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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 Exchange Act of 1934

 

For Quarter ended March 31, 2017

 

Commission File Number 1-35746 

 


  

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  ☒    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  ☒    No   ☐

 

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

 

Large accelerated filer  ☐    Accelerated filer  ☒

 

Non-accelerated filer  ☐    Smaller reporting company  ☐  Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

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

 

Classes

 

Outstanding at May 2, 2017

Common Stock, par value $1

 

16,987,574

 



 

  

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

 

FORM 10-Q

 

QUARTER ENDED March 31, 2017

 

Index

 

     

PART I -

FINANCIAL INFORMATION

 Page 3

     

ITEM 1.

Financial Statements (unaudited)

Page 3

     

 

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 38

     

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Page 56

     

ITEM 4.

Controls and Procedures

Page 56

     

PART II -

OTHER INFORMATION

Page 56

     

ITEM 1.

Legal Proceedings

Page 56

     

ITEM 1A.

Risk Factors

Page 56

     

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Page 56

     

ITEM 3.

Defaults Upon Senior Securities

Page 56

     

ITEM 4.

Mine Safety Disclosures

Page 56

     

ITEM 5.

Other Information

Page 56

     

ITEM 6.

Exhibits

Page 57

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited

 

   

(unaudited)

         
   

March 31,

   

December 31,

 

(dollars in thousands)

 

2017

   

2016

 

Assets

               

Cash and due from banks

  $ 17,457     $ 16,559  

Interest bearing deposits with banks

    69,978       34,206  

Cash and cash equivalents

    87,435       50,765  

Investment securities available for sale, at fair value (amortized cost of $392,326 and $568,890 as of March 31, 2017 and December 31, 2016 respectively)

    391,028       566,996  

Investment securities held to maturity, at amortized cost (fair value of $5,116 and $2,818 as of March 31, 2017 and December 31, 2016, respectively)

    5,194       2,879  

Investment securities, trading

    4,138       3,888  

Loans held for sale

    3,015       9,621  

Portfolio loans and leases, originated

    2,286,814       2,240,987  

Portfolio loans and leases, acquired

    268,775       294,438  

Total portfolio loans and leases

    2,555,589       2,535,425  

Less: Allowance for originated loan and lease losses

    (17,069 )     (17,458 )

Less: Allowance for acquired loan and lease losses

    (38 )     (28 )

Total allowance for loans and lease losses

    (17,107 )     (17,486 )

Net portfolio loans and leases

    2,538,482       2,517,939  

Premises and equipment, net

    40,515       41,778  

Accrued interest receivable

    8,392       8,533  

Mortgage servicing rights

    5,686       5,582  

Bank owned life insurance

    39,479       39,279  

Federal Home Loan Bank stock

    8,505       17,305  

Goodwill

    104,765       104,765  

Intangible assets

    19,864       20,405  

Other investments

    8,716       8,627  

Other assets

    27,403       23,168  

Total assets

  $ 3,292,617     $ 3,421,530  

Liabilities

               

Deposits:

               

Non-interest-bearing

  $ 771,556     $ 736,180  

Interest-bearing

    1,865,009       1,843,495  

Total deposits

    2,636,565       2,579,675  
                 

Short-term borrowings

    23,613       204,151  

Long-term FHLB advances

    174,711       189,742  

Subordinated notes

    29,546       29,532  

Accrued interest payable

    2,722       2,734  

Other liabilities

    37,365       34,569  

Total liabilities

    2,904,522       3,040,403  

Shareholders' equity

               

Common stock, par value $1; authorized 100,000,000 shares; issued 21,141,146 and 21,110,968 shares as of March 31, 2017 and December 31, 2016, respectively, and outstanding of 16,969,451 and 16,939,715 as of March 31, 2017 and December 31, 2016, respectively

    21,141       21,111  

Paid-in capital in excess of par value

    233,910       232,806  

Less: Common stock in treasury at cost - 4,171,695 and 4,171,253 shares as of March 31, 2017 and December 31, 2016, respectively

    (66,969 )     (66,950 )

Accumulated other comprehensive loss, net of tax

    (1,990 )     (2,409 )

Retained earnings

    202,003       196,569  

Total shareholders' equity

    388,095       381,127  

Total liabilities and shareholders' equity

  $ 3,292,617     $ 3,421,530  

 

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

 

 
Page 3

Table of Contents
 

 

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

(dollars in thousands, except per share data)

               

Interest income:

               

Interest and fees on loans and leases

  $ 28,482     $ 26,696  

Interest on cash and cash equivalents

    66       46  

Interest on investment securities:

               

Taxable

    1,623       1,351  

Non-taxable

    110       128  

Dividends

    45       48  

Total interest income

    30,326       28,269  

Interest expense:

               

Interest on deposits

    1,828       1,076  

Interest on short-term borrowings

    27       17  

Interest on FHLB advances and other borrowings

    698       908  

Interest on subordinated notes

    370       366  

Total interest expense

    2,923       2,367  

Net interest income

    27,403       25,902  

Provision for loan and lease losses

    291       1,410  

Net interest income after provision for loan and lease losses

    27,112       24,492  

Non-interest income:

               

Fees for wealth management services

    9,303       8,832  

Insurance commissions

    763       1,276  

Service charges on deposits

    647       702  

Loan servicing and other fees

    503       492  

Net gain on sale of loans

    629       705  

Net gain (loss) on sale of investment securities available for sale

    1       (15 )

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

    -       (76 )

Dividends on FHLB and FRB stock

    214       214  

Other operating income

    1,167       1,023  

Total non-interest income

    13,227       13,153  

Non-interest expenses:

               

Salaries and wages

    12,450       11,738  

Employee benefits

    2,559       2,485  

Occupancy and bank premises

    2,526       2,488  

Furniture, fixtures, and equipment

    1,974       1,919  

Advertising

    386       284  

Amortization of intangible assets

    693       891  

Due diligence, merger-related and merger integration expenses

    511       -  

Professional fees

    711       813  

Pennsylvania bank shares tax

    664       638  

Information technology

    874       1,048  

Other operating expenses

    3,312       2,692  

Total non-interest expenses

    26,660       24,996  
                 

Income before income taxes

    13,679       12,649  

Income tax expense

    4,635       4,328  

Net income

  $ 9,044     $ 8,321  
                 

Basic earnings per common share

  $ 0.53     $ 0.49  

Diluted earnings per common share

  $ 0.53     $ 0.49  

Dividends declared per share

  $ 0.21     $ 0.20  
                 

Weighted-average basic shares outstanding

    16,954,132       16,848,202  

Dilutive shares

    228,557       34,991  

Adjusted weighted-average diluted shares

    17,182,689       16,883,193  

 

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

 

 

 
Page 4

Table of Contents
 

 

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

 

(dollars in thousands)

 

Three Months Ended March 31,

 
   

2017

   

2016

 
                 

Net income

  $ 9,044     $ 8,321  
                 

Other comprehensive income (loss):

               

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

               

Net unrealized gains arising during the period, net of tax expense of $208 and $1,040, respectively

    388       1,912  

Less: reclassification adjustment for net losses (gains) on sales realized in net income, net of tax (benefit) expense of $0 and $(6), respectively

    (1 )     9  

Unrealized investment gains, net of tax expense of $208 and $1,046, respectively

    387       1,921  

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 (benefit) of $17 and $(4), respectively

    32       (7 )

Total other comprehensive income

    419       1,914  
                 

Total comprehensive income

  $ 9,463     $ 10,235  

 

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

 

 
Page 5

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited 

 

(dollars in thousands)

 

Three Months Ended March 31,

 
   

2017

   

2016

 

Operating activities:

               

Net Income

  $ 9,044     $ 8,321  

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

               

Provision for loan and lease losses

    291       1,410  

Depreciation of fixed assets

    1,392       1,422  

Net amortization of investment premiums and discounts

    673       779  

Net (gain) loss on sale of investment securities available for sale

    (1 )     15  

Net gain on sale of loans

    (629 )     (760 )

Stock based compensation cost

    484       403  

Amortization and net impairment of mortgage servicing rights

    172       219  

Net accretion of fair value adjustments

    (795 )     (1,124 )

Amortization of intangible assets

    693       891  

Net loss on sale of OREO

    -       76  

Net increase in cash surrender value of bank owned life insurance ("BOLI")

    (200 )     (245 )

Other, net

    (6,380 )     (5,340 )

Loans originated for resale

    (26,064 )     (27,183 )

Proceeds from loans sold

    33,023       28,864  

Provision for deferred income taxes

    167       (60 )

Change in income taxes payable/receivable

    4,324       2,738  

Change in accrued interest receivable

    141       (336 )

Change in accrued interest payable

    (12 )     (557 )

Net cash provided by operating activities

    16,323       9,533  
                 

Investing activities:

               

Purchases of investment securities available for sale

    (42,842 )     (45,507 )

Purchases of investment securities held to maturity

    (2,335 )     -  

Proceeds from maturity and paydowns of investment securities available for sale

    217,539       13,955  

Proceeds from maturity and paydowns of investment securities held to maturity

    15       -  

Proceeds from sale of investment securities available for sale

    65       65  

Net change in FHLB stock

    8,800       800  

Proceeds from calls of investment securities

    1,134       16,795  

Proceeds from sales of other investments

    -       -  

Net change in other investments

    (89 )     973  

Purchase of domain name

    (152 )        

Net portfolio loan and lease originations

    (20,108 )     (109,322 )

Purchases of premises and equipment

    (162 )     (828 )

Proceeds from sale of OREO

    39       1,806  

Net cash provided by (used in) investing activities

    161,904       (121,263 )
                 

Financing activities:

               

Change in deposits

    56,909       91,427  

Change in short-term borrowings

    (180,538 )     (57,146 )

Dividends paid

    (3,559 )     (3,357 )

Change in long-term FHLB advances and other borrowings

    (15,000 )     (5,000 )

Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation

    (19 )     (25 )

Net purchase of treasury stock through publicly announced plans

    -       (7,971 )

Proceeds from exercise of stock options

    650       283  

Net cash (used in) provided by financing activities

    (141,557 )     18,211  
                 

Change in cash and cash equivalents

    36,670       (93,519 )

Cash and cash equivalents at beginning of period

    50,765       143,067  

Cash and cash equivalents at end of period

  $ 87,435     $ 49,548  
                 

Supplemental cash flow information:

               

Cash paid during the year for:

               

Income taxes

  $ 117     $ 1,651  

Interest

  $ 2,935     $ 2,924  
                 

Non-cash information:

               

Change in other comprehensive loss

  $ 419     $ 1,914  

Change in deferred tax due to change in other comprehensive loss

  $ 225     $ 1,042  

 

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

 

 
Page 6

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited

 

(dollars in thousands, except per share information)

                                                       
   

For the Three Months Ended March 31, 2017

 
   

Shares of Common Stock Issued

   

Common

Stock

   

Paid-in

Capital

   

Treasury Stock

   

Accumulated Other Comprehensive Loss

   

Retained Earnings

   

Total Shareholders' Equity

 
                                                         

Balance December 31, 2016

    21,110,968     $ 21,111     $ 232,806     $ (66,950 )   $ (2,409 )   $ 196,569     $ 381,127  

Net income

            -       -       -       -       9,044       9,044  

Dividends declared, $0.21 per share

            -       -       -       -       (3,610 )     (3,610 )

Other comprehensive income, net of tax expense of $225

            -       -       -       419       -       419  

Stock based compensation

            -       484       -       -       -       484  

Net purchase of treasury stock from stock awards for statutory tax withholdings

            -       -       (19 )     -       -       (19 )

Common stock issued through share-based awards and options exercises

    30,178       30       620       -       -       -       650  

Balance March 31, 2017

    21,141,146     $ 21,141     $ 233,910     $ (66,969 )   $ (1,990 )   $ 202,003     $ 388,095  

 

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

 

 
Page 7

Table of Contents
 

 

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 Annual Report on Form 10-K for the twelve months ended December 31, 2016 (the “2016 Annual Report”).

 

The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year.

 

Note 2 - 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 pursuant to 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 splits.  

 

   

Three Months Ended

 
   

March 31,

 

(dollars in thousands except per share data)

 

2017

   

2016

 

Numerator:

               

Net income available to common shareholders

  $ 9,044     $ 8,321  

Denominator for basic earnings per share – weighted average shares outstanding

    16,954,132       16,848,202  

Effect of dilutive common shares

    228,557       34,991  

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

    17,182,689       16,883,193  

Basic earnings per share

  $ 0.53     $ 0.49  

Diluted earnings per share

  $ 0.53     $ 0.49  

Anti-dilutive shares excluded from computation of average dilutive earnings per share

           

 

 

 
Page 8

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Note 3 - Business Combinations 

 

Pending Business Combination – Royal Bancshares of Pennsylvania, Inc.

 

On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal Bancshares of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge with and into the Corporation and RBA will merge with and into the Bank. The Acquisition, which is expected to add approximately $602 million in loans and $630 million in deposits (based on December 31, 2016 financial information), strengthens the Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ranks it as the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and an expanded physical presence in Philadelphia County, Pennsylvania, is expected to close during the third quarter of 2017.

 

Due Diligence, Merger-Related and Merger Integration Expenses

 

Due diligence, merger-related and merger integration expenses may include consultant costs, investment banker fees, contract breakage fees, retention bonuses for severed employees, and salary and wages for redundant staffing involved in the integration of the institutions. The following table details the costs identified and classified as due diligence, merger-related and merger integration costs for the periods indicated:

 

 

 

Three Months Ended March 31,

 
(dollars in thousands)  

2017

   

2016

 

Professional fees

  $ 396     $  

Salaries and wages

    80        

Other

    35        

Total due diligence and merger-related expenses

  $ 511     $  

  

Note 4 - Investment Securities

  

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

 

As of March 31, 2017

 

(dollars in thousands)

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair Value

 

U.S. Treasury securities

  $ 101     $     $     $ 101  

Obligations of the U.S. government and agencies

    101,279       161       (964

)

    100,476  

Obligations of state and political subdivisions

    30,949       56       (65

)

    30,940  

Mortgage-backed securities

    197,224       1,281       (1,085

)

    197,420  

Collateralized mortgage obligations

    46,253       87       (864

)

    45,476  

Other investments

    16,520       177       (82

)

    16,615  
                                 

Total

  $ 392,326     $ 1,762     $ (3,060

)

  $ 391,028  

 

As of December 31, 2016

 

(dollars in thousands)

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair Value

 

U.S. Treasury securities

  $ 200,094     $ 3     $     $ 200,097  

Obligations of the U.S. government and agencies

    83,111       167       (1,080

)

    82,198  

Obligations of state and political subdivisions

    33,625       26       (121

)

    33,530  

Mortgage-backed securities

    185,997       1,260       (1,306

)

    185,951  

Collateralized mortgage obligations

    49,488       108       (902

)

    48,694  

Other investments

    16,575       105       (154

)

    16,526  
                                 

Total

  $ 568,890     $ 1,669     $ (3,563

)

  $ 566,996  

 

 

 
Page 9

Table of Contents
 

  

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 March 31, 2017
 

 

   

Less than 12
Months

   

12 Months
or Longer

   

Total

 

(dollars in thousands)

 

Fair
Value

   

Unrealized

Losses

   

Fair
Value

   

Unrealized

Losses

   

Fair
Value

   

Unrealized

Losses

 

U.S. Treasury securities

  $ 101     $     $     $     $ 101     $  

Obligations of the U.S. government and agencies

    75,404       (964

)

                75,404       (964

)

Obligations of state and political subdivisions

    13,847       (65

)

                13,847       (65

)

Mortgage-backed securities

    103,807       (1,085

)

                103,807       (1,085

)

Collateralized mortgage obligations

    34,441       (864

)

                34,441       (864

)

Other investments

    2,331       (46

)

    11,920       (36

)

    14,251       (82

)

Total

  $ 229,931     $ (3,024

)

  $ 11,920     $ (36

)

  $ 241,851     $ (3,060

)

 

As of December 31, 2016

 

   

Less than 12
Months

   

12 Months
or Longer

   

Total

 

(dollars in thousands)

 

Fair
Value

   

Unrealized Losses

   

Fair
Value

   

Unrealized Losses

   

Fair
Value

   

Unrealized Losses

 

Obligations of the U.S. government and agencies

  $ 62,211     $ (1,080

)

  $     $     $ 62,211     $ (1,080

)

Obligations of state and political subdivisions

    24,482       (121

)

                24,482       (121

)

Mortgage-backed securities

    101,433       (1,306

)

                101,433       (1,306

)

Collateralized mortgage obligations

    35,959       (902

)

                35,959       (902

)

Other investments

    2,203       (93

)

    11,895       (61

)

    14,098       (154

)

Total

  $ 226,288     $ (3,502

)

  $ 11,895     $ (61

)

  $ 238,183     $ (3,563

)

 

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 fair 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 March 31, 2017 and December 31, 2016, securities having fair values of $103.4 million and $119.4 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 as part of the Corporation’s borrowing agreement with the FHLB.

 

 
Page 10

Table of Contents
 

 

The amortized cost and fair value of investment securities available for sale as of March 31, 2017 and December 31, 2016, by contractual maturity, are detailed below:

 

   

March 31, 2017

   

December 31, 2016

 

(dollars in thousands)

 

Amortized

Cost

   

Fair

Value

   

Amortized

Cost

   

Fair

Value

 

Investment securities1:

                               

Due in one year or less

  $ 12,019     $ 12,026     $ 213,876     $ 213,885  

Due after one year through five years

    65,360       65,221       40,335       40,270  

Due after five years through ten years

    39,023       38,328       45,840       44,914  

Due after ten years

    17,226       17,240       18,079       18,055  

Subtotal

    133,628       132,815       318,130       317,124  

Mortgage-related securities1

    243,477       242,896       235,485       234,644  

Mutual funds with no stated maturity

    15,221       15,317       15,275       15,228  

Total

  $ 392,326     $ 391,028     $ 568,890     $ 566,996  

 

1 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.

  

 

The amortized cost and fair value of investment securities held to maturity as of March 31, 2017 and December 31, 2016 are detailed below:

  

As of March 31, 2017

 

(dollars in thousands)

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair

Value

 

Mortgage-backed securities

  $ 5,194     $     $ (78

)

  $ 5,116  

Total

  $ 5,194     $     $ (78

)

  $ 5,116  

 

As of December 31, 2016

 

(dollars in thousands)

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair Value

 

Mortgage-backed securities

  $ 2,879     $     $ (61

)

  $ 2,818  

Total

  $ 2,879     $     $ (61

)

  $ 2,818  

 

 

The following tables detail the amount of held to maturity securities that were in an unrealized loss position as of March 31, 2017 and December 31, 2016:

 

As of March 31, 2017

 

   

Less than 12
Months

   

12 Months
or Longer

   

Total

 

(dollars in thousands)

 

Fair
Value

   

Unrealized

Losses

   

Fair
Value

   

Unrealized

Losses

   

Fair
Value

   

Unrealized

Losses

 

Mortgage-backed securities

  $ 5,116     $ (78

)

  $     $     $ 5,116     $ (78

)

Total

  $ 5,116     $ (78

)

  $     $     $ 5,116     $ (78

)

 

 
Page 11

Table of Contents
 

 

As of December 31, 2016

 

   

Less than 12
Months

   

12 Months
or Longer

   

Total

 

(dollars in thousands)

 

Fair
Value

   

Unrealized

Losses

   

Fair
Value

   

Unrealized

Losses

   

Fair
Value

   

Unrealized

Losses

 

Mortgage-backed securities

  $ 2,818     $ (61

)

  $     $     $ 2,818     $ (61

)

Total

  $ 2,818     $ (61

)

  $     $     $ 2,818     $ (61

)

 

The amortized cost and fair value of investment securities held to maturity as of March 31, 2017 and December 31, 2016, by contractual maturity, are detailed below:

 

 

   

March 31, 2017

   

December 31, 2016

 

(dollars in thousands)

 

Amortized

Cost

   

Fair

Value

   

Amortized

Cost

   

Fair

Value

 

Mortgage-related securities1

  $ 5,194     $ 5,116     $ 2,879     $ 2,818  

Total

  $ 5,194     $ 5,116     $ 2,879     $ 2,818  

 

1 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 March 31, 2017 and December 31, 2016, the Corporation’s investment securities held in trading accounts totaled $4.1 million and $3.9 million, respectively, and consisted solely of deferred compensation trust accounts which were invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income.

  

Note 5 - Loans and Leases 

 

The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers and acquisitions. These mergers and acquisitions include the January 2015 acquisition of CBH, the November 2012 transaction with First Bank of Delaware (“FBD”) and the July 2010 acquisition of First Keystone Financial, Inc. (“FKF”). Many of the tables in this footnote are presented for all loans as well as supplemental tables for originated and acquired loans.

 

 

 
Page 12

Table of Contents
 

 

A. The table below details all portfolio loans and leases as of the dates indicated: 

 

   

March 31,

2017

   

December 31,

2016

 

Loans held for sale

  $ 3,015     $ 9,621  

Real estate loans:

               

Commercial mortgage

  $ 1,137,870     $ 1,110,898  

Home equity lines and loans

    203,962       207,999  

Residential mortgage

    418,264       413,540  

Construction

    145,699       141,964  

Total real estate loans

    1,905,795       1,874,401  

Commercial and industrial

    567,917       579,791  

Consumer

    23,932       25,341  

Leases

    57,945       55,892  

Total portfolio loans and leases

    2,555,589       2,535,425  

Total loans and leases

  $ 2,558,604     $ 2,545,046  

Loans with fixed rates

  $ 1,124,066     $ 1,130,172  

Loans with adjustable or floating rates

    1,434,538       1,414,874  

Total loans and leases

  $ 2,558,604     $ 2,545,046  

Net deferred loan origination fees included in the above loan table

  $ (864

)

  $ (735

)

 

    The table below details the Corporation’s originated portfolio loans and leases as of the dates indicated:

 

   

March 31,

2017

   

December 31,

2016

 

Loans held for sale

  $ 3,015     $ 9,621  

Real estate loans:

               

Commercial mortgage

  $ 990,579     $ 946,879  

Home equity lines and loans

    176,555       178,450  

Residential mortgage

    351,349       342,268  

Construction

    145,699       141,964  

Total real estate loans

    1,664,182       1,609,561  

Commercial and industrial

    540,896       550,334  

Consumer

    23,791       25,200  

Leases

    57,945       55,892  

Total portfolio loans and leases

    2,286,814       2,240,987  

Total loans and leases

  $ 2,289,829     $ 2,250,608  

Loans with fixed rates

  $ 995,798     $ 992,917  

Loans with adjustable or floating rates

    1,294,031       1,257,691  

Total originated loans and leases

  $ 2,289,829     $ 2,250,608  

Net deferred loan origination fees included in the above loan table

  $ (864

)

  $ (735

)

 

 

 
Page 13

Table of Contents
 

 

     The table below details the Corporation’s acquired portfolio loans as of the dates indicated:

 

   

March 31,

2017

   

December 31,

2016

 

Real estate loans:

               

Commercial mortgage

  $ 147,291     $ 164,019  

Home equity lines and loans

    27,407       29,549  

Residential mortgage

    66,915       71,272  

Construction

           

Total real estate loans

    241,613       264,840  

Commercial and industrial

    27,021       29,457  

Consumer

    141       141  

Total portfolio loans and leases

    268,775       294,438  

Total loans and leases

  $ 268,775     $ 294,438  

Loans with fixed rates

  $ 128,268     $ 137,255  

Loans with adjustable or floating rates

    140,507       157,183  

Total acquired loans and leases

  $ 268,775     $ 294,438  

  

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

 

(dollars in thousands)

 

March 31,

2017

     

December 31, 

2016 

 

Minimum lease payments receivable

  $ 64,502     $ 62,379  

Unearned lease income

    (8,648

)

    (8,608

)

Initial direct costs and deferred fees

    2,091       2,121  

Total

  $ 57,945     $ 55,892  

  

C. Non-Performing Loans and Leases(1)

 

The following table details all non-performing portfolio loans and leases as of the dates indicated:

 

(dollars in thousands)

 

March 31,

2017

   

December 31, 

2016 

 

Non-accrual loans and leases:

               

Commercial mortgage

  $ 315     $ 320  

Home equity lines and loans

    1,828       2,289  

Residential mortgage

    2,640       2,658  

Commercial and industrial

    2,471       2,957  

Consumer

          2  

Leases

    75       137  

Total

  $ 7,329     $ 8,363  

   

(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 $343 thousand and $344 thousand of purchased credit-impaired loans as of March 31, 2017 and December 31, 2016, respectively, which became non-performing subsequent to acquisition.

 

    The following table details non-performing originated portfolio loans and leases as of the dates indicated: 

 

(dollars in thousands)

 

March 31,

2017

   

December 31,

2016

 

Non-accrual originated loans and leases:

               

Commercial mortgage

  $ 263     $ 265  

Home equity lines and loans

    1,674       2,169  

Residential mortgage

    1,624       1,654  

Commercial and industrial

    908       941  

Consumer

          2  

Leases

    75       137  

Total

  $ 4,544     $ 5,168  

 

 

 
Page 14

Table of Contents
 

 

The following table details non-performing acquired portfolio loans(1) as of the dates indicated:

 

(dollars in thousands)

 

March 31,

2017

   

December 31,

2016

 

Non-accrual acquired loans and leases:

               

Commercial mortgage

  $ 52     $ 55  

Home equity lines and loans

    154       120  

Residential mortgage

    1,016       1,004  

Commercial and industrial

    1,563       2,016  

Total

  $ 2,785     $ 3,195  

 

(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 $343 thousand and $344 thousand of purchased credit-impaired loans as of March 31, 2017 and December 31, 2016, 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 Corporation applies ASC 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, to account for the interest earned, as of the dates indicated, are as follows:

 

(dollars in thousands)

 

March 31,

2017

   

December 31,

2016

 

Outstanding principal balance

  $ 17,264     $ 18,091  

Carrying amount(1)

  $ 11,862     $ 12,432  

   

 

(1)

Includes $360 thousand and $368 thousand of purchased credit-impaired loans as of March 31, 2017 and December 31, 2016, respectively, for which the Corporation 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 $343 thousand and $344 thousand of purchased credit-impaired loans as of March 31, 2017 and December 31, 2016, respectively, which became non-performing subsequent to acquisition, 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 Corporation applies ASC 310-30, for the three months ended March 31, 2017:

 

(dollars in thousands)

 

Accretable
Discount

 

Balance, December 31, 2016

  $ 3,233  

Accretion

    (485

)

Reclassifications from nonaccretable difference

     

Additions/adjustments

     

Disposals

     

Balance, March 31, 2017

  $ 2,748  

 

E. Age Analysis of Past Due Loans and Leases 

 

The following tables present an aging of all portfolio loans and leases as of the dates indicated: 

 

   

Accruing Loans and Leases

                 

(dollars in thousands)

 

As of March 31, 2017

 

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  

Commercial mortgage

  $ 1,926     $     $     $ 1,926     $ 1,135,629     $ 1,137,555     $ 315     $ 1,137,870  

Home equity lines and loans

    24       200             224       201,910       202,134       1,828       203,962  

Residential mortgage

    1,967       233             2,200       413,424       415,624       2,640       418,264  

Construction

                            145,699       145,699             145,699  

Commercial and industrial

    519       719             1,238       564,208       565,446       2,471       567,917  

Consumer

    10       10             20       23,912       23,932             23,932  

Leases

    159       310             469       57,401       57,870       75       57,945  
    $ 4,605     $ 1,472     $     $ 6,077     $ 2,542,183     $ 2,548,260     $ 7,329     $ 2,555,589  

 

 

 
Page 15

Table of Contents
 

  

(dollars in thousands)  

Accruing Loans and Leases

                 

As of December 31, 2016

 

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  

Commercial mortgage

  $ 666     $ 722     $     $ 1,388     $ 1,109,190     $ 1,110,578     $ 320     $ 1,110,898  

Home equity lines and loans

    11                   11       205,699       205,710       2,289       207,999  

Residential mortgage

    823       490             1,313       409,569       410,882       2,658       413,540  

Construction

                            141,964       141,964             141,964  

Commercial and industrial

    36                   36       576,798       576,834       2,957       579,791  

Consumer

    10       5             15       25,324       25,339       2       25,341  

Leases

    177       86             263       55,492       55,755       137       55,892  
    $ 1,723     $ 1,303     $     $ 3,026     $ 2,524,036     $ 2,527,062     $ 8,363     $ 2,535,425  

*included as “current” are $2.0 million and $15.3 million of loans and leases as of March 31, 2017 and December 31, 2016, respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

 

The following tables present an aging of originated portfolio loans and leases as of the dates indicated:

 

   

Accruing Loans and Leases

                 

(dollars in thousands)

 

As of March 31, 2017

 

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  

Commercial mortgage

  $ 714     $     $     $ 714     $ 989,602     $ 990,316     $ 263     $ 990,579  

Home equity lines and loans

    24                   24       174,857       174,881       1,674       176,555  

Residential mortgage

    1,732                   1,732       347,993       349,725       1,624       351,349  

Construction

                            145,699       145,699             145,699  

Commercial and industrial

    364                   364       539,624       539,988       908       540,896  

Consumer

    10       10             20       23,771       23,791             23,791  

Leases

    159       310             469       57,401       57,870       75       57,945  
    $ 3,003     $ 320     $     $ 3,323     $ 2,278,947     $ 2,282,270     $ 4,544     $ 2,286,814  

  

   

Accruing Loans and Leases

                 

(dollars in thousands)

 

As of December 31, 2016

 

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  

Commercial mortgage

  $     $ 722     $     $ 722     $ 945,892     $ 946,614     $ 265     $ 946,879  

Home equity lines and loans

    11                   11       176,270       176,281       2,169       178,450  

Residential mortgage

    773       64             837       339,778       340,615       1,653       342,268  

Construction

                            141,964       141,964             141,964  

Commercial and industrial

                            549,393       549,393       941       550,334  

Consumer

    10       5             15       25,183       25,198       2       25,200  

Leases

    177       86             263       55,492       55,755       137       55,892  
    $ 971     $ 877     $     $ 1,848     $ 2,233,972     $ 2,235,820     $ 5,167     $ 2,240,987  

*included as “current” are $2.0 million and $13.5 million of loans and leases as of March 31, 2017 and December 31, 2016, respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

   

The following tables present an aging of acquired portfolio loans and leases as of the dates indicated: 

 

   

Accruing Loans and Leases

                 

(dollars in thousands)

 

As of March 31, 2017

 

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  

Commercial mortgage

  $ 1,212     $     $     $ 1,212     $ 146,027     $ 147,239     $ 52     $ 147,291  

Home equity lines and loans

          200             200       27,053       27,253       154       27,407  

Residential mortgage

    235       233             468       65,431       65,899       1,016       66,915  

Commercial and industrial

    155       719             874       24,584       25,458       1,563       27,021  

Consumer

                            141       141             141  
    $ 1,602     $ 1,152     $     $ 2,754     $ 263,236     $ 265,990     $ 2,785     $ 268,775  

 

 

 
Page 16

Table of Contents
 

    

   

Accruing Loans and Leases

                 

(dollars in thousands)

 

As of December 31, 2016

 

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  

Commercial mortgage

  $ 666     $     $     $ 666     $ 163,298     $ 163,964     $ 55     $ 164,019  

Home equity lines and loans

                            29,429       29,429       120       29,549  

Residential mortgage

    50       426             476       69,791       70,267       1,005       71,272  

Commercial and industrial

    36                   36       27,405       27,441       2,016       29,457  

Consumer

                            141       141             141  
    $ 752     $ 426     $     $ 1,178     $ 290,064     $ 291,242     $ 3,196     $ 294,438  

*included as “current” are $0 and $1.8 million of loans and leases as of March 31, 2017 and December 31, 2016, respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

 

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

 

The following tables detail the roll-forward of the Allowance for the three months ended March 31, 2017:

 

(dollars in thousands)

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Unallocated

   

Total

 

Balance, December 31, 2016

  $ 6,227     $ 1,255     $ 1,917     $ 2,233     $ 5,142     $ 153     $ 559     $     $ 17,486  

Charge-offs

          (438

)

    (27

)

          (59

)

    (41

)

    (206

)

          (771

)

Recoveries

    3                   1             2       95             101  

Provision for loan and lease losses

    180       426       (92

)

    (39

)

    (336

)

    21       131             291  

Balance, March 31, 2017

  $ 6,410     $ 1,243     $ 1,798     $ 2,195     $ 4,747     $ 135     $ 579     $     $ 17,107  

   

The following table details the roll-forward of the Allowance for the three months ended March 31, 2016:

 

(dollars in thousands)

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Unallocated

   

Total

 

Balance, December 31, 2015

  $ 5,199     $ 1,307     $ 1,740     $ 1,324     $ 5,609     $ 142     $ 518     $ 18     $ 15,857  

Charge-offs

    (110

)

    (75

)

    (4

)

          (28

)

    (34

)

    (300

)

          (551

)

Recoveries

    3       4       39             3       14       66             129  

Provision for loan and lease losses

    764       (110

)

    93       578       (139

)

    (2

)

    244       (18

)

    1,410  

Balance, March 31, 2016

  $ 5,856     $ 1,126     $ 1,868     $ 1,902     $ 5,445     $ 120     $ 528     $     $ 16,845  

  

The following table details the allocation of the Allowance for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2017 and December 31, 2016:

 

(dollars in thousands)

 

As of March 31, 2017

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Unallocated

   

Total

 

Allowance on loans and leases:

                                                                       

Individually evaluated for impairment

  $     $       $ 73     $     $ 11     $ 5     $     $     $ 89  

Collectively evaluated for impairment

    6,410       1,243       1,725       2,195       4,736       130       579             17,018  

Purchased credit-impaired(1)

                                                     

Total

  $ 6,410     $ 1,243     $ 1,798     $ 2,195     $ 4,747     $ 135     $ 579     $     $ 17,107  

As of December 31, 2016

                                                                       

Allowance on loans and leases:

                                                                       

Individually evaluated for impairment

  $     $     $ 73     $     $ 5     $ 8     $     $     $ 86  

Collectively evaluated for impairment

    6,227       1,255       1,844       2,233       5,137       145       559             17,400  

Purchased credit-impaired(1)

                                                     

Total

  $ 6,227     $ 1,255     $ 1,917     $ 2,233     $ 5,142     $ 153     $ 559     $     $ 17,486  

 

(1)

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

  

 
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The following table details the carrying value for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2017 and December 31, 2016:

 

(dollars in thousands)

 

As of March 31, 2017

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Total

 

Carrying value of loans and leases:

                                                               

Individually evaluated for impairment

  $ 1,570     $ 1,945     $ 7,256     $     $ 2,444     $ 29     $     $ 13,244  

Collectively evaluated for impairment

    1,126,325       201,917       411,008       145,699       563,686       23,903       57,945       2,530,483  

Purchased credit-impaired(1)

    9,975       100                   1,787                   11,862  

Total

  $ 1,137,870     $ 203,962     $ 418,264     $ 145,699     $ 567,917     $ 23,932     $ 57,945     $ 2,555,589  

As of December 31, 2016

                                                               

Carrying value of loans and leases:

                                                               

Individually evaluated for impairment

  $ 1,576     $ 2,354     $ 7,266     $     $ 2,946     $ 31     $     $ 14,173  

Collectively evaluated for impairment

    1,098,788       205,540       406,271       141,964       575,055       25,310       55,892       2,508,820  

Purchased credit-impaired(1)

    10,534       105       3             1,790                   12,432  

Total

  $ 1,110,898     $ 207,999     $ 413,540     $ 141,964     $ 579,791     $ 25,341     $ 55,892     $ 2,535,425  

 

(1)

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

   

The following table details the allocation of the Allowance for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2017 and December 31, 2016:

 

(dollars in thousands)

 

As of March 31, 2017

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Unallocated

   

Total

 

Allowance on loans and leases:

                                                                       

Individually evaluated for impairment

  $     $     $ 45     $     $ 1     $ 5     $     $     $ 51  

Collectively evaluated for impairment

    6,410       1,243       1,725       2,195       4,736       130       579             17,018  

Total

  $ 6,410     $ 1,243     $ 1,770     $ 2,195     $ 4,737     $ 135     $ 579     $     $ 17,069  

As of December 31, 2016

                                                                       

Allowance on loans and leases:

                                                                       

Individually evaluated for impairment

  $     $     $ 45     $     $ 5     $ 8     $     $     $ 58  

Collectively evaluated for impairment

    6,227       1,255       1,844       2,233       5,137       145       559             17,400  

Total

  $ 6,227     $ 1,255     $ 1,889     $ 2,233     $ 5,142     $ 153     $ 559     $     $ 17,458  

   

The following table details the carrying value for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2017 and December 31, 2016:

 

(dollars in thousands)

 

As of March 31, 2017

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Total

 

Carrying value of loans and leases:

                                                               

Individually evaluated for impairment

  $ 1,518     $ 1,873     $ 4,070     $     $ 1,141     $ 29     $     $ 8,631  

Collectively evaluated for impairment

    989,061       174,682       347,279       145,699       539,755       23,762       57,945       2,278,183  

Total

  $ 990,579     $ 176,555     $ 351,349     $ 145,699     $ 540,896     $ 23,791     $ 57,945     $ 2,286,814  

As of December 31, 2016

                                                               

Carrying value of loans and leases:

                                                               

Individually evaluated for impairment

  $ 1,521     $ 2,319     $ 4,111     $     $ 1,190     $ 31     $     $ 9,172  

Collectively evaluated for impairment

    945,358       176,131       338,157       141,964       549,144       25,169       55,892       2,231,815  

Total

  $ 946,879     $ 178,450     $ 342,268     $ 141,964     $ 550,334     $ 25,200     $ 55,892     $ 2,240,987  

 

 

 
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The following table details the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2017 and December 31, 2016:

 

(dollars in thousands)

 

As of March 31, 2017

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Unallocated

   

Total

 

Allowance on loans and leases:

                                                                       

Individually evaluated for impairment

  $     $     $ 28     $     $ 10     $     $     $     $ 38  

Collectively evaluated for impairment

                                                     

Purchased credit-impaired(1)

                                                     

Total

  $     $     $ 28     $     $ 10     $     $     $     $ 38  

As of December 31, 2016

                                                                       

Allowance on loans and leases:

                                                                       

Individually evaluated for impairment

  $     $     $ 28     $     $     $     $     $     $ 28  

Collectively evaluated for impairment

                                                     

Purchased credit-impaired(1)

                                                     

Total

  $     $     $ 28     $     $     $     $     $     $ 28  

 

(1)

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

   

The following table details the carrying value for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2017 and December 31, 2016:

 

(dollars in thousands)

 

As of March 31, 2017

 

Commercial
Mortgage

   

Home Equity
Lines and
Loans

   

Residential
Mortgage

   

Construction

   

Commercial
and
Industrial

   

Consumer

   

Leases

   

Total

 

Carrying value of loans and leases:

                                                               

Individually evaluated for impairment

  $ 52     $ 72     $ 3,186     $     $ 1,303     $     $     $ 4,613  

Collectively evaluated for impairment

    137,264       27,235       63,729             23,931       141             252,300  

Purchased credit-impaired(1)

    9,975       100                   1,787                   11,862  

Total

  $ 147,291     $ 27,407     $ 66,915     $     $ 27,021     $ 141     $     $ 268,775  

As of December 31, 2016

                                                               

Carrying value of loans and leases:

                                                               

Individually evaluated for impairment

  $ 55     $ 35     $ 3,155     $     $ 1,756     $           $ 5,001  

Collectively evaluated for impairment

    153,430       29,409       68,114             25,911       141             277,005  

Purchased credit-impaired(1)

    10,534       105       3             1,790                   12,432  

Total

  $ 164,019     $ 29,549     $ 71,272     $     $ 29,457     $ 141           $ 294,438  

(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.

 

 

 
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The following tables detail the carrying value of all portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31, 2017 and December 31, 2016:

 

   

Credit Risk Profile by Internally Assigned Grade

 
       

(dollars in thousands)

 

Commercial Mortgage

   

Construction

   

Commercial and Industrial

   

Total

 
   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

 

Pass

  $ 1,126,655     $ 1,099,557     $ 143,732     $ 140,370     $ 559,773     $ 570,342     $ 1,830,160     $ 1,810,269  

Special Mention

    1,886       1,892                   674       2,315       2,560       4,207  

Substandard

    9,329       9,449       1,967       1,594       7,123       5,512       18,419       16,555  

Doubtful

                            347       1,622       347       1,622  

Total

  $ 1,137,870     $ 1,110,898     $ 145,699     $ 141,964     $ 567,917     $ 579,791     $ 1,851,486     $ 1,832,653  

   

    Credit Risk Profile by Payment Activity  
       

(dollars in thousands)

 

Residential Mortgage

   

Home Equity

Lines and Loans

   

Consumer

   

Leases

   

Total

 
   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

 

Performing

  $ 415,624     $ 410,882     $ 202,134     $ 205,710     $ 23,932     $ 25,339     $ 57,870     $ 55,755     $ 699,560     $ 697,686  

Non-performing

    2,640       2,658       1,828       2,289             2       75       137       4,543       5,086  

Total

  $ 418,264     $ 413,540     $ 203,962     $ 207,999     $ 23,932     $ 25,341     $ 57,945     $ 55,892     $ 704,103     $ 702,772  

  

The following tables detail the carrying value of originated portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31, 2017 and December 31, 2016:

 

   

Credit Risk Profile by Internally Assigned Grade

 
       

(dollars in thousands)

 

Commercial Mortgage

   

Construction

   

Commercial and Industrial

   

Total

 
   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

 

Pass

  $ 980,545     $ 936,737     $ 143,732     $ 140,370     $ 536,621     $ 544,876     $ 1,660,898     $ 1,621,983  

Special Mention

    1,886       1,892                   642       2,279       2,528       4,171  

Substandard

    8,148       8,250       1,967       1,594       3,508       3,054       13,623       12,898  

Doubtful

                            125       125       125       125  

Total

  $ 990,579     $ 946,879     $ 145,699     $ 141,964     $ 540,896     $ 550,334     $ 1,677,174     $ 1,639,177  

   

    Credit Risk Profile by Payment Activity  
       

(dollars in thousands)

 

Residential Mortgage

   

Home Equity

Lines and Loans

   

Consumer

   

Leases

   

Total

 
   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

   

March 31, 2017

   

December 31, 2016

 

Performing

  $ 349,725     $ 340,615     $ 174,882     $ 176,281     $ 23,791     $ 25,198     $ 57,870     $ 55,755     $ 606,268     $ 597,849  

Non-performing

    1,624       1,653       1,673       2,169             2       75       137       3,372       3,961  

Total

  $ 351,349     $ 342,268     $ 176,555     $ 178,450     $ 23,791     $ 25,200     $ 57,945     $ 55,892     $ 609,640     $ 601,810  

   

The following tables detail the carrying value of acquired portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31, 2017 and December 31, 2016:

 

   

Credit Risk Profile by Internally Assigned Grade

 
       

(dollars in thousands)

 

Commercial Mortgage

   

Construction

   

Commercial and Industrial

   

Total

 
   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

 

Pass

  $ 146,110     $ 162,820     $     $     $ 23,152     $ 25,466     $ 169,262     $ 188,286  

Special Mention

                            32       36       32       36  

Substandard

    1,181       1,199                   3,615       2,458       4,796       3,657  

Doubtful

                            222       1,497       222       1,497  

Total

  $ 147,291     $ 164,019     $     $     $ 27,021     $ 29,457     $ 174,312     $ 193,476  

 

 
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    Credit Risk Profile by Payment Activity  
       

(dollars in thousands)

 

Residential Mortgage

   

Home Equity Lines and Loans

   

Consumer

   

Total

 
   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

   

March 31,

2017

   

December 31, 2016

 

Performing

  $ 65,899     $ 70,267     $ 27,252     $ 29,429     $ 141     $ 141     $ 93,292     $ 99,837  

Non-performing

    1,016       1,005       155       120                   1,171       1,125  

Total

  $ 66,915     $ 71,272     $ 27,407     $ 29,549     $ 141     $ 141     $ 94,463     $ 100,962  

   

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)

 

March 31,

2017

   

December 31,

2016

 

TDRs included in nonperforming loans and leases

  $ 2,681     $ 2,632  

TDRs in compliance with modified terms

    6,492       6,395  

Total TDRs

  $ 9,173     $ 9,027  

  

The following table presents information regarding loan and lease modifications categorized as TDRs for the three months ended March 31, 2017:

 

   

For the Three Months Ended March 31, 2017

 

(dollars in thousands)

 

Number of Contracts

   

Pre-Modification

Outstanding Recorded Investment

   

Post-Modification Outstanding Recorded Investment

 

Home equity loans and lines

    1     $ 8     $ 8  

Residential mortgage

    1       194       202  

Leases

    3       62       62  

Total

    5     $ 264     $ 272  

  

The following table presents information regarding the types of loan and lease modifications made for the three months ended March 31, 2017:

 

   

Number of Contracts for the Three Months Ended March 31, 2017

 
   

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

   

Forgiveness of Principal

 

Home equity loans and lines

          1                                

Residential mortgage

                1                          

Leases

                            3              

Total

          1       1             3              

  

During the three months ended March 31, 2017, there were no defaults of loans or leases that had been previously modified to troubled debt restructurings.

 

 

 
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Table of Contents
 

 

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 March 31, 2017

                                               

Impaired loans with related Allowance:

                                               

Residential mortgage

  $ 620     $ 619     $ 73     $ 621     $ 7     $  

Commercial and industrial

    88       121       11       110       1        

Consumer

    29       29       5       29              

Total

  $ 737     $ 769     $ 89     $ 760     $ 8     $  
                                                 

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

                                               

Commercial mortgage

  $ 1,570     $ 1,570     $     $ 1,573     $ 15     $  

Home equity lines and loans

    1,945       2,806             2,358       2        

Residential mortgage

    6,637       6,623             6,755       53        

Commercial and industrial

    2,357       3,156             2,456       2        

Total

  $ 12,509     $ 14,155     $     $ 13,142     $ 72     $  
                                                 

Grand total

  $ 13,246     $ 14,924     $ 89     $ 13,902     $ 80     $  

 

(1)

The table above does not include the recorded investment of $232 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 March 31, 2016

                                               

Impaired loans with related Allowance:

                                               

Residential mortgage

  $ 628     $ 642     $ 74     $ 642     $ 7     $  

Commercial and industrial

    1,947       1,966       519       1,990       1        

Consumer

    30       30       5       30              

Total

  $ 2,605     $ 2,638     $ 598     $ 2,662     $ 8     $  
                                                 

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

                                               

Commercial mortgage

  $ 405     $ 527     $     $ 528     $     $  

Home equity lines and loans

    1,906       2,393             2,538       1        

Residential mortgage

    6,861       7,707             8,134       52        

Construction

    12       974             994              

Commercial and industrial

    2,009       2,826             4,759       1        

Total

  $ 11,193     $ 14,427     $     $ 16,953     $ 54     $  
                                                 

Grand total

  $ 13,798     $ 17,065     $ 598     $ 19,615     $ 62     $  

 

(1)

The table above does not include the recorded investment of $122 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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(dollars in thousands)

 

Recorded

Investment(2)

   

Principal

Balance

   

Related

Allowance

 

As of December 31, 2016

                       

Impaired loans with related allowance:

                       

Residential mortgage

  $ 622     $ 622     $ 73  

Commercial and industrial

    84       84       5  

Consumer

    31       31       8  

Total

  $ 737     $ 737     $ 86  
                         

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

                       

Commercial mortgage

  $ 1,577     $ 1,577     $  

Home equity lines and loans

    2,354       2,778        

Residential mortgage

    6,644       6,970        

Commercial and industrial

    2,862       3,692        

Total

  $ 13,437     $ 15,017     $  
                         

Grand total

  $ 14,174     $ 15,754     $ 86  

  

(1)

The table above does not include the recorded investment of $240 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.

   

I. Loan Mark

 

Loans acquired in mergers and acquisitions are recorded at fair value as of the date of the transaction. This adjustment to the acquired principal amount is referred to as the “Loan Mark”. With the exception of purchased credit impaired loans, whose Loan Mark is accounted for under ASC 310-30, the Loan Mark is amortized or accreted as an adjustment to yield over the lives of the loans. The following tables detail, for acquired loans, the outstanding principal, remaining loan mark, and recorded investment, by portfolio segment, as of the dates indicated:  

 

(dollars in thousands)

 

As of March 31, 2017

 
   

Outstanding

Principal

   

Remaining

Loan Mark

   

Recorded

Investment

 

Commercial mortgage

  $ 151,454     $ (4,163

)

  $ 147,291  

Home equity lines and loans

    29,047       (1,640

)

    27,407  

Residential mortgage

    69,338       (2,423

)

    66,915  

Commercial and industrial

    30,317       (3,296

)

    27,021  

Consumer

    162       (21

)

    141  

Total

  $ 280,318     $ (11,543

)

  $ 268,775  

  

(dollars in thousands)

 

As of December 31, 2016

 
   

Outstanding

Principal

   

Remaining

Loan Mark

   

Recorded

Investment

 

Commercial mortgage

  $ 168,612     $ (4,593

)

  $ 164,019  

Home equity lines and loans

    31,236       (1,687

)

    29,549  

Residential mortgage

    73,902       (2,630

)

    71,272  

Commercial and industrial

    32,812       (3,355

)

    29,457  

Consumer

    163       (22

)

    141  

Total

  $ 306,725     $ (12,287

)

  $ 294,438  

 

 

 
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 Note 6 - Deposits

 

The following table details the components of deposits:

 

(dollars in thousands)

 

March 31,

2017

   

December 31,

2016

 
                 

Interest-bearing checking accounts

  $ 395,131     $ 379,424  

Money market accounts

    757,071       761,657  

Savings accounts

    255,791       232,193  

Wholesale non-maturity deposits

    69,471       74,272  

Wholesale time deposits

    68,164       73,037  

Time deposits

    319,381       322,912  

Total interest-bearing deposits

    1,865,009       1,843,495  

Non-interest-bearing deposits

    771,556       736,180  

Total deposits

  $ 2,636,565     $ 2,579,675  

   

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)

 

March 31,

2017

   

December 31,

2016

 

Repurchase agreements* – commercial customers

  $ 23,613     $ 39,151  

Short-term FHLB advances

          165,000  

Overnight federal funds

           

Total short-term borrowings

  $ 23,613     $ 204,151  

  

* overnight repurchase agreements with no expiration date

 

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

 

(dollars in thousands)

 

Three Months Ended March 31,

 
   

2017

   

2016

 

Balance at period-end

  $ 23,613     $ 37,010  

Maximum amount outstanding at any month-end

    39,378       38,972  

Average balance outstanding during the period

    47,603       34,158  

Weighted-average interest rate:

               

As of period-end

    0.10

%

    0.27

%

Paid during the period

    0.23

%

    0.20

%

 

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)

 

March 31,

2017

   

December 31,

2016

 

Within one year

  $ 91,471     $ 75,000  

Over one year through five years

    83,240       114,742  

Total

  $ 174,711     $ 189,742  

 

 

 
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Table of Contents
 

   

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

 

(dollars in thousands)

 

Maturity Range(1)

   

Weighted

   

Coupon Rate(1)

   

Balance

 

Description

 

From

  To    

Average

 Rate(1)

   

From

      To    

March 31,

2017

   

December 31,

2016

 

Bullet maturity – fixed rate

 

05/24/2017

 

12/19/2020

      1.48

%

    0.95

%

    2.13

%

  $ 138,612     $ 153,612  

Bullet maturity – variable rate

 

11/28/2017

 

11/28/2017

      1.20

%

    1.20

%

    1.20

%

    15,000       15,000  

Convertible-fixed(2)

 

01/03/2018

 

08/20/2018

      2.94

%

    2.58

%

    3.50

%

    21,099       21,130  

Total

                                    $ 174,711     $ 189,742  

 

(1)Maturity range, weighted average rate and coupon rate range refers to March 31, 2017 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 March 31, 2017, substantially all FHLB advances with this convertible feature are subject to conversion in fiscal 2017. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to conversion.

 

C. Other Borrowings Information 

 

As of March 31, 2017 the Corporation had a maximum borrowing capacity with the FHLB of $1.23 billion, of which the unused capacity was $1.04 billion. In addition, there were unused capacities of $79.0 million in overnight federal funds lines, $108.0 million of Federal Reserve Discount Window borrowings and $5.0 million in a revolving line of credit from a correspondent bank as of March 31, 2017. 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 $8.5 million and $17.3 million as of March 31, 2017 and December 31, 2016, respectively. The carrying amount of the FHLB capital stock approximates its redemption value.

 

Note 8 – Stock-Based Compensation  

 

A. General Information 

 

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 of the Corporation 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 of the Corporation approved the Corporation’s “2010 Long Term Incentive Plan” (the “2010 LTIP”) under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants. On April 30, 2015, the shareholders of the Corporation approved the Amended and Restated Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan (the “Amended 2010 LTIP”), under which the total number of shares of Corporation Common Stock made available for award grants was increased by 500,000 shares to 945,002 shares.

 

In addition to the shareholder-approved plans mentioned in the preceding paragraph, the Corporation periodically authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)(4) of the Nasdaq listing rules.

 

Equity awards are authorized to be in the form of, among others, options to purchase the Corporation’s common stock, restricted stock awards or units (“RSAs” or “RSUs”) and performance stock awards or units (“PSAs” or “PSUs”).

 

RSAs and RSUs have a restriction based on the passage of time. The grant date fair value of the RSAs and RSUs is based on the closing price on the date of the grant.

 

PSAs and PSUs have a restriction based on the passage of time and also have a restriction based on a performance criteria. The performance criteria may be a market-based criteria measured by the Corporation’s total shareholder return (“TSR”) relative to the performance of the community bank index or a bank peer group for the respective period. The fair value of the PSAs and PSUs based on the Corporation’s TSR relative to the performance of the community bank index is calculated using the Monte Carlo Simulation method. The performance criteria may also be based on a non-market-based criteria such as return on average equity. The grant date fair value of these PSUs and PSAs is based on the closing price of the Corporation’s stock on the date of the grant. PSU and PSA grants may have a vesting percent ranging from 0% to 150%.

 

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.

 

 

 
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Table of Contents
 

  

The following table provides information about options outstanding for the three months ended March 31, 2017:

 

   

Shares

   

Weighted

Average

Exercise Price

   

Weighted

Average Grant

Date Fair

Value

 

Options outstanding, December 31, 2016

    185,023     $ 21.04     $ 4.88  

Forfeited

        $     $  

Expired

        $     $  

Exercised

    (29,178

)

  $ 22.29     $ 4.98  

Options outstanding, March 31, 2017

    155,845     $ 20.80     $ 4.86  

  

As of March 31, 2017, there were no unvested stock options. 

 

For the three months ended March 31, 2017, the Corporation did not recognize any expense related to stock options. As of March 31, 2017, there was no unrecognized expense related to stock options.

 

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three months ended March 31, 2017 and 2016 are detailed below: 

 

(dollars in thousands)

 

Three Months Ended March 31,

 
   

2017

   

2016

 

Proceeds from exercise of stock options

  $ 650     $ 283  

Related tax benefit recognized

    141       47  

Net proceeds of options exercised

  $ 791     $ 330  

Intrinsic value of options exercised

  $ 548     $ 131  

 

The following table provides information about options outstanding and exercisable at March 31, 2017:

 

(dollars in thousands, except exercise price)

 

Outstanding

   

Exercisable

 

Number of shares

    155,845       155,845  

Weighted average exercise price

  $ 20.80     $ 20.80  

Aggregate intrinsic value

  $ 2,914     $ 2,914  

Weighted average contractual term in years

    1.8       1.8  

  

C. Restricted Stock Awards and Performance Stock Awards

 

The Corporation has granted RSAs, RSUs, PSAs and PSUs under the 2007 LTIP, 2010 LTIP and Amended 2010 LTIP.

 

RSAs and RSUs

 

The compensation expense for the RSAs and RSUs 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.

 

For the three months ended March 31, 2017, the Corporation recognized $180 thousand of expense related to the Corporation’s RSAs and RSUs. As of March 31, 2017, there was $1.1 million of unrecognized compensation cost related to RSAs and RSUs. This cost will be recognized over a weighted average period of 2.0 years.

 

The following table details the unvested RSAs and RSUs for the three months ended March 31, 2017:

 

   

Three Months Ended March 31, 2016

 
   

Number of

Shares

   

Weighted

Average

Grant Date

Fair Value

 

Beginning balance

    58,862     $ 29.57  

Granted

    2,000     $ 38.51  

Vested

    (1,000

)

  $ 30.04  

Forfeited

        $  

Ending balance

    59,862     $ 29.86  

 

For the three months ended March 31, 2017, the Corporation recorded a $4 thousand excess tax benefit related to the vesting of RSAs and RSUs.

 

 

 
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PSAs and PSUs 

 

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

 

For the three months ended March 31, 2017, the Corporation recognized $304 thousand of expense related to the PSAs and PSUs. As of March 31, 2017, there was $1.7 million of unrecognized compensation cost related to PSAs and PSUs. This cost will be recognized over a weighted average period of 1.9 years.

 

For the three months ended March 31, 2017, the Corporation recorded $0 of tax benefit related to the vesting of PSAs and PSUs.  

 

The following table details the unvested PSAs and PSUs for the three months ended March 31, 2017:

 

   

Three Months Ended March 31, 2017

 
   

Number of

Shares

   

Weighted

Average

Grant Date

Fair Value

 

Beginning balance

    192,844     $ 18.77  

Granted

           

Vested

           

Forfeited

           

Ending balance

    192,844     $ 18.77  

  

Note 9 - Pension and Other Post-Retirement Benefit Plans 

 

The Corporation has two defined benefit pension plans (“SERP I” and “SERP II”), both of which are non-qualified plans which are restricted to certain senior officers of the Corporation. 

 

SERP I provides each participant with the equivalent pension benefit provided by a previously settled qualified defined benefit plan on any compensation and bonus deferrals that exceed the IRS limit applicable to such plan. 

 

On February 12, 2008, the Corporation amended 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 curtailed SERP II, as further increases to the defined-benefit amounts to over 20% of the participants were frozen.

 

The Corporation also has a postretirement medical benefit plan (“PRBP”) that covers or will cover a portion of health insurance costs of 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 months ended March 31, 2017 and 2016:

 

   

Three Months Ended March 31,

 
   

SERP I and SERP II

   

PRBP

 

(dollars in thousands)

 

2017

   

2016

   

2017

   

2016

 

Service cost

  $     $     $     $  

Interest cost

    44       46       3       4  

Expected return on plan assets

                       

Amortization of prior service costs

                       

Amortization of net loss

    14       14       9       10  

Net periodic benefit cost

  $ 58     $ 60     $ 12     $ 14  

  

SERP I and SERP II: The Corporation contributed $65 thousand during the three months ended March 31, 2017, and is expected to contribute an additional $195 thousand to the SERP I and SERP II plans for the remaining nine months of 2017.

 

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.

 

 

 
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Note 10 - Segment Information 

 

FASB Codification 280 – “Segment Reporting” identifies operating segments as components of an enterprise which are evaluated regularly by the Corporation’s Chief Operating Decision Maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

 

The Corporation’s Banking segment consists of commercial and retail banking. The Banking segment is evaluated as a single strategic unit which generates revenues from a variety of products and services. The Banking segment generates interest income from its lending (including leasing) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale of available for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering.

 

The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related fiduciary services, custody, investment management and advisory services, employee benefits and IRA administration, estate settlement, tax services and brokerage. Bryn Mawr Trust of Delaware and Lau Associates are included in the Wealth Management segment of the Corporation since they have similar economic characteristics, products and services to those of the Wealth Management Division of the Corporation. Powers Craft Parker and Beard (“PCPB”), which was merged with the Corporation’s existing insurance subsidiary, Insurance Counsellors of Bryn Mawr (“ICBM”), and RJM, which was acquired on April 1, 2015, now operate under the Powers Craft Parker and Beard, Inc. name. The Wealth Management Division has assumed oversight responsibility for all insurance services of the Corporation. Prior to the PCPB and RJM acquisitions, ICBM was reported through the Banking segment. Any adjustments to prior year figures are immaterial and are not reflected in the tables below.

 

The following tables detail segment information for the three months ended March 31, 2017 and 2016:

 

   

Three Months Ended March 31, 2017

   

Three Months Ended March 31, 2016

 

(dollars in thousands)

 

Banking

   

Wealth

Management

   

Consolidated

   

Banking

   

Wealth

Management

   

Consolidated

 
                                                 

Net interest income

  $ 27,402     $ 1     $ 27,403     $ 25,901     $ 1     $ 25,902  

Less: loan loss provision

    291             291       1,410             1,410  

Net interest income after loan loss provision

    27,111       1       27,112       24,491       1       24,492  

Other income:

                                               

Fees for wealth management services

          9,303       9,303             8,832       8,832  

Service charges on deposit accounts

    647             647       702             702  

Loan servicing and other fees

    503             503       492             492  

Net gain on sale of loans

    629             629       705             705  

Net gain (loss) on sale of available for sale securities

    1             1       (15

)

          (15

)

Net (loss) gain on sale of other real estate owned

                      (76

)

          (76

)

Insurance commissions

          763       763             1,276       1,276  

Other operating income

    1,333       48       1,381       1,201       36       1,237  

Total other income

    3,113       10,114       13,227       3,009       10,144       13,153  
                                                 

Other expenses:

                                               

Salaries & wages

    8,630       3,820       12,450       7,897       3,841       11,738  

Employee benefits

    1,627       932       2,559       1,645       840       2,485  

Occupancy & equipment

    2,127       399       2,526       2,082       406       2,488  

Amortization of intangible assets

    353       340       693       220       671       891  

Professional fees

    681       30       711       799       14       813  

Due diligence, merger-related and merger integration costs

    511             511                    

Other operating expenses

    6,184       1,026       7,210       5,717       864       6,581  

Total other expenses

    20,113       6,547       26,660       18,360       6,636       24,996  

Segment profit

    10,111       3,568       13,679       9,140       3,509       12,649  

Intersegment (revenues) expenses*

    (112

)

    112             (99

)

    99        

Pre-tax segment profit after eliminations

  $ 9,999     $ 3,680     $ 13,679     $ 9,041     $ 3,608     $ 12,649  

% of segment pre-tax profit after eliminations

    73.1

%

    26.9

%

    100.0

%

    71.5

%

    28.5

%

    100.0

%

Segment assets (dollars in millions)

  $ 3,247     $ 46     $ 3,293     $ 3,010     $ 48     $ 3,058  

*

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

 

Other segment information is as follows:

 

Wealth Management Segment Information  

 

 

(dollars in millions)

   

March 31, 2017

   

December 31, 2016

 

Assets under management, administration, supervision and brokerage:

  $ 11,725.5     $ 11,328.5  

 

 

 
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Note 11 - Mortgage Servicing Rights 

 

The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three months ended March 31, 2017 and 2016:

 

   

Three Months Ended March 31,

 

(dollars in thousands)

 

2017

   

2016

 

Balance, beginning of period

  $ 5,582     $ 5,142  

Additions

    276       259  

Amortization

    (169

)

    (136

)

Recovery

    2        

Impairment

    (5

)

    (83

)

Balance, end of period

  $ 5,686     $ 5,182  

Fair value

  $ 6,394     $ 5,182  

 

As of March 31, 2017 and December 31, 2016, 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)

 

March 31,

2017

   

December 31,

2016

 

Fair value amount of MSRs

  $ 6,394     $ 6,154  

Weighted average life (in years)

    6.3       6.3  

Prepayment speeds (constant prepayment rate)*

    10.0

%

    10.2

%

Impact on fair value:

               

10% adverse change

  $ (115

)

  $ (115

)

20% adverse change

  $ (238

)

  $ (238

)

Discount rate

    9.55

%

    9.55

%

Impact on fair value:

               

10% adverse change

  $ (236

)

  $ (225

)

20% adverse change

  $ (455

)

  $ (434

)

  *     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.  

 

 

 
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Note 12 - Goodwill and Other Intangibles   

 

The Corporation’s goodwill and intangible assets related to the acquisitions of Lau Associates, LLC (“Lau”) in July 2008, FKF in July 2010, the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May 2011, Davidson Trust Company (“DTC”) in May 2012, the loan and deposit accounts and a branch location of FBD in November 2012, PCPB in October 2014, CBH in January 2015 and RJM in April 2015 are detailed below:

 

(dollars in thousands)

 

Balance

December 31,

2016

   

Additions/

Adjustments

   

Amortization

   

Balance

March 31,

2017

   

Amortization
Period

 

Goodwill – Wealth

  $ 20,412     $     $     $ 20,412       Indefinite    

Goodwill – Banking

    80,783                   80,783       Indefinite    

Goodwill – Insurance

    3,570                   3,570       Indefinite    

Total

  $ 104,765     $     $     $ 104,765            

Core deposit intangible (years)

  $ 3,447     $     $ (184

)

  $ 3,263       10    

Customer relationships (years)

    13,056             (368

)

    12,688      10 to 20  

Non-compete agreements (years)

    1,634             (129

)

    1,505      5 to 10  

Trade name

    2,165                   2,165       Indefinite    

Domain name

          152             152       Indefinite    

Favorable lease (months)

    103             (12

)

    91      17 to 75  

Total

  $ 20,405     $ 152     $ (693

)

  $ 19,864            

Grand total

  $ 125,170     $ 152     $ (693

)

  $ 124,629            

 

The Corporation performed its annual review of goodwill and identifiable intangible assets as of October 31, 2016 in accordance with ASC 350, “Intangibles Goodwill and Other.” For the five months ended March 31, 2017, the Corporation determined there were no events that would necessitate impairment testing of goodwill and other intangible assets.

 

 

 
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Note 13 – Accumulated Other Comprehensive Income (Loss)

The following table details the components of accumulated other comprehensive income (loss) for the three month periods ended March 31, 2017 and 2016:

 

(dollars in thousands)

 

Net Change in Unrealized Gains on Available-for-Sale Investment Securities

   

Net Change in Unfunded Pension Liability

   

Accumulated Other Comprehensive Income (Loss)

 

Balance, December 31, 2016

  $ (1,231

)

    (1,178

)

    (2,409

)

Net change

    387       32       419  

Balance, March 31, 2017

  $ (844

)

    (1,146

)

    (1,990

)

                         

Balance, December 31, 2015

  $ 774       (1,186

)

    (412

)

Net change

    1,921       (7 )     1,914  

Balance, March 31, 2016

  $ 2,695       (1,193

)

    1,502  

  

The following table details the amounts reclassified from each component of accumulated other comprehensive loss to each component’s applicable income statement line, for the three month periods ended March 31, 2017 and 2016:

 

Description of Accumulated Other

 

Amount Reclassified from Accumulated

Other Comprehensive Loss

 

 

Comprehensive Loss Component  

For The Three Months Ended March 31,

  Affected Income Statement Category
   

2017

   

2016

   

Net unrealized gain on investment securities available for sale:

                 

Realization of loss (gain) on sale of investment securities available for sale

  $ (1

)

  $ 15  

Net (loss) gain on sale of available for sale investment securities

Less: income tax benefit (expense)

          6  

Less: income tax benefit (expense)

Net of income tax

  $ (1

)

  $ 9  

Net of income tax

                   

Unfunded pension liability:

                 

Amortization of net loss included in net periodic pension costs*

  $ 23     $ 24  

Employee benefits

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

           

Employee benefits

Total expense before income tax benefit

    23       24  

Total expense before income tax benefit

Less: income tax benefit

    8       8  

Less: income tax benefit

Net of income tax

  $ 15     $ 16  

Net of income tax

 

*Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 - Pension and Other Post-Retirement Benefit Plans

 

 

 
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Note 14 - Shareholders’ Equity

 

Dividend

 

On April 20, 2017, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.21 per share payable June 1, 2017 to shareholders of record as of May 2, 2017. During the first quarter of 2017, the Corporation paid or accrued, as applicable, a regular quarterly dividend of $0.21 per share. This dividend totaled $3.6 million, based on outstanding shares and restricted stock units as of February 2, 2017 of 17,190,700 shares.

 

S-3 Shelf Registration Statement and Offerings Thereunder 

 

In March 2015, the Corporation filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) to replace its 2012 Shelf Registration Statement, which was set to expire in April 2015. The 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 $200 million, in the aggregate.   

 

In addition, the Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which allows it to issue up 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.

 

Options

In addition to shares that may be issued through the Plan, the Corporation also issues shares through the exercise of stock options. During the three months ended March 31, 2017, 29,178 shares were issued pursuant to the exercise of stock options, increasing shareholders’ equity by $650 thousand.

 

Stock Repurchases

 

On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million. During the three months ended March 31, 2017, no shares were repurchased under the 2015 Program. As of March 31, 2017, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300. In addition to the 2015 Program, it is the Corporation’s practice to retire shares to its treasury account upon the vesting of stock awards to certain officers in order to cover the statutory income tax withholdings related to such vestings.

 

Note 15 - 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 2013.

 

The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued for the three months ended March 31, 2017 or 2016.

 

Note 16 - 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.  

 

 
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The Corporation’s investment securities available for sale, which generally include state and municipal securities, U.S. government agency securities 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 agency securities 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 Corporation has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of available for sale investments to enable management to maintain an appropriate system of internal control.

 

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 March 31, 2017 and December 31, 2016 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input.  

 

The following table sets forth the fair value of assets measured on a recurring and non-recurring basis as of March 31, 2017:

 

(dollars in millions)

 

Total

   

Level 1

   

Level 2

   

Level 3

 

Assets Measured at Fair Value on a Recurring Basis:

                               

Investment securities (available for sale and trading):

                               

U.S. Treasury securities

  $ 0.1     $ 0.1     $     $  

Obligations of the U.S. government agency securities

    100.5             100.5        

Obligations of state & political subdivisions

    30.9             30.9        

Mortgage-backed securities

    202.5             202.5        

Collateralized mortgage obligations

    45.5             45.5        
Mutual funds     19.5       19.5              

Other debt securities

    1.3             1.3        

Total assets measured on a recurring basis at fair value

  $ 400.3     $ 19.6     $ 380.7     $  
                                 

Assets Measured at Fair Value on a Non-Recurring Basis

                               

Mortgage servicing rights

  $ 6.4     $     $     $ 6.4  

Impaired loans and leases

    13.4                   13.4  

Other real estate owned (“OREO”)

    1.0                   1.0  

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

  $ 20.8     $     $     $ 20.8  

 

The following table sets forth the fair value of assets measured on a recurring and non-recurring basis as of December 31, 2016:

 

(dollars in millions)

 

Total

   

Level 1

   

Level 2

   

Level 3

 

Assets Measured at Fair Value on a Recurring Basis:

                               

Investment securities (available for sale and trading):

                               

U.S. Treasury securities

  $ 200.1     $ 200.1     $     $  

Obligations of the U.S. government agency securities

    82.2             82.2        

Obligations of state & political subdivisions

    33.5             33.5        

Mortgage-backed securities

    188.8             188.8        

Collateralized mortgage obligations

    48.7             48.7        
Mutual funds     19.1       19.1              

Other debt securities

    1.3             1.3        

Total assets measured on a recurring basis at fair value

  $ 573.7     $ 219.2     $ 354.5     $  
                                 

Assets Measured at Fair Value on a Non-Recurring Basis

                               

Mortgage servicing rights

  $ 6.2     $     $     $ 6.2  

Impaired loans and leases

    14.3                   14.3  

OREO

    1.0                   1.0  

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

  $ 21.5     $     $     $ 21.5  

 

 

 
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During the three months ended March 31, 2017, an increase of $3 thousand was 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 three months ended March 31, 2017.


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.  

 

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 17 - 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 fair 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.

 

 

 
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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 re-price 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 Corporation or the appraised fair 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.

 

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 and other borrowings (with original maturities of greater than one year) is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.

 

Subordinated Notes

 

The fair value of the Notes is estimated by discounting the principal balance using the FHLB yield curve for the term to the call date as the Corporation has the option to call the Notes. The Notes are classified within Level 2 in the fair value hierarchy.

 

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.

 

 

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

 

        As of March 31,     As of December 31,    
    Fair Value   2017       2016    
(dollars in thousands)  

Hierarchy

Level*

 

Carrying

Amount

   

Estimated

Fair Value

   

Carrying

Amount

   

Estimated

Fair Value

 
                                     
Financial assets:                                    

Cash and cash equivalents

 

Level 1

  $ 87,435     $ 87,435     $ 50,765     $ 50,765  

Investment securities, available for sale

 

See Note 16

    391,028       392,239       566,996       566,996  

Investment securities, trading

 

See Note 16

    4,138       4,138       3,888       3,888  

Investments, held to maturity

 

Level 2

    5,194       5,116       2,879       2,818  

Loans held for sale

 

Level 2

    3,015       3,015       9,621       9,621  

Net portfolio loans and leases

 

Level 3

    2,538,482       2,564,015       2,517,939       2,505,546  

Mortgage servicing rights

 

Level 3

    5,686       6,394       5,582       6,154  

Other assets

 

Level 3

    25,613       25,613       34,465       34,465  

Total financial assets

  $ 3,060,591     $ 3,087,965     $ 3,192,135     $ 3,180,253  

Financial liabilities:

                                   

Deposits

 

Level 2

  $ 2,636,565     $ 2,635,731     $ 2,579,675     $ 2,579,011  

Short-term borrowings

 

Level 2

    23,613       23,612       204,151       204,151  

Long-term FHLB advances and other borrowings

 

Level 2

    174,711       174,967       189,742       186,863  

Subordinated notes

 

Level 2

    29,546       29,624       29,532       29,228  

Other liabilities

 

Level 2

    40,087       40,087       37,303       37,303  

Total financial liabilities

  $ 2,904,522     $ 2,904,021     $ 3,040,403     $ 3,036,556  

 

         *See Note 16 for a description of fair value hierarchy levels.

 

Note 18 - Recent Accounting Pronouncements

 

FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers”

 

Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016- 08, “Principal versus Agent Considerations (Reporting Gross versus Net),” which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers and 2016-12, Narrow-Scope Improvements and Practical Expedients, both of which provide additional clarification of certain provisions in Topic 606. These Accounting Standards Codification (“ASC”) updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or retrospectively with the cumulative effect transition method. The Corporation is currently in the process of evaluating all revenue streams, accounting policies, practices and reporting to identify and understand any impact on the Corporation’s Consolidated Financial Statements. Our preliminary evaluation suggests that adoption of this guidance is not expected to have a material effect on our Consolidated Financial Statements.  

 

FASB ASU 2017-04 (Topic 350), “Intangibles – Goodwill and Others”

 

Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017-04 will have on its consolidated financial statements and related disclosures. 

 

FASB ASU 2017-01 (Topic 805), “Business Combinations”

 

Issued in January 2017, ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017-01 will have on its consolidated financial statements and related disclosures.

 

 

 
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FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”

 

Issued in August 2016, ASU 2016-15 provides guidance on eight specific cash flow issues and their disclosure in the consolidated statements of cash flows. The issues addressed include debt prepayment, settlement of zero-coupon debt, contingent consideration in business combinations, proceeds from settlement of insurance claims, proceeds from settlement of BOLI, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the Predominance principle. 2016-15 is effective for the annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Corporation is currently evaluating the impact of this guidance and does not anticipate a material impact on its consolidated financial statements. 

 

FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

 

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures. 

 

FASB ASU 2016-02 (Topic 842), “Leases”

 

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

 

FASB ASU 2016-01 (Subtopic 825-10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”

 

Issued in January 2016, ASU 2016-01 provides that equity investments will be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable an entity may elect to measure the equity investment at cost, minus impairment, plus or minus any change in the investment’s observable price. For financial liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument-specific credit risk. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

 

FASB ASU 2017-08 (Subtopic 310-20), “Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

 

Issued in March 2017, ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendments does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Corporation has evaluated ASU 2017-08 and determined that it currently follows the guidance related to premium amortization on callable debt securities.

 

FASB ASU 2017-07—Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

 

Issued in March 2017, ASU 2017-07 require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Corporation is evaluating the effect that ASU 2017-07 will have on its consolidated financial statements and related disclosures, but does not expect that it will materially affect the Corporation’s financial statements.

 

 
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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 offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from 25 full-service branches, eight limited-hour retirement community offices, one limited-service branch, five wealth management offices and a full-service insurance agency located throughout Montgomery, Delaware, Chester, Dauphin and Philadelphia counties in Pennsylvania and New Castle county in Delaware. The common stock of the Corporation 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 and the Pennsylvania Department of Banking and Securities. The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

 

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, and the valuation of 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 2016 Annual Report on Form 10-K (the “2016 Annual Report”).

 

Pending Business Combination – Royal Bancshares of Pennsylvania, Inc.

 

On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal Bancshares of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge with and into the Corporation and RBA will merge with and into the Bank. The Acquisition, which is expected to add approximately $602 million in loans and $630 million in deposits (based on December 31, 2016 financial information), strengthens the Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ranks it as the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and an expanded physical presence in Philadelphia County, Pennsylvania, is expected to close during the third quarter of 2017 and is subject to shareholder approval as well as applicable regulatory approvals and closing conditions.

 

Other Pending Acquisitions and Expansion Plans

 

In addition to the RBPI Acquisition, the Bank has continued to execute on its strategies of diversification and acquiring and/or establishing specialty offices in strategically targeted areas where management believes there to be a high demand for the Bank’s products and services. On April 19, 2017, the Bank announced that it had entered into a definitive agreement to acquire Hirshorn Boothby, a full-service insurance agency established in 1931 and headquartered in the Chestnut Hill section of Philadelphia. Following receipt of applicable regulatory approvals and satisfaction of certain closing conditions, Hirshorn Boothby will be integrated into the Bank’s existing insurance subsidiary, Powers, Craft, Parker and Beard, Inc., which will expand the footprint of this growing segment.

 

 
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On April 4, 2017, the Corporation announced the anticipated opening, subject to regulatory approval, of a wealth management-focused office in Princeton, New Jersey which is expected to complement the already-established presence in central New Jersey that is to be acquired in the anticipated merger with RBPI.

 

In addition to these expansions of the Corporation’s physical presence, beginning in the second quarter of 2017 the Bank’s newly established Capital Markets department will begin operations that will focus on providing risk management services to address the needs of its commercial customer base. These capital markets capabilities will enable the Bank to offer hedging tools for qualified commercial customers through the use of interest rate swaps and options designed to mitigate the interest rate risk on variable rate loans. This interest rate hedging offering will allow the Bank to participate on and lead in larger and longer dated credits without incurring additional interest rate risk itself. Additional services will similarly focus on helping qualified customers to hedge their foreign exchange risk and meet their trade finance needs through enhanced international services capabilities.

 

Executive Overview

 

The following items highlight the Corporation’s results of operations for the three months ended March 31, 2017, as compared to the same period in 2016, and the changes in its financial condition as of March 31, 2017 as compared to December 31, 2016. More detailed information related to these highlights can be found in the sections that follow.

 

 

Three Month Results of Operations

 

 

Net income for the three months ended March 31, 2017 was $9.0 million, an increase of $723 thousand as compared to net income of $8.3 million for the same period in 2016. Diluted earnings per share was $0.53 for the three months ended March 31, 2017 as compared to $0.49 for the same period in 2016.

 

 

Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended March 31, 2017 were 9.60% and 1.13%, respectively, as compared to ROE and ROA of 9.27% and 1.13%, respectively, for the same period in 2016.

 

 

Tax-equivalent net interest income increased $1.6 million, or 6.0%, to $27.6 million for the three months ended March 31, 2017, as compared to $26.0 million for the same period in 2016.

 

 

Provision for loan and lease losses (the “Provision”), of $291 thousand for the three months ended March 31, 2017 was a decrease of $1.1 million from the $1.4 million Provision recorded for the same period in 2016.

 

 

Non-interest income of $13.2 million for the three months ended March 31, 2017 was relatively unchanged, increasing $74 thousand as compared to the same period in 2016.

 

 

Fees for wealth management services and insurance revenue of $9.3 million and $763 thousand, respectively, for the three months ended March 31, 2017 were an increase of $471 thousand and a decrease of $513 thousand, respectively, from the same period in 2016.

 

 

Non-interest expense of $26.7 million for the three months ended March 31, 2017 increased $1.7 million, from $25.0 million for the same period in 2016.

 

Changes in Financial Condition

 

 

Total assets of $3.29 billion as of March 31, 2017 decreased $128.9 million from December 31, 2016.

 

 

Shareholders’ equity of $388.1 million as of March 31, 2017 increased $7.0 million from $381.1 million as of December 31, 2016.

 

 
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Total portfolio loans and leases as of March 31, 2017 were $2.56 billion, an increase of $20.2 million from the December 31, 2016 balance.

 

 

Total non-performing loans and leases of $7.3 million represented 0.29% of portfolio loans and leases as of March 31, 2017 as compared to $8.4 million, or 0.33% of portfolio loans and leases as of December 31, 2016.

 

 

The $17.1 million Allowance, as of March 31, 2017, represented 0.67% of portfolio loans and leases, as compared to $17.5 million, or 0.69% of portfolio loans and leases as of December 31, 2016.

 

 

Total deposits of $2.64 billion as of March 31, 2017 increased $56.9 million from $2.58 billion as of December 31, 2016.

 

 

Wealth Management assets under management, administration, supervision and brokerage as of March 31, 2017 were $11.73 billion, an increase of $397.0 million from December 31, 2016.

 

 

Key Performance Ratios

 

Key financial performance ratios for the three months ended March 31, 2017 and 2016 are shown in the table below:

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Annualized return on average equity

    9.60

%

    9.27

%

Annualized return on average assets

    1.13

%

    1.13

%

Tax-equivalent net interest margin

    3.74

%

    3.87

%

Basic earnings per share

  $ 0.53     $ 0.49  

Diluted earnings per share

  $ 0.53     $ 0.49  

Dividend per share

  $ 0.21     $ 0.20  

Dividend declared per share to net income per basic common share

    39.4

%

    40.5

%

 

 

The following table presents certain key period-end balances and ratios as of March 31, 2017 and December 31, 2016:

 

(dollars in millions, except per share amounts)

 

March 31, 2017

   

December 31, 2016

 

Book value per share

  $ 22.87     $ 22.50  

Tangible book value per share

  $ 15.53     $ 15.11  

Allowance as a percentage of loans and leases

    0.67

%

    0.69

%

Tier I capital to risk weighted assets

    10.50

%

    10.51

%

Tangible common equity ratio

    8.32

%

    7.76

%

Loan to deposit ratio

    97.0

%

    98.7

%

Wealth assets under management, administration, supervision and brokerage

  $ 11,725.5     $ 11,328.5  

Portfolio loans and leases

  $ 2,555.6     $ 2,535.4  

Total assets

  $ 3,292.6     $ 3,421.5  

Shareholders’ equity

  $ 388.1     $ 381.1  

 

The following sections discuss, in detail, the Corporation’s results of operations for the three months ended March 31, 2017, as compared to the same periods in 2016, and the changes in its financial condition as of March 31, 2017 as compared to December 31, 2016.

 

 
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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;

 

 

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, insurance revenue, gains and losses from the sale 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.

 

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 months ended March 31, 2017 and 2016, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the tax-equivalent rates 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 increased $1.6 million, or 6.0%, to $27.6 million for the three months ended March 31, 2017, as compared to $26.0 million for the same period in 2016. The increase in net interest income between the periods was largely related to the increase in average loans for the three months ended March 31, 2017 as compared to the same period in 2016. Average loans for the first quarter of 2017 increased by $247.1 million from the same period in 2016, while the tax-equivalent yield earned on loans decreased by 13 basis points. In addition, average long-term FHLB advances decreased $67.5 million with a 9 basis point increase in rate paid between periods. The increase in average loan balances and decrease in average long-term FHLB advances were offset by a $218.5 million increase in average interest-bearing deposits, whose tax-equivalent rate paid increased by 14 basis points between the periods.

 

 
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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 presented, along with interest income, interest expense and key rates and yields.

 

   

For the Three Months Ended March 31,

 
   

2017

   

2016

 

(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

  $ 39,669     $ 66       0.67

%

  $ 39,050     $ 46       0.47

%

Investment securities - available for sale:

                                               

Taxable

    354,229       1,653       1.89

%

    316,353       1,397       1.78

%

Non-taxable(3)

    31,485       164       2.11

%

    40,658       191       1.89

%

Total investment securities - available for sale

    385,714       1,817       1.91

%

    357,011       1,588       1.79

%

Investment securities – held to maturity

    3,702       7       0.77

%

                 

Investment securities – trading

    3,890       8       0.83

%

    3,946       2       0.20

%

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

    2,555,677       28,622       4.54

%

    2,308,584       26,778       4.67

%

Total interest-earning assets

    2,988,652       30,520       4.14

%

    2,708,591       28,414       4.22

%

Cash and due from banks

    14,942                       16,501                  

Allowance for loan and lease losses

    (17,580

)

                    (16,239

)

               

Other assets

    258,046                       264,295                  

Total assets

  $ 3,244,060                     $ 2,973,148                  

Liabilities:

                                               

Savings, NOW, and market rate accounts

  $ 1,388,561       756       0.22

%

  $ 1,279,630       569       0.18

%

Wholesale deposits

    143,461       317       0.90

%

    137,201       233       0.68

%

Time deposits

    320,172       755       0.96

%

    216,820       274       0.51

%

Total interest-bearing deposits

    1,852,194       1,828       0.40

%

    1,633,651       1,076       0.26

%

Short-term borrowings

    47,603       27       0.23

%

    34,158       17       0.20

%

Long-term FHLB advances and other borrowings

    182,507       698       1.55

%

    250,015       908       1.46

%

Subordinated notes

    29,537       370       5.08

%

    29,482       366       4.99

%

Total borrowings

    259,647       1,095       1.71

%

    313,655       1,291       1.66

%

Total interest-bearing liabilities

    2,111,841       2,923       0.56

%

    1,947,306       2,367       0.49

%

Non-interest-bearing deposits

    711,794                       631,047                  

Other liabilities

    38,211                       33,923                  

Total non-interest-bearing liabilities

    750,005                       664,970                  

Total liabilities

    2,861,846                       2,612,276                  

Shareholders’ equity

    382,214                       360,872                  

Total liabilities and shareholders’ equity

  $ 3,244,060                     $ 2,973,148                  

Net interest spread

                    3.58

%

                    3.73

%

Effect of non-interest-bearing liabilities

                    0.16

%

                    0.14

%

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

          $ 27,597       3.74

%

          $ 26,047       3.87

%

Tax-equivalent adjustment(3)

          $ 194       0.02

%

          $ 145       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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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 three months ended March 31, 2017 as compared to the same period in 2016, 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.

 

   

2017 Compared to 2016

 
   

Three Months Ended March 31,

 

(dollars in thousands)

 

Volume

   

Rate

   

Total

 

Interest income

                       

Interest-bearing deposits with other banks

  $ 1     $ 19     $ 20  

Investment securities

    51       191       242  

Loans and leases

    6,591       (4,747

)

    1,844  

Total interest income

  $ 6,643     $ (4,537

)

  $ 2,106  

Interest expense:

                       

Savings, NOW and market rate accounts

  $ 49     $ 138     $ 187  

Wholesale deposits

    10       74       84  

Retail time deposits

    129       352       481  

Borrowed funds**

    (455

)

    255       (200

)

Subordinated notes

          4       4  

Total interest expense

    (267

)

    823       556  

Interest differential

  $ 6,910     $ (5,360

)

  $ 1,550  


*The tax rate used in the calculation of the tax-equivalent income is 35%.

         **Borrowed funds include short-term borrowings and Federal Home Loan Bank advances and other borrowings.

 

Tax-Equivalent Net Interest Margin

 

The tax-equivalent net interest margin of 3.74% for the three months ended March 31, 2017 was a 13 basis point decrease from 3.87% for the same period in 2016. The decrease was largely the result of the 13 basis point decrease in tax-equivalent yield earned on loans and leases and the 14 basis point increase in rate paid on interest-bearing deposits. The $280.1 million volume increase in average interest-earning assets versus the $164.5 million increase in average interest-bearing liabilities partially offset the effect of the yield decrease and rate increase between the periods. The contribution of fair value mark accretion to the tax equivalent net interest margin accounted for 11 basis points of the margin for the first quarter of 2017 as compared to 16 basis points for the first quarter of 2016.

 

 

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

   

Net Interest

Margin

 

1st Quarter 2017

    4.14

%

    0.56

%

    3.58

%

    0.16

%

    3.74

%

4th Quarter 2016

    4.05

%

    0.56

%

    3.49

%

    0.16

%

    3.65

%

3rd Quarter 2016

    4.09

%

    0.55

%

    3.54

%

    0.17

%

    3.71

%

2nd Quarter 2016

    4.18

%

    0.53

%

    3.65

%

    0.16

%

    3.81

%

1st Quarter 2016

    4.22

%

    0.49

%

    3.73

%

    0.14

%

    3.87

%

 

 
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Table of Contents
 

 

Interest Rate Sensitivity 

 

The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control 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, including the Certificate of Deposit Account Registry Service (“CDARS”), the Insured Network Deposit (“IND”) Program, the Charity Deposits Corporation (“CDC”), the Insured Cash Sweep (“ICS”) and the Pennsylvania Local Government Investment Trust (“PLGIT”).

 

The Corporation uses several tools to measure 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 trend 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 12 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 the Twelve Months

Beginning After

March 31, 2016

   

Change in Net Interest Income

Over the Twelve Months

Beginning After

December 31, 2015

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 

+300 basis points

  $ 10,798       9.40

%

  $ 10,207       9.01

%

+200 basis points

  $ 7,226       6.29

%

  $ 6,653       5.87

%

+100 basis points

  $ 3,560       3.10

%

  $ 3,048       2.69

%

-100 basis points

  $ (4,362

)

    (3.80

)%

  $ (4,397

)

    (3.88

)%

 

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of March 31, 2017 in the +100 basis point scenario, which is similar to the December 31, 2016 simulation. The asset sensitivity table indicates that a 100, 200 or 300 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is slightly more asset sensitive in comparison to December 31, 2016. This is a result of rise in interest rates that is impacting interest income on interest bearing assets while the cost of interest bearing liabilities remained stable.

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 assumptions in the interest rate simulation model is more uncertain than in other periods. Actual customer behavior may be 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 re-pricing 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: re-pricing, 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.

 

 
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Table of Contents
 

 

The following table presents the Corporation’s interest rate sensitivity position or gap analysis as of March 31, 2017:

 

(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

  $ 70.0     $     $     $     $     $ 70.0  

Investment securities – available for sale

    31.3       76.1       191.4       92.3             391.1  

Investment securities – held to maturity

                      5.2             5.2  

Investment securities – trading

    4.1                               4.1  

Loans and leases(1)

    942.3       288.1       965.5       362.7             2,558.6  

Allowance for loan and lease losses

                            (17.1

)

    (17.1

)

Cash and due from banks

                            17.5       17.5  

Other assets

                            263.2       263.2  

Total assets

  $ 1,047.7     $ 364.2     $ 1,156.9     $ 460.2     $ 263.6     $ 3,292.6  

Liabilities and shareholders’ equity:

                                               

Demand, non-interest-bearing

  $ 47.9     $ 143.7     $ 202.2     $ 377.8     $     $ 771.5  

Savings, NOW and market rate

    96.8       290.3       693.6       327.3             1,408.0  

Time deposits

    104.6       176.4       38.3       0.1             319.4  

Wholesale non-maturity deposits

    69.5                               69.5  

Wholesale time deposits

    17.9       14.4       35.9                   68.2  

Short-term borrowings

    23.6                               23.6  

Long-term FHLB advances

    25.0       66.4       83.3                   174.7  

Subordinated notes

                29.5                   29.5  

Other liabilities

                            40.1       40.1  

Shareholders’ equity

    13.9       41.6       221.8       110.8             388.1  

Total liabilities and shareholders’ equity

  $ 399.2     $ 732.8     $ 1,304.6     $ 816.0     $ 40.1     $ 3,292.6  

Interest-earning assets

  $ 1,047.7     $ 364.2     $ 1,156.9     $ 460.2     $     $ 3,029.0  

Interest-bearing liabilities

    337.4       547.5       880.6       327.4             2,092.9  

Difference between interest-earning assets and interest-bearing liabilities

  $ 710.3     $ (183.3

)

  $ 276.3     $ 132.8     $     $ 936.1  

Cumulative difference between interest earning assets and interest-bearing liabilities

  $ 710.3       527.0       803.3       936.1             936.1  

Cumulative earning assets as a % of cumulative interest bearing liabilities

    311

%

    160

%

    145

%

    145

%

          145

%

Loans include portfolio loans and loans held for sale

 

The table above indicates that the Corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is only one tool used to measure interest rate sensitivity and should 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. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at December 31, 2016.

 

 
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Table of Contents
 

 

PROVISION FOR LOAN AND LEASE LOSSES

 

For the three months ended March 31, 2017, the Corporation recorded a Provision of $291 which was a $1.1 million decrease from the same period in 2016. Net charge-offs for the first quarter of 2017 were $670 thousand as compared to $422 thousand for the same period in 2016. The decrease in Provision is indicative of improvements in certain qualitative factors used to determine the Allowance. For a general discussion of the Allowance, and our policies related thereto, refer to page 34 of the Corporation’s 2016 Annual Report.

 

Asset Quality and Analysis of Credit Risk

 

 

As of March 31, 2017, total nonperforming loans and leases decreased by $1.0 million, to $7.3 million, representing 0.29% of portfolio loans and leases, as compared to $8.4 million, or 0.33% of portfolio loans and leases as of December 31, 2016. The decrease in nonperforming loans and leases resulted from pay-offs or pay-downs of $563 thousand of loans and the charge-off of $641 thousand of loans nonperforming as of December 31, 2016. Partially offsetting the decreases in nonperforming loans from December 31, 2016 was the addition during the first quarter of 2017 of $170 thousand of new nonperforming loans and leases.

 

As of March 31, 2017, the Allowance of $17.1 million represented 0.67% of portfolio loans and leases, a two basis point decrease from 0.69% as of December 31, 2016. The Allowance on originated portfolio loans, as a percentage of originated portfolio loans, was 0.75% as of March 31, 2017 as compared to 0.78% as of December 31, 2016. Loans acquired in mergers are recorded at fair value as of the date of acquisition. This fair value estimate takes into account an estimate of the expected lifetime losses of the acquired loans. As such, an acquired loan will not generally become subject to additional Allowance unless it becomes impaired.

 

As of March 31, 2017, the Corporation had OREO valued at $978 thousand, as compared to $1.0 million as of December 31, 2016. During the three months ended March 31, 2017, a $39 thousand OREO property acquired in the CBH merger was sold, resulting in no gain or loss on sale. The balance of OREO as of March 31, 2017 was comprised of six residential properties, four of which are manufactured housing properties acquired in the Continental Merger. All properties are recorded at the lower of cost or fair value less cost to sell.

 

As of March 31, 2017, the Corporation had $9.2 million of troubled debt restructurings (“TDRs”), of which $6.5 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2016, the Corporation had $9.0 million of TDRs, of which $6.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases.

 

As of March 31, 2017, the Corporation had a recorded investment of $13.5 million of impaired loans and leases which included $9.2 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, 2016 totaled $14.4 million, which included $9.0 million of TDRs. Refer to Note 5H in the Notes to unaudited 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. Proactive steps that are taken 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 risk of loss.

 

 
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Table of Contents
 

 

Nonperforming Assets and Related Ratios

 

(dollars in thousands)

 

March 31, 2017

   

December 31, 2016

 

Nonperforming Assets:

               

Nonperforming loans and leases

  $ 7,329     $ 8,363  

Other real estate owned

    978       1,017  

Total nonperforming assets

  $ 8,307     $ 9,380  

Troubled Debt Restructures:

               

TDRs included in non-performing loans

  $ 2,681     $ 2,632  

TDRs in compliance with modified terms

    6,492       6,395  

Total TDRs

  $ 9,173     $ 9,027  

Loan and Lease quality indicators:

               

Allowance for loan and lease losses to nonperforming loans and leases

    233.4

%

    209.1

%

Nonperforming loans and leases to total portfolio loans and leases

    0.29

%

    0.33

%

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

    0.67

%

    0.69

%

Nonperforming assets to total loans and leases and OREO

    0.32

%

    0.37

%

Total portfolio loans and leases

  $ 2,555,589     $ 2,535,425  

Allowance for loan and lease losses

  $ 17,107     $ 17,486  

 

NON-INTEREST INCOME

 

 

Three Months Ended March 31, 2017 Compared to the Same Period in 2016

 

Non-interest income for the three months ended March 31, 2017 increased by $74 thousand from the same period in 2016. A $144 thousand increase in other operating income and a $471 thousand increase in fees for wealth management services, as wealth assets have increased 26.3% from the March 31, 2016 level, were partially offset by a decrease of $76 thousand in gain on sale of residential mortgage loans, as market interest rate increases reduced origination activity, and a $513 thousand decrease in insurance revenues related to the recognition of contingent commissions from providers during the first quarter of 2016, which are being ratably recognized in 2017. 

 

 

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

 

   

As of or for the

Three Months Ended March 31,

 

(dollars in millions)

 

2017

   

2016

 

Residential mortgage loans held in portfolio

  $ 418.3     $ 412.0  

Mortgage originations

  $ 48.6     $ 51.5  

Total mortgage loans sold

  $ 32.7     $ 28.4  

Percent of originated mortgage loans sold

    67.3

%

    55.0

%

Percent of sold with servicing-retained

    84.8

%

    91.6

%

Percent of sold with servicing-released

    15.2

%

    8.4

%

Mortgage servicing rights at period end (“MSRs”)

  $ 5.7     $ 5.2  

Net gain on sale of residential mortgage loans

  $ 0.6     $ 0.7  

Residential mortgage loans serviced for others

  $ 638.6     $ 605.4  

 

 
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Table of Contents
 

 

The following table provides details of other operating income for the three months ended March 31, 2017 and 2016:

 

 

(dollars in thousands)

 

Three Months Ended March 31,

 
   

2017

   

2016

 

Merchant interchange fees

  $ 341     $ 408  

Commissions and fees

    131       205  

Bank-owned life insurance (“BOLI”) income

    201       245  

Safe deposit box rentals

    90       94  

Other investment income

          2  

Rental income

    48       42  

Miscellaneous other income

    356       27  

Other operating income

  $ 1,167     $ 1,023  

 

 

Wealth Assets Under Management, Administration, Supervision and Brokerage (“Wealth Assets”)

 

Wealth Asset accounts are categorized into two groups; the first account group consists predominantly of clients whose fees are determined based on the market value of the assets held in their accounts (“Market Value” fee basis). The second account group consists predominantly of clients whose fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are not affected by market value changes.

 

The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management services:

 

(dollars in thousands)

 

Wealth Assets as of:

 

Fee Basis

 

March 31,

2017

   

December 31,

2016

   

September 30,

2016

   

June 30,

2016

   

March 31,

2016

 

Market value

  $ 5,483,237     $ 5,302,463     $ 5,276,756     $ 5,078,386     $ 5,032,841  

Fixed

    6,242,223       6,025,994       4,692,989       4,554,135       4,248,902  
    $ 11,725,460     $ 11,328,457     $ 9,969,745     $ 9,632,521     $ 9,281,743  

 

   

Percentage of Wealth Assets

 
   

March 31,

2017

   

December 31,

2016

   

September 30,

2016

   

June 30,

2016

   

March 31,

2016

 

Market value

    46.8 %     46.8 %     52.9 %     52.7 %     54.2 %

Fixed

    53.2 %     53.2 %     47.1 %     47.3 %     45.8 %
      100.0 %     100.0 %     100.0 %     100.0 %     100.0 %

 

The following tables detail the composition of fees for wealth management services for the periods indicated:

 

(dollars in thousands)

 

For the Three Months Ended:

 

Fee Basis

 

March 31,

2017

   

December 31,

2016

   

September 30,

2016

   

June 30,

2016

   

March 31,

2016

 

Market value

  $ 7,230       7,212     $ 7,196     $ 7,187     $ 6,823  

Fixed

    2,073       2,115       1,904       2,244       2,009  
    $ 9,303       9,327     $ 9,100     $ 9,431     $ 8,832  

 

   

Percentage of Fees for Wealth Management

 
   

March 31,

2017

   

December 31,

2016

   

September 30,

2016

   

June 30, 2016

   

March 31,

2016

 

Market value

    77.7 %     77.3 %     79.1 %     76.2 %     77.3 %

Fixed

    22.3 %     22.7 %     20.9 %     23.8 %     22.7 %
      100.0 %     100.0 %     100.0 %     100.0 %     100.0 %

 

 
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Table of Contents
 

 

NON-INTEREST EXPENSE

 

Three Months Ended March 31, 2017 Compared to the Same Period in 2016

 

Non-interest expense for the three months ended March 31, 2017 increased $1.7 million from the same period in 2016, primarily related to salary and wage increases of $712 thousand due to staffing increases, annual salary and wage increases and increases in incentive compensation, a $511 thousand increase in merger expenses in connection with the merger with RBPI, and a $700 thousand increase in other operating expenses, largely related to deferred compensation expense associated with the valuation of Corporation stock held in the deferred compensation trusts.

 

The following table provides details of other operating expenses for the three months ended March 31, 2017 and 2016:

 

 

(dollars in thousands)

 

Three Months Ended March 31,

 
   

2017

   

2016

 

Deferred compensation trust expense

  $ 125     $ (213

)

Director fees

    157       185  

Dues and subscriptions

    154       101  

FDIC insurance

    374       434  

Impairment of mortgage servicing rights

    3       83  

Insurance

    207       219  

Loan processing

    523       268  

Miscellaneous

    156       160  

Mortgage servicing rights (“MSR”) amortization

    169       136  

Other taxes

    9       9  

Outsourced services

    99       103  

Portfolio maintenance

    99       51  

Postage

    148       141  

Stationary and supplies

    117       153  

Telephone

    400       399  

Temporary help and recruiting

    397       265  

Travel and entertainment

    175       198  

Other operating expense

  $ 3,012     $ 2,692  

 

INCOME TAXES 

 

Income tax expense for the three months ended March 31, 2017 was $4.6 million, as compared to $4.3 million for the same period in 2016. The tax expense recorded reflects a decrease in the effective tax rate from 34.6% for the first quarter of 2016 to 33.9% for the first quarter of 2017. The decrease in effective tax rate for the three months ended March 31, 2017 as compared to the same period in 2016 was related to recognition during the three months ended March 31, 2017 of excess tax benefits of $145 thousand related to the stock based compensation vesting and option exercises, partially offset by the non-deductible merger costs related to the anticipated RBPI merger incurred in the first quarter of 2017.

 

BALANCE SHEET ANALYSIS

 

Total assets as of March 31, 2017 of $3.29 billion decreased $128.9 million from $3.42 billion as of December 31, 2016. The following tables detail the changes:

 

Loans and Leases

 

The table below compares the portfolio loans and leases outstanding at March 31, 2017 to December 31, 2016:

 

   

March 31, 2017

   

December 31, 2016

   

Change

 

(dollars in thousands)

 

Balance

   

Percent of

Portfolio

   

Balance

   

Percent of

Portfolio

   

Amount

   

Percent

 

Commercial mortgage

  $ 1,137,870       44.5

%

  $ 1,110,898       43.8

%

  $ 26,972       2.4

%

Home equity lines & loans

    203,962       8.0

%

    207,999       8.2

%

    (4,037

)

    (1.9

) %

Residential mortgage

    418,264       16.4

%

    413,540       16.3

%

    4,724       1.1

%

Construction

    145,699       5.7

%

    141,964       5.6

%

    3,735       2.6

%

Commercial and industrial

    567,917       22.2

%

    579,791       22.9

%

    (11,874

)

    (2.0

) %

Consumer

    23,932       0.9

%

    25,341       1.0

%

    (1,409

)

    (5.6

) %

Leases

    57,945       2.3

%

    55,892       2.2

%

    2,053       3.7

%

Total portfolio loans and leases

    2,555,589       100.0

%

    2,535,425       100.0

%

    20,164       0.8

%

Loans held for sale

    3,015               9,621               (6,606

)

    (68.7

) %

Total loans and leases

  $ 2,558,604             $ 2,545,046             $ 13,558       0.5

%

 

 
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Table of Contents
 

 

Cash and Investment Securities

 

As of March 31, 2017, liquidity remained strong as the Corporation had $69.4 million of cash balances at the Federal Reserve and $590 thousand in other interest-bearing accounts, along with significant borrowing capacity as discussed in the “Liquidity” section below.

 

Investment securities available for sale as of March 31, 2017 totaled $391.0 million, as compared to $567.0 million as of December 31, 2016. The decrease was primarily related to the maturing, at the beginning of January 2017, of $200.0 million of short-term U.S. Treasury bills.

 

 

Deposits, Borrowings and Subordinated Debt

 

Deposits and borrowings as of March 31, 2017 and December 31, 2016 were as follows:

 

   

March 31, 2017

   

December 31, 2016

   

Change

 

(dollars in thousands)

 

Balance

   

Percent of

Deposits

   

Balance

   

Percent of

Deposits

   

Amount

   

Percent

 

Interest-bearing checking

  $ 395,131       15.0

%

  $ 379,424       14.7

%

  $ 15,707       4.1

%

Money market

    757,071       28.7

%

    761,657       29.6

%

    (4,586

)

    (0.6

)%

Savings

    255,791       9.7

%

    232,193       9.0

%

    23,598       10.2

%

Wholesale non-maturity deposits

    69,471       2.6

%

    74,272       2.9

%

    (4,801

)

    (6.5

)%

Wholesale time deposits

    68,164       2.6

%

    73,037       2.8

%

    (4,873

)

    (6.7

)%

Retail time deposits

    319,381       12.1

%

    322,912       12.5

%

    (3,531

)

    (1.1

)%

Interest-bearing deposits

    1,865,009       70.7

%

    1,843,495       71.5

%

    21,514       1.2

%

Non-interest-bearing deposits

    771,556       29.3

%

    736,180       28.5

%

    35,376       4.8

%

Total deposits

  $ 2,636,565       100.0

%

  $ 2,579,675       100.0

%

  $ 56,890       2.2

%

 

 

   

March 31, 2017

   

December 31, 2016

   

Change

 

(dollars in thousands)

 

Balance

   

Percent of Borrowings

   

Balance

   

Percent of Borrowings

   

Amount

   

Percent

 

Short-term borrowings

  $ 23,613       10.4

%

  $ 204,151       48.2

%

  $ (180,538

)

    (88.4

)%

Long-term FHLB advances

    174,711       76.7

%

    189,742       44.8

%

    (15,031

)

    (7.9

)%

Subordinated notes

    29,546       12.9

%

    29,532       7.0

%

    14       <0.1

%

Borrowed funds

  $ 227,870       100.0

%

  $ 423,425       100.0

%

  $ (195,555

)

    (46.2

)%

 

 
Page 50

Table of Contents
 

 

Capital

 

Consolidated shareholder’s equity of the Corporation was $388.1 million, or 11.8% of total assets as of March 31, 2017, as compared to $381.1 million, or 11.1% of total assets as of December 31, 2016. 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 March 31, 2017 and December 31, 2016:

 

   

Actual

   

Minimum to be Well-Capitalized

Under Prompt Corrective Action

Provisions

 
(dollars in thousands)  

Amount

   

Ratio

   

Amount

   

Ratio

 

March 31, 2017:

                               

Total (Tier II) capital to risk weighted assets

                               

Corporation

  $ 321,604       12.30

%

  $ 261,501       10.00

%

Bank

    293,689       11.25

%

    261,091       10.00

%

Tier I capital to risk weighted assets

                               

Corporation

    274,570       10.50

%

    209,201       8.00

%

Bank

    276,201       10.58

%

    208,873       8.00

%

Common equity Tier I capital to risk weighted assets

                               

Corporation

    274,570       10.50

%

    169,976       6.50

%

Bank

    276,201       10.58

%

    169,709       6.50

%

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

                               

Corporation

    274,570       8.77

%

    156,506       5.00

%

Bank

    276,201       8.83

%

    156,319       5.00

%

Tangible common equity to tangible assets(1)

                               

Corporation

    263,467       8.32

%

           

Bank

    267,704       8.46

%

           
                                 

December 31, 2016:

                               

Total (Tier II) capital to risk weighted assets

                               

Corporation

  $ 318,191       12.35

%

  $ 257,651       10.00

%

Bank

    287,897       11.19

%

    257,179       10.00

%

Tier I capital to risk weighted assets

                               

Corporation

    270,845       10.51

%

    206,121       8.00

%

Bank

    270,083       10.50

%

    205,743       8.00

%

Common equity Tier I capital to risk weighted assets

                               

Corporation

    270,845       10.51

%

    167,474       6.50

%

Bank

    270,083       10.50

%

    167,166       6.50

%

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

                               

Corporation

    270,845       8.73

%

    155,035       5.00

%

Bank

    270,083       8.73

%

    154,761       5.00

%

Tangible common equity to tangible assets(1)

                               

Corporation

    255,959       7.76

%

           

Bank

    258,352       7.85

%

           

 

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

 

 
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The capital ratios for the Bank and the Corporation, as of March 31, 2017, as shown in the above table, indicate levels well above the regulatory minimum to be considered “well capitalized” under the prompt corrective actions provisions. At the Bank level, all capital ratios have increased slightly from their December 31, 2016 levels due to the effect of an increase in retained earnings and a decrease in other comprehensive loss partially offset by an increase in risk-weighted assets. At the Corporation level, Tier 1 and Total (Tier 1 & 2) capital to risk weighted assets declined by 1 and 5 basis points, respectively, related to an increase in risk-weighted assets and the decrease in retained earnings associated with the dividend payment during the first quarter of 2017 which totaled $3.6 million. 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.

 

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 March 31,

2017

   

Percent of Total

Borrowing

Capacity

   

Available

Funds as

of December 31,

2016

   

Percent of Total

Borrowing

Capacity

   

Dollar Change

   

Percent Change

 

Federal Home Loan Bank of Pittsburgh

  $ 1,036.8       84.5

%

  $ 886.0       72.9

%

  $ 150.8       17.0

%

Federal Reserve Bank of Philadelphia

    108.0       100.0

%

    117.3       100.0

%

    (9.3

)

    (7.9

)%

Fed Funds Lines (six banks)

    79.0       100.0

%

    79.0       100.0

%

         

%

Revolving line of credit with correspondent bank

    5.0       100.0

%

    5.0       100.0

%

         

%

    $ 1,228.8       86.6

%

  $ 1,087.3       76.7

%

  $ 141.5       13.0

%

 

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

 

The Corporation has an agreement with IND to provide up to $40 million, excluding accrued interest, of money market and NOW funds at an agreed upon interest rate equal to the current Fed Funds rate plus 20 basis points. The Corporation had $42.8 million in balances as of March 31, 2017 under this program.

 

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 10 in the accompanying Notes to Unaudited Consolidated Financial Statements).

 

The Wealth Management Segment, as discussed in the Non-Interest Income section above, recorded a pre-tax segment profit (“PTSP”) of $3.7 million for the three months ended March 31, 2017, as compared to PTSP of $3.6 million for the same period in 2016. The Wealth Management Segment provided 26.9% of the Corporation’s pre-tax profit for the three months ended March 31, 2017 as compared to 28.5% for the same period in 2016. While insurance revenues decreased by $513 thousand for the first quarter of 2017 as compared to the same period in 2016, fees for wealth management services increased by $471 thousand for the same periods.

 

The Banking Segment recorded a PTSP of $10.0 million for the three months ended March 31, 2017 as compared to PTSP of $9.0 million for the same period in 2016. The Banking Segment provided 73.1% of the Corporation’s pre-tax profit for the three months ended March 31, 2017 as compared to 71.5% for the same period in 2016.

 

 
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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 March 31, 2017 were $682.7 million, as compared to $675.4 million at December 31, 2016.

 

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 Bank’s obligation under standby letters of credit at March 31, 2017 amounted to $12.3 million, as compared to $12.7 million at December 31, 2016.

 

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 March 31, 2017:

 

(dollars in millions)

 

Total

   

Within 1 Year

   

2 – 3 Years

   

4 – 5 Years

   

After 5 Years

 

Deposits without a stated maturity

  $ 2,249.1     $ 2,249.1     $     $     $  

Wholesale and retail time deposits

    387.6       312.4       69.4       5.8        

Short-term borrowings

    23.6       23.6                    

Long-term FHLB advances

    174.7       91.5       75.7       7.5        

Operating leases

    30.4       4.2       7.9       5.8       12.5  

Purchase obligations

    8.1       2.3       2.9       2.9        

Total

  $ 2,873.5     $ 2,683.1     $ 155.9     $ 22.0       12.5  

 

Other Information

 

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 report and the documents incorporated by reference herein 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 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:

 

 
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local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact;

 

 

our need for capital;

 

 

lower demand for our products and services and lower revenues and earnings could result from an economic recession;

 

 

lower earnings could result from other-than-temporary impairment charges related to our investment securities portfolios or other assets;

 

 

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

 

 

changes in the level of non-performing assets and charge-offs;

 

 

changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

 

 

other changes in accounting requirements or interpretations;

 

 

the accuracy of assumptions underlying the establishment of provisions for loan and lease losses and estimates in the value of collateral, and various financial assets and liabilities;

 

 

inflation, securities market and monetary fluctuations;

 

 

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

 

 

changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;

 

 

prepayment speeds, loan originations and credit losses;

 

 

changes in the value of our mortgage servicing rights;

 

 

sources of liquidity and financial resources in the amounts, at the times and on the terms required to support our future business;

 

 

legislation or other governmental action affecting the financial services industry as a whole, us or our subsidiaries individually or collectively, including changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;

 

 

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

 

 

our common stock outstanding and common stock price volatility;

 

 

 

fair value of and number of stock-based compensation awards to be issued in future periods;

 

 

with respect to mergers and acquisitions, our business and the acquired business will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;

 

 

revenues following the completion of a merger or acquisition may be lower than expected;

 

 

deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected;

 

 

material differences in the actual financial results of our merger and acquisition activities compared with expectations, such as with respect to the full realization of anticipated cost savings and revenue enhancements within the expected time frame;

 

 

our success in continuing to generate new business in our existing markets, as well as their success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;

 

 

our 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;

 

 

changes in consumer and business spending, borrowing and savings habits and demand for financial services in the relevant market areas;

 

 

rapid technological developments and changes;

 

 

the effects of competition from other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and elsewhere including institutions operating locally, regionally, nationally and internationally together with such competitors offering banking products and services by mail, telephone, computer and the internet;

 

 
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our ability to continue to introduce competitive new products and services on a timely, cost-effective basis and the mix of those products and services;

 

 

containing costs and expenses;

 

 

protection and validity of intellectual property rights;

 

 

reliance on large customers;

 

 

technological, implementation and cost/financial risks in contracts;

 

 

the outcome of pending and future litigation and governmental proceedings;

 

 

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

 

 

ability to retain key employees and members of senior management;

 

 

the ability of key third-party providers to perform their obligations to us and our subsidiaries; and

 

 

Our success in managing the risks involved in the foregoing;

 

 

as it relates to our pending merger with RBPI, that required regulatory, shareholder or other approvals are not obtained or other closing conditions are not satisfied in a timely manner or at all;

 

 

that prior to the completion of the transaction or thereafter, the Corporation’s and RBPI’s respective businesses may not perform as expected due to transaction-related uncertainty or other factors;

 

 

that the parties are unable to successfully implement integration strategies;

 

 

the inability of RBPI to cash out outstanding warrants to purchase RBPI Class A Common Stock;

 

 

reputational risks and the reaction of the companies’ customers to the transaction;

 

 

diversion of management time on merger-related issues; the integration of acquired business with the Corporation may take longer than anticipated or be more costly to complete and that the anticipated benefits, including any anticipated cost savings or strategic gains may be significantly harder to achieve or take longer than anticipated or may not be achieved; the need for capital, ability to control operating costs and expenses, and to manage loan and lease delinquency rates;

 

 

the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;

 

 

the inability of key third-party providers to perform their obligations to us.

 

 

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 Report and the documents incorporated by reference herein are based upon the Corporation’s beliefs and assumptions as of the date of this 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 Report or incorporated documents might not occur and you should not put undue reliance on any forward-looking statements.

 

Additional Information About the Merger with RBPI and Where to Find It

 

In connection with the proposed merger transaction between the Corporation and RBPI, on April 20, 2017, the Corporation filed with the Securities and Exchange Commission a Registration Statement on Form S-4/A which included a Proxy Statement of RBPI, and a Prospectus of the Corporation, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger with RBPI and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information.

 

A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about the Corporation and RBPI, may be obtained at the SEC’s Internet site (http://www.sec.gov).

 

The Corporation and RBPI and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of RBPI in connection with the proposed merger. Information about the directors and executive officers of the Corporation is set forth in the proxy statement for the Corporation’s 2017 annual meeting of shareholders, filed with the SEC on a Schedule 14A on March 10, 2017. Information about the directors and executive officers of RBPI is set forth in the Form 10-K for RBPI, as filed with the SEC on March 22, 2017. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger. Free copies of this document may be obtained as described in the preceding paragraph.

  

 
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

 

See the discussion of quantitative and qualitative disclosures about market risks in the Corporation’s 2016 Annual Report, as updated by the disclosure in “Management’s Discussion and Analysis of Results of Operations – Interest Rate Summary,” “– Summary of Interest Rate Simulation,” and “– Gap Analysis” in this quarterly report on Form 10-Q.

 

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, Francis J. Leto, and Chief Financial Officer, Michael W. Harrington, 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 were effective as of March 31, 2017.

 

There were no changes in the Corporation’s internal controls over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

 

PART II OTHER INFORMATION.

 

ITEM 1. Legal Proceedings.

 

In a Complaint filed on April 11, 2017 in the U.S. District Court for the Eastern District of Pennsylvania, the Corporation was named as a defendant in a lawsuit entitled Parshall v. Royal Bancshares of Pennsylvania, Inc., et al. In relevant part, Mr. Parshall, a purported shareholder of RBPI, alleges that the Corporation, as a “control person” of RBPI, should be liable for what Mr. Parshall claims to be inadequate disclosures in the proxy statement/prospectus RBPI sent to its shareholders in connection with soliciting approval of the Corporation’s acquisition of RBPI. Mr. Parshall purports to bring this claim on behalf of a class of similarly-situated RBPI shareholders, although no class has yet been certified by the court. Mr. Parshall does not articulate any monetary damages in his complaint, but seeks the right to prevent the Corporation’s acquisition of RBPI (or in the alternative, if it does proceed, rescind it or award rescissory damages), an order for an amended proxy statement/prospectus, a declaratory judgment that the defendants, including the Corporation, violated federal securities laws, and unspecified attorney's fees and litigation costs.

 

 

ITEM 1A. Risk Factors
None.

 

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

 

Share Repurchase

 

The following table presents the shares repurchased by the Corporation during the first quarter of 2017 (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

 

January 1, 2017 – January 31, 2017

        $             189,300  

February 1, 2017 – February 28, 2017

        $             189,300  

March 1, 2017 – March 31, 2017

    442     $ 42.00             189,300  
                                 

Total

    442     $ 42.00             189,300  

 

(1)

On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million. There is no expiration date on the 2015 Program and the Corporation has no plans for an early termination of the 2015 Program. All share repurchases under the 2015 Program were accomplished in open market transactions. As of March 31, 2017, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.

(2)

On March 2, 2017, 442 shares were purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation and Bank.

 

 

ITEM 3. Defaults Upon Senior Securities

None.

 

ITEM 4. Mine Safety Disclosures.
         Not applicable.

 

ITEM 5. Other Information

None.

 

 
Page 56

Table of Contents
 

 

 ITEM 6. Exhibits

 

 

Exhibit No.

 

Description and References 

   

 

2.1

 

Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on January 31, 2017

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

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, filed herewith

101.SCH XBRL

 

Taxonomy Extension Schema Document, filed herewith

101.CAL XBRL

 

Taxonomy Extension Calculation Linkbase Document, filed herewith

101.DEF XBRL

 

Taxonomy Extension Definition Linkbase Document, filed herewith

101.LAB XBRL

 

Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE XBRL

 

Taxonomy Extension Presentation Linkbase Document, filed herewith

 

 
Page 57

Table of Contents
 

 

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: May 5, 2017

 

By:

/s/ Francis J. Leto        

 

 

 

 

Francis J. Leto

 

 

 

 

President & Chief Executive Officer

     

(Principal Executive Officer)

       

Date: May 5, 2017

 

By:

/s/ Michael W. Harrington        

 

 

 

 

Michael W. Harrington

 

 

 

 

Chief Financial Officer

       

(Principal Financial and Accounting Officer)

 

 
Page 58

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Form 10-Q

Index to Exhibits

 

Exhibit No.

 

Description and References 

     

2.1

 

Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on January 31, 2017

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

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, filed herewith

101.SCH XBRL

 

Taxonomy Extension Schema Document, filed herewith

101.CAL XBRL

 

Taxonomy Extension Calculation Linkbase Document, filed herewith

101.DEF XBRL

 

Taxonomy Extension Definition Linkbase Document, filed herewith

101.LAB XBRL

 

Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE XBRL

 

Taxonomy Extension Presentation Linkbase Document, filed herewith

 

 

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