Fixed
Swap Rate
    Fair Value of
Derivative
Position
 
$ 15,000         12/13/2012         11/30/2015         11/28/2022       US 3-Month LIBOR      2.338     2.376   $ (36

For the three and six months ended June 30, 2013, there have been no reclassifications of the interest-rate swap’s fair value from other comprehensive income to earnings. The Corporation held no derivatives during the three and six months ended June 30, 2012.

Note 9 – Stock-Based Compensation

A. General Information

The Corporation permits the issuance of stock options, dividend equivalents, performance awards, stock appreciation rights, restricted stock and/or restricted stock units to employees and directors of the Corporation under several plans. The terms and conditions of awards under the plans are determined by the Corporation’s Compensation Committee.

Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’s “2010 Long Term Incentive Plan” (“2010 LTIP”) under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants.

The equity awards granted under the 2007 and 2010 LTIPs were authorized to be in the form of, among others, options to purchase the Corporation’s common stock, restricted stock awards (“RSAs”) and performance stock awards (“PSAs”).

The fair value of an RSA, when granted, is based on the closing price on the day preceding the date of the grant.

 

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The PSAs that have been granted to date vest based on the Corporation’s total shareholder return relative to the performance of the NASDAQ Community Bank Index for the respective period. The amount of PSAs earned will not exceed 100% of the PSAs awarded. The fair value of a PSA, when granted, is calculated using the Monte Carlo Simulation method.

B. Stock Options

Stock-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period. The fair value of stock option grants is determined using the Black-Scholes pricing model. The assumptions necessary for the calculation of the fair value are expected life of options, annual volatility of stock price, risk-free interest rate and annual dividend yield.

The following table provides information about options outstanding for the three months ended June 30, 2013:

 

     Shares     Weighted
Average
Exercise Price
     Weighted
Average Grant
Date Fair Value
 

Options outstanding, March 31, 2013

     716,446      $ 20.61       $ 4.67   

Granted

     —        $ —         $ —     

Forfeited

     (650   $ 19.65       $ 4.62   

Expired

     —        $ —         $ —     

Exercised

     (27,320   $ 18.65       $ 4.14   
  

 

 

      

Options outstanding, June 30, 2013

     688,476      $ 20.69       $ 4.69   
  

 

 

      

The following table provides information about options outstanding for the six months ended June 30, 2013:

 

     Shares     Weighted
Average
Exercise Price
     Weighted
Average Grant
Date Fair Value
 

Options outstanding, December 31, 2012

     784,226      $ 20.40       $ 4.62   

Granted

     —        $ —         $ —     

Forfeited

     (650   $ 19.65       $ 4.62   

Expired

     —        $ —         $ —     

Exercised

     (95,100   $ 18.30       $ 4.05   
  

 

 

      

Options outstanding, June 30, 2013

     688,476      $ 20.69       $ 4.69   
  

 

 

      

The following table provides information about unvested options for the three months ended June 30, 2013:

 

     Shares     Weighted
Average
Exercise Price
     Weighted
Average Grant
Date Fair Value
 

Unvested options, March 31, 2013

     80,756      $ 19.89       $ 4.65   

Granted

     —        $ —         $ —     

Vested

     —        $ —         $ —     

Forfeited

     (650   $ 19.65       $ 4.62   
  

 

 

      

Unvested options, June 30, 2013

     80,106      $ 19.89       $ 4.65   
  

 

 

      

The following table provides information about unvested options for the six months ended June 30, 2013:

 

     Shares     Weighted
Average
Exercise Price
     Weighted
Average Grant
Date Fair Value
 

Unvested options, December 31, 2012

     80,756      $ 19.89       $ 4.65   

Granted

     —        $ —         $ —     

Vested

     —        $ —         $ —     

Forfeited

     (650   $ 19.65       $ 4.62   
  

 

 

      

Unvested options, June 30, 2013

     80,106      $ 19.89       $ 4.65   
  

 

 

      

For the three and six months ended June 30, 2013, the Corporation recognized $44 thousand and $89 thousand, respectively, of expense related to stock options. As of June 30, 2013, the total not-yet-recognized compensation expense of unvested stock options was $121 thousand. This expense will be recognized over a weighted average period of 1.1 years.

 

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Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three months ended June 30, 2013 and 2012 are detailed below:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
(dollars in thousands)    2013      2012      2013      2012  

Proceeds from exercise of stock options

   $ 510       $ 142       $ 1,740       $ 1,199   

Related tax benefit recognized

     28         4         144         80   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net proceeds of options exercised

   $ 538       $ 146       $ 1,884       $ 1,279   
  

 

 

    

 

 

    

 

 

    

 

 

 

Intrinsic value of options exercised

   $ 113       $ 13       $ 447       $ 231   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides information about options outstanding and exercisable at June 30, 2013:

 

(dollars in thousands)    Outstanding      Exercisable  

Number of shares

     688,476         608,370   

Weighted average exercise price

   $ 20.69       $ 20.80   

Aggregate intrinsic value

   $ 2,265       $ 1,934   

Weighted average contractual term in years

     3.4         3.2   

C. Restricted Stock Awards and Performance Stock Awards

The Corporation has granted RSAs and PSAs under the 2007 LTIP and 2010 LTIP Plans.

The compensation expense for the RSAs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight line basis over the vesting period, accelerated for retirement eligibility. Stock restrictions are subject to alternate vesting for death and disability and retirement.

For the three and six months ended June 30, 2013, the Corporation recognized $51 thousand and $129 thousand, respectively, of expense related to the Corporation’s RSAs. As of June 30, 2013, there was $453 thousand of unrecognized compensation cost related to RSAs. This cost will be recognized over a weighted average period of 1.6 years.

The following table details the unvested RSAs for the three and six months ended June 30, 2013:

 

     Three Months Ended
June 30, 2013
     Six Months Ended
June 30, 2013
 
     Number of
Shares
    Weighted
Average
Grant Date
Fair Value
     Number of
Shares
    Weighted
Average  Grant
Date Fair Value
 

Beginning balance

     56,631      $ 19.15         56,631      $ 19.15   

Granted

     —          —           —          —     

Vested

     (6,135     20.38         (6,135     20.38   

Forfeited

     (3,681     20.38         (3,681     20.38   
  

 

 

      

 

 

   

Ending balance

     46,815      $ 18.89         46,815      $ 18.89   
  

 

 

      

 

 

   

The compensation expense for PSAs is measured based on the grant date fair value as calculated using the Monte Carlo Simulation method.

For the three and six months ended June 30, 2013, the Corporation recorded a tax benefit of $4 thousand and $4 thousand related to the vesting of restricted stock awards.

For the three and six months ended June 30, 2013, the Corporation recognized $127 thousand and $251 thousand of expense related to the PSAs. As of June 30, 2013, there was $702 thousand of unrecognized compensation cost related to PSAs. This cost will be recognized over a weighted average period of 1.2 years.

 

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The following table details the unvested PSAs for the three and six months ended June 30, 2013:

 

     Three Months Ended
June 30, 2013
     Six Months Ended
June 30, 2013
 
     Number of
Shares
    Weighted
Average
Grant Date
Fair Value
     Number of
Shares
    Weighted
Average Grant
Date Fair Value
 

Beginning balance

     185,391      $ 19.22         185,766      $ 19.22   

Granted

     —          —           —          —     

Vested

     —          —           —          —     

Forfeited

     (1,200     19.19         (1,575     19.54   
  

 

 

      

 

 

   

Ending balance

     184,191      $ 19.22         184,191      $ 19.22   
  

 

 

      

 

 

   

Note 10 - Pension and Other Post-Retirement Benefit Plans

The Corporation has three defined benefit pension plans: the qualified defined-benefit plan (the “QDBP”) which covers all employees over age 20 1/2 who meet certain service requirements, and two non-qualified defined-benefit pension plans (“SERP I” and “SERP II”) which are restricted to certain senior officers of the Corporation.

SERP I provides each participant with the equivalent pension benefit provided by the QDBP on any compensation and bonus deferrals that exceed the IRS limit applicable to the QDBP.

On February 12, 2008, the Corporation amended the QDBP and SERP I to freeze further increases in the defined-benefit amounts to all participants, effective March 31, 2008.

On April 1, 2008, the Corporation added SERP II, a non-qualified defined-benefit plan which was restricted to certain senior officers of the Corporation. Effective January 1, 2013, the Corporation has curtailed SERP II, as further increases to the defined-benefit amounts to over 20% of the participants have been frozen. As a result of the curtailment, the Corporation recorded a $690 thousand gain which represents the reversal of previous amounts that had been expensed in anticipation of future service of the curtailed participants. The benefit obligation related to the SERP I and SERP II plans as of March 31, 2013 decreased by $2.3 million from the balance at December 31, 2012 as a result of the curtailment.

On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (“SERP III”), a non-qualified defined-contribution plan which was restricted to certain senior officers of the Corporation. SERP III was retroactively effective January 1, 2013. The intended purpose of SERP III is to provide deferred compensation to a select group of employees.

The Corporation also has a postretirement benefit plan (“PRBP”) that covers certain retired employees and a group of current employees. The PRBP was closed to new participants in 1994. In 2007, the Corporation amended the PRBP to allow for settlement of obligations to certain current and retired employees. Certain retired participant obligations were settled in 2007 and current employee obligations were settled in 2008.

The following tables provide details of the components of the net periodic benefits cost (benefit) for the three and six months ended June 30, 2013 and 2012:

 

     Three Months Ended June 30,  
     SERP I and SERP II      QDBP     PRBP  
(dollars in thousands)    2013     2012      2013     2012     2013      2012  

Service cost

   $ 18      $ 67       $ —        $ —        $ —         $ —     

Interest cost

     39        61         371        394        7         9   

Expected return on plan assets

     —          —           (745     (701     —           —     

Amortization of transition obligation

     —          —           —          —          —           7   

Amortization of prior service costs

     4        21         —          —          —           —     

Amortization of net (gain) loss

     13        23         431        447        20         19   

Gain on curtailment

     (120     —           —          —          —           —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ (46   $ 172       $ 57      $ 140      $ 27       $ 35   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents
     Six Months Ended June 30,  
     SERP I and SERP II      QDBP     PRBP  
(dollars in thousands)    2013     2012      2013     2012     2013      2012  

Service cost

   $ 36      $ 134       $ —        $ —        $ —         $ —     

Interest cost

     79        122         743        788        14         18   

Expected return on plan assets

     —          —           (1,491     (1,402     —           —     

Amortization of transition obligation

     —          —           —          —          —           14   

Amortization of prior service costs

     7        42         —          —          —           —     

Amortization of net (gain) loss

     26        45         862        894        39         38   

Gain on curtailment

     (690     —           —          —          —           —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ (542   $ 343       $ 114      $ 280      $ 53       $ 70   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

QDBP: No contributions to the QDBP were made for the three and six months ended June 30, 2013.

SERP I and SERP II: The Corporation contributed $36 thousand and $73 thousand during the three and six months ended June 30, 2013, respectively, and is expected to contribute an additional $73 thousand to the SERP I and SERP II plans for the remaining six months of 2013.

SERP III: The Corporation contributed $44 thousand during both the three and six months ended June 30, 2013 to SERP III and is expected to contribute an additional $ 44 thousand for the remaining six months of 2013.

PRBP: In 2005, the Corporation capped the maximum annual payment under the PRBP at 120% of the 2005 benefit. This maximum was reached in 2008 and the cap is not expected to be increased above this level.

Note 11 - Segment Information

The Corporation aggregates certain of its operations and has identified two segments as follows: Banking and Wealth Management.

The following tables detail segment information for the three and six months ended June 30, 2013 and 2012:

 

     Three Months Ended June 30, 2013     Three Months Ended June 30, 2012  
(dollars in thousands)    Banking     Wealth Management     Consolidated     Banking     Wealth Management     Consolidated  

Net interest income

   $ 17,922      $ 1      $ 17,923      $ 15,902      $ 1      $ 15,903   

Less: loan loss provision

     1,000        —          1,000        1,003        —          1,003   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after loan loss provision

     16,922        1        16,923        14,899        1        14,900   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income:

            

Fees for wealth management services

     —          9,094        9,094        —          7,211        7,211   

Service charges on deposit accounts

     596        —          596        609        —          609   

Loan servicing and other fees

     448        —          448        436        —          436   

Net gain on sale of loans

     1,492        —          1,492        1,304        —          1,304   

Net gain on sale of available for sale securities

     —          —          —          716        —          716   

Net loss on sale of other real estate owned

     (141     —          (141     —          —          —     

BOLI income

     85        —          85        105        —          105   

Other operating income

     1,322        47        1,369        977        23        1,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     3,802        9,141        12,943        4,147        7,234        11,381   

Other expenses:

            

Salaries & wages

     6,040        3,046        9,086        5,390        2,685        8,075   

Employee benefits

     1,463        749        2,212        1,410        613        2,023   

Occupancy & equipment

     1,354        374        1,728        1,100        294        1,394   

Amortization of intangible assets

     80        580        660        73        487        560   

Professional fees

     614        50        664        513        59        572   

Other operating expenses

     5,130        1,044        6,174        4,733        771        5,504   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     14,681        5,843        20,524        13,219        4,909        18,128   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit

     6,043        3,299        9,342        5,827        2,326        8,153   

Intersegment (revenues) expenses*

     (152     152        —          (128     128        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax segment profit after eliminations

   $ 5,891      $ 3,451      $ 9,342      $ 5,699      $ 2,454      $ 8,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of segment pre-tax profit after eliminations

     63.1     36.9     100.0 %     69.9     30.1     100.0 %
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment assets (dollars in millions)

   $ 1,967      $ 43      $ 2,010      $ 1,807      $ 46      $ 1,853   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Inter-segment revenues consist of rental payments, interest on deposits and management fees.

 

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     Six Months Ended June 30, 2013     Six Months Ended June 30, 2012  
(dollars in thousands)    Banking     Wealth Management     Consolidated     Banking     Wealth Management     Consolidated  

Net interest income

   $ 35,331      $ 1      $ 35,332      $ 31,886      $ 2      $ 31,888   

Less: loan loss provision

     1,804        —          1,804        2,003        —          2,003   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after loan loss provision

     33,527        1        33,528        29,883        2        29,885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income:

            

Fees for wealth management services

     —          17,443        17,443        —          13,440        13,440   

Service charges on deposit accounts

     1,180        —          1,180        1,189        —          1,189   

Loan servicing and other fees

     899        —          899        871        —          871   

Net gain on sale of loans

     3,010        —          3,010        2,474        —          2,474   

Net gain on sale of available for sale securities

     2        —          2        716        —          716   

Net loss on sale of other real estate owned

     (193     —          (193     (41     —          (41

BOLI income

     198        —          198        223        —          223   

Other operating income

     2,104        90        2,194        2,070        26        2,096   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     7,200        17,533        24,733        7,502        13,466        20,968   

Other expenses:

            

Salaries & wages

     11,911        5,985        17,896        10,495        5,085        15,580   

Employee benefits

     3,040        1,497        4,537        2,996        1,187        4,183   

Occupancy & equipment

     2,728        750        3,478        2,255        514        2,769   

Amortization of intangible assets

     160        1,161        1,321        147        922        1,069   

Professional fees

     1,123        116        1,239        1,135        93        1,228   

Other operating expenses

     10,268        2,020        12,288        8,629        1,464        10,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     29,230        11,529        40,759        25,657        9,265        34,922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit

     11,497        6,005        17,502        11,728        4,203        15,931   

Intersegment (revenues) expenses*

     (304     304        —          (241     241        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax segment profit after eliminations

   $ 11,193      $ 6,309      $ 17,502      $ 11,487      $ 4,444      $ 15,931   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of segment pre-tax profit after eliminations

     64.0     36.0     100.0 %     72.1     27.9     100.0 %
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment assets (dollars in millions)

   $ 1,967      $ 43      $ 2,010      $ 1,807      $ 46      $ 1,853   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other segment information:

Wealth Management Segment Information

 

     (dollars in millions)  
     June 30, 2013      December 31, 2012  

Assets under management, administration, supervision and brokerage

   $ 6,854.8       $ 6,663.2   

Note 12 - Mortgage Servicing Rights

The following tables summarize the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and six months ended June 30, 2013 and 2012:

 

     Three Months Ended June 30,  
(dollars in thousands)    2013     2012  

Balance, beginning of period

   $ 4,593      $ 4,217   

Additions

     324        346   

Amortization

     (218     (256

Recovery

     91        —     

Impairment

     —          (87
  

 

 

   

 

 

 

Balance, end of period

   $ 4,790      $ 4,220   
  

 

 

   

 

 

 

Fair value

   $ 5,621      $ 4,289   
  

 

 

   

 

 

 

Loans serviced for others

   $ 623,498      $ 575,533   
  

 

 

   

 

 

 

 

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Table of Contents
     Six Months Ended June 30,  
(dollars in thousands)    2013     2012  

Balance, beginning of period

   $ 4,491      $ 4,041   

Additions

     709        631   

Amortization

     (430     (475

Recovery

     91        110   

Impairment

     (71     (87
  

 

 

   

 

 

 

Balance, end of period

   $ 4,790      $ 4,220   
  

 

 

   

 

 

 

Fair value

   $ 5,621      $ 4,289   
  

 

 

   

 

 

 

Loans serviced for others

   $ 623,498      $ 575,533   
  

 

 

   

 

 

 

As of June 30, 2013 and December 31, 2012, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:

 

(dollars in thousands)    June 30, 2013     December 31, 2012  

Fair value amount of MSRs

   $ 5,621      $ 4,638   

Weighted average life (in years)

     5.8        4.8   

Prepayment speeds (constant prepayment rate)*

     12.8        15.9   

Impact on fair value:

    

10% adverse change

   $ (208   $ (230

20% adverse change

   $ (408   $ (442

Discount rate

     10.50     10.50

Impact on fair value:

    

10% adverse change

   $ (213   $ (158

20% adverse change

   $ (411   $ (306

 

 

* Represents the weighted average prepayment rate for the life of the MSR asset.

These assumptions and sensitivities are hypothetical and should be used with caution. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which could magnify or counteract the sensitivities.

Note 13 - Goodwill and Other Intangibles

The Corporation’s goodwill and intangible assets related to the acquisitions of Lau Associates LLC (“Lau”) in July, 2008, First Keystone Financial, Inc. (“FKF”) in July, 2010, the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May, 2011, DTC in May, 2012 and the FBD Transaction in November, 2012 are detailed below:

 

(dollars in thousands)    Balance
December 31,
2012
     Additions/
Adjustments
    Amortization     Balance
June 30,
2013
     Amortization
Period

Goodwill – Wealth segment

   $ 20,466      $ (54 )   $ —        $ 20,412      Indefinite

Goodwill – Banking segment

     12,431         —          —          12,431       Indefinite
  

 

 

    

 

 

   

 

 

   

 

 

    

Total

   $ 32,897       $ (54   $ —        $ 32,843      

Core deposit intangible

   $ 1,654       $ —        $ (160   $ 1,494       10 Years

Customer relationships

     14,890         —          (648     14,242       10 to 20 Years

Non compete agreements

     4,244         —          (513     3,731       5 to 5 1/2 Years

Trade name

     1,210         —          —          1,210       Indefinite
  

 

 

    

 

 

   

 

 

   

 

 

    

Total

   $ 21,998       $ —        $ (1,321   $ 20,677      
  

 

 

    

 

 

   

 

 

   

 

 

    

Grand total

   $ 54,895       $ (54   $ (1,321   $ 53,520      
  

 

 

    

 

 

   

 

 

   

 

 

    

 

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The Corporation performed its annual review of goodwill and identifiable intangible assets as of December 31, 2012 in accordance with ASC 350, “Intangibles Goodwill and Other.” For the three months ended June 30, 2013, the Corporation determined there were no events that would necessitate impairment testing of goodwill and other intangible assets.

Note 14 – Accumulated Other Comprehensive Loss

The following tables detail the components of accumulated other comprehensive (loss) income for the three and six month periods ended June 30, 2013 and 2012:

 

(dollars in thousands)    Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities
    Net Change in
Fair Value of
Derivative
Used for Cash
Flow Hedge
    Net Change in
Unfunded
Pension
Liability
    Accumulated
Other
Comprehensive
Loss
 

Balance, March 31, 2013

   $ 3,147      $ 95      $ (11,807   $ (8,565

Net change

     (3,270     482        248        (2,540
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

   $ (123   $ 577      $ (11,559   $ (11,105
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

   $ 2,461      $ —        $ (12,885   $ (10,424

Net change

     274        —          272        546   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 2,735      $ —        $ (12,613   $ (9,878
  

 

 

   

 

 

   

 

 

   

 

 

 
(dollars in thousands)    Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities
    Net Change in
Fair Value of
Derivative
Used for Cash
Flow Hedge
    Net Change in
Unfunded
Pension
Liability
    Accumulated
Other
Comprehensive
Loss
 

Balance, December 31, 2012

   $ 3,164      $ (24   $ (13,218   $ (10,078

Net change

     (3,287     601        1,659        (1,027
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

   $ (123   $ 577      $ (11,559   $ (11,105
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

   $ 1,791      $ —        $ (13,157   $ (11,366

Net change

     944        —          544        1,488   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 2,735      $ —        $ (12,613   $ (9,878
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following tables detail the amounts reclassified from each component of accumulated other comprehensive loss for the three and six month periods ended June 30, 2013 and 2012:

 

Description of Accumulated Other
Comprehensive Loss Component

   Amount Reclassified from Accumulated
Other Comprehensive Loss
   

Affected Income Statement Category

   For The Three Months Ended June 30,    
     2013     2012      

Net unrealized gain on investment securities available for sale:

      

Realization of gain on sale of investment securities available for sale

   $ —        $ (716   Net gain on sale of available for sale investment securities
     —          (251   Less: income tax expense
  

 

 

   

 

 

   
   $ —        $ (465   Net of income tax
  

 

 

   

 

 

   

Unfunded pension liability:

      

Amortization of net loss included in net periodic pension costs*

   $ 464      $ 489      Employee benefits

Amortization of prior service cost included in net periodic pension costs*

     4        21      Employee benefits

Amortization of transition obligation included in net periodic pension costs*

     —          7      Employee benefits

Gain on curtailment of SERP II

     (120     —        Net gain on curtailment of nonqualified pension plan
  

 

 

   

 

 

   
     348        517      Total expense before income tax benefit
     122        181      Less: income tax benefit
  

 

 

   

 

 

   
   $ 226      $ 336      Net of income tax
  

 

 

   

 

 

   

Description of Accumulated Other
Comprehensive Loss Component

   Amount Reclassified from Accumulated
Other Comprehensive Loss
   

Affected Income Statement Category

   For The Six Months Ended June 30,    
     2013     2012      

Net unrealized gain on investment securities available for sale:

      

Realization of gain on sale of investment securities available for sale

   $ (2   $ (716   Net gain on sale of available for sale investment securities
     (1     (251   Less: income tax expense
  

 

 

   

 

 

   
   $ (1   $ (465   Net of income tax
  

 

 

   

 

 

   

Unfunded pension liability:

      

Amortization of net loss included in net periodic pension costs*

   $ 927      $ 977      Employee benefits

Amortization of prior service cost included in net periodic pension costs*

     7        42      Employee benefits

Amortization of transition obligation included in net periodic pension costs*

     —          14      Employee benefits

Gain on curtailment of SERP II

     (690     —        Net gain on curtailment of nonqualified pension plan
  

 

 

   

 

 

   
     244        1,033      Total expense before income tax benefit
     85        362      Less: income tax benefit
  

 

 

   

 

 

   
   $ 159      $ 671      Net of income tax
  

 

 

   

 

 

   

 

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Table of Contents
* Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 - Pension and Other Post-Retirement Benefit Plans

Note 15 - Shareholders’ Equity

Dividend

During the second quarter of 2013, the Corporation declared and paid a regular quarterly dividend of $0.17 per share. This payment totaled $2.3 million, based on outstanding shares at May 7, 2013 of 13,510,917. On July 25, 2013, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.17 per share payable September 1, 2013 to shareholders of record as of August 6, 2013.

S-3 Shelf Registration Statement and Offerings Thereunder

In April 2012, the Corporation filed a shelf registration statement (the “Shelf Registration Statement”) to replace its 2009 Shelf Registration Statement, which was set to expire in June 2012. This new Shelf Registration Statement allows the Corporation to raise additional capital through offers and sales of registered securities consisting of common stock, debt securities, warrants to purchase common stock, stock purchase contracts and units or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar amount up to $150,000,000, in the aggregate.

The Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which was amended and restated on April 27, 2012, primarily to increase the number of shares which can be issued by the Corporation from 850,000 to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’s common stock and general economic and market conditions.

The Plan is intended to allow both existing shareholders and new investors to easily and conveniently increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions. For the six months ended June 30, 2013, the Corporation issued 4,765 shares and raised $107 thousand through the Plan.

Options

In addition to shares issued through the Plan, the Corporation also issues shares through the exercise of stock options. During the six months ended June 30, 2013, 95,100 shares were issued pursuant to the exercise of stock options, increasing shareholders’ equity by $1.7 million.

Note 16 - Accounting for Uncertainty in Income Taxes

The Corporation recognizes the financial statement benefit of a tax position only after determining that the Corporation would be more likely than not to sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the relevant tax authority.

The Corporation is subject to income taxes in the United States federal jurisdiction and multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by taxing authorities for years before 2009.

The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued in the three month periods ended June 30, 2013 or 2012. There were no reserves for uncertain income tax positions recorded during the three month periods ended June 30, 2013 or 2012.

 

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Note 17 - Fair Value Measurement

The following disclosures are made in conjunction with the application of fair value measurements.

FASB ASC 820 “Fair Value Measurement” establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under which the Corporation is required to value each asset using assumptions that market participants would utilize to value that asset. When the Corporation uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.

The Corporation’s investment securities available for sale, which generally include state and municipal securities, U.S. government agencies and mortgage-related securities, are reported at fair value. These securities are valued by an independent third party. The third party’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi-dimensional relational models and option-adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage-related securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available for sale investments are evaluated using a broker-quote based application, including quotes from issuers.

The value of the investment portfolio is determined using three broad levels of inputs:

Level 1 – Quoted prices in active markets for identical securities.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Instruments whose significant value drivers are unobservable.

These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets at June 30, 2013 and December 31, 2012 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input.

Fair value of assets measured on a recurring and non-recurring basis as of June 30, 2013:

 

(dollars in millions)    Total      Level 1      Level 2      Level 3  

Assets Measured at Fair Value on a Recurring Basis:

           

Investment securities available for sale:

           

U.S. Treasury securities

   $ 0.1       $ 0.1       $ —         $ —     

Obligations of the U.S. government agencies

     81.2         —           81.2         —     

Obligations of state & political subdivisions

     39.0         —           39.0         —     

Mortgage-backed securities

     132.7         —           132.7         —     

Collateralized mortgage obligations

     51.9         —           51.9         —     

Mutual funds

     13.5         13.5         —           —     

Other investments

     4.5         —           4.5         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available for sale

     322.9         13.6         309.3         —     

Trading securities

     2.2         —           2.2         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured on a recurring basis at fair value

   $ 325.1       $ 13.6       $ 311.5       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets Measured at Fair Value on a Non-Recurring Basis

           

Impaired loans and leases

   $ 17.2       $ —         $ —         $ 17.2   

Other real estate owned (“OREO”)

     1.4         —           —           1.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured on a non-recurring basis at fair value

   $ 18.6       $ —         $ —         $ 18.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Fair value of assets measured on a recurring and non-recurring basis as of December 31, 2012:

 

(dollars in millions)    Total      Level 1      Level 2      Level 3  

Assets Measured at Fair Value on a Recurring Basis:

           

Investment securities available for sale:

           

Obligations of the U.S. government agencies

   $ 73.9       $ —         $ 73.9       $ —     

Obligations of state & political subdivisions

     30.4         —           30.4         —     

Mortgage-backed securities

     131.8         —           131.8         —     

Collateralized mortgage obligations

     62.7         —           62.7         —     

Mutual funds

     13.6         13.6         —           —     

Other investments

     4.2         —           4.2         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available for sale

     316.6         13.6         303.0         —     

Trading securities

     1.4         —           1.4         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured on a recurring basis at fair value

   $ 318.0       $ 13.6       $ 304.4       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets Measured at Fair Value on a Non-Recurring Basis

           

Mortgage servicing rights

   $ 0.9       $ —         $ —         $ 0.9   

Impaired loans and leases

     19.7         —           —           19.7   

OREO

     0.9         —           —           0.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured on a non-recurring basis at fair value

   $ 21.5       $ —         $ —         $ 21.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the three and six months ended June 30, 2013 a net increase of $78 thousand and a net decrease of $68 thousand, respectively, were recorded in the Allowance as a result of adjusting the carrying value and estimated fair value of the impaired loans in the above tables. As it relates to the fair values of assets measured on a recurring basis, there have been no transfers between levels during the six months ended June 30, 2013.

Impaired Loans

The Corporation evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

The Corporation has an appraisal policy in which an appraisal is obtained for a commercial loan at the point at which the loan either becomes nonperforming or is downgraded to a substandard or worse classification. For consumer loans, the Corporation obtains updated appraisals when a loan becomes 90 days past due or when it receives other information that may indicate possible impairment. Based on the appraisals obtained by the Corporation, an appropriate Allowance is allocated to the particular loan.

Other Real Estate Owned

Other real estate owned consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties are classified as OREO and are reported at the lower of cost or fair value less cost to sell, and are classified as Level 3 in the fair value hierarchy.

 

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Mortgage Servicing Rights

MSRs do not trade in an active, open market with readily observable prices. Accordingly, the Corporation obtains the fair value of the MSRs using a third-party pricing provider. The provider determines the fair value by discounting projected net servicing cash flows of the remaining servicing portfolio. The valuation model used by the provider considers market loan prepayment predictions and other economic factors which the Corporation considers to be significant unobservable inputs. The fair value of MSRs is mostly affected by changes in mortgage interest rates since rate changes cause the loan prepayment acceleration factors to increase or decrease. All assumptions are market driven. The Corporation has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of MSRs to enable management to maintain an appropriate system of internal control. Mortgage servicing rights are classified within Level 3 of the fair value hierarchy as the valuation is model driven and primarily based on unobservable inputs.

Note 18 - Fair Value of Financial Instruments

FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair values.

Investment Securities

Estimated fair values for investment securities are generally valued by an independent third party based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. Management reviews, annually, the process utilized by its independent third-party valuation experts. On a quarterly basis, Management tests the validity of the prices provided by the third party by selecting a representative sample of the portfolio and obtaining actual trade results, or if actual trade results are not available, competitive broker pricing. See Note 4 of the Notes to Consolidated Financial Statements for more information.

Loans Held for Sale

The fair value of loans held for sale is based on pricing obtained from secondary markets.

Net Portfolio Loans and Leases

For variable-rate loans that reprice frequently and which have no significant change in credit risk, estimated fair values are based on carrying values. Fair values of certain mortgage loans and consumer loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and is indicative of an entry price. The estimated fair value of nonperforming loans is based on discounted estimated cash flows as determined by the internal loan review of the Bank or the appraised market value of the underlying collateral, as determined by independent third party appraisers. This technique does not reflect an exit price.

Impaired Loans

The Corporation evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

 

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Mortgage Servicing Rights

The fair value of the MSRs for these periods was determined using a proprietary third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Due to the proprietary nature of the valuation model used, the Corporation classifies the value of MSRs as using Level 3 inputs.

Other Assets

The carrying amount of accrued interest receivable, income taxes receivable and other investments approximates fair value.

Deposits

The estimated fair values disclosed for noninterest-bearing demand deposits, savings, NOW accounts, and market rate accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on the certificate of deposit. FASB Codification 825 defines the fair value of demand deposits as the amount payable on demand as of the reporting date and prohibits adjusting estimated fair value from any value derived from retaining those deposits for an expected future period of time.

Short-term borrowings

The carrying amount of short-term borrowings, which include overnight repurchase agreements, fed funds and FHLB advances with original maturity of one year or less, approximates their fair value.

Long-term FHLB Advances and Other Borrowings

The fair value of long-term FHLB advances (with original maturities of greater than one year) and other borrowings, which include an $8.2 million term loan from a correspondent bank, is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.

Other Liabilities

The carrying amounts of accrued interest payable and other accrued payables approximate fair value.

Off-Balance Sheet Instruments

Estimated fair values of the Corporation’s commitments to extend credit, standby letters of credit and financial guarantees are not included in the table below as their carrying values generally approximate their fair values. These instruments generate fees that approximate those currently charged to originate similar commitments.

As of the dates indicated, the carrying amount and estimated fair value of the Corporation’s financial instruments are as follows:

 

(dollars in thousands)    Fair Value
Hierarchy Level*
   As of June 30,
2013
     As of December 31
2012
 
      Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 

Financial assets:

              

Cash and cash equivalents

   Level 1    $ 110,111       $ 110,111       $ 175,686       $ 175,686   

Investment securities, available for sale

   See Note 17      322,960         322,960         316,614         316,614   

Investment securities, trading

   Level 2      2,180         2,180         1,447         1,447   

Loans held for sale

   Level 2      2,207         2,207         3,412         3,482   

Net portfolio loans and leases

   Level 3      1,416,475         1,415,730         1,384,031         1,412,619   

Mortgage servicing rights

   Level 3      4,790         5,621         4,491         4,638   

Other assets

   Level 3      23,350         23,350         21,735         21,735   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

      $ 1,882,073       $ 1,882,159       $ 1,907,416       $ 1,936,221   
     

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

              

Deposits

   Level 2    $ 1,549,715       $ 1,549,812       $ 1,634,682       $ 1,635,374   

Short-term borrowings

   Level 2      71,768         71,768         9,403         9,403   

Long-term FHLB advances and other borrowings

   Level 2      152,642         150,279         161,315         164,273   

Other liabilities

   Level 2      22,928         22,929         26,921         26,921   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

      $ 1,797,053       $ 1,794,788       $ 1,832,321       $ 1,835,971   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

* see Note 17 for a description of fair value hierarchy levels

 

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Note 19 - New Accounting Pronouncements

FASB ASU No. 2013-02 – Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued (ASU 2013-02 – Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income) which requires entities to disclose, for items reclassified out of accumulated other comprehensive income (“AOCI”) and into net income in their entirety, the effect of the reclassification on each affected net income line item and, for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2012; early adoption is allowed. The Corporation has adopted ASU 2013-02 with no impact on its financial condition and results of operations.

Note 20 – Subsequent Events

On August 8, 2013, the Corporation and MidCoast Community Bancorp, Inc. (“MidCoast”) entered into a Mutual Termination Agreement to terminate that certain Agreement and Plan of Merger, dated as of March 27, 2013, between the Company and MidCoast. Each party has agreed to bear its own costs and expenses in connection with the terminated transaction, without penalties.

 

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ITEM 2 Management’s Discussion and Analysis of Results of Operation and Financial Condition

The following is the Corporation’s discussion and analysis of the significant changes in the financial condition, results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements. Current performance does not guarantee, and may not be indicative of, similar performance in the future.

Brief History of the Corporation

The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries provide community banking, business banking, residential mortgage lending, consumer and commercial lending and insurance services to customers through its 19 full-service branches and seven limited-hour retirement community offices located throughout the Montgomery, Delaware and Chester counties of Pennsylvania and New Castle county in Delaware. The Corporation and its subsidiaries also provide wealth management services through its network of Wealth Management offices located in Bryn Mawr, Devon and Hershey, Pennsylvania as well as Greenville, Delaware. The Corporation’s stock trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board and the Pennsylvania Department of Banking.

During 2012, the Corporation completed the following two transactions:

First Bank of Delaware Transaction

On November 17, 2012, the acquisition of $70.3 million of deposits, $76.6 million of loans and a branch location from First Bank of Delaware (“FBD”), by the Corporation was completed (the “FBD Transaction”). The consideration paid totaled $10.6 million. The FBD Transaction, which was accounted for as a business combination, enabled the Corporation to expand its banking arm into the Delaware market by opening its first full-service branch there, complementing its existing wealth management operations in the state.

Acquisition of the Davidson Trust Company

On May 15, 2012, the Corporation acquired the Davidson Trust Company (“DTC”) for $10.5 million, including $7.35 million cash paid at closing and $3.15 million of contingent cash payments that were to be paid November 14, 2012, May 14, 2013 and November 14, 2013, subject to certain post-closing contingencies relating to the assets under management. None of the three contingent cash payments was to exceed $1.05 million. Two of the three contingent payments were made on November 14, 2012 and May 14, 2013, each in the amount of $1.05 million.

Termination of MidCoast Community Bancorp, Inc. Merger Agreement

On August 8, 2013, the Corporation and MidCoast Community Bancorp, Inc. (“MidCoast”) entered into a Mutual Termination Agreement to terminate that certain Agreement and Plan of Merger, dated as of March 27, 2013, between the Company and MidCoast. Each party has agreed to bear its own costs and expenses in connection with the terminated transaction, without penalties.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform with U.S. generally accepted accounting principles (“GAAP”). All inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous year’s financial statements to the current year’s presentation. In preparing the consolidated financial statements, the Corporation is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. However, there are uncertainties inherent in making these estimates and actual results could differ from these estimates. The Corporation has identified certain areas that require estimates and assumptions, which include the allowance for loan and lease losses (the “Allowance”), the valuation of goodwill and intangible assets, the fair value of investment securities, mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation.

These critical accounting policies, along with other significant accounting policies, are presented in Footnote 1 – Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in the Corporation’s 2012 Annual Report on Form 10-K.

 

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Executive Overview

The following items highlight the Corporation’s results of operations for the three and six months ended June 30, 2013, as compared to the same periods in 2012, and the changes in its financial condition as of June 30, 2013 as compared to December 31, 2012. More detailed information related to these highlights can be found in the sections that follow.

Impact of Recent Acquisitions

In general, the results of operations for the three and six months ended June 30, 2013, as compared to the same periods in 2012 were impacted by the November 2012 FBD Transaction and the May 2012 acquisition of DTC.

Three Month Results

 

   

Net income for the three months ended June 30, 2013 was $6.3 million, an increase of $907 thousand as compared to net income of $5.3 million for the same period in 2012. Diluted earnings per share of $0.46 for the three months ended June 30, 2013 was $0.06 increase from the same period in 2012.

 

   

Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended June 30, 2013 were 11.90% and 1.28%, as compared to ROE and ROA of 11.24% and 1.18%, respectively, for the same period in 2012.

 

   

Tax-equivalent net interest income increased $2.0 million, or 12.8%, to $18.0 million for the three months ended June 30, 2013, as compared to $16.0 million for the same period in 2012.

 

   

The provision for loan and lease losses (the “Provision”) for the three months ended June 30, 2013 was $1.0 million, which was unchanged from the same period in 2012.

 

   

Non-interest income of $12.9 million for the three months ended June 30, 2013 increased $1.6 million, or 13.7%, as compared to $11.4 million for the same period in 2012.

 

   

Included in non-interest income, fees for Wealth Management services of $9.1 million for the three months ended June 30, 2013 increased $1.9 million, or 26.1%, as compared to $7.2 million for the same period in 2012.

 

   

Non-interest expense of $20.5 million for the three months ended June 30, 2013 increased $2.4 million, or 13.2%, as compared to $18.1 million for the same period in 2012.

Six Month Results

 

   

Net income for the six months ended June 30, 2013 was $11.6 million, an increase of $1.2 million as compared to net income of $10.4 million for the same period in 2012. Diluted earnings per share of $0.86 for the six months ended June 30, 2013 was a $0.07 increase from the same period in 2012.

 

   

ROE and ROA for the six months ended June 30, 2013 were 11.25% and 1.18%, as compared to ROE and ROA of 11.11% and 1.17%, respectively, for the same period in 2012.

 

   

Tax-equivalent net interest income increased $3.5 million, or 10.9%, to $35.5 million for the six months ended June 30, 2013, as compared to $32.0 million for the same period in 2012.

 

   

The Provision for the six months ended June 30, 2013 was $1.8 million, a decrease of $199 thousand from the same period in 2012.

 

   

Non-interest income of $24.7 million for the six months ended June 30, 2013 increased $3.8 million, or 18.0%, as compared to $21.0 million for the same period in 2012.

 

   

Included in non-interest income, fees for Wealth Management services of $17.4 million for the six months ended June 30, 2013 increased $4.0 million, or 29.8%, as compared to $13.4 million for the same period in 2012.

 

   

Non-interest expense of $40.8 million for the six months ended June 30, 2013 increased $5.8 million, or 16.7%, as compared to $34.9 million for the same period in 2012.

 

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Changes in Financial Condition

 

   

Total assets of $2.01 billion as of June 30, 2013 decreased $26.4 million from $2.04 billion as of December 31, 2012.

 

   

Shareholders’ equity of $212.5 million as of June 30, 2013 increased $8.9 million from $203.6 million as of December 31, 2012.

 

   

Total portfolio loans and leases as of June 30, 2013 were $1.43 billion, an increase of $32.5 million from the December 31, 2012 balance.

 

   

Total non-performing loans and leases of $10.5 million represented 0.73% of portfolio loans and leases as of June 30, 2013 as compared to $14.8 million, or 1.06% of portfolio loans and leases as of December 31, 2012.

 

   

The $14.4 million Allowance, as of June 30, 2013, represented 1.01% of portfolio loans and leases, as compared to $14.4 million, or 1.03% of portfolio loans as of December 31, 2012.

 

   

Total deposits of $1.55 billion as of June 30, 2013 decreased $85.0 million, or 5.2%, from $1.63 billion as of December 31, 2012.

 

   

Wealth Management assets under management, administration, supervision and brokerage as of June 30, 2013 were $6.85 billion, an increase of $191.6 million from December 31, 2012.

Key Performance Indicators

Key financial performance indicators for the three and six months ended June 30, 2013 and 2012 are shown in the table below:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Annualized return on average equity

     11.90     11.24     11.25     11.11

Annualized return on average assets

     1.28     1.18     1.18     1.17

Efficiency ratio*

     66.49     66.44     67.86     66.07

Efficiency ratio*, excluding due diligence and merger-related expenses

     64.26     63.09     65.52     63.95

Tax-equivalent net interest margin

     3.98     3.84     3.91     3.88

Diluted earnings per share

   $ 0.46      $ 0.40      $ 0.86      $ 0.79   

Dividend per share

   $ 0.17      $ 0.16      $ 0.34      $ 0.32   

 

* The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

The following table presents certain key period-end balances and ratios as of June 30, 2013 and December 31, 2012:

 

(dollars in millions, except per share amounts)    June 30,
2013
    December 31,
2012
 

Book value per share

   $ 15.71      $ 15.17   

Tangible book value per share

   $ 11.75      $ 11.08   

Allowance as a percentage of loans and leases

     1.01     1.03

Tier I capital to risk weighted assets

     11.47     11.02

Tangible common equity ratio

     8.21     7.60

Loan to deposit ratio

     92.5     85.8

Wealth assets under management, administration, supervision and brokerage

   $ 6,854.8      $ 6,663.2   

Portfolio loans and leases

   $ 1,430.9      $ 1,398.5   

Total assets

   $ 2,009.5      $ 2,035.9   

Shareholders’ equity

   $ 212.5      $ 203.6   

The following sections discuss, in detail, the Corporation’s results of operations for the three months ended June 30, 2013, as compared to the same period in 2012, and the changes in its financial condition as of June 30, 2013 as compared to December 31, 2012.

Components of Net Income

Net income is comprised of five major elements:

 

   

Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;

 

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Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;

 

   

Non-Interest Income which is made up primarily of Wealth Management revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;

 

   

Non-Interest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees and other operating expenses; and

 

   

Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Tax-Equivalent Net Interest Income

Net interest income is the primary source of the Corporation’s revenue. The below tables present a summary, for the three and six month periods ended June 30, 2013 and 2012, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the tax-equivalent rate paid on its interest-bearing liabilities. The tax-equivalent net interest margin is the tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread is the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of noninterest-bearing liabilities represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

Tax-equivalent net interest income of $18.0 million for the three months ended June 30, 2013 increased $2.0 million, as compared to the same period in 2012. The increase in net interest income between the periods was related to an 10.5% increase in average loans and leases. This increase was primarily related to the acquisition of loans from FBD, which totaled $76.6 million at the time of the transaction. In addition, the Corporation’s strategic decisions to prepay $22.5 million of subordinated debt during the third and fourth quarters of 2012 and $20.0 million of Federal Home Loan Bank (“FHLB”) borrowings in January 2013, along with the 16 basis point decline in rate paid on deposits, contributed significantly to the $941 thousand decrease in interest expense for the three months ended June 30, 2013, as compared to the same period in 2012.

 

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Analyses of Interest Rates and Interest Differential

The table below presents the major asset and liability categories on an average daily balance basis for the periods indicated, along with interest income, interest expense and key rates and yields.

 

     For the Three Months Ended June 30,  
     2013     2012  
(dollars in thousands)    Average
Balance
    Interest
Income/
Expense
     Average
Rates
Earned/

Paid
    Average
Balance
    Interest
Income/
Expense
     Average
Rates
Earned/

Paid
 

Assets:

              

Interest-bearing deposits with banks

   $ 59,981      $ 41         0.27   $ 57,734      $ 30         0.21

Investment securities - available for sale:

              

Taxable

     287,287        846         1.18     307,371        1,067         1.40

Non-taxable(3)

     38,442        146         1.52     14,049        66         1.89
  

 

 

   

 

 

      

 

 

   

 

 

    

Total investment securities - available for sale

     325,729        922         1.22     321,420        1,133         1.42

Investment securities - trading

     2,168        13         2.41     1,546        12         3.12

Loans and leases(1)(2)(3)

     1,428,069        18,277         5.13     1,294,019        17,094         5.31
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     1,815,947        19,323         4.27     1,674,719        18,269         4.39

Cash and due from banks

     12,876             12,259        

Allowance for loan and lease losses

     (14,625          (13,383     

Other assets

     151,933             142,946        
  

 

 

        

 

 

      

Total assets

   $ 1,966,131           $ 1,816,541        
  

 

 

        

 

 

      

Liabilities:

              

Savings, NOW, and market rate accounts

   $ 969,654        445         0.18   $ 805,953        586         0.29

Wholesale non-maturity deposits

     31,124        25         0.32     47,463        43         0.36

Wholesale time deposits

     11,610        19         0.66     22,280        24         0.43

Time deposits

     164,247        205         0.50     203,344        412         0.81
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     1,176,635        694         0.24     1,079,040        1,065         0.40

Subordinated debentures

     —          —           —       22,500        291         5.20

Short-term borrowings

     13,358        4         0.12     13,149        5         0.15

Long-term FHLB advances and other borrowings

     150,468        596         1.59     163,908        924         2.27
  

 

 

   

 

 

      

 

 

   

 

 

    

Total borrowings

     163,826        600         1.47     199,557        1,220         2.46
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     1,340,461        1,294         0.39     1,278,597        2,285         0.72

Non-interest-bearing deposits

     391,387             323,539        

Other liabilities

     23,617             23,158        
  

 

 

        

 

 

      

Total non-interest-bearing liabilities

     415,004             346,697        
  

 

 

        

 

 

      

Total liabilities

     1,755,465             1,625,294        

Shareholders’ equity

     210,666             191,247        
  

 

 

        

 

 

      

Total liabilities and shareholders’ equity

   $ 1,966,131           $ 1,816,541        
  

 

 

        

 

 

      

Net interest spread

          3.88          3.67

Effect of non-interest-bearing liabilities

          0.10          0.17
    

 

 

    

 

 

     

 

 

    

 

 

 

Tax equivalent net interest income and margin on earning assets(3)

     $ 18,029         3.98     $ 15,984         3.84
    

 

 

    

 

 

     

 

 

    

 

 

 

Tax-equivalent adjustment(3)

     $ 106         0.02     $ 81         0.02
    

 

 

    

 

 

     

 

 

    

 

 

 

 

(1) 

Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.

(2) 

Loans include portfolio loans and leases and loans held for sale.

(3) 

Tax rate used for tax-equivalent calculations is 35%.

 

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Table of Contents
     For the Six Months Ended June 30,  
     2013     2012  
(dollars in thousands)    Average
Balance
    Interest
Income/
Expense
     Average
Rates
Earned/

Paid
    Average
Balance
    Interest
Income/
Expense
     Average
Rates
Earned/

Paid
 

Assets:

              

Interest-bearing deposits with banks

   $ 88,518      $ 110         0.25   $ 48,144      $ 52         0.22

Investment securities - available for sale:

              

Taxable

     288,187        1,735         1.21     300,982        2,207         1.47

Non-taxable(3)

     36,308        269         1.49     11,835        116         1.97
  

 

 

   

 

 

      

 

 

   

 

 

    

Total investment securities - available for sale

     324,495        2,004         1.24     312,817        2,323         1.49

Investment securities - trading

     1,933        15         1.56     1,492        16         2.16

Loans and leases(1)(2)(3)

     1,415,944        36,147         5.15     1,296,786        34,330         5.32
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     1,830,890        38,276         4.22     1,659,239        36,721         4.45

Cash and due from banks

     13,080             11,899        

Allowance for loan and lease losses

     (14,659          (13,236     

Other assets

     150,953             142,193        
  

 

 

        

 

 

      

Total assets

   $ 1,980,264           $ 1,800,095        
  

 

 

        

 

 

      

Liabilities:

              

Savings, NOW, and market rate accounts

   $ 972,544        924         0.19   $ 786,597        1,145         0.29

Wholesale non-maturity deposits

     34,882        60         0.35     56,290        96         0.34

Wholesale time deposits

     11,553        38         0.66     22,317        48         0.43

Time deposits

     177,518        447         0.51     207,158        901         0.87
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     1,196,497        1,469         0.25     1,072,362        2,190         0.41

Subordinated debentures

     —          —           —       22,500        582         5.20

Short-term borrowings

     12,672        8         0.13     13,229        10         0.15

Long-term FHLB advances and other borrowings

     149,573        1,263         1.70     164,943        1,890         2.30
  

 

 

   

 

 

      

 

 

   

 

 

    

Total borrowings

     162,245        1,271         1.58     200,672        2,482         2.49
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     1,358,742        2,740         0.41     1,273,034        4,672         0.74

Non-interest-bearing deposits

     389,146             314,504        

Other liabilities

     24,878             24,208        
  

 

 

        

 

 

      

Total non-interest-bearing liabilities

     414,024             338,712        
  

 

 

        

 

 

      

Total liabilities

     1,772,766             1,611,746        

Shareholders’ equity

     207,498             188,349        
  

 

 

        

 

 

      

Total liabilities and shareholders’ equity

   $ 1,980,264           $ 1,800,095        
  

 

 

        

 

 

      

Net interest spread

          3.81          3.71

Effect of non-interest-bearing liabilities

          0.10          0.17
    

 

 

    

 

 

     

 

 

    

 

 

 

Tax equivalent net interest income and margin on earning assets(3)

     $ 35,536         3.91     $ 32,049         3.88
    

 

 

    

 

 

     

 

 

    

 

 

 

Tax-equivalent adjustment(3)

     $ 204         0.02     $ 161         0.02
    

 

 

    

 

 

     

 

 

    

 

 

 

 

(1) 

Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.

(2) 

Loans include portfolio loans and leases and loans held for sale.

(3) 

Tax rate used for tax-equivalent calculations is 35%.

Rate/Volume Analysis (tax equivalent basis*)

The rate/volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the six months ended June 30, 2013 as compared to the same period in 2012, allocated by rate and volume. The change in interest income and/or expense due to both volume and rate has been allocated to changes in volume.

 

     2013 Compared to 2012  
     Three Months Ended June 30,     Six Months Ended June 30,  
     Volume     Rate     Total     Volume     Rate     Total  

Interest income

            

Interest-bearing deposits with other banks

   $ 1      $ 10      $ 11      $ 44      $ 14      $ 58   

Investment securities

     52        (192     (140     84        (404     (320

Loans and leases

     1,801        (618     1,183        2,177        (360     1,817   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

   $ 1,854      $ (800   $ 1,054      $ 2,305      $ (750   $ 1,555   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

            

Savings, NOW and market rate accounts

   $ 119      $ (260   $ (141   $ 92      $ (313   $ (221

Wholesale non-maturity deposits

     (15     (3     (18     (36     —          (36

Time deposits

     (79     (128     (207     (131     (323     (454

Wholesale time deposits

     (12     7        (5     (15     5        (10

Borrowed funds**

     (234     (386     (620     (500     (711     (1,211
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     (221     (770     (991     (590     (1,342     (1,932
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest differential

   $ 2,075      $ (30   $ 2,045      $ 2,895      $ 592      $ 3,487   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* The tax rate used in the calculation of the tax equivalent income is 35%.
** Borrowed funds include subordinated debentures, short-term borrowings, long-term FHLB advances and other borrowings.

Tax-Equivalent Net Interest Margin

The Corporation’s tax-equivalent net interest margin increased 14 basis points to 3.98% for the three months ended June 30, 2013, from 3.84% for the same period in 2012. Average interest-earning assets increased $141.2 million, while average interest-bearing liabilities increased by $61.9 million. Largely accounting for the increase in average interest-earning assets was a $134.1 million increase in average loans and leases, approximately half of which was loans acquired from FBD in November 2012.

The increase in average interest-bearing liabilities between the periods was partially the result of a $97.6 million increase in interest-bearing deposits whose average rate of interest fell from 40 basis points for the three months ended June 30, 2012 to 24 basis points for the same period in 2013. This decline in rate paid was the result of the Corporation’s continuing strategy of allowing higher-rate certificates of deposit to run off and be replaced with lower-costing market-rate, NOW and savings accounts.

 

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The increase in interest-bearing deposits was partially offset by decreases of $22.5 million and $13.4 million in average balances of subordinated debt and long-term FHLB advances, respectively. During the last six months of 2012, the Corporation elected to prepay $22.5 million of subordinated debt in addition to prepaying $20.0 million of long-term FHLB advances during the first quarter of 2013. The premiums and costs related to the prepayments totaled $873 thousand, which was reflected in the corresponding periods.

For the six months ended June 30, 2013, the Corporation’s tax-equivalent net interest margin increased 3 basis points to 3.91% from 3.88% for the same period in 2012. Average interest-earning assets increased $171.7 million, while average interest-bearing liabilities increased by $85.7 million. The increase in interest-earning assets between the periods consisted primarily of a $119.2 million increase in average loans and leases and a $40.4 million increase in average interest-earning deposits with other banks. Due to the low yield earned on interest-bearing deposits with other banks and the 17 basis point decline in yield earned on the loans and leases, the tax-equivalent yield earned on interest-bearing assets declined by 23 basis points between periods.

The decline in yield earned on interest-bearing assets was substantially offset by a 33 basis point decrease in rate paid on interest-bearing liabilities. The prepayment of subordinated debt and long-term FHLB advances, as well as the 16 basis point drop in rate paid on interest-bearing deposits contributed to this overall reduction.

The tax equivalent net interest margin and related components for the past five consecutive quarters are shown in the table below:

 

Quarter

   Interest-
Earning Asset
Yield
    Interest-Bearing
Liability Cost
    Net Interest
Spread
    Effect of Non-
Interest  Bearing
Sources
    Tax-Equivalent
Net Interest
Margin
 

2nd Quarter 2013

     4.27     0.39     3.88     0.10     3.98

1st Quarter 2013

     4.16     0.43     3.73     0.12     3.85

4th Quarter 2012

     4.27     0.54     3.73     0.13     3.86

3rd Quarter 2012

     4.28     0.66     3.62     0.16     3.78

2nd Quarter 2012

     4.39     0.72     3.67     0.17     3.84

Interest Rate Sensitivity

The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to minimize exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures approved by the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities through the management of its investment portfolio, its offerings of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, Institutional Deposit Corporation (“IDC”) and Pennsylvania Local Government Investment Trust (“PLGIT”).

The Corporation uses several tools to manage its interest rate risk including interest rate sensitivity analysis, or gap analysis, market value of portfolio equity analysis, interest rate simulations under various rate scenarios and tax-equivalent net interest margin reports. The results of these reports are compared to limits established by the Corporation’s ALCO policies and appropriate adjustments are made if the results are outside the established limits.

The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or “shock”, in the yield curve and subjective adjustments in deposit pricing, might have on the Corporation’s projected net interest income over the next 12 months.

This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.

Summary of Interest Rate Simulation

 

     Change in Net Interest Income Over
Next Twelve Months as of June 30,
2013
 
(dollars in thousands)    Amount     Percentage  

Change in Interest Rates:

    

+300 basis points

   $ 5,589        7.63

+200 basis points

   $ 3,112        4.25

+100 basis points

   $ 983        1.34

-100 basis points

   $ (1,278     (1.75 )% 

 

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The interest rate simulation above suggests that the Corporation’s balance sheet is asset sensitive as of June 30, 2013, suggesting that an increase in interest rates will have a positive impact on net interest income over the next 12 months, while a decrease in interest rates will negatively impact net interest income. In this simulation, net interest income will increase if rates increase 100, 200 or 300 basis points. However, the 100-basis point-increase scenario indicates a less significant increase in net interest income over the next 12 months, than the other scenarios, as the Corporation has interest rate floors on many of its portfolio loans, and as such, those loans would not experience the full 100 basis point increase. In addition, the Corporation’s internal prime loan rate is set, as of June 30, 2013, at 3.99%, or 74 basis points above the Wall Street Journal Prime Rate of 3.25%. The 100-basis point decrease scenario shows a $1.3 million, or 1.75%, decrease in net interest income over the next twelve months as some of the Corporation’s liabilities bear rates of interest below 1.00% and therefore would not be able to absorb the entire decrease. The four scenarios above are directionally consistent with the March 31, 2013 simulations.

The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along with expectations of future behavior relative to interest rate changes. In today’s uncertain economic environment and the current extended period of very low interest rates, the reliability of the Corporation’s interest rate simulation model is more uncertain than in other periods. Actual customer behavior may be significantly different than expected behavior, which could cause an unexpected outcome and may result in lower net interest income.

Gap Analysis

The interest sensitivity, or gap analysis, shows interest rate risk by identifying repricing gaps in the Corporation’s balance sheet. All assets and liabilities are categorized in the following table according to their behavioral sensitivity, which is usually the earliest of either: repricing, maturity, contractual amortization, prepayments or likely call dates. Non-maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the expected sensitivity of these rates considering liquidity and the investment preferences of the Corporation. Non-rate-sensitive assets and liabilities are placed in a separate period. Capital is spread over time periods to reflect the Corporation’s view of the maturity of these funds.

The following table presents the Corporation’s interest rate sensitivity position or gap analysis as of June 30, 2013:

 

(dollars in millions)    0 to 90
Days
    91 to 365
Days
    1 - 5
Years
    Over
5 Years
    Non-Rate
Sensitive
    Total  

Assets:

            

Interest-bearing deposits with banks

   $ 95.5      $ —        $ —        $ —        $ —        $ 95.5   

Money market funds

     0.4        —          —          —          —          0.4   

Investment securities – available for sale

     49.3        46.1        162.8        64.7        —          322.9   

Investment securities – trading

     2.2        —          —          —          —          2.2   

Loans and leases(1)

     414.3        167.4        607.8        243.6        —          1,433.1   

Allowance for loan and lease losses

     —          —          —          —          (14.4     (14.4

Cash and due from banks

     —          —          —          —          14.2        14.2   

Other assets

     —          —          —          —          155.6        155.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 561.7      $ 213.5      $ 770.6      $ 308.3      $ 155.4      $ 2,009.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and shareholders’ equity:

            

Demand, non-interest-bearing

   $ 25.9      $ 77.7      $ 109.1      $ 183.0      $ —        $ 395.7   

Savings, NOW and market rate

     67.8        203.5        466.0        213.1        —          950.4   

Time deposits

     57.2        67.3        36.4        0.2        —          161.1   

Wholesale non-maturity deposits

     30.3        —          —          —          —          30.3   

Wholesale time deposits

     6.3        5.8        —          —          —          12.1   

Short-term borrowings

     71.8        —          —          —          —          71.8   

Long-term FHLB advances and other borrowings

     23.6        1.2        107.3        20.6        —          152.7   

Other liabilities

     —          —          —          —          22.9        22.9   

Shareholders’ equity

     7.6        22.8        121.4        60.7        —          212.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 290.5      $ 378.3      $ 840.2      $ 477.6      $ 22.9      $ 2,009.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest-earning assets

   $ 561.7      $ 213.5      $ 770.6      $ 308.3      $ —        $ 1,854.1   

Interest-bearing liabilities

     257.0        277.8        609.7        233.9        —          1,378.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Difference between interest-earning assets and interest-bearing liabilities

   $ 304.7      $ (64.3   $ 160.9      $ 74.4      $ —        $ 475.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative difference between interest earning assets and interest-bearing liabilities

   $ 304.7      $ 204.4      $ 401.3      $ 475.7      $ —        $ 475.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative earning assets as a % of cumulative interest bearing liabilities

     219     145     135     135    

 

(1) Loans include portfolio loans and leases and loans held for sale.

The table above indicates that the Corporation is asset-sensitive in the immediate to 90-day time frame and may experience an increase in net interest income during that time period if rates rise. It should be noted that the gap analysis is one tool used to measure interest rate sensitivity and must be used in conjunction with other measures such as the interest rate simulation discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the Corporation’s balance sheet. Conversely, if rates decline, net interest income may decline. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at March 31, 2012.

 

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PROVISION FOR LOAN AND LEASE LOSSES

For a general discussion of the allowance for loan and lease losses, and our policies related thereto, refer to page 39 of the Corporation’s 2012 Annual Report on Form 10-K.

Asset Quality and Analysis of Credit Risk

As of June 30, 2013, total non-performing loans and leases decreased by $4.3 million, to $10.5 million, representing 0.73% of portfolio loans and leases, as compared to $14.8 million, or 1.06% of portfolio loans and leases as of December 31, 2012. The decrease in the nonperforming loans and leases from December 31, 2012 to June 30, 2013 was primarily related to a $2.4 million decrease in nonperforming construction loans, a $1.4 million decrease in nonperforming home equity lines and loans and a $522 thousand decrease in nonperforming commercial and industrial loans. The decrease in the nonperforming construction loans was the result of $720 thousand of charge-offs and $1.3 million of payoffs. Nonperforming home equity lines and loans declined as a result of charge-offs of $352 thousand, the addition to OREO through foreclosure of two properties totaling $495 thousand. Nonperforming commercial and industrial loans were also reduced as a result of charge-offs of $718 thousand. In addition, two commercial and industrial loans, totaling $153 thousand, became nonperforming during the six months ended June 30, 2013.

The Provision for the three months ended June 30, 2013 was $1.0 million, unchanged from the level of Provision recorded for the same period in 2012. Net charge-offs for the second quarter of 2013 were $1.0 million as compared to $903 thousand for the same period in 2012. However, a significant portion of the charge-offs recorded during the second quarter of 2013 were related to loans to which the Corporation had previously allocated a specific reserve. As a result, their charge-off did not require additional provision to be recorded.

As of June 30, 2013, the Allowance of $14.4 million represented 1.01% of portfolio loans and leases, decreasing two basis points from the 1.03% of portfolio loans and leases as of December 31, 2012.

As of June 30, 2013, the Corporation had OREO valued at $1.2 million, as compared to $906 thousand as of December 31, 2012. The balance as of June 30, 2013 was comprised of two residential properties, a parcel of undeveloped land and one commercial property. All properties are recorded at the lower of cost or fair value less cost to sell. As disclosed on the Corporation’s Quarterly Report on Form 10Q for the three months ended March 31, 2013, one of the commercial properties sold during the first quarter of 2013 was determined to have possible environmental contamination. As a contingency to its sale, the Corporation has assumed responsibility for any potential remediation costs related to the property. As of June 30, 2013, the required remediation is substantially completed with a total estimated cost of $113 thousand.

As of June 30, 2013, the Corporation had $11.0 million of TDRs, of which $8.2 million were in compliance with the modified terms, and hence, excluded from non-performing loans and leases. As of December 31, 2012, the Corporation had $11.1 million of TDRs, of which $8.0 million were in compliance with the modified terms, and as such, were excluded from non-performing loans and leases.

As of June 30, 2013, the Corporation had $18.3 million of impaired loans and leases which included $11.0 million of TDRs. Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest in accordance with the original terms of the loans and leases. Impaired loans and leases as of December 31, 2012 totaled $22.0 million, which included $11.1 million of TDRs. Refer to Note 5H in the Notes to Consolidated Financial Statements for more information regarding the Corporation’s impaired loans and leases.

The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. These proactive steps include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall losses.

 

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Nonperforming Assets and Related Ratios

 

(dollars in thousands)    June 30,
2013
    December 31,
2012
 

Non-Performing Assets:

    

Non-accrual loans and leases

   $ 10,489      $ 14,040   

Loans and leases 90 days or more past due - still accruing

     —          728   
  

 

 

   

 

 

 

Total non-performing loans and leases

     10,489        14,768   

Other real estate owned

     1,205        906   
  

 

 

   

 

 

 

Total non-performing assets

   $ 11,694      $ 15,674   
  

 

 

   

 

 

 

Troubled Debt Restructures (“TDRs”):

    

TDRs included in non-performing loans

   $ 2,869      $ 3,106   

TDRs in compliance with modified terms

     8,157        8,008   
  

 

 

   

 

 

 

Total TDRs

   $ 11,026      $ 11,114   
  

 

 

   

 

 

 

Loan and Lease quality indicators:

    

Allowance for loan and lease losses to non-performing loans and leases

     137.7     97.7

Non-performing loans and leases to total portfolio loans and leases

     0.73     1.06

Allowance for loan and lease losses to total portfolio loans and leases

     1.01     1.03

Non-performing assets to total assets

     0.58     0.77

Total portfolio loans and leases

   $ 1,430,919      $ 1,295,392   

Allowance for loan and lease losses

   $ 14,444      $ 14,425   

NON-INTEREST INCOME

Three Months Ended June 30, 2013 Compared to the Same Period in 2012

Non-interest income for the three months ended June 30, 2013 was $12.9 million, an increase of $1.6 million from the same period in 2012. Revenue from wealth management services for the three months ended June 30, 2013 was $9.1 million, a $1.9 million increase, or 26.1%, from the $7.2 million generated in the same period in 2012. A significant portion of the increase resulted from the May 2012 DTC acquisition which initially added approximately $1.0 billion of assets under management, administration, supervision and brokerage, as well as organic growth related to strategic initiatives within the division, and market appreciation.

In addition to the increase in revenue for wealth management services, non-interest income was also impacted by a $369 thousand increase on the other operating income between the periods. Partially offsetting these increases was a $716 thousand decrease in gain on sale of securities available for sale. During the three months ended June 30, 2013, there were no sales of available for sale investments.

Six Months Ended June 30, 2013 Compared to the Same Period in 2012

Non-interest income for the six months ended June 30, 2013 was $24.7 million, an increase of $3.8 million from the same period in 2012. Revenue from wealth management services for the six months ended June 30, 2013 was $17.4 million, a $4.0 million increase, or 29.8%, from the $13.4 million generated in the same period in 2012. The increase primarily resulted from the May 2012 DTC acquisition which initially added approximately $1.0 billion of assets under management, administration, supervision and brokerage, as well as organic growth related to strategic initiatives within the division, and market appreciation

In addition to the increase in revenue for wealth management services, non-interest income was also impacted by a $536 thousand increase on the gain on sale of residential mortgage loans between the periods. The volume of residential mortgage loans sold for the six months ended June 30, 2013 increased $19.8 million, or 25.3%, as compared to the same period in 2012.

The following table presents supplemental information regarding mortgage loan originations and sales:

 

    

As of or for the

Three Months Ended June 30,

   

As of or for the

Six Months Ended June 30,

 
(dollars in millions)    2013     2012     2013     2012  

Residential loans held in portfolio

   $ 289.0      $ 304.2      $ 289.0      $ 304.2   

Mortgage originations

     55.1        51.4        120.2        106.8   

Mortgage loans sold:

        

Servicing retained

     46.2        42.0        97.6        74.8   

Servicing released

     0.3        2.2        0.5        3.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans sold

     46.5        44.2        98.1        78.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Percent servicing-retained

     99.3     94.9     99.5     95.5

Percent servicing-released

     0.7     5.1     0.5     4.5

Loans serviced for others

     623.5        575.5        623.5        575.5   

Mortgage servicing rights (“MSRs”)

     4.8        4.2        4.8        4.2   

Net gain on sale of loans

     1.5        1.3        3.0        2.5   

Loan servicing and other fees

     0.4        0.4        0.9        0.9   

Amortization of MSRs

     0.2        0.3        0.4        0.5   

Net (recovery) impairment of MSRs

     (0.1     0.1        0.0        0.0   

Yield on loans sold (includes MSR income)

     3.20     2.95     3.07     3.16

 

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The following table provides details of other operating income for the three and six months ended June 30, 2013 and 2012:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
(dollars in thousands)    2013      2012      2013      2012  

Merchant interchange fees

   $ 205       $ 162       $ 395       $ 316   

Commissions and fees

     165         132         203         256   

Safe deposit box rentals

     97         98         194         199   

Insurance commissions

     147         132         267         208   

Other investment income

     164         149         181         172   

Title insurance income

     44         27         194         133   

Rental income

     50         41         104         55   

Miscellaneous other income

     497         259         656         757   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other operating income

   $ 1,369       $ 1,000       $ 2,194       $ 2,096   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST EXPENSE

Three Months Ended June 30, 2013 Compared to the Same Period in 2012

Non-interest expense for the three months ended June 30, 2013 increased $2.4 million, to $20.5 million, as compared to $18.1 million for the same period in 2012. Contributing to this increase were a $1.2 million increase in salaries and benefits, a $615 thousand increase in occupancy and equipment costs, and an $889 thousand increase in other operating expenses between the periods. Salaries and benefits increased primarily as a result of the DTC acquisition and the addition of the branch and lending staff from FBD, additional staffing at the newly-opened full-service branch in Bala Cynwyd, Pennsylvania, and annual salary increases. The increased occupancy costs were related to the additions of DTC and FBD, in addition to the new Bala Cynwyd branch which opened at the end of 2012. Partially offsetting these cost increases was a net recovery related to mortgage servicing rights of $91 thousand as compared to an $87 thousand impairment recorded during the same period in 2012. In addition, due diligence and merger-related costs declined by $226 thousand between the periods.

The $889 thousand increase in other operating expenses for the three months ended June 30, 2013, as compared to the same period in 2012 included increases in outsourced services, which included internal audit and IT support, as well as increases in computer processing and telecommunications expense as detailed in the table below. The outsourced services, computer processing and telecommunications are expected to continue, as the Corporation is undertaking several technology infrastructure upgrades.

Six Months Ended June 30, 2013 Compared to the Same Period in 2012

Non-interest expense for the six months ended June 30, 2013 increased $5.8 million, to $40.8 million, as compared to $34.9 million for the same period in 2012. Contributing to this increase were increases of $2.7 million in salaries and benefits and $917 thousand in occupancy and equipment expense between the periods, largely related to our recent acquisitions and new branch location. In addition, other operating expenses increased by $1.9 million between the periods partially related to increases in outsourced services, which included internal audit and IT support, as well as increases in computer processing and telecommunications expense.

Partially offsetting these increases was $690 thousand gain recognized on the curtailment of a nonqualified defined-benefit pension plan which was curtailed, effective March 31, 2013.

The following table provides details of other operating expenses for the three and six months ended June 30, 2013 and 2012:

Components of other operating expenses:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
(dollars in thousands)    2013      2012     2013      2012  

Information technology

   $ 732       $ 466      $ 1,513       $ 903   

Loan processing

     281         480        602         742   

Other taxes

     383         318        567         641   

Temporary help and recruiting

     317         217        817         374   

Telephone and data lines

     364         160        783         315   

Travel and entertainment

     162         155        286         259   

Stationary and supplies

     119         134        271         271   

Postage

     103         108        261         213   

Director fees

     147         111        258         218   

Investment portfolio maintenance

     95         63        191         144   

Dues and subscriptions

     90         78        178         148   

Insurance

     177         65        369         142   

Deferred compensation expense

     69         (117     234         136   

Outsourced services

     102         138        213         217   

Miscellaneous other expense

     462         338        911         831   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other operating expense

   $ 3,603       $ 2,714      $ 7,454       $ 5,554   
  

 

 

    

 

 

   

 

 

    

 

 

 

INCOME TAXES

Income tax expense for the three months ended June 30, 2013 was $3.1 million as compared to $2.8 million for the same period in 2012. The effective tax rate for the three months ended June 30, 2013 was 33.1% as compared to 34.4% for the same period in 2012. Income tax expense for the six months ended June 30, 2013 was $5.9 million as compared to $5.5 million for the same period in 2012. The effective tax rate for the six months ended June 30, 2013 was 33.9%, as compared to 34.6% for the same period in 2012. The 70 basis point reduction in effective rate between the periods was the result of a $152 thousand tax credit recorded in connection with a change-in-method election related to the Corporation’s deferred compensation plans.

 

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BALANCE SHEET ANALYSIS

Total assets as of June 30, 2013 of $2.00 billion declined slightly from $2.04 billion as of December 31, 2012. Available for sale investments increased $6.3 million, or 2.0%, interest bearing deposits with banks decreased $63.6 million, or 39.9%, total deposits decreased $85.0 million, or 5.2%, short-term borrowings increased $62.4 million, or 663.3% and long-term FHLB advances and other borrowings decreased $8.7 million, or 5.4% between the two dates.

Loans and Leases

The table below compares the portfolio loans and leases outstanding at June 30, 2013 to December 31, 2012:

 

     June 30, 2013     December 31, 2012     Change  
(dollars in thousands)    Balance      Percent of
Portfolio
    Balance      Percent of
Portfolio
    Amount     Percent  

Commercial mortgage

   $ 587,261         41.0   $ 546,358         39.1   $ 40,903        7.5

Home equity lines & loans

     183,006         12.8     194,861         13.9     (11,855     (6.1 )% 

Residential mortgage

     280,687         19.6     288,212         20.6     (7,525     (2.6 )% 

Construction

     28,718         2.0     26,908         1.9     1,810        6.7

Commercial and industrial

     296,073         20.7     291,620         20.9     4,453        1.5

Consumer

     18,404         1.3     17,666         1.3     738        4.2

Leases

     36,770         2.6     32,831         2.3     3,939        12.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total portfolio loans and leases

     1,430,919         100.0     1,398,456         100.0     32,463        2.3

Loans held for sale

     2,207           3,412           (1,205     (35.3 )% 
  

 

 

      

 

 

      

 

 

   

Total loans and leases

   $ 1,433,126         $ 1,401,868         $ 31,258        2.2
  

 

 

      

 

 

      

 

 

   

Overall, loans and leases increased by $31.3 million, or 2.2%, as of June 30, 2013 as compared to December 31, 2012. As detailed in the table above, the most significant increase was seen in the commercial mortgage segment, while the home equity lines and loans and residential mortgage segments declined. The low-interest-rate environment experienced during the first two quarters of 2013 prompted many borrowers to refinance their variable-rate home equity lines in favor of fixed-rate residential products, which, in turn, were sold by the Corporation into the secondary market.

The Corporation continues to focus its business development efforts on building banking relationships with local businesses, not-for-profit companies and strong credit quality individuals. The Corporation believes there are opportunities for new business with credit-worthy borrowers who are not satisfied with their current lender in the commercial real estate market within our primary trading area.

Cash and Investment Securities

As of June 30, 2013, liquidity remained strong as the Corporation had $87.0 million of cash balances at the Federal Reserve and $8.9 million in other interest-bearing accounts, along with significant borrowing capacity as discussed in the “Liquidity” section below.

Investment securities available for sale as of June 30, 2013 totaled $323.0 million, as compared to $316.6 million as of December 31, 2012, as reductions in interest-earning deposits with other banks were utilized to fund higher-yielding investment purchases. The $6.3 million increase in investment securities available for sale during the six months ended June 30, 2013 was concentrated in the U.S. governmental agency and municipal segments of the portfolio. These increases were partially offset by a reduction in the mortgage-related securities segment of the portfolio, which declined by $9.9 million between December 31, 2012 and June 30, 2013. In addition to the portfolio changes related to purchases and pay downs, the recent increase in market rates has eliminated substantially all of the $4.9 million in unrealized gains that were present as of December 31, 2012. The Corporation remains focused on investments that provide an attractive yield, have strong credit quality and limited extension risk. With the recent uptick in market interest rates, the Corporation’s strategy of keeping the average life of the investment portfolio relatively short has shielded the portfolio from the large unrealized losses that a longer portfolio would have experienced.

Deposits and Borrowings

Deposits and borrowings as of June 30, 2013 and December 31, 2012 were as follows:

 

     June 30, 2013     December 31, 2012     Change  
(dollars in thousands)    Balance      Percent of
Deposits
    Balance      Percent of
Deposits
    Amount     Percent  

Interest bearing checking

   $ 262,316         16.9   $ 270,279         16.5   $ (7,963     (2.9 )% 

Money market

     551,750         35.6     559,470         34.2     (7,720     (1.4 )% 

Savings

     136,307         8.8     129,091         7.9     7,216        5.6

Wholesale non-maturity deposits

     30,315         2.0     45,162         2.8     (14,847     (32.9 )% 

Wholesale time deposits

     12,139         0.8     12,421         0.8     (282     (2.3 )% 

Time deposits

     161,146         10.4     218,586         13.4     (57,440     (26.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Interest-bearing deposits

     1,153,973         74.5     1,235,009         75.6     (81,036     (6.6 )% 

Non-interest-bearing deposits

     395,742         25.5     399,673         24.4     (3,931     (1.0 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total deposits

   $ 1,549,715         100.0   $ 1,634,682         100.0   $ (84,967     (5.2 )% 
  

 

 

      

 

 

      

 

 

   

 

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     June 30, 2013     December 31, 2012     Change  
(dollars in thousands)    Balance      Percent of
Borrowings
    Balance      Percent of
Borrowings
    Amount     Percent  

Short-term borrowings

   $ 71,768         32.0   $ 9,403         5.5   $ 62,365        663.3

Long-term FHLB advances and other borrowings

     152,642         68.0     161,315         94.5     (8,673     (5.4 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Borrowed funds

   $ 224,410         100.0   $ 170,718         100.0   $ 53,692        31.5
  

 

 

      

 

 

      

 

 

   

Total deposits as of June 30, 2013 decreased $85.0 million from the levels present as of December 31, 2012. As detailed in the table above, wholesale non-maturity deposits declined during the quarter, as well as higher-costing time deposits, which were allowed to run off. Non-interest-bearing deposits, as a percentage of total deposits, remained strong at 25.5% of total deposits as of June 30, 2013.

In an effort to lock in longer-term, lower-rate FHLB advances, the Corporation prepaid, during the first quarter of 2013, $20.0 million of long-term FHLB advances with a weighted average rate and maturity of 2.85% and 8.5 months, respectively, incurring a prepayment penalty of $347 thousand. The $20.0 million of prepaid borrowings were replaced with $20.0 million of borrowings with a weighted average rate and maturity of 1.14% and 59.3 months, respectively. Short-term borrowings increased as the Corporation borrowed $60 million in short-term FHLB advances at the end of the second quarter of 2013.

Capital

Consolidated shareholder’s equity of the Corporation was $212.5 million, or 10.6% of total assets as of June 30, 2013, as compared to $203.6 million, or 10.0% of total assets as of December 31, 2012. The following table presents the Corporation’s and Bank’s capital ratios and the minimum capital requirements to be considered “Well Capitalized” by regulators as of June 30, 2013 and December 31, 2012:

 

     Actual     Minimum to be Well Capitalized  
(dollars in thousands)    Amount      Ratio     Amount      Ratio  

June 30, 2013:

          

Total (Tier II) capital to risk weighted assets

          

Corporation

   $     186,448         12.44   $ 149,852         10.00

Bank

     187,535         12.55     149,424         10.00

Tier I capital to risk weighted assets

          

Corporation

     171,933         11.47     89,911         6.00

Bank

     173,020         11.58     89,654         6.00

Tier I Leverage ratio (Tier I capital to total quarterly average assets)

          

Corporation

     171,933         9.00     95,515         5.00

Bank

     173,020         9.07     95,409         5.00

Tangible common equity to tangible assets

          

Corporation

     160,828         8.21     

Bank

     161,915         8.29     

December 31, 2012:

          

Total (Tier II) capital to risk weighted assets

          

Corporation

   $ 174,885         12.02   $ 145,528         10.00

Bank

     176,985         12.20     145,124         10.00

Tier I capital to risk weighted assets

          

Corporation

     160,425         11.02     87,317         6.00

Bank

     162,525         11.20     87,074         6.00

Tier I leverage ratio (Tier I capital to total quarterly average assets)

          

Corporation

     160,425         8.72     91,989         5.00

Bank

     162,525         8.84     91,940         5.00

Tangible common equity to tangible assets

          

Corporation

     150,663         7.60     

Bank

     152,763         7.72     

 

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Both the Corporation and the Bank exceed the capital levels to be considered “well capitalized” that are required by their respective regulators at the end of each period presented. In particular, the tangible common equity ratios for both the Bank and the Corporation have improved from their December 31, 2012 levels. These increases were the result of increases in retained earnings and issuance of shares (primarily through the exercise of stock options). Neither the Corporation nor the Bank is under any agreement with regulatory authorities which would have a material effect on liquidity, capital resources or operations of the Corporation or the Bank. However, the final rules approved by the Federal Reserve on July 2, 2013, related to the Basel III regulatory capital reforms, which are discussed below under the heading, “Regulatory Measures and Pending Legislation,” may have a material effect on liquidity, capital resources or operations of the Corporation.

There is no official regulatory guideline for the tangible common equity to tangible asset ratio.

Shelf Registration Statement

In April 2012, the Corporation filed a shelf registration statement (the “Shelf Registration Statement”) to replace its 2009 Shelf Registration Statement, which was set to expire in June 2012. This new Shelf Registration Statement allows the Corporation to raise additional capital through offers and sales of registered securities consisting of common stock, debt securities, warrants to purchase common stock, stock purchase contracts and units or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar amount up to $150,000,000, in the aggregate.

Dividend Reinvestment and Stock Purchase Plan

The Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which was amended and restated on April 27, 2012 primarily to increase the number of shares which can be issued by the Corporation from 850,000 to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’s common stock and general economic and market conditions.

The Plan is intended to allow both existing shareholders and new investors to easily and conveniently increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions. For the six months ended June 30, 2013, the Corporation issued 4,765 shares and raised $107 thousand through the Plan.

Liquidity

The Corporation’s liquidity position is managed on a daily basis as part of the daily settlement function and continuously as part of the formal asset liability management process. The Bank’s liquidity is maintained by managing its core deposits as the primary source, purchasing federal funds, selling loans in the secondary market, borrowing from the FHLB and the Federal Reserve Bank, and purchasing and issuing wholesale certificates of deposit as its secondary sources.

Unused availability is detailed on the following table:

 

(dollars in millions)    Available Funds
as of June 30,

2013
     Percent of Total
Borrowing
Capacity
    Available Funds as
of December 31,
2012
     Percent of Total
Borrowing
Capacity
    Dollar Change     Percent Change  

Federal Home Loan Bank of Pittsburgh

   $ 535.7         71.5   $ 560.7         77.1   $ (25.0     4.5

Federal Reserve Bank of Philadelphia

     75.2         100.0     65.2         100.0     10.0        15.3

Fed Funds Lines (six banks)

     64.0         100.0     64.0         100.0     —          —  

Revolving line of credit with correspondent bank

     3.0         100.0     3.0         100.0     —          —  
  

 

 

      

 

 

      

 

 

   
   $ 677.9         76.0   $ 692.9         80.7   $ (15.0     (2.2 )% 
  

 

 

      

 

 

      

 

 

   

Quarterly, the ALCO reviews the Corporation’s liquidity needs and reports its findings to the Risk Management Committee of the Corporation’s Board of Directors.

The Corporation has an agreement with Promontory Interfinancial Network LLC to provide up to $40 million (plus accrued interest) of Insured Network Deposits from broker dealers priced at the effective Federal Funds rate plus 20 basis points. As of June 30, 2013 and December 31, 2012, the Corporation had deposit balances of $23.9 million and $40.0 million, respectively, from this source which are reported on the balance sheet as wholesale non-maturity deposits.

The Corporation has an agreement with IDC to provide up to $5 million (plus accrued interest) of money market deposits at an agreed upon rate currently 0.45%. The Corporation had balances of $5.2 million as of both June 30, 2013 and December 31, 2012 under this program which are reported on the balance sheet as wholesale non-maturity deposits.

 

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The Corporation continually evaluates the cost and mix of its retail and wholesale funding sources relative to earning assets and expected future earning-asset growth. The Corporation believes that with its current branch network, along with the available borrowing capacity at FHLB and other sources, it has sufficient capacity available to fund expected earning-asset growth.

Discussion of Segments

The Corporation has two principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking and Wealth Management (see Note 11 in the Notes to Consolidated Financial Statements).

The Wealth Management segment, as discussed in the Non-Interest Income section of this item, above, recorded pre-tax segment profit (“PTSP”) of $3.5 million and $6.3 million for the three and six months ended June 30, 2013, respectively, as compared to PTSP of $2.5 million and $4.4 million for the same respective periods in 2012. The Wealth Management segment provided 36.9% and 36.0% of the Corporation’s pre-tax profit for the three and six months ended June 30, 2013, respectively, as compared to 30.1% and 27.9% for the same respective periods in 2012. The increase in PTSP for the Wealth Management segment for the both the three month and six month periods ended June 30, 2013, as compared to the same periods in 2012, is partially the result of the acquisition of DTC in addition to organic growth within the division, and market appreciation.

The Banking Segment recorded a PTSP of $5.8 million and $11.2 million for the three and six months ended June 30, 2013, as compared to PTSP of $5.7 million and $11.5 million for the same respective periods in 2012. The Banking segment provided 63.1% and 64.0% of the Corporation’s pre-tax profit for the three and six months ended June 30, 2013, respectively, as compared to 69.9% and 72.1% for the same respective periods in 2012.

Off Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at June 30, 2013 were $392.4 million, as compared to $366.6 million at December 31, 2012.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at June 30, 2013 amounted to $23.8 million, as compared to $22.2 million at December 31, 2012.

Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.

Contractual Cash Obligations of the Corporation as of June 30, 2013:

 

(dollars in millions)    Total      Within 1 Year      2 – 3 Years      4 – 5 Years      After 5 Years  

Deposits without a stated maturity

   $ 1,376.4       $ 1,376.4       $ —         $ —         $ —     

Wholesale and time deposits

     173.3         135.2         26.9         11.2         —     

Short-term borrowings

     71.8         71.8         —           —           —     

Long-term FHLB advances and other borrowings

     152.6         3.9         41.0         87.7         20.0   

Operating leases

     53.3         3.1         6.2         6.0         38.0   

Purchase obligations

     11.3         3.7         5.4         1.9         0.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,838.7       $ 1,594.1       $ 79.5       $ 106.8       $ 58.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Information

Regulatory Matters and Pending Legislation

On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Corporation and the Bank. The FDIC and the OCC have subsequently approved these rules. The final rules were adopted following the issuance of proposed rules by the Federal Reserve in June 2012 and implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Corporation and the Bank under the final rules would be:

 

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  (i) a new common equity Tier 1 capital ratio of 4.5%;

 

  (ii) a Tier 1 capital ratio of 6% (increased from 4%);

 

  (iii) a total capital ratio of 8% (unchanged from current rules); and

 

  (iv) a Tier 1 leverage ratio of 4% for all institutions.

The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.

The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019:

 

  (i) a common equity Tier 1 capital ratio of 7.0%;

 

  (ii) a Tier 1 capital ratio of 8.5%; and

 

  (iii) a total capital ratio of 10.5%.

Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. , banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Corporation and the Bank. The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

In addition, the final rules provide for smaller banking institutions (less than $250 billion in consolidated assets) an opportunity to make a one-time election to opt out of including most elements of accumulated other comprehensive income in regulatory capital. Importantly, the opt-out excludes from regulatory capital not only unrealized gains and losses on available-for-sale debt securities, but also accumulated net gains and losses on cash-flow hedges and amounts attributable to defined benefit postretirement plans. The opt-out election must be elected on the first Call Report filed after January 1, 2015.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:”

 

  (i) a new common equity Tier 1 capital ratio of 6.5%;

 

  (ii) a Tier 1 capital ratio of 8% (increased from 6%);

 

  (iii) a total capital ratio of 10% (unchanged from current rules); and

 

  (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses:

 

  (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act;

 

  (ii) revisions to recognition of credit risk mitigation;

 

  (iii) rules for risk weighting of equity exposures and past due loans;

 

  (iv) revised capital treatment for derivatives and repo-style transactions; and

 

  (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.

The Dodd-Frank Act expanded the base for FDIC insurance assessments, requiring that assessments be based on the average consolidated total assets less tangible equity capital of a financial institution. On February 7, 2011, the FDIC approved a final rule to implement the foregoing provision of the Dodd-Frank Act and to make other changes to the deposit insurance assessment system

 

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applicable to insured depository institutions with over $10 billion in assets. Among other things, the final rule eliminated risk categories and the use of long-term debt issuer ratings in calculating risk-based assessments, and instead implemented a scorecard method, combining CAMELS ratings and certain forward-looking financial measures to assess the risk an institution poses to the Deposit Insurance Fund. The final rule also revised the assessment rate schedule for large institutions and highly complex institutions to provide assessments ranging from 2.5 to 45 basis points. Except as specifically provided, the final rule took effect for the quarter beginning April 1, 2011.

Effects of Inflation

Inflation has some impact on the Corporation’s operating costs. Unlike many industrial companies, however, substantially all of the Corporation’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.

Effects of Government Monetary Policies

The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.

The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Corporation’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.

Special Cautionary Notice Regarding Forward Looking Statements

Certain of the statements contained in this Quarterly Report on Form 10-Q, including, without limitation, this Item 2 of Part I. may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (the “Corporation”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to the Corporation’s financial goals, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words “may”, “would”, “could”, “will”, “likely”, “expect,” “anticipate,” “intend”, “estimate”, “plan”, “forecast”, “project” and “believe” and similar expressions are intended to identify such forward-looking statements. The Corporation’s actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:

 

   

the effect of future economic conditions on the Corporation and its customers, including economic factors which affect consumer confidence in the securities markets, wealth creation, investment and savings patterns, the real estate market, and the Corporation’s interest rate risk exposure and credit risk;

 

   

changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets;

 

   

any future downgrades in the credit rating of the U.S. Government and federal agencies;

 

   

governmental monetary and fiscal policies, as well as legislation and regulatory changes;

 

   

results of examinations by the Federal Reserve Board, including the possibility that the Federal Reserve Board may, among other things, require us to increase our allowance for loan losses or to write down assets;

 

   

changes in accounting requirements or interpretations;

 

   

changes in existing statutes, regulatory guidance, legislation or judicial decisions that adversely affect our business, including changes in federal income tax or other tax regulations;

 

   

the risks of changes in interest rates on the level and composition of deposits, loan demand, and the value of loan collateral and securities, as well as interest rate risk;

 

   

the effects of competition from other commercial banks, thrifts, mortgage companies, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in the Corporation’s trade market area and elsewhere including institutions operating locally, regionally, nationally and internationally and such competitors offering banking products and services by mail, telephone, computer and the Internet;

 

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any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);

 

   

the Corporation’s need for capital;

 

   

the Corporation’s success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;

 

   

the Corporation’s ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that meets customers needs;

 

   

differences in the actual financial results, cost savings, and revenue enhancements associated with our acquisitions;

 

   

changes in consumer and business spending, borrowing and savings habits and demand for financial services in our investment products in a manner that meets customers’ needs;

 

   

the Corporation’s timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers;

 

   

the Corporation’s ability to originate, sell and service residential mortgage loans;

 

   

the accuracy of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, the market value of mortgage servicing rights and various financial assets and liabilities;

 

   

the Corporation’s ability to retain key members of the senior management team;

 

   

the ability of key third-party providers to perform their obligations to the Corporation and the Bank;

 

   

technological changes being more difficult or expensive than anticipated; and

 

   

the Corporation’s success in managing the risks involved in the foregoing.

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Quarterly Report and incorporated documents are based upon the Corporation’s beliefs and assumptions as of the date of this Quarterly Report. The Corporation assumes no obligation to update any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this Quarterly Report or incorporated documents might not occur and you should not put undue reliance on any forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

See Item 2 – “Management’s Discussion and Analysis of Results of Operations – Interest Rate Summary,” “Summary of Interest Rate Simulation,” and “Gap Analysis” for a discussion of the Corporation’s and Bank’s exposure to market risk since December 31, 2012. For further discussion of quantitative and qualitative disclosures about market risks, please also refer to the Corporation’s 2012 Annual Report on Form 10-K.

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer, Frederick C. Peters II, and Chief Financial Officer, J. Duncan Smith, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective.

There have not been any changes in the Corporation’s internal controls over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II OTHER INFORMATION.

ITEM 1. Legal Proceedings.

In the ordinary course of business, the Corporation is subject to litigation, claims, and assessments that involve claims for monetary relief. Some of these are covered by insurance. Based upon information presently available to the Corporation and its counsel, it is the Corporation’s opinion that any legal and financial responsibility arising from such claims will not have a material, adverse effect on its results of operations, financial condition or capital.

 

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ITEM 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Risk Factors” included within the Corporation’s 2012 Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. The risks described in the 2012 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Special Cautionary Notice Regarding Forward Looking Statements.”

The short-term and long-term impact of the new regulatory capital standards and the forthcoming new capital rules on U.S. banks is uncertain.

On September 12, 2010, the Basel Committee on Banking Supervision, announced an agreement to a strengthened set of capital requirements for internationally active banking organizations in the United States and around the world, known as Basel III. Basel III narrows the definition of capital, introduces requirements for minimum Tier 1 common capital, increases requirements for minimum Tier 1 capital and total risk-based capital, and changes risk-weighting methodologies. Basel III is scheduled to be phased in over time until fully phased in by January 1, 2019.

On July 2, 2013, the Federal Reserve adopted a final rule regarding new capital requirements pursuant to Basel III. These rules, which are currently scheduled to become effective on January 1, 2015 for community banks, could increase the required amount of regulatory capital that we must hold and lead to limitations on the dividend payments to us by the Bank.

Various provisions of the Dodd-Frank Act increase the capital requirements of bank holding companies, such as the Corporation, and non-bank financial companies that are supervised by the Federal Reserve. The leverage and risk-based capital ratios of these entities may not be lower than the leverage and risk-based capital ratios for insured depository institutions. While the Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, we are evaluating the new rules and their effect on us and our bank subsidiaries.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase

The following tables present the shares repurchased by the Corporation during the second quarter of 2013 (1) :

 

Period

   Total Number of
Shares Purchased(2)
     Average Price Paid
Per Share
     Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
     Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
 

April 1, 2013 – April 30, 2013

     562      $ 23.24        0        195,705   

May 1, 2013 – May 31, 2013

     0      $ 0        0        195,705   

June 1, 2013 – June 30, 2013

     0      $ 0        0        195,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     562      $ 23.24        0        195,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

On February 24, 2006, the Board of Directors of the Corporation adopted a stock repurchase program (the “2006 Program”) under which the Corporation may repurchase up to 450,000 shares of the Corporation’s common stock, not to exceed $10 million. The 2006 Program was publicly announced in a Press Release dated February 24, 2006. There is no expiration date on the 2006 Program and the Corporation has no plans for an early termination of the 2006 Program. All shares purchased through the 2006 Program were accomplished in open market transactions.

(2) 

On April 2, 2013, 562 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.

As of June 30, 2013, the maximum number of shares that may yet be purchased under the 2006 Program was 195,705.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information

None.

 

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ITEM 6. Exhibits

 

Exhibit No.

  

Description and References

    3.1    Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
    3.2    Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
  10.1*    Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “Plan”), effective January 1, 2013, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on July 3, 2013
  10.2*    Retention Bonus Agreement, dated as of June 10, 2013, by and between The Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on June 14, 2013
  10.3    Mutual Termination Agreement, dated as of August 8, 2013, by and between Bryn Mawr Bank Corporation and Mid Coast Community Bancorp, Inc., incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on August 9, 2013
  31.1    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
  31.2    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
  32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
  32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
101.INS XBRL    Instance Document, furnished herewith
101.SCH XBRL    Taxonomy Extension Schema Document, furnished herewith
101.CAL XBRL    Taxonomy Extension Calculation Linkbase Document, furnished herewith
101.DEF XBRL    Taxonomy Extension Definition Linkbase Document, furnished herewith
101.LAB XBRL    Taxonomy Extension Label Linkbase Document, furnished herewith
101.PRE XBRL    Taxonomy Extension Presentation Linkbase Document, furnished herewith

(These interactive data files shall not be deemed filed for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities under these Sections.)

 

* Management contract or compensatory plan arrangement.
** Shareholder approved compensatory plan pursuant to which the Registrant’s Common Stock may be issued to employees of the Corporation.

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Bryn Mawr Bank Corporation
Date: August 9, 2013     By:   /S/ FREDERICK C. PETERS II
      Frederick C. Peters II
      President & Chief Executive Officer
Date: August 9, 2013     By:   /S/ J. DUNCAN SMITH
      J. Duncan Smith
      Treasurer & Chief Financial Officer

 

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Form 10-Q

Index to Exhibits Furnished Herewith

 

Exhibit No.

  

Description and References

    3.1    Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
    3.2    Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
  10.1*    Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “Plan”), effective January 1, 2013, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on July 3, 2013
  10.2*    Retention Bonus Agreement, dated as of June 10, 2013, by and between The Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on June 14, 2013
  10.3    Mutual Termination Agreement, dated as of August 8, 2013, by and between Bryn Mawr Bank Corporation and Mid Coast Community Bancorp, Inc., incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on August 9, 2013
  31.1    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
  31.2    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
  32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
  32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
101.INS XBRL    Instance Document, furnished herewith
101.SCH XBRL    Taxonomy Extension Schema Document, furnished herewith
101.CAL XBRL    Taxonomy Extension Calculation Linkbase Document, furnished herewith
101.DEF XBRL    Taxonomy Extension Definition Linkbase Document, furnished herewith
101.LAB XBRL    Taxonomy Extension Label Linkbase Document, furnished herewith
101.PRE XBRL    Taxonomy Extension Presentation Linkbase Document, furnished herewith

(These interactive data files shall not be deemed filed for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities under these Sections.)

 

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